10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Fiscal Year Ended December 31, 2004

or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                                     to

COMMISSION FILE NO. 1-3157

INTERNATIONAL PAPER COMPANY

(Exact name of registrant as specified in its charter)

New York
(State or other jurisdiction of incorporation or organization)
13-0872805
(I.R.S. Employer Identification No.)

400 Atlantic Street

Stamford, Connecticut

(Address of principal executive offices)

06921

(Zip Code)

Company’s telephone number, including area code: 203-541-8000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, $1 per share par value
Name of each exchange on which registered
New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 75 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined by Exchange Act Rule 12b-2) of the Act.
Yes x or No o

The aggregate market value of the Registrant’s outstanding common stock held by non-affiliates of the registrant, computed by reference to the closing price as reported on the New York Stock Exchange, as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2004) was approximately $21,717,727,354.

The number of shares outstanding of the Company’s common stock, as of March 4, 2005 was 490,325,984.

Documents incorporated by reference:

Portions of the registrant’s proxy statement filed within 120 days of the close of the registrant’s fiscal year in connection with registrant’s 2005 annual meeting of shareholders are incorporated by reference into Parts III and IV of this Form 10-K.

INTERNATIONAL PAPER COMPANY

Index to Annual Report on Form 10-K

For the Year Ended December 31, 2004

PART I			ITEM 8.	FINANCIAL STATEMENTS AND
				SUPPLEMENTARY DATA
ITEM 1.	BUSINESS			Financial Information by Industry
	General	1		Segment and Geographic Area	33
	Financial Information Concerning			Report of Management on Financial
	Industry Segments	1		Statements, Internal Controls over
	Financial Information About			Financial Reporting & Internal
	International and Domestic			Control Environment and Board of
	Operations	1		Directors Oversight	35
	Competition and Costs	2		Reports of Deloitte & Touche LLP,
	Marketing and Distribution	2		Independent Registered Public
	Description of Principal Products	2		Accounting Firm	36
	Sales Volumes by Product	2		Consolidated Statement of Operations	38
	Research and Development	3		Consolidated Balance Sheet	39
	Environmental Protection	3		Consolidated Statement of Cash Flows	40
	Employees	3		Consolidated Statement of Changes in
	Executive Officers of the Registrant	3		Common Shareholders’ Equity	41
	Raw Materials	4		Notes to Consolidated Financial
	Forward-looking Statements	4		Statements	42
				Interim Financial Results (Unaudited)	79
ITEM 2.	PROPERTIES
	Forestlands	4	ITEM 9.	CHANGES IN AND
	Mills and Plants	5		DISAGREEMENTS WITH
	Capital Investments and Dispositions	5		ACCOUNTANTS ON
				ACCOUNTING AND FINANCIAL
ITEM 3.	LEGAL PROCEEDINGS	5		DISCLOSURE	82
ITEM 4.	SUBMISSION OF MATTERS TO A		ITEM 9A.	CONTROLS AND PROCEDURES	82
	VOTE OF SECURITY HOLDERS	5
			ITEM 9B.	OTHER INFORMATION	82
PARTII.
			PART III.
ITEM 5.	MARKET FOR REGISTRANT’S
	COMMON EQUITY, RELATED		ITEM 10.	DIRECTORS AND EXECUTIVE
	STOCKHOLDER MATTERS			OFFICERS OF THE REGISTRANT	82
	AND ISSUER PURCHASES OF
	EQUITY SECURITIES	5	ITEM 11.	EXECUTIVE COMPENSATION	83
ITEM 6.	SELECTED FINANCIAL DATA	6	ITEM 12.	SECURITY OWNERSHIP OF
				CERTAIN BENEFICIAL
ITEM 7.	MANAGEMENT’S DISCUSSION			OWNERS AND MANAGEMENT	83
	AND ANALYSIS OF
	FINANCIAL CONDITION		ITEM 13.	CERTAIN RELATIONSHIPS AND
	AND RESULTS OF			RELATED TRANSACTIONS	83
	OPERATIONS

			ITEM 14.	PRINCIPAL ACCOUNTANT FEES
	Executive Summary	9			AND SERVICES	83
	Corporate Overview	11
	Results of Operations	11	PART IV.
	Description of Industry Segments	15
	Industry Segment Results	17	ITEM 15.		EXHIBITS, FINANCIAL
	Liquidity and Capital Resources	21			STATEMENT SCHEDULES
	Critical Accounting Policies	24			Additional Financial Data	83
	Significant Accounting Estimates	25			Report of Independent Registered Public
	Income Taxes	27			Accounting Firm on Financial
	Recent Accounting Developments	28			Statement Schedule	86
	Legal Proceedings	30			Schedule II - Valuation and Qualifying
	Effect of Inflation	31			Accounts	87
	Foreign Currency Effects	31
	Market Risk	31			SIGNATURES	88
ITEM7A.	QUANTITATIVE AND		APPENDIX I 2004 LISTING OF FACILITIES			A-1
	QUALITATIVE DISCLOSURES
	ABOUT MARKET RISK	32	APPENDIX II 2004 CAPACITY INFORMATION			A-5

PART I

and Analysis of Financial Condition and Results of Operations. From 2000 through 2004, International Paper’s capital expenditures approximated $5.9 billion, excluding mergers and acquisitions. These expenditures reflect our continuing efforts to improve product quality and environmental performance, lower costs, and improve forestlands. Capital spending for continuing operations in 2004 was $1.3 billion and is expected to be approximately $1.4 billion in 2005. This amount is below our expected annual depreciation and amortization expense of $1.7 billion. You can find more information about capital expenditures on page 22 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Discussions of mergers and acquisitions can be found on page 22 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You can find discussions of restructuring charges and other special items on pages 13 and 14 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Throughout this Annual Report on Form 10-K, we “incorporate by reference” certain information in parts of other documents filed with the Securities and Exchange Commission (SEC). The SEC permits us to disclose important information by referring to it in that manner. Please refer to such information. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, along with all other reports and any amendments thereto filed with or furnished to the SEC, are publicly available free of charge on the Investor Relations section of our Internet Web site at www.internationalpaper.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information contained on or connected to our Web site is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we filed with or furnished to the SEC. Financial Information Concerning Industry Segments The financial information concerning segments is set forth on pages 33 and 34 of Item 8. Financial Statements and Supplementary Data. Financial Information About International and Domestic Operations The financial information concerning international and domestic operations and export sales is set forth on page 34 of Item 8. Financial Statements and Supplementary Data.

ITEM 1.BUSINESS General International Paper Company (the “Company” or “International Paper,” which may be referred to as “we” or “us”), is a global forest products, paper and packaging company that is complemented by an extensive North American merchant distribution system, with primary markets and manufacturing operations in the United States, Europe, the Pacific Rim and South America. We are a New York corporation and were incorporated in 1941 as the successor to the New York corporation of the same name organized in 1898. Our home page on the Internet is www.internationalpaper.com. You can learn more about us by visiting that site. In the United States at December 31, 2004, the Company operated 27 pulp, paper and packaging mills, 103 converting and packaging plants, 25 wood products facilities, and seven specialty chemicals plants. Production facilities at December 31, 2004 in Europe, Asia, Latin America and South America included seven pulp, paper and packaging mills, 42 converting and packaging plants, one wood products facility, two specialty panels and laminated products plants and six specialty chemicals plants. We distribute printing, packaging, graphic arts, maintenance and industrial products principally through over 286 distribution branches located primarily in the United States. At December 31, 2004, we owned or managed approximately 6.8 million acres of forestlands in the United States, mostly in the South, approximately 1.2 million acres in Brazil and had, through licenses and forest management agreements, harvesting rights on government-owned forestlands in Russia. Substantially all of our businesses have experienced, and are likely to continue to experience, cycles relating to available industry capacity and general economic conditions. Carter Holt Harvey Limited, a New Zealand company that is listed on the New Zealand and Australian stock exchanges and is approximately 50.5% owned by International Paper, operates four mills producing pulp, paper and packaging products, 17 converting and packaging plants and 82 wood products manufacturing and distribution facilities, primarily in New Zealand, Australia and, through the 2004 acquisition of Plantation Timber Products, in China. In New Zealand, Carter Holt Harvey owns approximately 785,000 acres of forestlands. For management and financial reporting purposes, our businesses are separated into six segments: Printing Papers; Industrial and Consumer Packaging; Distribution; Forest Products; Carter Holt Harvey; and Specialty Businesses and Other. A description of these business segments can be found on pages 15 through 17 of Item 7. Management’s Discussion

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Competition and Costs Despite the size of the Company’s manufacturing capacity for paper, paperboard, packaging and pulp products, the markets in all of the cited product lines are large and highly fragmented. The markets for wood and specialty products are similarly large and fragmented. There are numerous competitors, and the major markets, both domestic and international, in which the Company sells its principal products are very competitive. These products are in competition with similar products produced by others, and in some instances, with products produced by other industries from other materials. Many factors influence the Company’s competitive position, including prices, costs, product quality and services. You can find more information about the impact of prices and costs on operating profits on pages 9 through 21 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You can find information about the Company’s manufacturing capacities on page A-5 of Appendix II. Marketing and Distribution The Company sells paper, packaging products, building materials and other products directly to end users and converters, as well as through resellers. We own a large merchant distribution business that sells products made both by International Paper and by other companies making paper, packaging and supplies. Sales offices are located throughout the United States as well as internationally. We also sell significant volumes of products through paper distributors, including our own merchant distribution network, and agents. We market our U.S. production of lumber and plywood through independent distribution centers. Description of Principal Products The Company’s principal products are described on pages 15 through 17 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	Sales Volumes by Product
	Sales volumes of major products for 2004, 2003, and 2002 were as follows:
	Sales Volumes by Product (1) (2) (Unaudited)
	International Paper Consolidated (excluding Carter Holt Harvey)
		2004				2003		2002
	Printing Papers (In thousands of tons)
	Brazil Uncoated Papers and Bristols	461				447		441
	Europe & Russia Uncoated Papers and Bristols	1,409				1,352		1,364
	U.S. Uncoated Papers and Bristols	4,570				4,439		4,527
	Uncoated Papers and Bristols	6,440				6,238		6,332
	Coated Papers	2,173				2,113		2,212
	Market Pulp (3)	1,422				1,379		1,378
	Packaging (In thousands of tons)
	U.S. Container (Boxes)	2,668				2,204		2,610
	European Container (Boxes)	1,049				1,031		1,020
	Other Industrial and Consumer Packaging	1,222				1,148		742
	Industrial and Consumer Packaging	4,939				4,383		4,372
	Containerboard	2,090				1,946		1,862
	Bleached Packaging Board	1,495				1,348		1,247
	Kraft	605				606		626
	Forest Products (In millions)
	Panels (sq. ft. 3/8” - basis)	1,563				1,580		1,798
	Lumber (board feet)	2,456				2,345		2,464
	MDF and Particleboard (sq. ft. 3/4” - basis)	-				-		129
	Carter Holt Harvey (4)
				2004			2003			2002
	Printing Papers (In thousands of tons)
	Market Pulp (3)			568			499			512
	Packaging (In thousands of tons)
	Containerboard			459			361			400
	Bleached Packaging Board			83			84			89
	Industrial and Consumer Packaging			147			153			154
	Forest Products (In millions)
	Panels (sq. ft. 3/8” - basis)		183		179				200
	Lumber (board feet)		497		503				546
	MDF and Particleboard (sq. ft. 3/4” - basis)		580		582				494
	(1)      Includes third party and inter-segment sales.
	(2)      Sales volumes for divested businesses are included through the date of sale, except for discontinued operations.
	(3)      Includes internal sales to mills.
	(4)Includes 100% of volumes sold.

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Research and Development

Of the domestic employees, approximately 34,000 are hourly, with unions representing approximately 20,000. Approximately 16,000 of the union employees are represented by the Paper, Allied-Industrial, Chemical and Energy International Union (PACE) under individual location contracts. During 2004, new labor agreements were ratified at four paper mills with one paper mill contract carrying over to early 2005. During 2005, labor agreements are scheduled to be negotiated at four paper mill operations including Kaukauna, Wisconsin; Ticonderoga, New York; Savannah, Georgia and Roanoke Rapids, North Carolina. During 2004, 13 labor agreements were settled in non-paper mill operations. Settlements included paper converting, wood products, chemical, distribution and woodlands operations. During 2005, new labor agreements are scheduled to be negotiated in 21 non-paper mill operations. In January 2005, the Company’s principal union, PACE, announced that it was merging with the United Steelworkers Union. The merger is subject to a vote of the memberships of both unions in April 2005. The name of the resulting union will be United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union. Executive Officers of the Registrant John V. Faraci, 55, chairman and chief executive officer since November 2003. Prior to this, he was president since February 2003, and executive vice president and chief financial officer from 2000 to 2003. From 1999 to 2000, he was senior vice president-finance and chief financial officer. From 1995 until 1999, he was chief executive officer and managing director of Carter Holt Harvey Limited of New Zealand. Robert M. Amen, 55, president since November 2003. Previously, he served as executive vice president responsible for the Company’s paper business, technology and corporate marketing from 2000 through 2003. He also served as senior vice president-president of International Paper-Europe from 1996 to 2000. Newland A. Lesko, 59, executive vice president-manufacturing and technology since June 2003. He previously served as senior vice president-industrial packaging group from 1998 to 2003. Marianne M. Parrs, 60, executive vice president-administration since 1999 responsible for information technology, investor relations, and global sourcing. H. Wayne Brafford, 53, senior vice president-industrial packaging group since June 2003. He previously served as vice president and general manager-converting, specialty and pulp from 1999 to 2003.

The Company operates research and development centers at Loveland, Ohio; Sterling Forest, New York; Kaukauna, Wisconsin; Savannah, Georgia; Almere, the Netherlands; a regional center for applied forest research in Bainbridge, Georgia; a forest biotechnology center in Rotorua, New Zealand; and several product laboratories. Additionally, the Company has approximately a 1/3 interest in ArborGen, LLC, a joint venture with certain other forest products and biotechnology companies formed for the purpose of developing and commercializing improvements to increase growth rates and improve wood and pulp quality. We direct research and development activities to short-term, long-term and technical assistance needs of customers and operating divisions; to process, equipment and product innovations; and to improve profits through tree generation and propagation research. Activities include studies on improved forest species and management; innovation and improvement of pulping, bleaching, chemical recovery, papermaking and coating processes; packaging design and materials development; reduction of environmental discharges; re-use of raw materials in manufacturing processes; recycling of consumer and packaging paper products; energy conservation; applications of computer controls to manufacturing operations; innovations and improvement of products; and development of various new products. Our development efforts specifically address product safety as well as the minimization of solid waste. The cost to the Company of its research and development operations in 2004 was $68 million; $73 million in 2003; and $77 million in 2002. We own numerous patents, copyrights, trademarks, and trade secrets relating to our products and to the processes for their production. We also license intellectual property rights to and from others where necessary. Many of the manufacturing processes are among our trade secrets. Some of our products are covered by U.S. and non-U.S. patents and are sold under well known trademarks. We derive competitive advantage by protecting our trade secrets, patents, trademarks and other intellectual property rights, and by using them as required to support our businesses. Environmental Protection Information concerning the effects of the Company’s compliance with federal, state and local provisions enacted or adopted relating to environmental protection matters is set forth on page 30 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Employees As of December 31, 2004, we had approximately 80,000 employees, 52,000 of whom were located in the United States.

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Jerome N. Carter, 56, senior vice president-human resources since 1999 when he joined the Company from Union Camp. Thomas E. Gestrich, 58, senior vice president-consumer packaging since 2001. He previously served as vice president and general manager-beverage packaging from 1999 to 2001. Andrew R. Lessin, 62, senior vice president-internal audit since 2002. He previously served as vice president-finance from 2000 to 2002. From 1995 to 2000, he served as vice president-controller. He is also a director of Carter Holt Harvey Limited. Christopher P. Liddell, 46, senior vice president and chief financial officer since March 2003. Prior to this, he served as vice president-finance and controller since February 2003. From 2002 to 2003, he served as vice president-finance. From 1999 to 2002, he served as chief executive officer of Carter Holt Harvey Limited. He is also a director of Carter Holt Harvey Limited. Richard B. Lowe, 50, senior vice president-xpedx since April 2003. He previously served as region president-xpedx from 1995 to 2003. Maura A. Smith, 49, senior vice president, general counsel and corporate secretary since April 2003 when she joined the Company. From 1998 to 2003 she served as senior vice president, general counsel and corporate secretary of Owens Corning and in addition, from 2000 to 2003, as chief restructuring officer. W. Dennis Thomas, 61, senior vice president-public affairs and communications since 1998. Robert J. Grillet, 49, vice president-finance and controller since April 2003. He previously served as region senior vice president-xpedx from 2000 to 2003. He was group vice president-xpedx from 1995 to 2000. Raw Materials For information on the sources and availability of raw materials essential to our business, see Item 2. Properties. FORWARD-LOOKING STATEMENTS Certain statements in this Annual Report on Form 10-K, and in particular, statements found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, that are not historical in nature may constitute forward-looking statements. These statements are often identified by the words, “will,” “may,” “should,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “appear,” “project,” “estimate,” “intend,” and words of similar import. Such statements reflect the current views of International Paper with respect to future events 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, among other things, the strength and demand for the Company’s products and changes in overall demand, the effects of competition from foreign and domestic producers, the level of housing starts, changes in the cost or availability of raw materials, unanticipated expenditures relating to the cost of compliance with environmental and other governmental regulations, the ability of the Company to continue to realize anticipated cost savings, performance of the Company’s manufacturing operations, results of legal proceedings, changes related to international economic conditions, specifically in Brazil and Russia, changes in currency exchange rates, particularly the relative value of the U.S. dollar to the Euro, the current military action in Iraq, and the war on terrorism. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. 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 the Company’s Securities and Exchange Commission filings. ITEM 2.PROPERTIES Forestlands The principal raw material used by International Paper is wood in various forms. As of December 31, 2004, the Company or its subsidiaries owned or managed approximately 6.8 million acres of forestlands in the United States, 1.2 million acres in Brazil and had, through licenses and forest management agreements, harvesting rights on government-owned forestlands in Russia. An additional 785,000 acres of forestlands in New Zealand were held through Carter Holt Harvey, a consolidated subsidiary of International Paper. During 2004, the Company’s U.S. forestlands supplied 14.7 million tons of roundwood to its U.S. facilities, representing 23% of its wood fiber requirements. The balance was acquired from other private industrial and nonindustrial forestland owners, with only an insignificant amount coming from public lands of the United States government. In addition, in 2004, 3.8 million tons of wood were sold to other users. As one of the largest private landowners in the world, International Paper employs professional foresters and wildlife biologists to manage our forestlands with great care

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in compliance with the rigorous standards of the Sustainable Forestry Initiative program (SFI®). SFI® includes an independent certification system to ensure the sustainable planting, growing and harvesting of trees while protecting wildlife, plants, soil, water and air quality. All of our U.S. forestlands are certified as complying with SFI® standards by an independent third party, and most of our forestlands outside of the United States comply with similar local or regional sustainable forestry programs as well. Mills and Plants A listing of our production facilities, the vast majority of which we own, can be found in Appendix I hereto, which is incorporated herein by reference. The Company’s facilities are in good operating condition and are suited for the purposes for which they are presently being used. We continue to study the economics of modernization or adopting other alternatives for higher cost facilities. Capital Investments and Dispositions Given the size, scope and complexity of our business interests, we continuously examine and evaluate a wide variety of business opportunities and planning alternatives, including possible acquisitions and sales or other dispositions of properties. You can find a discussion about the level of planned capital investments for 2005 on page 24, and dispositions and restructuring activities as of December 31, 2004, on pages 12 through 14 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and on pages 49 through 56 of Item 8. Financial Statements and Supplementary Data.	ITEM 3.LEGAL PROCEEDINGS Information concerning the Company’s legal proceedings is set forth on pages 30 and 31 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and on pages 59 through 65 of Item 8. Financial Statements and Supplementary Data. ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2004.
	PART II
	ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Dividend per share data on the Company’s common stock and the high and low sales prices for the Company’s common stock for each of the four quarters in 2003 and 2004 are set forth on page 79 of Item 8. Financial Statements and Supplementary Data. Information concerning the exchanges on which the Company’s common stock is listed is set forth on the back cover. As of March 4, 2005, there were approximately 29,180 record holders of common stock of the Company.

(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit)	Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
January 1, 2004 - December 31, 2004	56,024(a)	$41.44	0	0

(a) Represents shares tendered in connection with stock option exercises.

 

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ITEM 6. SELECTED FINANCIAL DATA

Five-Year Financial Summary (a)
Dollar amounts in millions, except per share amounts and stock prices		2004			2003			2002			2001			2000
Results of Operations
Net sales	$	25,548		$	23,955		$	23,899		$	25,385		$	27,656
Costs and expenses, excluding interest		24,059			22,891			22,808			25,783			26,186
Earnings (loss) from continuing operations before income taxes and minority interest		746	(b)		292	(e)		306	(h)		(1,330	)(k)		652	(m)
Minority interest expense, net of taxes		62	(b)		111	(e)		118	(h)		140	(k)		228	(m)
Discontinued operations (c)		(513	)		21			35			40			41
Extraordinary items		–			–			–			(46	)(l)		(226	)(n)
Cumulative effect of accounting changes		–			(13	)(f)		(1,175	)(i)		(16	)(l)		–
Net earnings (loss)		(35	)(b-d)		302	(e-g)		(880	)(h-j)		(1,204	)(k,l)		142	(m,n)
Earnings (loss) applicable to common shares		(35	)(b-d)		302	(e-g)		(880	)(h-j)		(1,204	)(k,l)		142	(m,n)
Financial Position
Working capital	$	4,447		$	3,826		$	4,386		$	3,875		$	3,990
Plants, properties and equipment, net		13,432			13,260			13,292			14,115			15,459
Forestlands		3,936			3,979			3,765			4,107			5,870
Total assets		34,217			35,525			33,792			37,177			42,109
Notes payable and current maturities of long-term debt		506			2,087			–			957			2,115
Long-term debt		14,132			13,450			13,042			12,457			12,647
Common shareholders’ equity		8,254			8,237			7,374			10,291			12,034
Basic Per Share of Common Stock -
Earnings (loss) from continuing operations	$	0.98		$	0.62		$	0.54		$	(2.45	)	$	0.73
Discontinued operations (c)		(1.05	)		0.04			0.07			0.08			0.09
Extraordinary items		–			–			–			(0.10	)		(0.50	)
Cumulative effect of accounting changes		–			(0.03	)		(2.44	)		(0.03	)		–
Net earnings (loss)		(0.07	)		0.63			(1.83	)		(2.50	)		0.32
Diluted Per Share of Common Stock -
Earnings (loss) from continuing operations	$	0.98		$	0.61		$	0.54		$	(2.45	)	$	0.73
Discontinued operations (c)		(1.05	)		0.04			0.07			0.08			0.09
Extraordinary items		–			–			–			(0.10	)		(0.50	)
Cumulative effect of accounting changes		–			(0.03	)		(2.43	)		(0.03	)		–
Net earnings (loss)		(0.07	)		0.63			(1.82	)		(2.50	)		0.32
Cash dividends		1.00			1.00			1.00			1.00			1.00
Common shareholders’ equity		16.93			16.97			15.21			21.25			24.85
Common Stock Prices
High	$	45.01		$	43.32		$	46.19		$	43.25		$	60.00
Low		37.12			33.09			31.35			30.70			26.31
Year-end		42.00			43.11			34.97			40.35			40.81
Financial Ratios
Current ratio		1.9			1.5			1.9			1.7			1.5
Total debt to capital ratio		59.9			61.2			55.4			50.1			49.5
Return on equity		(0.4	)(b-d)		3.9	(e-g)		(8.8	)(h-j)		(10.6	)(k,l)		1.2	(m,n)
Return on investment from continuing operations		3.9	(b,d)		2.9	(e,g)		2.6	(h,j)		(0.8	)(k)		3.2	(m)
Capital Expenditures	$	1,328		$	1,166		$	1,009		$	1,049		$	1,352
Number of Employees		79,400			82,800			91,000			100,100			112,900

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FINANCIAL GLOSSARY   Current ratio - current assets divided by current liabilities. Total debt to capital ratio - long-term debt plus notes payable and current maturities of long-term debt divided by long-term debt, notes payable and current maturities of long-term debt, minority interest and total common shareholders’ equity. Return on equity - net earnings divided by average common shareholders’ equity (computed monthly). Return on investment - the after-tax amount of earnings from continuing operations before interest and minority interest divided by the average of total assets minus accounts payable and accrued liabilities (computed on a monthly basis). FOOTNOTES TO FIVE-YEAR FINANCIAL SUMMARY (a)      All periods presented have been restated to reflect the Carter Holt Harvey Tissue business and the Weldwood of Canada Limited business as discontinued operations. 2004: (b)      Includes restructuring and other charges of $211 million before taxes and minority interest ($124 million after taxes and minority interest), including a $74 million charge before taxes and minority interest ($43 million after taxes and minority interest) for organizational restructuring programs, a $92 million charge before taxes ($57 million after taxes) for early debt retirement costs, a $35 million charge before minority interest ($18 million after minority interest) for a goodwill impairment, and a $10 million charge before taxes ($6 million after taxes) for litigation settlements. Also included are a $123 million pre-tax credit ($76 million after taxes) for net insurance recoveries related to the hardboard siding and roofing litigation, a $35 million credit before taxes and minority interest ($22 million after taxes and minority interest) for the net reversal of restructuring reserves no longer required, and a pre-tax charge of $144 million ($128 million after taxes) for net losses on sales and impairments of businesses sold or held for sale. (c)       Includes net income of Weldwood of Canada Limited and the Carter Holt Harvey Tissue business prior to their sales. Also included in 2004 is a gain of $268 million before taxes and minority interest ($90 million after taxes and minority interest) for the sale of the Carter Holt     Harvey Tissue business, and a pre-tax charge of $323 million ($711 million after taxes) for the sale of Weldwood of Canada Limited. (d)      Includes a $5 million net increase, net of minority interest, in the income tax provision reflecting an adjustment of deferred tax balances and a reduction of valuation reserves for capital loss carryovers. 2003: (e)      Includes restructuring and other charges of $298 million before taxes and minority interest ($184 million after taxes and minority interest), including a $236 million charge before taxes and minority interest ($144 million after taxes and minority interest) for asset shutdowns of excess internal capacity and cost reduction actions, a $63 million charge before taxes ($39 million after taxes) for legal reserves, and a $1 million credit before taxes ($1 million charge after taxes) for early debt retirement costs. Also included are a pre-tax charge of $32 million ($33 million after taxes) for net losses on sales and impairments of businesses held for sale, and a credit of $40 million before taxes and minority interest ($25 million after taxes and minority interest) for the net reversal of restructuring reserves no longer required. (f)       Includes a charge of $10 million after taxes for the cumulative effect of an accounting change for the adoption of SFAS No. 143, “Accounting for Asset Retirement Obligations,” and a charge of $3 million after taxes for the cumulative effect of an accounting change related to the adoption of FIN 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” (g)      Includes a $123 million reduction after minority interest of the income tax provision recorded for significant tax events occurring in 2003. 2002: (h)      Includes restructuring and other charges of $695 million before taxes and minority interest ($435 million after taxes and minority interest), including a $199 million charge before taxes and minority interest ($130 million after taxes and minority interest) for asset shutdowns of excess internal capacity and cost reduction actions, a $450 million pre-tax charge ($278 million after taxes) for additional exterior siding legal reserves, and a charge of $46 million before taxes and minority interest ($27 million after taxes and minority interest) for early debt retirement costs. Also included are a credit of $41 million before taxes and minority interest ($101 million after taxes and minority interest) to adjust accrued costs of businesses sold or held for sale, and a pre-tax credit of

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$68 million ($43 million after taxes) for the reversal of 2001 and 2000 reserves no longer required. (i)       Includes a $1.2 billion charge for the cumulative effect of an accounting change for the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets.” (j)       Reflects a decrease of $46 million in income tax provision for a reduction of deferred state income tax liabilities. 2001: (k)      Includes restructuring and other charges of $1.1 billion before taxes and minority interest ($752 million after taxes and minority interest), including an $892 million charge before taxes and minority interest ($606 million after taxes and minority interest) for asset shutdowns of excess internal capacity and cost reduction actions and a $225 million pre-tax charge ($146 million after taxes) for additional exterior siding legal reserves. Also included are a net pre-tax charge of $629 million ($587 million after taxes) related to dispositions and asset impairments of businesses held for sale, a $42 million pre-tax charge ($28 million after taxes) for Champion merger integration costs, and a $17 million pre-tax credit ($11 million after taxes) for the reversal of excess 2000 and 1999 restructuring reserves.	share of Compania de Petroleos de Chile (COPEC), an extraordinary loss of $460 million before taxes ($310 million after taxes) related to the impairment of the Zanders and Masonite businesses, an extraordinary gain before taxes and minority interest of $368 million ($183 million after taxes and minority interest) related to the sale of Bush Boake Allen, an extraordinary loss of $5 million before taxes and minority interest ($2 million after taxes and minority interest) related to Carter Holt Harvey’s sale of its Plastics division, and an extraordinary pre-tax charge of $373 million ($231 million after taxes) related to impairments of the Argentine investments and the Chemical Cellulose Pulp and the Fine Papers businesses.
(l)       Includes an extraordinary pre-tax charge of $73 million ($46 million after taxes) related to the impairment of the Masonite business and the divestiture of the Petroleum and Minerals assets, and a charge of $25 million before taxes and minority interest ($16 million after taxes and minority interest) for the cumulative effect of a change in accounting for derivatives and hedging activities.
2000: (m)     Includes restructuring and other charges of $949 million before taxes and minority interest ($589 million after taxes and minority interest), including an $824 million charge before taxes and minority interest ($509 million after taxes and minority interest) for asset shutdowns of excess internal capacity and cost reduction actions and a $125 million pre-tax charge ($80 million after taxes) for additional exterior siding legal reserves. Also included are a $54 million pre-tax charge ($33 million after taxes) for merger-related expenses and a $34 million pre-tax credit ($21 million after taxes) for the reversal of reserves no longer required.
(n)      Includes an extraordinary gain of $385 million before taxes and minority interest ($134 million after taxes and minority interest) on the sale of International Paper’s investment in Scitex and Carter Holt Harvey’s sale of its

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	The following table shows the components of net earnings (loss) for each of the last three years:
Executive Summary	In Millions	2004			2003			2002
International Paper benefited from a strong economy in 2004 as demand for paper and packaging products was improved from 2003. Overall average price realizations were up year over year across all our major product lines except for European paper products where a strong Euro attracted imports. Our total industry segment operating profits were up from 2003 reflecting the higher average prices and improved shipments combined with benefits from cost reduction initiatives and a more favorable product mix. These positive effects were partially offset by higher input costs, including wood, energy and chemical costs. Looking forward to 2005, we expect demand in the first quarter to be somewhat positive, although this is a seasonally slow period for many of our businesses. Overall, demand remains solid in the United States and Europe, with strong order backlogs in our coated papers and bleached board businesses. Containerboard and box orders are also good. Uncoated papers’ backlogs were below prior year levels, but are improving as the first quarter progresses. Our average price realizations for most paper and packaging products began the year well above 2004 levels reflecting the realization of previously announced price increases. Raw material costs, especially wood, polyethylene and chemical costs, are expected to increase in early 2005, although energy costs should be flat compared with the fourth quarter of 2004. In addition, pension and other benefit related costs, plus supply chain expenses are expected to be higher in 2005. However, interest costs will decline due to debt repayments in 2004 and the 2005 first quarter. Results of Operations Industry segment operating profits are used by International Paper’s management to measure the earnings performance of its businesses. Management believes that this measure allows a better understanding of trends in costs, operating efficiencies, prices and volumes. Industry segment operating profits are defined as earnings before taxes and minority interest, interest expense, corporate items and corporate special items. Industry segment operating profits are defined by the Securities and Exchange Commission as a non-GAAP financial measure, and are not GAAP alternatives to net income or any other operating measure prescribed by accounting principles generally accepted in the United States. International Paper operates in six segments: Printing Papers, Industrial and Consumer Packaging, Distribution, Forest Products, Carter Holt Harvey, and Specialty Businesses and Other.	Industry segment operating profits	$	2,087		$	1,772		$	1,887
	Corporate items		(469	)		(466	)		(253	)
	Corporate special items*		(188	)		(290	)		(586	)
	Interest expense, net		(743	)		(772	)		(785	)
	Minority interest		(3	)		(63	)		(75	)
	Income tax benefit (provision)		(206	)		113			72
	Discontinued operations		(513	)		21			35
	Accounting changes and extraordinary items		–			(13	)		(1,175	)
	Net earnings (loss)	$	(35	)	$	302		$	(880	)
	*Special items include restructuring and other charges, net losses (gains) on sales and impairments of businesses held for sale, insurance recoveries and reversals of reserves no longer required. Industry segment operating profits were $315 million higher in 2004 due principally to improved sales volume ($263 million), higher average prices ($201 million), and the effect of cost reduction initiatives, improved operating performance and a more favorable product mix ($186 million), all partially offset by the impact of higher energy and raw material costs ($192 million), lower earnings from land sales ($95 million), the impact of hurricanes in the South ($18 million), and foreign currency translation rates and other items ($30 million). $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 $2,200 $2,400 Segment Operating Profit (in millions) $1,772 $263 $201 $186 $(192) $(95) $(18) $(30) $2,087 2003 Volume Price Cost/ Operations/ Mix Energy/ Raw Materials Land Sales Hurricanes FX/ Other 2004 The principal changes by segment were as follows: Printing Papers’ profits were $119 million higher as increased sales volume, improved sales mix and lower operating and overhead costs more than offset higher energy and raw material costs. Industrial and Consumer Packaging’s profits were up $92 million. Higher average sales prices and volumes, improved product mix, and reduced overhead costs and improved operations more than offset the effect of higher energy and raw material costs. Forest Products’ profit was $73 million higher. Higher average prices for wood products more than offset the effect of lower harvest volumes and lower earnings from land sales.

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Corporate items of $469 million net expense in 2004 was slightly higher than the $466 million net expense in 2003, due to higher pension and supply chain initiative costs, increased inventory-related costs and lower gains on energy hedging transactions, offset in part by lower administrative overhead and benefit-related costs. Corporate special items, including restructuring and other charges, gains/losses on sales and impairments of businesses held for sale, insurance recoveries and reversals of reserves no longer required, declined to $188 million from $290 million in 2003 and from $586 million in 2002. The decline in 2004 reflects lower restructuring charges that relate to excess capacity shutdowns and organizational restructuring programs, and insurance recoveries relating to hardboard siding and roofing matters. Interest expense, net, decreased to $743 million from $772 million in 2003 and $785 million in 2002. The decline in 2004 compared with both 2003 and 2002 reflects the lower average interest rates from the refinancing of high coupon rate debt, and higher interest income at Carter Holt Harvey. The income tax provision of $206 million includes a $41 million tax benefit related to 2004 special items. The $113 million income tax benefit in 2003 included $231 million of benefits for special items occurring in 2003. The $72 million benefit in 2002 also reflected adjustments for special tax items. During 2004, International Paper completed the sale of its Weldwood of Canada Limited business in the fourth quarter and Carter Holt Harvey completed the sale of its Tissue business in the second quarter. As a result of these transactions, the operating results of these businesses and the gain or loss on the sales are reported in discontinued operations for all periods presented. Accounting changes included a charge of $13 million in 2003 for the adoption of new accounting pronouncements, and a $1.2 billion charge in 2002 for the adoption of the new goodwill accounting standard. Liquidity and Capital Resources For the year ended December 31, 2004, International Paper generated $2.4 billion of operating cash flow, up from $1.8 billion in 2003. Capital spending from continuing operations for the year totaled $1.3 billion, or 81% of depreciation and amortization expense. We repaid approximately $900 million of debt during the year, including various higher coupon rate debt, that will result in lower interest charges in future years. Our liquidity position remains strong, supported by approximately $3.2 billion of unused, committed credit facilities that we believe are adequate to meet future short- term liquidity requirements. Maintaining an investment grade credit rating for our long-term debt continues to be an important element in our overall financial strategy. Our focus in 2005 will be to continue to maximize our financial flexibility and preserve liquidity while further reducing future interest expense through the repayment or refinancing of high coupon rate debt, with a target of reducing consolidated debt to approximately $12 billion by the end of 2006. Critical Accounting Policies and Significant Accounting Estimates Accounting policies that may have a significant effect on our reported results of operations and financial position, and that can require judgments by management in their application, include accounting for contingent liabilities, impairments of long-lived assets and goodwill, pensions and postretirement benefit obligations and income taxes. Pension expenses for our U.S. plans increased to $111 million in 2004 from $60 million in 2003 due principally to increased amortization of unrecognized actuarial losses and a reduction in the assumed discount rate. A further increase of approximately $100 million is expected in 2005, also due to an increase in the amortization of unrecognized actuarial losses, a further reduction in the assumed discount rate, and a decrease in the expected return on plan assets to 8.50% from 8.75% in 2004. Our pension funding policy continues to be to fully fund actuarially determined costs, generally equal to the minimum amounts required by the Employee Retirement Income Security Act (ERISA). Unless investment performance is negative or changes are made to our funding policy, it is unlikely that any contributions to our U.S. qualified plan will be required before 2007. Recent Accounting Developments Several new accounting standards and interpretations were released that are effective in either 2004 or 2005. The revised standard on share-based payment that will be effective in the third quarter of 2005 will require recognition of compensation cost for any outstanding option grants that are unvested at June 30, 2005, as well as reload grants. While the exact impact will depend upon the number of unvested options at that time, this standard could increase compensation expense by approximately $20 million in both 2005 and 2006, with no significant impact in subsequent years. Accounting guidance was also issued addressing accounting and disclosure for the foreign earnings repatriation provision within the American Jobs Creation Act of 2004. We have started an evaluation of the effects of this provision, but do not expect to complete this evaluation until the second quarter of 2005.

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Legal Payments relating to exterior siding and roofing class action settlements continue to be in line with projections made in 2002. Federal and state court antitrust cases relating to alleged price fixing in the sale of high-pressure laminates were settled in 2004 for a total of $38.5 million. The Company is defending opt-out cases related to a settled class action brought by purchasers of corrugated sheets and containers. Additional information on these matters is included in Note 10 of the Notes to Consolidated Financial Statements in Item 8. Corporate Overview While the operating results for International Paper’s various business segments are driven by a number of business-specific factors, changes in International Paper’s operating results are closely tied to changes in general economic conditions in the United States, Europe and Asia. Factors that impact the demand for our products include industrial non-durable goods production, consumer spending, commercial printing and advertising activity, white-collar employment levels, new home construction and repair and remodeling activity, and movements in currency exchange rates. Product prices also tend to follow general economic trends, and are also affected by inventory levels, currency movements and changes in worldwide operating rates. In addition to these revenue-related factors, net earnings are impacted by various cost drivers, the more significant of which include changes in raw material costs, principally wood fiber and chemical costs, energy costs, salary and benefits costs, including pensions, and manufacturing conversion costs. The following is a discussion of International Paper’s results of operations for the year ended December 31, 2004, and the major factors affecting these results compared to 2003 and 2002. Results of Operations For the year ended December 31, 2004, International Paper reported net sales of $25.5 billion, compared with $24.0 billion in 2003 and $23.9 billion in 2002. International net sales (including U.S. exports) totaled $7.9 billion, or 31% of total sales in 2004. This compares to international net sales of $7.2 billion in 2003 and $6.4 billion in 2002. Full year 2004 results totaled a net loss of $35 million ($0.07 per share basic and diluted), compared with net income of $302 million ($0.63 per share basic and diluted) in 2003 and a net loss of $880 million ($1.83 per share basic, $1.82 per share diluted) in 2002 and amounts include results of discontinued operations and the cumulative effect of accounting changes. Earnings from continuing operations in 2004 were $478 million compared with $294 million in 2003 and $260 million in 2002. Earnings in 2004 benefited from higher sales volumes, higher average sales prices, cost reduction initiatives, improved mill operations and lower interest expense. These factors more than offset the negative impacts of increased energy and wood fiber costs, lower earnings from land sales, a higher effective tax rate, increased special charges and the impact of the hurricanes in the South. See Industry Segment Results on pages 17 through 21 for a discussion of the impact of these factors by segment. $100 $200 $300 $400 $500 $600 $700 $800 Earnings From Continuing Operations
(after taxes, in millions) $294 $194 $148 $154 $(142) $(70) $(35) $(90) $(13) 2003 Volume Price Costs/
Operations/
Mix Energy/
Raw
Materials Land
Sales Tax Special
Items 2004 $0 $21 $17 $478 Hurri-
canes Interest Minority
Interest/
Other

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The following table presents a reconciliation of International Paper’s net earnings (loss) to its operating profit:										operations charge. In the 2004 second quarter, a $90 million after-tax and minority interest discontinued operations gain was recorded from the sale of the Carter Holt Harvey Tissue business. As a result, prior periods operating results have been restated to present the operating results of these businesses as earnings from discontinued operations, including earnings of $108 million in 2004, $21 million in 2003, and $35 million in 2002. Net earnings for 2003 included after-tax charges of $3 million and $10 million for the cumulative effect of accounting changes for the adoption of the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities,” and Statement of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations, respectively.” Results for 2002 included a charge of $1.2 billion after minority interest for the cumulative effect of an accounting change to record the transitional impairment charge for the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets.” Income Taxes The income tax provision for 2004 was $206 million, or 28% of pretax earnings from continuing operations before minority interest. This included a $41 million tax benefit related to special items. Excluding the impact of special items, the tax provision was $247 million, or 26% of pre-tax earnings before minority interest. While the Company reported pre-tax income in 2003, a net income tax benefit was recorded reflecting decreases totaling $231 million in the provision for income taxes for special items. These included a $13 million reduction in the fourth quarter ($26 million before minority interest) for a favorable settlement with Australian tax authorities of net operating loss carryforwards, a $60 million reduction in the third quarter reflecting a favorable revision of estimated tax accruals upon filing the 2002 Federal income tax return and increased research and development credits, and a $50 million reduction in the second quarter reflecting a favorable tax audit settlement and benefits from a government sponsored overseas tax program in Italy. Excluding the year-to-date tax effects of special items, the effective tax rate for 2003 was 20%. The net tax benefit in 2002 reflects the reversal of the assumed stock-sale tax treatment of the 2001 fourth-quarter write-down to net realizable value of the assets of Arizona Chemical upon the decision to discontinue sale efforts and to hold and operate this business in the future, and a $46 million fourth-quarter adjustment of deferred income tax liabilities for the effects of state tax credits and the taxability of the Company’s operations in various state tax jurisdictions.
In millions	2004			2003			2002
Net Earnings (Loss)	$	(35	)	$	302		$	(880	)
Add back (deduct):
Discontinued operations:
Earnings from operations		(108	)		(21	)		(35	)
Loss on sales or impairments		621			–			–
Cumulative effect of accounting changes		–			13			1,175
Earnings From Continuing Operations		478			294			260
Add back (deduct): Income tax provision (benefit)		206			(113	)		(72	)
Add back: Minority interest expense, net of taxes		62			111			118
Earnings From Continuing Operations Before Income Taxes and Minority Interest		746			292			306
Interest expense, net		743			772			785
Minority interest included in operations		(59	)		(48	)		(43	)
Corporate items		469			466			253
Special items:
Restructuring and other charges		211			298			695
Insurance recoveries		(123	)		–			–
Net losses (gains) on sales and impairments of businesses held for sale		135			32			(41	)
Reversals of reserves no longer required, net		(35	)		(40	)		(68	)
	$	2,087		$	1,772		$	1,887
Industry Segment Operating Profit
Printing Papers	$	579		$	460		$	545
Industrial and Consumer Packaging		543			451			551
Distribution		87			80			91
Forest Products		793			720			641
Carter Holt Harvey		47			38			41
Specialty Businesses and Other		38			23			18
Total Industry Segment Operating Profit	$	2,087		$	1,772		$	1,887
Discontinued Operations and Cumulative Effect of Accounting Changes In the third quarter of 2004, International Paper entered into an agreement to sell its Weldwood of Canada Limited (Weldwood) business. The Company completed the sale in the fourth quarter for approximately $1.1 billion. As a result of the sale, a $323 million pre-tax loss on the sale was recorded ($711 million after taxes) as a discontinued

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Corporate Items and Interest Expense Minority interest expense, net of taxes, decreased to $62 million in 2004 compared with $111 million in 2003 and $118 million in 2002. The decreases in 2004 and 2003 reflect a reduction in minority interest related to preferred securities that were replaced by debt obligations in the second half of 2003. This decrease was partially offset in 2004 by higher earnings at Carter Holt Harvey. Interest expense, net, decreased to $743 million compared with $772 million in 2003 and $785 million in 2002. The decline reflects lower interest rates from the refinancing of high coupon debt, the impact of interest rate swaps, and, in 2004, higher interest income from Carter Holt Harvey, net of the additional expense of $36 million for the preferred debt securities discussed above. For the twelve months ended December 31, 2004, corporate items totaled $469 million compared with $466 million of expense in 2003 and $253 million in 2002. The increased expense in 2004 compared with 2003 is due to higher pension, inventory-related and supply chain initiative costs, and lower gains on energy hedging transactions, offset in part by reduced administrative overhead costs. Higher pension, inventory-related and supply chain costs were also factors in 2003 as compared with 2002, which also included income from an insurance company demutualization and foreign exchange gains. Our supply chain project, begun in late 2002, is a corporate- wide initiative to improve customer service capabilities and implement “best practice” supply chain business processes for order management, supply and demand planning, product scheduling and tracking, transportation and warehousing, and procurement. Expenses related to this program in 2005, should be approximately $100 million above the 2004 level of $84 million. The associated benefits are reflected in business earnings as the programs are implemented. Special Items Restructuring and Other Charges International Paper continually evaluates its operations for opportunities for improvement. These evaluations are targeted to (a) focus our portfolio on our core businesses of paper, packaging and forest products, (b) rationalize and realign capacity to operate fewer facilities with the same revenue capability and close high cost facilities, and (c) reduce costs. Annually, strategic operating plans are developed by each of our businesses to demonstrate that they will achieve a return at least equal to their cost of capital over an economic cycle. If it subsequently becomes apparent that a facility’s plan will not be achieved, a decision is then made to (a) invest additional capital to upgrade the facility, (b) shut down the facility and record the corresponding charge, or (c) evaluate the expected recovery of the carrying value of the facility to determine if an impairment of the asset value of the facility has occurred under SFAS No. 144. In recent years, this policy has led to the shutdown of a number of facilities and the recording of significant asset impairment charges and severance costs. As this profit improvement initiative is ongoing, it is possible that additional charges and costs will be incurred in future periods should such triggering events occur. 2004: During 2004, restructuring and other charges before taxes and minority interest of $211 million ($124 million after taxes and minority interest) were recorded. These charges included a $74 million charge before taxes and minority interest ($43 million after taxes and minority interest) for organizational restructuring programs, a $92 million charge before taxes ($57 million after taxes) for early debt retirement costs, a $35 million charge before minority interest ($18 million after minority interest) for a goodwill impairment charge, and a $10 million charge before taxes ($6 million after taxes) for a litigation settlement. Also in 2004, a $123 million credit before taxes ($76 million after taxes) was recorded for insurance recoveries related to the hardboard siding and roofing litigation, and a $35 million credit before taxes and minority interest ($22 million after taxes and minority interest) was recorded for the net reversal of restructuring reserves no longer required. 2003: During 2003, restructuring and other charges before taxes and minority interest of $298 million ($184 million after taxes and minority interest) were recorded. These charges included a $236 million charge before taxes and minority interest ($144 million after taxes and minority interest) for asset shutdowns of excess internal capacity and cost reduction actions, a $63 million charge before taxes ($39 million after taxes) for legal reserves, and a $1 million credit before taxes ($1 million charge after taxes) for early debt retirement costs. In addition, a $40 million credit before taxes and minority interest ($25 million after taxes and minority interest) was recorded for the net reversal of restructuring reserves no longer required. 2002: During 2002, restructuring and other charges before taxes and minority interest of $695 million ($435 million after taxes and minority interest) were recorded. These charges included a $199 million charge before taxes and minority interest ($130 million after taxes and minority interest) for asset shutdowns of excess internal capacity and cost reduction actions, a $450 million pre-tax charge ($278 million after taxes) for additional exterior siding legal reserves, and a charge of $46 million before taxes and minority interest ($27 million after taxes and minority interest) for early debt

13

retirement costs. In addition, a $68 million pre-tax credit ($43 million after taxes) was recorded in 2002 for the reversal of 2001 and 2000 reserves no longer required. A further discussion of restructuring, business improvement and other charges can be found in Note 6 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. Net Losses (Gains) on Sales and Impairments of Businesses Held for Sale Net losses (gains) on sales and impairments of businesses held for sale totaled $135 million in 2004, $32 million in 2003 and ($41) million in 2002 before taxes and minority interest. The principal components of these gains/losses were: 2004: In December 2004, International Paper committed to plans for the sale in 2005 of its Fine Papers business and its Maresquel mill and Papeteries de France distribution business in Europe, resulting in charges of $56 million before taxes ($54 million after taxes) to write down the assets of these entities to their estimated fair values less costs to sell. In October 2004, International Paper sold two box plants located in China, resulting in a pre-tax loss of $14 million ($4 million after taxes). Also in the fourth quarter, a $9 million loss before taxes ($6 million after taxes) was recorded to adjust gains/losses of businesses previously sold. In the 2004 third quarter, a charge of $38 million before and after taxes was recorded for losses associated with the sale of Scaldia Papier B.V. and its subsidiary Recom B.V. ($34 million) and to adjust the estimated loss on sale of Papeteries de Souche L.C. ($4 million). In the 2004 second quarter, a charge of $27 million before and after taxes was recorded to write down the assets of Papeteries de Souche L.C. to their estimated realizable value. In the 2004 first quarter, a pre-tax gain of $9 million ($6 million after taxes) was recorded to adjust previously estimated gains/losses of businesses previously sold. In addition, the 2004 second quarter included a loss of $9 million before taxes and minority interest ($5 million after taxes and minority interest) to write down the assets of Food Pack S.A. to their estimated realizable value, of which $4 million was included in the Packaging segment, $3 million was included in the Carter Holt Harvey segment and $2 million was included in Minority interest. 2003: In the fourth quarter of 2003, International Paper recorded a $34 million pre-tax charge ($34 million after taxes) to write down the assets of its Polyrey business to estimated fair value. In addition, a $13 million pre-tax gain ($8 million after taxes) was recorded to adjust estimated gains/losses of businesses previously sold. A pre-tax charge of $1 million ($1 million after taxes) was recorded in the 2003 third quarter to adjust previously estimated gains/losses of businesses previously sold. In the second quarter of 2003, a $10 million pre-tax charge ($6 million after taxes) was recorded to adjust estimated gains/losses of businesses previously sold. 2002: In the fourth and third quarters of 2002, International Paper recorded $10 million and $3 million of pre-tax credits ($4 million and $1 million after taxes, respectively), to adjust estimated accrued costs of businesses previously sold. During the second quarter of 2002, a net gain on sales of businesses held for sale of $28 million before taxes and minority interest ($96 million after taxes and minority interest) was recorded, including a pre-tax gain of $63 million ($40 million after taxes) from the sale in April 2002 of International Paper’s oriented strand board facilities to Nexfor Inc. for $250 million, and a net charge of $35 million before taxes and minority interest (a gain of $56 million after taxes and minority interest) relating to other sales and adjustments of previously recorded estimated costs of businesses held for sale. The impairment charge recorded for Arizona Chemical in the fourth quarter of 2001 included a tax expense based on the form of sale being negotiated at that time. As a result of the decision in the second quarter of 2002 to discontinue sale efforts and to hold and operate Arizona Chemical in the future, this provision was no longer required. Consequently, special items for the second quarter of 2002 include a gain of $28 million before taxes and minority interest, with an associated $96 million benefit after taxes and minority interest. Industry Segment Operating Profit Industry segment operating profits of $2.1 billion were higher than the $1.8 billion in 2003 and the $1.9 billion in 2002. The higher profit in 2004 was principally due to improved sales volumes ($263 million), higher average sales prices ($201 million), and cost reduction initiatives and a more favorable product mix ($186 million), all partially offset by higher energy and raw material costs ($192 million), lower earnings from land sales ($95 million), the impact of hurricanes in the South ($18 million) and unfavorable foreign currency exchange rates ($30 million). In 2003, industry segment operating profits declined slightly as compared with 2002 principally due to higher energy and raw material costs ($275 million) and lower average prices ($85 million), partially offset by the effect of cost reduction initiatives, improved operating performance and a more favorable product mix ($245 million).

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The rationalization and realignment program announced in 2003 was completed during 2004. The program announced in July 2003 targeted significant additional reductions in overhead costs and included the elimination of approximately 3,000 salaried positions in the United States. We are currently engaged in a customer-driven, company-wide supply chain initiative that will enhance International Paper’s customer relationships and standardize processes while improving overall company profitability. Ultimately, the initiative will provide the foundation upon which to build improved customer value propositions while enabling International Paper to become increasingly competitive. International Paper experienced an improving business environment during 2004 as higher sales volume and average prices reflected a steadily improving economy. Demand for our paper and packaging products was stronger resulting in only about 70,000 tons of market related downtime in our mill system compared with 590,000 tons in 2003. Our focus on operational performance and improvements to our internal cost structure and product mix helped mitigate the impact of increased raw material and energy costs. Looking forward to 2005, we anticipate a seasonally slow start in the first quarter as wood and chemical costs continue to be high with further increases expected early in the year. Earnings in 2005 should benefit from increased price realizations and improved demand for our products. We believe that the actions taken over the last few years to restructure our operations and eliminate excess manufacturing capacity, to reduce overhead costs, and to focus on our customer relationships will favorably position International Paper as market conditions continue to improve. Description of Industry Segments International Paper’s industry segments discussed below are consistent with the internal structure used to manage these businesses. All segments, except for Carter Holt Harvey, are differentiated on a common product, common customer basis consistent with the business segmentation generally used in the Forest Products industry. The Carter Holt Harvey business includes the results of multiple Forest Products businesses. Printing Papers International Paper is one of the world’s leading producers of printing and writing papers. Products in this segment include uncoated and coated papers, market pulp and bristols. Uncoated Papers: This business produces papers for use in desktop and laser copiers and digital imaging printing as well as in advertising and promotional materials such as brochures, pamphlets, greeting cards, books, annual reports and direct mail publications. Uncoated Papers also produces a variety of grades that are converted by our customers into envelopes, tablets, business forms and file folders. Fine papers are used in high-quality text, cover, business correspondence and artist papers. Uncoated papers are sold under private label and International Paper brand names that include Hammermill, Springhill, Great White, Strathmore, Ballet, Beckett and Rey. The mills producing uncoated papers are located in the United States, Scotland, France, Poland and Russia. These mills have uncoated paper production capacity of approximately 5.3 million tons annually. Coated Papers: This business produces coated papers used in a variety of printing and publication end uses such as catalogs, direct mailings, magazines, inserts and commercial printing. Products include coated free sheet, coated groundwood and supercalendered groundwood papers. Production capacity in the United States amounts to approximately 2.0 million tons annually. Market Pulp: Market pulp is used in the manufacture of printing, writing and specialty papers, towel and tissue products and filtration products. Pulp is also converted into products such as diapers and sanitary napkins. Pulp products include fluff, southern softwood pulp, as well as northern, southern, and birch hardwood pulps. These products are produced in the United States, France, Poland and Russia, and are sold around the world. International Paper facilities have annual dried pulp capacity of about 1.6 million tons. Brazilian Paper: Brazilian operations function through International Paper do Brasil, Ltda and subsidiaries, that own or manage 1.2 million acres of forestlands in Brazil. Our annual production capacity in Brazil is approximately 685,000 tons of coated and uncoated papers. Our uncoated papers are primarily sold under the brand name Chamex. The Company also operates a wood chip business that sells eucalyptus and pine chips on a global basis. Industrial and Consumer Packaging Industrial Packaging: With production capacity of about 4.7 million tons annually, International Paper is the third largest manufacturer of containerboard in the United States. Over one-third of our production consists of specialty grades, such as BriteTop. About 70% of our production is converted domestically into corrugated boxes and other packaging by our 70 U.S. container plants. In Europe, our operations include one recycled containerboard mill in France and 23 container plants in France, Ireland, Italy, Spain and the United Kingdom. Global operations also include facilities in Chile, Turkey and China. Our container plants are supported by regional design centers, which offer total packaging solutions and supply chain initiatives. We have the capacity to produce approximately 600,000 tons of kraft paper each year for use in multi-wall, retail bags and saturated kraft. We manufacture lightweight and pressure sensitive papers and converted

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products in four domestic facilities and one in the Netherlands with an annual capacity of 375,000 tons. These products are used in applications such as pressure sensitive labels, food and industrial packaging, industrial sealants and tapes, and consumer hygiene products. Consumer Packaging: International Paper is the world’s largest producer of solid bleached sulfate packaging board with annual U.S. production capacity of about 1.8 million tons. On a global basis, our businesses work closely with our customers to understand their needs and create profitable business opportunities sourced from our broad base of packaging solutions: substrates and barrier board technologies combined with our printing expertise, graphics and structural design, filling equipment and service, Smart Packaging and marketing services. All are tailored to create packaging that appeals to consumers while building customer brand equity. Our Everest, Fortress and Starcote brands are used in packaging applications for everyday products such as juice, milk, food, cosmetics, pharmaceuticals, computer software and tobacco products. Approximately 33% of our bleached board production is converted into packaging products in our own plants. Our Beverage Packaging business, made up of 17 facilities worldwide, offers complete packaging systems. From paper to filling machines, using proprietary technologies including Tru-Taste brand barrier board technology for premium long-life juices, our expertise is utilized to produce creative customer solutions and value. Shorewood Packaging Corporation utilizes emerging technologies in its 17 facilities worldwide to produce world-class packaging with high-impact graphics for a variety of markets, including home entertainment, tobacco, cosmetics, general consumer and pharmaceuticals. The Foodservice business offers cups, lids, bags, food containers and plates through four domestic plants and four international facilities. Distribution Through xpedx, our North American merchant distribution business, we service the commercial printing market with printing papers and graphic art supplies, high traffic/away- from-home markets with facility supplies, and various manufacturers and processors with packaging supplies and equipment. xpedx is the leading wholesale distribution marketer in these customer and product segments in North America, operating 136 warehouse locations and 148 retail stores in the United States and Mexico. Forest Products Forest Resources: International Paper owns or manages approximately 6.8 million acres of forestlands in the United States, mostly in the South. All lands are independently third- party certified under the operating standards of the Sustainable Forestry Initiative (SFI®). In 2004, these forestlands supplied about 23% of the wood fiber requirements of our other businesses. Our forestlands are managed as a portfolio to optimize the economic value to our shareholders. Principal revenue-generating activities include the sale of trees for harvest, the sale of forestlands to investment funds and other buyers for various uses, real estate development, and the leasing of our properties for third-party recreational and commercial uses. The mix of these activities varies based on the fiber requirements of our mills and wood products plants, prevailing stumpage prices, supply and demand for forestlands, and market preferences for timber and forestlands. When stumpage prices are depressed relative to land values, forestland sales tend to comprise a larger part of our portfolio mix. Conversely, when stumpage prices are high, stumpage sales may be the best alternative to maximize the value of our forestland holdings. Wood Products: International Paper owns and operates 25 plants producing lumber, plywood, engineered wood products and utility poles in the southern United States. Through these, we produce approximately 2.5 billion board feet of lumber and 1.6 billion square feet of plywood annually. On December 31, 2004, International Paper sold its wholly-owned subsidiary Weldwood of Canada Limited (Weldwood) to West Fraser Timber Company Limited. During our ownership, Weldwood operated 10 plants in the Canadian provinces of British Columbia and Alberta, which produced about 1.3 billion board feet of lumber and 495 million square feet of plywood annually. Prior to the sale, we had harvesting rights on 10.2 million acres of government-owned forestlands in Canada through licenses and forest management agreements. Carter Holt Harvey Carter Holt Harvey is approximately 50.5% owned by International Paper. It is one of the largest forest products companies in the Southern Hemisphere, with operations in New Zealand, Australia and Asia. Sales consist of approximately 46% in New Zealand, 36% in Australia and 18% in Asia and elsewhere. Carter Holt Harvey’s major businesses include: Forests, including ownership of 785,000 acres of predominantly radiata pine plantations that currently yield 5.5 million tons of logs annually. Long term sustainable yield of the estate is about 8.5 million tons of logs annually. Wood Products, including about 467 million board feet of lumber capacity, 90 million square feet of laminated veneer lumber production and about 1,072 million square feet of plywood and panel production, including approximately 205 million square feet from Plantation Timber Products in China acquired in 2004. Carter Holt Harvey is the largest Australasian producer of lumber, plywood, panels and laminated veneer lumber.

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Pulp, Paper and Packaging, with overall capacity of more than 1.1 million tons of annual linerboard and pulp capacity at four mills, Carter Holt Harvey is New Zealand’s largest manufacturer and marketer of pulp and paper products. These supply 65% of the needs of their packaging plants which produce corrugated boxes, cartons and paper bags, with a focus on horticulture and primary produce. Specialty Businesses and Other Chemicals:Arizona Chemical is a leading producer of oleo chemicals and specialty resins based on crude tall oil, byproducts of the wood pulping process. These products, used in adhesives and inks, are made at 13 plants in the United States and Europe. European Distribution: International Paper sold Scaldia on August 31, 2004. Prior to the sale, European Distribution consisted of Papeteries de France and Scaldia and served markets in France, Belgium and the Netherlands. Products and brand designations appearing in italics are trademarks of International Paper or a related company. Industry Segment Results Printing Papers Demand for Printing Papers products is closely correlated with changes in commercial printing and advertising activity, direct mail volumes and, for uncoated free sheet products, with changes in white-collar employment levels that affect the usage of copy and laser printer paper. These products are further affected by changes in currency rates that can enhance or disadvantage producers in different geographic regions. Principal cost drivers include manufacturing efficiency and raw material, transportation and energy costs. Printing Papers net sales for 2004 increased 5% from 2003 and 2002. Operating profits in 2004 were 26% higher than in 2003 and 6% higher than in 2002. Earnings in 2004 compared with 2003 improved across all Printing Papers businesses. Higher sales volumes ($130 million), improved mill operations and lower overhead costs ($90 million) and a more profitable product mix ($20 million) contributed to the earnings increase, although these effects were partially offset by higher raw material and energy costs ($90 million) and lower average prices in Europe which more than offset higher average prices in the United States ($30 million). Compared with 2002, higher 2004 earnings in the Brazilian Papers and Market Pulp businesses were partially offset by lower earnings in both the Uncoated and Coated Papers businesses. The Printing Papers segment took 525,000 tons of downtime in 2004, including 65,000 tons of lack-of-order	downtime to align production with customer demand. This compared with 750,000 tons of downtime in 2003, of which 335,000 tons related to lack of orders. Printing Papers
	In millions	2004		2003		2002
	Sales	$	7,635	$	7,245	$	7,265
	Operating Profit	$	579	$	460	$	545
	Uncoated Papers sales were $4.9 billion in 2004, up 4% from 2003 and 2% from 2002. Operating profits rose 11% compared with 2003, but were 18% lower than 2002. In the United States, our average price realizations improved steadily during 2004 compared with 2003 and ended the year higher than in either 2003 or 2002. On average, prices were up 1% in 2004 compared with 2003 and 2002. The improving economic environment in 2004 resulted in stronger demand, particularly in the commercial printing and converting markets, as sales volumes rose 4% and 2% compared with 2003 and 2002, respectively. In addition to higher average sales prices and improved shipments, improved mill operations also had a positive impact on 2004 earnings. These positive factors were partially offset by higher input costs, particularly for wood and energy costs. The business was also adversely impacted by higher transportation costs in 2004 compared with 2003 and the impact of hurricanes in the South. The earnings decline in 2004 compared with 2002 was due principally to higher wood and energy costs offset somewhat by an increase in shipments and lower overhead costs as a result of our cost reduction initiatives. Average prices in our European operations declined throughout most of 2004 as a strong Euro made Western Europe a more attractive market for imports, putting pressure on prices. Average prices were down 8% and 17% as compared with 2003 and 2002, respectively. European sales volumes rose 5% in 2004 compared with 2003 and 6% versus 2002. Earnings in Eastern Europe in 2004 were higher than in 2003, but were more than offset by the earnings decline in the West. Overall, lower average prices and higher wood and energy costs offset the favorable effects of higher sales volumes, a better mix of products sold and improved mill operations. Coated Papers sales were $1.5 billion in 2004, compared with $1.4 billion in 2003 and $1.5 billion in 2002. Although the business reported an operating loss for the year, a profit was recorded for the second half of 2004. The improvement in earnings in 2004 compared with 2003 was driven by lower overhead costs, improved mill operations and higher sales prices for our products. These positive factors, combined with improved product sales mix, more than offset the impact

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of higher energy and wood costs. Average prices in 2004 were up versus 2003 and 2002 due to price increases effective in the second half of 2004. Sales volume was up about 4% in 2004 versus 2003 but down about 2% from 2002. Market Pulp sales from our U.S. and European facilities totaled $661 million in 2004 compared with $571 million and $520 million in 2003 and 2002, respectively. In 2004, the business reported an operating profit, after incurring losses in 2003 and 2002, as higher average price realizations and sales volumes, lower overhead costs, and improved mill operations more than offset increases in raw material costs. Our U.S. pulp prices improved steadily through the 2004 third quarter, then declined slightly during the fourth quarter, but ended the year about 6% higher than 2003 and 21% higher than 2002. U.S. pulp volumes were strong in the fourth quarter and ended the year 5% higher than in 2003 and 4% higher than in 2002 reflecting increased global demand, primarily in Asia. European pulp volumes decreased 12% and 3% compared with 2003 and 2002, respectively. The negative effects of these lower volumes and higher wood costs were partially offset by the benefits from average price realizations, which were 3% and 18% higher than in 2003 and 2002, respectively. Brazilian Paper sales were $592 million in 2004 compared with $540 million in 2003 and $440 million in 2002. The increase compared with 2003 reflects increased sales volume for uncoated papers and a doubling of wood chip operations in the North. The effect of currency translation, as the Real appreciated 8% versus the U.S. dollar, was another factor in the increased reported U.S. dollar sales. Uncoated paper pricing in Reals in 2004 declined 9% versus 2003, while coated paper prices were down 3%. Operating profits in 2004 were up 13% and 28% from 2003 and 2002, respectively. The earnings improvement in 2004 reflected the increased shipments and operational improvements, partially offset by higher transportation, energy and chemical costs and lower average prices. As 2005 begins, the outlook for Printing Papers is positive as our previously announced price increases have been fully implemented. Demand for both coated papers and pulp is strong. Uncoated papers’ backlogs were below prior year levels, but are improving as the first quarter progresses. Further strengthening is expected in customer demand as improving economic conditions lead to increased employment and higher demand. We expect continued high costs for wood fiber and raw materials such as caustic soda, although energy prices should stabilize. We will continue our focus on further improvements in manufacturing efficiency and overall cost structure.	Industrial and Consumer Packaging Demand for Industrial Packaging products is closely correlated with non-durable industrial goods production in the United States, as well as with demand for processed foods, poultry, meat and agricultural products. Demand and pricing for Consumer Packaging products correlate closely with consumer spending and general economic activity. In addition to prices and volumes, major factors affecting the profitability of both Industrial and Consumer Packaging are raw material and energy costs, manufacturing efficiency and product mix. Industrial and Consumer Packaging net sales for 2004 were 12% and 14% higher than 2003 and 2002, respectively. Operating profits in 2004 were 20% higher than 2003 but were down 1% from 2002. Increased volume ($95 million), higher price realizations ($40 million), improved mill operations and reduced overhead costs ($35 million), and a more favorable mix of products sold ($20 million) contributed to the improved earnings in 2004 compared with 2003. These benefits were partially offset by increased raw material and transportation costs ($100 million). The segment took 210,000 tons of downtime in 2004, including only 5,000 tons of lack-of-order downtime to balance internal supply with customer demand, compared to a total of 400,000 tons in 2003, of which 255,000 tons were market related.
	Industrial and Consumer Packaging
	In millions	2004		2003		2002
	Sales	$	7,470	$	6,670	$	6,530
	Operating Profit	$	543	$	451	$	551
	Industrial Packaging net sales for 2004 totaled $4.9 billion, compared with $4.2 billion in 2003 and $4.1 billion in 2002. Our average containerboard prices were up about 9%, specialty papers prices were up about 5% and U.S. box prices were up about 2% compared to 2003; however, container prices in Europe were down about 3% on a constant dollar basis. Operating profits increased 43% from 2003 and 25% from 2002. Increased prices, higher containerboard and U.S. converting shipments, a more favorable mix, mill operating improvements, and lower overhead costs were partially offset by raw material and transportation cost increases. U.S. converting shipments were up about 7% from 2003 for the Company’s ongoing operations, and were up about 19% including the additional contributions from the acquisition of Box USA in July 2004. A slight increase in demand for International Container coupled with operational cost reduction efforts more than offset the decrease in price so that operating results improved 4%. In 2004, the Industrial Packaging business took 5,000 tons of market related downtime compared to 245,000 tons in 2003, reflecting the improved market conditions.

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Entering 2005, additional favorable price effects are expected to continue. Synergies associated with the Box USA acquisition will benefit 2005 through both volume improvements and cost reductions. The implementation of a new operating model at our mills, representing the first phase of our supply chain project, will result in some efficiency improvements and cost savings in 2005. The European operating results are expected to improve as a result of targeted market growth and cost reduction initiatives. Consumer Packaging 2004 net sales of $2.6 billion were up compared to the 2003 and 2002 sales of $2.5 billion each. Our average prices in 2004 increased about 1% for bleached board over 2003, and were up about 4% for the beverage andfoodservice converting businesses. The higher prices reflect the pass-through of higher raw material costs, although this continues to be tempered by competitive pressures. Our bleached board mills operated with no market-relateddowntime in 2004, with shipments up 10% over the prior year. Operating profits in 2004 declined 12% from 2003 and 34%from 2002 as improved pricing and favorable operations in the mills did not overcome the impact of cost increases in rawmaterials, especially wood, energy and resin. During 2004,manufacturing improvement, rationalization and organizational restructuring plans were implemented throughout this business to reduce costs and improve market alignment. Improved price realizations are expected to continue into2005 as the market remains strong; however, raw materialcosts for wood and resin are expected to be negative factors. Capital improvements and cost reduction efforts made in 2004 will benefit operating results in 2005. Distribution Our Distribution business, including xpedx, markets adiverse array of products and services to customers in many business segments, including commercial printing,manufacturing and building services. Distribution’s customer demand is sensitive to changes in general economic conditions. Sales to commercial printers are heavily dependent on the levels of corporate advertising andpromotional spending. In addition, efficient customer service, cost-effective logistics, and controlled working capital management are key factors in this segment’s profitability.							and cost containment initiatives drove the 2004 earnings improvement. The sales growth reflects rising prices for paper and tissue products and for packaging products. Also contributing to the sales growth were the addition of new national retail accounts to Distribution’s customer portfolio and brisk demand from commercial printers. Reduction in operating costs continued in 2004 as the business consolidated facilities and rationalized its information systems. Since 2002, Distribution has reduced its work force 38% through actions related to consolidations and system efficiencies. The outlook for 2005 is favorable. Our average prices are expected to remain at or above 2004 levels, and additional market penetration is planned through new initiatives in the printing and manufacturing segments. Additional improvement is expected from programs to further reduce operating costs. Forest Products Forest Products manages approximately 6.8 million acres of forestlands in the United States, and operates wood products plants in the United States that produce lumber, plywood, engineered wood products and utility poles. Forest Resources’ operating results are largely driven by demand and pricing for softwood sawtimber, and to a lesser extent for softwood pulpwood, by the volume of merchantable timber on Company forestlands, and by demand and pricing for specific forestland tracts offered for sale. Wood Products operating results are driven by new housing starts and repair and remodeling activity. Fiber costs are a major factor in Wood Products’ profitability. Forest Products net sales for 2004 were about even with 2003, but were 5% lower than in 2002. Operating profits in 2004 were 10% and 24% higher than in 2003 and 2002, respectively. Earnings in 2004 reflected continued strong contributions from the U.S. Wood Products business, primarily as a result of higher average plywood and lumber prices ($180 million) and improved mix of products sold ($20 million). Lower earnings from forestland and real estate sales ($95 million) and from reduced Forest Resources' harvest volumes ($15 million), combined with higher raw material costs ($15 million) to partially offset the impact of these higher prices.
Distribution							Forest Products
In millions	2004		2003		2002		In millions	2004		2003		2002
Sales	$	6,065	$	5,860	$	5,990	Sales	$	2,395	$	2,390	$	2,525
Operating Profit	$	87	$	80	$	91	Operating Profit	$	793	$	720	$	641
Distribution’s 2004 net sales increased 3% from 2003 and 1% from 2002. Operating profits in 2004 were 9% higher than 2003, but were 4% lower than 2002. Sales revenue increases							Forest Resources sales in 2004 were $900 million compared with $1.1 billion in 2003 and $1.2 billion in 2002. Operating profits in 2004 were 16% lower than in 2003 and

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19% lower than in 2002 principally due to lower stumpage and forestland sales. Gross margins from stumpage sales and recreational income were $281 million in 2004 compared with $268 million in 2003 and $324 million in 2002. Harvest volumes declined 8% in 2004, compared with 2003, and 14% from 2002, reflecting a lower inventory of mature sawtimber in 2004. Sawtimber prices were flat compared to 2003 and down 11% compared to 2002. Gross margins from forestland sales were $315 million in 2004 as compared with $462 million in 2003 and $461 million in 2002, reflecting a lower number of acres sold, partially offset by higher average per-acre sales realizations. Operating expenses increased to $178 million in 2004 from $157 million in 2003 due primarily to higher information systems costs. Operating expenses for 2004 decreased from $190 million in 2002 reflecting the impact of restructuring and cost reduction actions. Operating profits for the Real Estate division, which sells higher-use properties, were $124 million, $71 million and $75 million in 2004, 2003 and 2002, respectively. International Paper monetizes its forest assets in various ways, including sales of short- and long-term harvest rights, on a pay-as-cut or lump-sum bulk-sale basis, as well as sales of timberlands. For 2005, our harvest is projected to decline due to a lower inventory of mature timber. In future years, harvests are expected to increase as timber tracts mature and the benefits of higher yield-per-acre initiatives are realized. Average first quarter 2005 southern pine pulpwood, pine sawtimber, and hardwood pulpwood prices are expected to remain close to fourth quarter 2004 levels. Forestland sales will continue to be dependent upon various factors including tract location and the level of investor interest. Wood Products sales in the United States in 2004 of $1.5 billion were up about 15% from both 2003 and 2002. Operating profits in 2004 were about three times higher than in 2003. The business had recorded a net operating loss in 2002. Substantially higher average prices more than offset the effects of increased raw material costs. Average plywood prices rose 22% above 2003 levels and were 43% higher than 2002. Plywood sales volumes in 2004 were slightly higher than 2003 and 2002. Average prices for lumber were up 11% and 13% in 2004 compared with 2003 and 2002, respectively. Lumber sales volumes were up 5% in 2004 versus 2003 and about even with 2002. In 2004, log costs were up 2.5% versus 2003, negatively impacting both plywood and lumber profits. Lumber and plywood operating costs were also negatively impacted by substantially higher raw material and natural gas costs versus both 2003 and 2002. Looking ahead to 2005, robust housing starts in the fourth quarter of 2004, combined with low inventory in the distribution chain, should translate into continued strong	lumber and plywood demand in the first half of 2005. However, an expected slowing in housing starts and higher interest rates in the second half of 2005 could put downward pressure on pricing in the second half of 2005. The lower tariff rate on Canadian lumber imports announced in December may result in higher lumber imports and increased pressure on pricing. However, a weaker U.S. dollar could partially offset this impact. Carter Holt Harvey Carter Holt Harvey, International Paper’s approximately 50.5% owned subsidiary operating principally in New Zealand and Australia, is in many of the same businesses as International Paper, and is thus affected by many of the same economic factors as our other segments. Additionally, Carter Holt Harvey’s reported operating results are sensitive to changes in currency exchange rates, especially changes in the New Zealand dollar versus the U.S. dollar since most operating costs are New Zealand dollar denominated while a large portion of its export sales are denominated in U.S. dollars. Demand for its wood products is largely driven by housing and remodeling activity in Australia and New Zealand. Carter Holt Harvey
	In millions	2004		2003		2002
	Sales		$2,190		$1,820		$1,540
	Operating Profit		$     47		$38		$41
	Carter Holt Harvey’s 2004 U.S. dollar net sales and operating profits were about 20% higher than 2003, due mainly to favorable U.S. dollar translation rates. Net sales for 2004 in New Zealand dollars were up 3% compared with 2003. Operating profit for 2004 in New Zealand dollars was down 5% versus 2003, principally due to higher pension and benefit-related costs. Earnings for Forests in 2004 were down compared with 2003 as the strong New Zealand dollar and increased freight costs negatively impacted price realizations. As a result of the lower realizations, harvest volumes were reduced by 13%. Wood Products earnings were down in 2004 versus 2003, largely due to an unfavorable mix of products sold and higher input costs, somewhat mitigated by improved sales volumes in New Zealand building distribution and the laminated veneer lumber businesses. Pulp and Papers’ 2004 earnings were ahead of 2003, which was impacted by a three-month labor strike at the Kinleith mill, reflecting record production by two key mills in 2004. Packaging’s 2004 earnings were up versus 2003. Lower production costs and benefits from productivity and business restructuring programs contributed to the improved results. During 2004, Carter Holt Harvey sold its Tissue business. Accordingly, all periods presented have been restated to

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separately present the operating results of the Tissue business as a discontinued operation excluded from segment operating results. Market conditions are expected to be challenging in 2005. The New Zealand dollar closed 2004 at its highest ever month-end rate, and should continue to adversely impact New Zealand dollar realizations and shipments into export markets. The log export market is expected to remain difficult, while the housing markets in Australia and New Zealand are expected to remain robust, although down somewhat from 2004 levels. The Company’s total productivity program will continue to contribute to earnings, as will contributions from recently acquired Plantation Timber Products. The planned 2005 acquisitions of the Australian carton business of Wadepack Limited and the structural lumber business of New Zealand based Tenon Limited should also benefit future operating results. Specialty Businesses and Other The Specialty Businesses and Other segment includes the operating results of Arizona Chemical, European Distribution and, prior to its closure in 2003, our Natchez, Mississippi Chemical Cellulose Pulp mill. Also included are certain divested businesses whose results are included in this segment for periods prior to their sale (excluding Weldwood and the Carter Holt Harvey Tissue business that are included in discontinued operations). This segment’s 2004 net sales declined 9% and 23% from 2003 and 2002, respectively. Operating profits in 2004 improved substantially from 2003 and 2002. Both the decline in sales and improved earnings are principally due to lost contributions from businesses previously sold. Specialty Businesses and Other							businesses were approximately $450 million in 2004 (mainly European Distribution and Decorative Products) compared with $610 million in 2003 (mainly European Distribution, Decorative Products and the Chemical Cellulose Pulp mill), and $860 million in 2002. Liquidity and Capital Resources Overview A major factor in International Paper’s liquidity and capital resource planning is its generation of operating cash flow, which is highly sensitive to changes in the pricing and demand for our major products. While changes in key cash operating costs, such as energy and raw material costs, do have an effect on operating cash generation, we believe that our strong focus on cost controls has improved our cash flow generation over an operating cycle. As a result, we believe that we are well positioned for continued strong operating cash flow generation as prices and worldwide economic conditions improve. As part of our continuing focus on improving our return on investment, we have focused our capital spending on those businesses with the best returns and in geographic areas with strong growth opportunities. Spending levels have been kept well below the level of depreciation and amortization charges for each of the last three years, and we anticipate continuing this approach in 2005. With the low interest rate environment in 2004, financing activities have focused largely on the repayment or refinancing of higher coupon debt, resulting in a net reduction in debt of approximately $900 million in 2004. An additional $750 million was subsequently repaid as of February 2005. We plan to continue this program, with a target of reducing consolidated debt balances to approximately $12 billion by the end of 2006. Our liquidity position continues to be strong, with approximately $3.2 billion of committed liquidity to cover future cash flow requirements not met by operating cash flows. Management believes it is important for International Paper to maintain an investment-grade credit rating to facilitate access to capital markets on favorable terms. Cash Provided by Operations Cash provided by operations totaled $2.4 billion for 2004, compared with $1.8 billion in 2003 and $2.1 billion in 2002. The major components of cash provided by operations are net income adjusted for primarily non-cash income and expense items and changes in working capital. Also included in 2004 was $242 million representing cash proceeds from the Maine and New Hampshire forestlands transaction (see
In millions	2004		2003		2002
Sales	$	1,120	$	1,235	$	1,455
Operating Profit	$	38	$	23	$	18
Chemicals sales were $670 million in 2004, compared with $625 million in 2003 and $595 million in 2002. Operating profits in 2004 were flat with 2003 and 27% higher than in 2002 as the impact of increased volumes and manufacturing and overhead cost reduction efforts more than offset increased raw material costs and lower average prices compared with 2003. Other businesses in the above totals include operations that have been sold, closed, or are held for sale, principally the European Distribution business, the oil and gas and mineral royalty business, Decorative Products, Retail Packaging, and the Natchez Chemical Cellulose Pulp mill. Sales for these

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Note 11 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data). Net income adjusted for non-cash items increased $817 million in 2004 compared with 2003. The increase for 2003 over 2002 was $126 million. Working capital, representing International Paper’s investments in accounts receivable and inventory less accounts payable and accrued liabilities, was $4.4 billion at December 31, 2004. Cash used for working capital components totaled $305 million in 2004, compared with $54 million in 2003 and a $344 million decrease in 2002. The increase in 2004 was principally due to an increase in accounts receivable reflecting higher fourth-quarter sales. Investment Activities Capital spending from continuing operations was $1.3 billion in 2004, or 81% of depreciation and amortization as compared to $1.1 billion, or 71% of depreciation and amortization in 2003, and $0.9 billion, or 63% of depreciation and amortization in 2002. The following table presents capital spending from continuing operations by each of our business segments for the years ended December 31, 2004, 2003 and 2002.							manufacturer, Plantation Timber Products (PTP), for $134 million. PTP is a manufacturer of special medium density fiberboard and flooring products. On July 1, 2004, International Paper acquired Box USA, one of America’s leading corrugated packaging companies, for approximately $400 million, including the assumption of approximately $197 million of debt. In December 2002, Carter Holt Harvey acquired Starwood Australia’s Bell Bay medium density fiberboard plant in Tasmania, for $28 million in cash. Each of the above acquisitions was accounted for using the purchase method. The operating results of these mergers and acquisitions have been included in the consolidated statement of operations from the dates of acquisition. Financing Activities 2004: Financing activities during 2004 included debt issuances of $3 billion and retirements of $4.5 billion, including repayments of $193 million of debt assumed in the Box USA acquisition in July and $340 million of debt that was reclassified from Minority interest in 2004 prior to repayment. Excluding these repayments, and currency translation effects, the net reduction in debt during 2004 was approximately $900 million. In December 2004, Timberlands Capital Corp. II, a wholly-owned consolidated subsidiary of International Paper, redeemed $170 million of 4.5% preferred securities. In August 2004, International Paper repurchased $168 million of limited partnership interests in Georgetown Equipment Leasing Associates, L.P. and Trout Creek Equipment Leasing, L.P. Both of these securities had been reclassified from Minority interest to Current maturities of long-term debt prior to their repayment. Also in August 2004, an International Paper wholly-owned subsidiary issued 500 million of Euro-denominated long-term debt (equivalent to approximately $619 million at issuance) with an initial interest rate of EURIBOR plus 55 basis points and a maturity in August 2009. In June 2004, an International Paper wholly-owned subsidiary issued $650 million of long-term debt with an interest rate of LIBOR plus 62.5 basis points and a maturity date of June 2007, which refinanced $650 million of long- term debt having an interest rate of LIBOR plus 100 basis points and a maturity date in August 2004. In April 2004, $1.0 billion of 8.125% coupon rate debt was retired using the proceeds from the March 2004 issuance of $400 million of 5.25% notes due in April 2016 and $600 million of 4.00% notes due in April 2010.
In millions	2004		2003		2002
Printing Papers	$	590	$	482	$	393
Industrial and Consumer Packaging		384		293		254
Distribution		5		12		5
Forest Products		126		121		100
Carter Holt Harvey		86		101		69
Specialty Businesses and Other		39		31		36
Subtotal		1,230		1,040		857
Corporate and other		32		54		79
Total from continuing operations	$	1,262	$	1,094	$	936
In addition, capital spending related to businesses sold and held for sale was $66 million, $72 million and $73 million in 2004, 2003 and 2002, respectively. We expect capital expenditures in 2005 to be about $1.4 billion, or about 83% of depreciation and amortization. Capital allocations will focus on businesses with the best returns, including an upgrade to our Eastover, South Carolina mill, and growth opportunities in Eastern Europe and Brazil where we are conducting a study to evaluate the potential construction of a new mill in Tres Lagoas in the 2007 to 2008 time frame. Mergers and Acquisitions On July 2, 2004, Carter Holt Harvey completed the purchase of an 85% interest in a Chinese premium panels

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In January 2004, approximately $1.0 billion of debt with an 8.05% blended coupon rate was retired, including all of the outstanding $805 million principal amount of International Paper Capital Trust III 7.875% preferred securities, using the proceeds from the two December 2003 issuances of $500 million each of notes discussed below. During 2004, Carter Holt Harvey borrowed $425 million under its multi-currency and commercial paper credit facilities at interest rates ranging from 5.5% to 6.8% to be repaid during 2005. Proceeds from the borrowing were used to repay approximately $305 million of 8.875% notes and cross-currency and interest rate swap settlements with a maturity date of December 2004. In addition to the preceding repayments, various other International Paper borrowings totaling approximately $1.0 billion were repaid in 2004. Other financing activity in 2004 included the issuance of approximately 3,652,000 treasury shares and 2,333,000 common shares under various incentive plans, including stock option exercises that generated $164 million of cash. 2003: Financing activities during 2003 included debt and preferred security issuances of $2.4 billion and retirements totaling $1.4 billion for a net increase of $1.0 billion, before non-cash adjustments under FIN 46 (see Recent Accounting Developments). The increase reflects the timing of $1 billion of borrowings in December 2003 used to retire approximately $1 billion of debt in early 2004 as discussed above. Other 2003 financing activity included the redemption of $550 million and the issuance of $150 million of preferred securities of International Paper subsidiaries. In December 2003, $500 million of 4.25% Senior Unsecured Notes due January 15, 2009, and $500 million of 5.50% Senior Unsecured Notes due January 15, 2014, were issued. In January 2004, the proceeds from these issuances were used to redeem $805 million of 7.875% preferred securities of International Paper Capital Trust III that, prior to July 1, 2003, was a subsidiary of International Paper (see Notes 4 and 8 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data). The remaining proceeds were used for the repayment or early retirement of other debt. In March 2003, $300 million of 3.80% notes due in April 2008, and $700 million of 5.30% notes due in April 2015, were issued. The proceeds from these notes were used to repay approximately $450 million of commercial paper and long-term debt and to redeem $550 million of preferred securities of IP Finance (Barbados) Limited, a non-U.S. consolidated subsidiary of International Paper. In the same period, International Paper sold a minority interest in Southeast Timber, Inc., a consolidated subsidiary of International Paper, to a private investor for $150 million with future dividend payments based on LIBOR. Other financing activity included $26 million for the repurchase of approximately 713,000 shares of International Paper common stock, and the issuance of 2,725,000 treasury shares under various incentive plans, including stock option exercises that generated $80 million of cash. 2002: Financing activities during 2002 included debt issuances of $2.0 billion and retirements of $3.0 billion, for a net debt reduction of $1.0 billion. Debt issuances in 2002 included $1.2 billion of 5.85% Senior Unsecured Notes due in October 2012, the proceeds of which were used to retire most of International Paper’s $1.2 billion of 8.0% notes due July 2003 that were issued in connection with the Champion acquisition. Other financing activity included $169 million for the repurchase of approximately 4,390,000 shares of International Paper common stock, and the issuance of 1,403,000 shares for various incentive plans, including stock option exercises that generated $53 million of cash. Refinancing of high coupon rate debt in the last three years is one means the Company uses to manage interest expense. Another method is the use of interest rate swaps to change the mix between fixed and variable rate debt. At December 31, 2004, International Paper had entered into interest rate swaps with a total notional amount of $2.2 billion. These swaps reduced 2004 interest expense by $52 million before taxes and minority interest, or 236 basis points, on $2.2 billion of related debt. At December 31, 2004, the swaps reduced the weighted average fixed rate on the debt of 5% to an effective rate of 2.6% with maturities ranging from one to 11 years. Dividend payments totaled $485 million in 2004, $480 million in 2003 and $482 million in 2002. The International Paper common stock dividend remained at $1.00 per share during the three-year period. In August 2004, CHH used a portion of the funds generated in connection with the second quarter sale of its Tissue business to repurchase shares from its shareholders, including approximately $158 million that was paid to minority shareholders. At December 31, 2004 and 2003, cash and temporary investments totaled $2.6 billion and $2.4 billion, respectively. Both balances were higher than normal as they included cash proceeds from the sales of Weldwood of Canada Limited and the Maine and New Hampshire forestlands (2004) and $1 billion of borrowings (2003) that were used in part for the retirement of debt in January of the following year.

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Capital Resources Outlook for 2005 International Paper can meet projected capital expenditures, service existing debt and meet working capital and dividend requirements during 2005 through cash from operations, supplemented as required by its various existing credit facilities. International Paper has approximately $3.2 billion of committed liquidity, which we believe is adequate to cover expected operating cash flow variability during our industry’s economic cycles. This includes $2 billion available under contractually committed bank credit agreements and up to $1.2 billion of available commercial paper-based financings under a receivables securitization program. At December 31, 2004, there were no outstanding borrowings under these agreements. Additionally, multi-currency credit facilities equivalent to NZ$725 million are available for liquidity requirements of our Carter Holt Harvey subsidiary in New Zealand. At December 31, 2004, CHH had approximately NZ$381 million of borrowings under these facilities. Liquidity could also be enhanced by possible future earnings repatriation decisions associated with the American Jobs Creation Act of 2004. See Note 9 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data, for additional information. The Company will continue to rely upon debt capital markets for the majority of any necessary funding not provided by operating cash flow or repatriated cash. Funding decisions will be guided by our capital structure planning and liability management practices. The primary goals of the Company’s capital structure planning are to maximize financial flexibility and preserve liquidity while reducing interest expense. In 2005, the Company will continue to access the capital markets where there are opportunities to replace high coupon debt with new financing instruments at lower interest rates, with a target of reducing consolidated debt to approximately $12 billion by the end of 2006. Accordingly, an additional $750 million of debt was subsequently repaid as of February 2005. The majority of International Paper’s debt is accessed through global public capital markets where we have a wide base of investors. The Company was well within the requirements for compliance with all its debt covenants at December 31, 2004. Principal financial covenants include maintenance of a minimum net worth of $9 billion, defined as the sum of common stock, paid-in capital and retained earnings, less treasury stock, plus any goodwill impairment charges, and a maximum total debt to capital ratio, defined as total debt divided by total debt plus net worth plus the minority interest in CHH, of 60%. Maintaining an investment grade credit rating is an important element of International Paper’s financing strategy. At	December 31, 2004, the Company held long-term credit ratings of BBB (negative outlook) and Baa2 (negative outlook) by Standard & Poor’s and Moody’s Investor Services, respectively. The Company currently has short-term credit ratings by Standard & Poor’s and Moody’s Investor Services of A-3 and P-2, respectively . Contractual obligations for future payments under existing debt and lease commitments and purchase obligations at December 31, 2004 were as follows:
	In millions	2005		2006		2007		2008		2009		Thereafter
	Total debt	$	506	$	882	$	1,244	$	326	$	1,326	$	10,354
	Lease obligations		211		170		141		115		67		214
	Purchase obligations (a)		2,723		447		354		337		292		2,700
	Total	$	3,440	$	1,499	$	1,739	$	778	$	1,685	$	13,268
	(a) The 2005 amount includes $2.1 billion for contracts made in the ordinary course of business to purchase pulpwood, logs and wood chips by Forest Resources and Carter Holt Harvey. The majority of our other purchase obligations are take-or-pay or purchase commitments made in the ordinary course of business related to raw material purchases and energy contracts. Other significant items include purchase obligations related to contracted services.
	Critical Accounting Policies The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires International Paper to establish accounting policies and to make estimates that affect both the amounts and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain. Accounting policies whose application may have a significant effect on the reported results of operations and financial position of International Paper, and that can require judgments by management that affect their application, include SFAS No. 5, “Accounting for Contingencies,” SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” SFAS No. 142, “Goodwill and Other Intangible Assets,” SFAS No. 87, “Employers’ Accounting for Pensions,” SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” as amended by SFAS No. 132 and 132R, “Employers’ Disclosures About Pension and Other Postretirement Benefits,” and SFAS No. 109, “Accounting for Income Taxes.” The following is a discussion of the impact of these accounting policies on International Paper:

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Contingent Liabilities. Accruals for contingent liabilities, including legal and environmental matters, are recorded when it is probable that a liability has been incurred or an asset impaired and the amount of the loss can be reasonably estimated. Liabilities accrued for legal matters require judgments regarding projected outcomes and range of loss based on historical experience and recommendations of legal counsel. Additionally, as discussed in Note 10 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data, reserves for projected future claims settlements relating to exterior siding products previously manufactured by Masonite require judgments regarding projections of future claims rates and amounts. International Paper utilizes independent third parties to assist in developing these estimates. Liabilities for environmental matters require evaluations of relevant environmental regulations and estimates of future remediation alternatives and costs. International Paper determines these estimates after a detailed evaluation of each site. Impairment of Long-Lived Assets and Goodwill. An impairment of a long-lived asset exists when the asset’s carrying amount exceeds its fair value, and is recorded when the carrying amount is not recoverable through future operations. A goodwill impairment exists when the carrying amount of goodwill exceeds its fair value. Assessments of possible impairments of long-lived assets and goodwill are made when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable through future operations. Additionally, testing for possible impairment of recorded goodwill and intangible asset balances is required annually. The amount and timing of impairment charges for these assets require the estimation of future cash flows and the fair market value of the related assets. Pension and Postretirement Benefit Obligations. The charges recorded for pension and other postretirement benefit obligations are determined annually in conjunction with International Paper’s consulting actuary, and are dependent upon various assumptions including the expected long-term rate of return on plan assets, discount rates, projected future compensation increases, health care cost trend rates and mortality rates. Income Taxes. International Paper records its world-wide tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. Where the Company believes that the deduction of an item is supportable for income tax purposes, the item is deducted in its income tax returns. However, where treatment of an item is uncertain, tax accruals are recorded based upon the expected most probable outcome taking into consideration the specific tax regulations and facts of each matter, the results of historical negotiated settlements, and the results of consultations with outside specialists. These accruals are recorded in the	accompanying consolidated balance sheet in Other liabilities. Changes to the reserves are only made when an identifiable event occurs that changes the probable outcome, such as settlement with relevant tax authority, the expiration of statutes of limitation for the subject tax year, change in tax laws, or a recent court case that addresses the matter.
	While International Paper believes that these judgments and estimates are appropriate and reasonable under the circumstances, actual resolution of these matters may differ from recorded estimated amounts.
	Significant Accounting Estimates
	Pension and Postretirement Benefit Accounting. The calculations of pension and postretirement benefit obligations and expenses require decisions about a number of key assumptions that can significantly affect liability and expense amounts, including the expected long-term rate of return on plan assets, the discount rate used to calculate plan liabilities, the projected rate of future compensation increases and health care cost trend rates. Benefit obligations and fair values of plan assets as of December 31, 2004, for International Paper’s pension and postretirement plans are as follows:
	In millions			Benefit Obligation				Fair Value of Plan Assets
	U.S. qualified pension			$8,015				$6,745
	U.S. nonqualified pension			279				–
	U.S. postretirement			838				–
	Non-U.S. pension			365				255
	Non-U.S. postretirement			20				–
	The table below shows the assumptions used by International Paper to calculate U.S. pension expenses for the years shown:
		2005			2004		2003			2002
	Discount rate	5.75	%		6.00	%	6.50		%	7.25	%
	Expected long-term return on plan assets	8.50	%		8.75	%	8.75		%	9.25	%
	Rate of compensation increase	3.25	%		3.25	%	3.75		%	4.50	%

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Additionally, the health care cost trend rates used in the calculation of U.S. postretirement obligations for the years shown were:								100% Pension Fund Rolling Three-Year Performance vs. Peers 1998 1999 2000 2001 2002 2003 2004 Percentile Ranking (100% = Best) 75% 50% 25% 0%
				2004	2003		2002
Health care cost trend rate assumed for next year				10.00%	10.00%		10.00%
Rate that the cost trend rate gradually declines to				5.00%	5.00%		5.00%
Year that the rate reaches the rate it is assumed to remain				2009	2008		2007
International Paper determines these actuarial assumptions, after consultation with our actuaries, on December 31 of each year to calculate liability information as of that date and pension and postretirement expense for the following year. The discount rate assumption is determined based on a yield curve that incorporates approximately 570 Aa-graded bonds. The plan’s projected cash flows are then matched to this yield curve to develop the discount rate. The expected long-term rate of return on plan assets reflects projected returns for an investment mix, determined upon completion of a detailed asset/liability study that meets the plans’ investment objectives. Increasing (decreasing) the expected long-term rate of return on U.S. plan assets by an additional 0.25% would decrease (increase) 2005 pension expense by approximately $16 million, while a (decrease) increase of .25% in the discount rate would (increase) decrease pension expense by approximately $22 million. The effect on net postretirement benefit cost from a 1% increase or decrease in the annual trend rate would be approximately $4 million. Actual rates of return earned on U.S. pension plan assets for each of the last 10 years were:								SFAS No. 87, “Employers’ Accounting for Pensions,” provides for delayed recognition of actuarial gains and losses, including amounts arising from changes in the estimated projected plan benefit obligation due to changes in the assumed discount rate, differences between the actual and expected return on plan assets, and other assumption changes. These net gains and losses are recognized in pension expense prospectively over a period that approximates the average remaining service period of active employees expected to receive benefits under the plans (approximately 13 years) to the extent that they are not offset by gains and losses in subsequent years. At December 31, 2004, unrecognized net actuarial losses for International Paper’s U.S. pension plans totaled approximately $2.6 billion. While actual future amortization charges will be affected by future gains/losses, amortization of cumulative unrecognized losses as of December 31, 2004 is expected to increase U.S. pension expense by approximately $53 million in 2005, an additional $41 million in 2006, then decreasing expense by $14 million in 2007. Net periodic pension and postretirement plan expense (income), calculated for all of International Paper’s plans were as follows:
Year	Return		Year			Return		In millions	2004	2003	2002
2004	14.1	%	1999			21.4%		Pension expense (income) - U.S. plans (non-cash) (a)	$111	$ 60	$(75)
2003	26.0	%	1998			10.0%
2002	(6.7	)%	1997			17.2%		Pension expense - non-U.S. plans (b)	44	39	26
2001	(2.4	)%	1996			13.3%		Postretirement benefit cost - U.S. plans (a)	53	55	59
2000	(1.4	)%	1995			19.9%
The following chart, prepared by International Paper, illustrates the quarterly performance ranking of our pension fund investments compared with approximately 100 other corporate and public pension funds. The peer group, of which International Paper is one, is the “State Street Corporate and Public Master Trusts Universe.”								Postretirement benefit cost - non-U.S. plans (b)	5	5	2
								Net expense	$213	$159	$ 12
								(a)      Excludes $4.8 million, $10.9 million and $1.0 million of expense in 2004, 2003 and 2002, respectively, for curtailments, settlements and special termination benefits related to divestitures and restructurings that were recorded in Restructuring and other charges and Net losses (gains) on sales and impairments of businesses held for sale in the consolidated statement of operations. (b)      Excludes $42.7 million of income in 2004 for curtailments and settlements related to divestitures that were recorded in Net losses (gains) on sales and impairments of businesses held for sale in the consolidated statement of operations.

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The increase in 2004 U.S. pension expense, and the change in 2003 to net pension expense from income in 2002, were principally due to a reduction in the expected long-term rate of return on plan assets in 2003, and increases in the amortization of unrecognized actuarial losses, with smaller impacts from reductions in the assumed discount rate and the assumed rate of future compensation increases. For 2005, the Company estimates that it will record net pension expense of approximately $210 million for its U.S. defined benefit plans, with the increase versus 2004 principally reflecting increased amortization of unrecognized actuarial losses over a shorter average remaining service period, a decrease in the assumed discount rate to 5.75% in 2005 from 6.00% in 2004, and a decrease in the expected return on plan assets to 8.50% in 2005 from 8.75% in 2004. The estimated 2005 pension expense for our non-U.S. plans is $32 million, with the decrease from 2004 reflecting the sale of Weldwood. Net postretirement benefit costs in 2005 will decrease by approximately $13 million reflecting the impact of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, partially offset by a decline in the discount rate assumption from 6.00% in 2004 to 5.75% in 2005. The market value of plan assets for International Paper’s U.S. pension plan at December 31, 2004, totaled approximately $6.7 billion, consisting of approximately 62% equity securities, 27% fixed income securities, and 11% real estate and other assets. Plan assets did not include International Paper common stock. International Paper makes contributions that are sufficient to fully fund its actuarially determined costs, generally equal to the minimum amounts required by the Employee Retirement Income Security Act (ERISA). While International Paper may elect to make voluntary contributions to its U.S. qualified plan up to the maximum deductible amount per IRS tax regulations in the coming years, it is unlikely that any contributions to the plan will be required before 2007 unless investment performance is negative or International Paper changes its funding policy to make contributions above the minimum requirements. The U.S. nonqualified plans are only funded to the extent of benefits paid which are expected to be $21 million in 2005. Accounting for Stock Options. International Paper accounts for stock options using the intrinsic value method under Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.” Under this method, compensation expense is recorded over the related service period when the market price exceeds the option price at the measurement date, which is the grant date for International Paper’s options. No compensation expense is recorded as options are issued with an exercise price equal to the market price of International Paper stock on the grant date. During each reporting period, fully diluted earnings per share is calculated by assuming that “in-the-money” options are exercised and the exercise proceeds are used to repurchase shares in the marketplace. When options are actually exercised, option proceeds are credited to equity and issued shares are included in the computation of earnings per common share, with no effect on reported earnings. Equity is also increased by the tax benefit that International Paper will receive in its tax return for income reported by the optionees in their individual tax returns. Under the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” expense for stock options is measured at the grant date based on a computed fair value of options granted, and then charged to expense over the related service period. Had this method of accounting been applied, additional expense of $38 million in 2004, $44 million in 2003, and $41 million in 2002 would have been recorded, decreasing reported earnings (loss) per share by 114% to ($.15) in 2004, 14% to $.54 in 2003, and 5% to ($1.92) in 2002. Beginning in 2005, U.S. employees will no longer receive stock option awards. Accordingly, the provisions of recently issued SFAS No. 123 (revised 2004), that require compensation costs related to share-based payment transactions to be recognized in the financial statements, will mainly affect only previously issued options that are still outstanding and unvested on the effective date, as well as reload grants. While the exact impact on expense will depend upon the number of remaining unvested options at that time, the adoption of this standard could increase pre-tax compensation expense by approximately $20 million in both 2005 and 2006, with no significant impact in subsequent years. At December 31, 2004, 45.4 million options were outstanding with exercise prices ranging from $29.31 to $66.81 per share. At December 31, 2003, 42.8 million options were outstanding with exercise prices ranging from $29.31 to $69.63 per share. Income Taxes Before minority interest, discontinued operations, extraordinary items and the cumulative effect of accounting changes, the effective income tax rates were 28%, (39%) and (24%) for 2004, 2003 and 2002, respectively. These effective tax rates include the tax effects of certain special and unusual items that can affect the effective income tax rate in a given year, but may not recur in subsequent years. Management believes that the effective tax rate computed after excluding these special or unusual items may provide a better estimate of the rate that might be expected in future years if no additional special or unusual items were to occur in those years. Excluding these special and unusual items, the effective income tax rate for 2004 was 26% of pre-tax earnings

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compared with 20% in 2003 and 29% in 2002. The increase in the rate in 2004 reflects a higher proportion of earnings in higher tax rate jurisdictions. We estimate that the 2005 effective income tax rate will be approximately 33% based on expected earnings and business conditions, which are subject to change. Recent Accounting Developments The following represent recently issued accounting pronouncements that will affect reporting and disclosures in future periods. See Note 4 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data for a further discussion of each item. Share-Based Payment Transactions: In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment,” which will require compensation costs related to share-based payment transactions to be recognized in the financial statements. The amount of the compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. This statement applies to all awards granted after the required effective date and to awards modified, repurchased or cancelled after that date. This Statement will be effective for International Paper in the third quarter of 2005. Exchanges of Nonmonetary Assets: In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29,” which replaces the exception from fair value measurement in APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” for nonmonetary exchanges of similar productive assets with a general exception from fair value measurement for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement is to be applied prospectively and is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. International Paper believes that the adoption of SFAS No. 153 will not have a material impact on its consolidated financial statements. Accounting for Income Taxes: In December 2004, the FASB issued FASB Staff Position (FSP) Financial Accounting Standard (FAS) 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004 (the Act)” that provides tax relief to U.S. domestic manufacturers. The FSP states that the manufacturers’ deduction provided for under the Act should be accounted for as a special deduction in accordance with Statement 109 rather than a tax rate reduction. Also in December 2004, the FASB issued FSP FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004,” addressing accounting and disclosure guidance relating to a company’s repatriation program. The additional disclosures required under this staff position are included in Note 9 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. These FSP’s were effective upon issuance. Inventory Costs: In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4,” which requires that abnormal amounts of idle facility expense, freight, handling costs and wasted material be recognized as current-period charges regardless of whether they meet the “so abnormal” criterion outlined in ARB No. 43. This statement also introduces the concept of “normal capacity” and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. Unallocated overheads must be recognized as an expense in the period in which they are incurred. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. International Paper believes that the adoption of SFAS No. 151 will not have a material impact on its consolidated financial statements. Accounting for Medicare Benefits: In May 2004, the FASB issued FSP FAS 106-2 that provides guidance on the accounting and required disclosures for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. International Paper adopted FSP FAS 106-2 prospectively in the third quarter of 2004. The impact was a reduction of net postretirement benefit cost of approximately $8 million for the last half of 2004 and a reduction of the accumulated postretirement benefit obligation of approximately $110 million. Information about Capital Structure – Contingently Convertible Securities: In April 2004, the FASB issued FSP FAS 129-1, Disclosure Requirements under FASB Statement No. 129, “Disclosure of Information about Capital Structure,” relating to contingently convertible securities and to their potentially dilutive effects on earnings per share. The FSP required expanded

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disclosures of the significant terms of the conversion features of these securities to enable users of the financial statements to understand the circumstances of the contingencies and the potential impact of conversion. These additional disclosures are presented for International Paper’s contingently convertible securities in Note 12 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. In October 2004, the FASB ratified a consensus reached by the Emerging Issues Task Force of the FASB that, effective for periods ending after December 15, 2004, contingently convertible securities should be included in the computation of diluted earnings per share regardless of whether or not the market price trigger for issuance of the securities has been met. Furthermore, the calculation of diluted earnings per share for all prior periods presented should be restated to reflect this consensus. At December 31, 2004, International Paper had outstanding $2.1 billion principal amount of zero-coupon convertible senior debentures that are convertible into approximately 20 million shares of common stock subject to certain conditions. Accordingly, the calculation of diluted earnings per common share shown in Note 2 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data, reflects the assumed conversion of these debentures for all periods presented. Consolidation of Variable Interest Entities: In January 2003, the FASB issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” This Interpretation changed existing consolidation rules for certain entities, those in which equity investors do not have the characteristics of a controlling financial interest, or do not have sufficient equity at risk for the entity to finance the entity’s activities without additional subordinated financial support. The interpretation applied immediately to variable interest entities (VIE’s) created after January 31, 2003, and to VIE’s in which an enterprise obtains an interest after that date. International Paper neither entered into nor obtained an interest in any VIE’s after January 31, 2003. For VIE’s created before February 1, 2003, this interpretation was effective for the first reporting period ending after December 15, 2003. During December 2003, the FASB issued a revision to FIN 46 (FIN 46(R)) with varying effective dates. International Paper, applied FIN 46(R) to its variable interest entities as of December 31, 2003. The cumulative effect of adoption of FIN 46(R) amounted to a $3 million charge after taxes. Financial Instruments with Characteristics of both Liabilities and Equity: In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” It established standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This standard was effective for financial instruments entered into or modified after May 31, 2003, and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. International Paper adopted this standard during the third quarter ended September 30, 2003, with no material effect on the Company’s financial statements. Costs Associated with Exit or Disposal Activities: In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The statement changed the measurement and timing of recognition for exit costs, including restructuring charges, and was effective for activities initiated after December 31, 2002. It requires that a liability for costs associated with an exit or disposal activity, such as one-time termination benefits, be recognized when the liability is incurred, rather than at the date of a company’s commitment to an exit plan. It had no effect on charges recorded for exit activities begun prior to December 31, 2002. International Paper adopted this standard effective January 1, 2003, with no material effect on the Company’s financial statements. Impairment and Disposal of Long-Lived Assets: In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” It established a single accounting model for the impairment of long-lived assets to be held and used or to be disposed of by sale or abandonment, and broadened the definition of discontinued operations. International Paper adopted SFAS No. 144 in 2002, with no significant change in the accounting for the impairment and disposal of long-lived assets. Asset Retirement Obligations: In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” It requires the recording of an asset and a liability equal to the present value of the estimated costs associated with the retirement of long-lived assets where a legal or contractual obligation exists. The asset is required to be depreciated over the life of the related equipment or facility, and the liability accreted each year using a credit- adjusted risk-free rate. International Paper adopted SFAS No. 143 effective January 1, 2003, recording a discounted liability of $22 million, an

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increase in Property, plant and equipment, net, of $7 million, and a one-time cumulative effect of accounting change charge of $10 million (net of a deferred tax benefit of $5 million). Legal Proceedings Environmental Matters International Paper is subject to extensive federal and state environmental regulation as well as similar regulations in all other jurisdictions in which we operate. Our continuing objectives are to: (1) control emissions and discharges from our facilities into the air, water and groundwater to avoid adverse impacts on the environment, (2) make continual improvements in environmental performance, and (3) maintain 100% compliance with applicable laws and regulations. A total of $99 million was spent in 2004 for capital projects to control environmental releases into the air and water, and to assure environmentally sound management and disposal of waste. We expect to spend approximately $140 million in 2005 for similar capital projects, including the costs to comply with the Environmental Protection Agency’s (EPA) Cluster Rule regulations. Amounts to be spent for environmental control projects in future years will depend on new laws and regulations and changes in legal requirements and environmental concerns. Taking these uncertainties into account, our preliminary estimate for additional environmental appropriations during the year 2006 is approximately $121 million, and during the year 2007 is approximately $42 million. The reduced capital forecast for 2007 reflects the reduction in Cluster Rule spending and completion of significant environmental improvement projects in Brazil. On April 15, 1998, the EPA issued final Cluster Rule regulations that established new requirements regarding air emissions and wastewater discharges from pulp and paper mills to be met by 2006. The projected costs included in our spending estimate related to the Cluster Rule regulations for the year 2005 are $61 million. Included in this estimate are costs associated with pulp and paper industry combustion source standards that were issued by the EPA on January 12, 2001. Total projected Cluster Rule costs for 2006 through 2007 are $58 million. The EPA is continuing the development of new programs and standards such as additional wastewater discharge allocations, water intake structure requirements and national ambient air quality standards. When regulatory requirements for new and changing standards are finalized, we will add any resulting future cost requirements to our expenditure forecast. International Paper has been named as a potentially responsible party in a total of 88 environmental remediation actions under various federal and state laws, including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Most of these proceedings involve the cleanup of hazardous substances at large commercial landfills that received waste from many different sources. While joint and several liability is authorized under CERCLA and equivalent state laws, as a practical matter, liability for CERCLA cleanups is allocated among the many potential responsible parties. Based upon previous experience with respect to the cleanup of hazardous substances and upon presently available information, International Paper believes that it has de minimis or no liability with respect to 20 of these sites; that liability is not likely to be significant at 29 sites; and estimates that liability at the remaining 39 sites is likely to be significant, but not material to International Paper’s consolidated financial statements. Related costs are recorded in the financial statements when they are probable and reasonably estimable. International Paper believes that the probable liability associated with these 88 proceedings is approximately $48 million. In addition to the above 88 proceedings, other remediation costs recorded as liabilities in the balance sheet totaled approximately $37 million. Completion of these actions is not expected to have a material adverse effect on our consolidated financial statements. As of February 2005, there were no other pending judicial proceedings, brought by government authorities against International Paper, for alleged violations of applicable environmental laws or regulations. Finally, on October 10, 2003, the Company was served with a civil administrative complaint by the EPA seeking a civil penalty of $673,969 based on alleged hazardous waste deficiencies at the Company’s treated pole facility in Joplin, Missouri. In August 2004, the Company and the EPA settled the matter and the Company agreed to pay a penalty in the amount of $86,649 and to perform additional environmental assessments of the facility. International Paper is involved in other contractual disputes, administrative and legal proceedings and investigations of various types. While any litigation, proceeding or investigation has an element of uncertainty, we believe that the outcome of any proceeding, lawsuit or claim that is pending or threatened, or all of them combined, will not have a material adverse effect on our consolidated financial statements. Litigation See Note 10 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data, for a detailed discussion of each of the following litigation matters. Exterior Siding and Roofing Litigation: Three nationwide class action lawsuits filed against International Paper have been settled in recent years. A provision of $450

30

million was recorded in 2002 to increase existing reserve balances to projected settlement amounts. At December 31, 2004, reserves for these actions totaled $259 million. Insurance Matters: In connection with one of the exterior siding and roofing actions above, International Paper commenced a lawsuit against certain insurance carriers relating to their refusal to indemnify International Paper and, in the case of one insurance carrier, also for its refusal to provide a defense. In July 2003, a jury determined that $383 million of International Paper’s payments to settle these claims are covered by its insurance policies. International Paper is engaged in further court proceedings to determine each carrier’s allocable share. International Paper is also participating in court-ordered mediation with some of those insurance carriers and has settled its claims with certain other insurance carriers. In addition, International Paper was involved in a dispute with a third party regarding $100 million paid to International Paper under an alternative risk-transfer agreement. In February 2004, an agreement was reached whereby International Paper agreed to pay the third party a portion of future insurance proceeds as they are recovered by International Paper beginning in 2004, up to a maximum of $95 million. Antitrust Matters: In 2003, International Paper, along with two other defendants, settled a class action lawsuit alleging that it and other manufacturers of linerboard conspired to fix prices for corrugated sheets and containers during the period October 1, 1993, through November 30, 1995. International Paper’s share of this settlement, with a substantial proportion of the class (which included claims brought against Union Camp acquired by the Company in 1999), was $24.4 million. In connection with this class action lawsuit, a number of plaintiffs opted out of the class action and filed lawsuits in various federal district courts. These lawsuits, which have been consolidated for pretrial purposes in federal court in Pennsylvania, allege a class period of October 1, 1993 through February 28, 1997. In addition to the foregoing the Company is a defendant in several other antitrust class actions. One of the matters, relating to the Company’s fiber procurement, has been certified as a class action in the federal court in the District of South Carolina. Another purported class action involves publication papers, and has been recently consolidated for pre-trial purposes in the federal court for the District of Connecticut. Discovery in that case has not yet begun. The Company is vigorously defending these cases and believes it has valid defenses. Effect of Inflation While inflationary increases in certain input costs, such as energy, wood fiber and chemical costs, have an impact on the Company’s operating results, changes in general inflation have had minimal impact on our operating results in the last three years. Sales prices and volumes are more strongly influenced by supply and demand factors in specific markets and by exchange rate fluctuations than by inflationary factors. Foreign Currency Effects International Paper has operations in a number of countries. Its operations in those countries also export to, and compete with imports from, other regions. As such, currency movements can have a number of direct and indirect impacts on the Company’s financial statements. Direct impacts include the translation of international operations’ local currency financial statements into U.S. dollars. Indirect impacts include the change in competitiveness of imports into, and exports out of, the United States (and the impact on local currency pricing of products that are traded internationally). In general, a lower U.S. dollar and stronger local currency is beneficial to International Paper. The currencies that have the most impact are the Euro, the Canadian dollar, the New Zealand dollar, the Brazilian real, the Polish zloty and the Russian ruble. Market Risk We use financial instruments, including fixed and variable rate debt, to finance operations, for capital spending programs and for general corporate purposes. Additionally, financial instruments, including various derivative contracts, are used to hedge exposures to interest rate, commodity and foreign currency risks. We do not use financial instruments for trading purposes. Information related to International Paper’s debt obligations is included in Note 12 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. A discussion of derivatives and hedging activities is included in Note 13 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. The fair value of our debt and financial instruments varies due to changes in market interest and foreign currency rates and commodity prices since the inception of the related instruments. We assess this market risk utilizing a sensitivity analysis. The sensitivity analysis measures the potential loss in earnings, fair values and cash flows based on a hypothetical 10% change (increase and decrease) in interest and currency rates and commodity prices.

31

Interest Rate Risk Our exposure to market risk for changes in interest rates relates primarily to short- and long-term debt obligations and investments in marketable securities. We invest in investment grade securities of financial institutions and industrial companies and limit exposure to any one issuer. Our investments in marketable securities at December 31, 2004 are stated at cost, which approximates market due to their short-term nature. Our interest rate risk exposure related to these investments was immaterial. We issue fixed and floating rate debt in a proportion consistent with International Paper’s optimal capital structure, while at the same time taking advantage of market opportunities to reduce interest expense as appropriate. Derivative instruments, such as interest rate swaps, may be used to implement the optimal capital structure. At December 31, 2004 and 2003, the net fair value liability of financial instruments with exposure to interest rate risk was approximately $11.3 billion and $11.8 billion, respectively. The potential loss in fair value resulting from a 10% adverse shift in quoted interest rates would be approximately $419 million and $430 million for 2004 and 2003, respectively. Commodity Price Risk The objective of our commodity exposure management is to minimize volatility in earnings due to large fluctuations in the price of commodities. Commodity swap and option contracts have been used to manage risks associated with market fluctuations in energy prices. There are no outstanding energy hedge contracts as of December 31, 2004. As of December 31, 2003, the net fair value of such contracts was a $5 million asset. The potential loss in fair value resulting from a 10% adverse change in the underlying commodity prices would have been immaterial for 2003. Foreign Currency Risk International Paper transacts business in many currencies and is also subject to currency exchange rate risk through investments and businesses owned and operated in foreign countries. Our objective in managing the associated foreign currency risks is to minimize the effect of adverse exchange rate fluctuations on our after-tax cash flows. We address these risks on a limited basis through financing a portion of our investments in overseas operations with borrowings denominated in the same currency as the operation’s functional currency, or by entering into long-term cross-currency and interest rate swaps, or short-term foreign exchange contracts. At December 31, 2004 and 2003, the net fair value liability of financial instruments with exposure to foreign currency risk was approximately $510 million and $540 million, respectively. The potential loss in fair value for such financial instruments from a 10% adverse change in quoted foreign currency exchange rates would be immaterial for both 2004 and 2003. ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See the discussion under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 31 and 32, and under Item 8. Financial Statements and Supplementary Data in Note 13 of the Notes to Consolidated Financial Statements on pages 69 through 71.

32

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Information by Industry Segment and Geographic Area For information about our industry segments, see the “Description of Industry Segments” included on pages 15 through 17 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. For management purposes, we report the operating performance of each business based on earnings before interest and income taxes (“EBIT”) excluding special and extraordinary items, gains or losses on sales of businesses and cumulative effects of accounting changes. Our Carter Holt Harvey segment includes our share, about half, of their operating earnings adjusted for accounting principles generally accepted in the United States of America. The remaining half is included in minority interest. Intersegment sales and transfers are recorded at current market prices. External Sales by Major Product is determined by aggregating sales from each segment based on similar products or services. External sales are defined as those that are made to parties outside International Paper’s consolidated group, whereas sales by segment in the Net Sales table are determined by the management approach and include intersegment sales. Capital Spending by Industry Segment is reported on page 22 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Prior-year industry segment information has been restated to conform to the 2004 management structure and to reflect the Weldwood of Canada Limited business and Carter Holt Harvey Tissue business sold in 2004 as discontinued operations.	INFORMATION BY INDUSTRY SEGMENT
	Net Sales
	In millions		2004			2003			2002
	Printing Papers	$	7,635		$	7,245		$	7,265
	Industrial and Consumer Packaging		7,470			6,670			6,530
	Distribution		6,065			5,860			5,990
	Forest Products		2,395			2,390			2,525
	Carter Holt Harvey		2,190			1,820			1,540
	Specialty Businesses and Other (a)		1,120			1,235			1,455
	Corporate and Intersegment Sales		(1,327	)		(1,265	)		(1,406	)
	Net Sales	$	25,548		$	23,955		$	23,899
	Assets
	In millions		2004			2003			2002
	Printing Papers	$	9,171		$	8,948		$	9,011
	Industrial and Consumer Packaging		6,865			6,499			6,468
	Distribution		1,515			1,458			1,533
	Forest Products		3,068			3,324			3,564
	Carter Holt Harvey		4,026			3,731			3,108
	Specialty Businesses and Other (a)		652			625			694
	Corporate and other (b)		8,920			10,940			9,414
	Assets	$	34,217		$	35,525		$	33,792
	Operating Profit
	In millions		2004			2003			2002
	Printing Papers	$	579		$	460		$	545
	Industrial and Consumer Packaging		543			451			551
	Distribution		87			80			91
	Forest Products		793			720			641
	Carter Holt Harvey		47			38			41
	Specialty Businesses and Other (a)		38			23			18
	Operating Profit		2,087			1,772			1,887
	Interest expense, net		(743	)		(772	)		(785	)
	Minority interest (c)		59			48			43
	Corporate items, net		(469	)		(466	)		(253	)
	Restructuring and other charges		(211	)		(298	)		(695	)
	Insurance recoveries		123			—			—
	Reversals of reserves no longer required		35			40			68
	Net gains (losses) on sales and impairments of businesses held for sale		(135	)		(32	)		41
	Earnings from Continuing Operations Before Income Taxes and Minority Interest	$	746		$	292		$	306

33

Restructuring and Other Charges										INFORMATION BY GEOGRAPHIC AREA
In millions		2004			2003				2002	Net Sales (f)
Printing Papers	$	––	$		26			$	85	In millions		2004					2003			2002
Industrial and Consumer Packaging		––			30				31
Distribution		––			7				13	United States (g)	$	19,167			$		18,138	$		18,772
Forest Products		––			31				12	Europe		3,056					2,928			2,636
Carter Holt Harvey		35			12				28	Pacific Rim (h)		2,405					2,025			1,735
Specialty Businesses and Other (a)		––			69				19	Americas, other than U.S.		920					864			756
Corporate		176			123				507
										Net Sales	$	25,548			$		23,955	$		23,899
Restructuring and Other Charges	$	211	$		298			$	695
										European Sales by Industry Segment
Depreciation and Amortization (d)
										In millions			2004			2003					2002
In millions		2004		2003					2002
										Printing Papers	$		1,370	$		1,291			$		1,152
Printing Papers	$	700	$	682				$	665	Industrial and Consumer
Industrial and Consumer Packaging		405		396					391	Packaging			891			822					703
Distribution		17		14					15	Distribution			2			9					15
Forest Products		111		119					115	Specialty Businesses and
Carter Holt Harvey		208		190					181	Other (a)			793			806					766
Specialty Businesses and Other (a)		27		25					19
Corporate		97		112					111	European Sales	$		3,056	$		2,928			$		2,636
Depreciation and Amortization	$	1,565	$	1,538				$	1,497
										Long-Lived Assets (i)
External Sales by Major Product										In millions			2004			2003					2002
In millions		2004		2003			2002			United States	$		11,764	$		12,102			$		12,630
										Europe			1,489			1,334					1,206
Printing Papers	$	6,973	$	6,395		$	6,109			Pacific Rim (h)			3,109			2,867					2,436
Industrial and Consumer Packaging		7,640		6,895			6,852			Americas, other than U.S.			718			629					477
Distribution		6,306		6,191			6,519			Corporate			288			307					308
Forest Products		3,953		3,738			3,642
Other (e)		676		736			777			Long-Lived Assets	$		17,368	$		17,239			$		17,057
Net Sales	$	25,548	$	23,955		$	23,899

(a) Includes Arizona Chemical and Chemical Cellulose Pulp. Also included are certain other smaller businesses identified in the Company’s divestiture program.

(b) Includes corporate assets and assets of discontinued operations in 2003 and 2002.

(c) Operating profits for industry segments include each segment’s percentage share of the profits of subsidiaries included in that segment that are less than wholly-owned. The pre-tax minority interest for these subsidiaries is added here to present consolidated earnings before income taxes, minority interest, extraordinary items, and cumulative effect of accounting changes.

(d) Includes cost of timber harvested.

(e) Includes sales of products not included in our major product lines.

(f) Net sales are attributed to countries based on location of seller.

(g) Export sales to unaffiliated customers (in billions) were $1.5 in 2004, $1.4 in 2003 and $1.3 in 2002.

(h) Operations in New Zealand and Australia account for most of the Pacific Rim amounts.

(i) Long-Lived Assets includes Forestlands and Plants, Properties and Equipment, net.

 

34

Report of Management on: Financial Statements - The management of International Paper Company is responsible for the preparation of the consolidated financial statements in this annual report. The consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America considered appropriate in the circumstances to present fairly the Company’s consolidated financial position, results of operations and cash flows on a consistent basis. Management has also prepared the other information in this annual report and is responsible for its accuracy and consistency with the consolidated financial statements. As can be expected in a complex and dynamic business environment, some financial statement amounts are based on estimates and judgments. However, measures have been taken to provide reasonable assurance of the integrity and reliability of the financial information contained in this annual report. We have formed a Disclosure Committee to oversee this process. The accompanying consolidated financial statements have been audited by the independent registered public accounting firm, Deloitte & Touche LLP. During their audits, they were given unrestricted access to all financial records and related data, including minutes of all meetings of stockholders and the board of directors and all committees of the board. Management believes that all representations made to the independent auditors during their audits were valid and appropriate. Internal Controls over Financial Reporting - The management of International Paper Company is also responsible for establishing and maintaining adequate internal controls over financial reporting including the safeguarding of assets against unauthorized acquisition, use or disposition. These controls are designed to provide reasonable assurance to management and the board of directors regarding preparation of reliable published financial statements and such asset safeguarding. The system is supported by written policies and procedures, contains self-monitoring mechanisms, and is audited by internal audit. Appropriate actions are taken by management to correct deficiencies as they are identified. The Company has assessed the effectiveness of its internal control over financial reporting as of December 31, 2004. In making this assessment, it used the criteria described in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management believes that, as of December 31, 2004, the Company’s internal control over financial reporting is effective. Deloitte & Touche LLP, have issued their report on management’s assessment of the effectiveness of the Company’s internal control over financial reporting. The report appears on page 37. Internal Control Environment and Board ofDirectors Oversight - Our internal control environment includes an enterprise-wide attitude of integrity and control consciousness that establishes a positive “tone at the top.” This is exemplified by our ethics program that includes long-standing principles and policies on ethical business conduct that require employees to maintain the highest ethical and legal standards in the conduct of International Paper business, that have been distributed to all employees, a toll-free telephone helpline whereby any employee may report suspected violations of law or International Paper’s policy, and an office of ethics and business practice. The internal controls system further includes careful selection and training of supervisory and management personnel, appropriate delegation of authority and division of responsibility, dissemination of accounting and business policies throughout International Paper, and an extensive program of internal audits with management follow-up. The Board of Directors, assisted by the Audit and Finance Committee (Committee), monitors the integrity of the Company’s financial statements and financial reporting procedures, the performance of the Company’s internal audit function and independent auditors, and other matters set forth in its charter. The Committee, which currently consists of four independent directors, meets regularly with representatives of management, and with the independent auditors and the Internal Auditor, with and without management representatives in attendance, to review their activities. The Committee’s Charter takes into account the New York Stock Exchange rules relating to Audit Committees and the SEC rules and regulations promulgated as a result of the Sarbanes-Oxley Act of 2002. A copy of the charter will be included in the Company’s definitive proxy statement relating to the annual meeting of shareholders in 2005. The Committee has reviewed and discussed the consolidated financial statements for the year ended December 31, 2004, including critical accounting policies and significant management judgments, with management and the independent auditors. The Committee’s report recommending the inclusion of such financial statements in this Annual Report on Form 10-K will be set forth in our proxy statement.
JOHN V. FARACI
Chairman and Chief Executive Officer
March 7, 2005
CHRISTOPHER P. LIDDELL
Senior Vice-President and Chief Financial Officer
March 7, 2005

35

Report of Deloitte & Touche LLP,
Independent Registered Public Accounting Firm,
on Consolidated Financial Statements

To the Shareholders of International Paper Company:

We have audited the accompanying consolidated balance sheets of International Paper Company and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related statements of operations, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of International Paper Company and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 7, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

NEW YORK, N.Y.
MARCH 7, 2005

36

Report of Deloitte & Touche LLP,
Independent Registered Public Accounting Firm,
on Internal Controls Over Financial Reporting To the Shareholders of International Paper Company: We have audited management’s assessment, included in the accompanying Report of Management on Internal Controls over Financial Reporting, that International Paper Company and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2004 of the Company and our report dated March 7, 2005 expressed an unqualified opinion on those financial statements and financial statement schedule.
NEW YORK, N.Y.
MARCH 7, 2005

37

International Paper Company

CONSOLIDATED STATEMENT OF OPERATIONS
In millions, except per share amounts, for the years ended December 31	2004			2003			2002
Net Sales	$	25,548		$	23,955		$	23,899
Costs and Expenses
Cost of products sold		18,996			17,878			17,468
Selling and administrative expenses		2,005			1,952			2,022
Depreciation, amortization and cost of timber harvested		1,565			1,538			1,497
Distribution expenses		1,054			992			993
Taxes other than payroll and income taxes		242			241			242
Restructuring and other charges		211			298			695
Insurance recoveries		(123	)		—			—
Net losses (gains) on sales and impairments of businesses held for sale		144			32			(41	)
Reversals of reserves no longer required, net		(35	)		(40	)		(68	)
Interest expense, net		743			772			785
Earnings From Continuing Operations Before Income Taxes and Minority Interest		746			292			306
Income tax provision (benefit)		206			(113	)		(72	)
Minority interest expense, net of taxes		62			111			118
Earnings From Continuing Operations		478			294			260
Discontinued operations, net of taxes and minority interest		(513	)		21			35
Cumulative effect of accounting changes, net of taxes and minority interest:
Asset retirement obligations		—			(10	)		—
Variable interest entities		—			(3	)		—
Transitional goodwill impairment charge		—			—			(1,175	)
Net Earnings (Loss)	$	(35	)	$	302		$	(880	)
Basic Earnings (Loss) Per Common Share
Earnings from continuing operations	$	0.98		$	0.62		$	0.54
Discontinued operations, net of taxes and minority interest		(1.05	)		0.04			0.07
Cumulative effect of accounting changes, net of taxes and minority interest:
Asset retirement obligations		—			(0.02	)		—
Variable interest entities		—			(0.01	)		—
Transitional goodwill impairment charge		—			—			(2.44	)
Net earnings (loss)	$	(0.07	)	$	0.63		$	(1.83	)
Diluted Earnings (Loss) Per Common Share
Earnings from continuing operations	$	0.98		$	0.61		$	0.54
Discontinued operations, net of taxes and minority interest		(1.05	)		0.04			0.07
Cumulative effect of accounting changes, net of taxes and minority interest:
Asset retirement obligations		—			(0.02	)		—
Variable interest entities		—			(0.01	)		—
Transitional goodwill impairment charge		—			—			(2.43	)
Net earnings (loss)	$	(0.07	)	$	0.63		$	(1.82	)

The accompanying notes are an integral part of these financial statements.

38

International Paper Company

CONSOLIDATED BALANCE SHEET
In millions at December 31	2004			2003
Assets
Current Assets
Cash and temporary investments	$	2,596		$	2,363
Accounts and notes receivable, less allowances of $128 in 2004 and $135 in 2003		2,994			2,765
Inventories		2,718			2,767
Assets of businesses held for sale		229			2,104
Deferred income tax assets		470			581
Other current assets		312			516
Total Current Assets		9,319			11,096
Plants, Properties and Equipment, net		13,432			13,260
Forestlands		3,936			3,979
Investments		679			678
Goodwill		4,994			4,793
Deferred Charges and Other Assets		1,857			1,719
Total Assets	$	34,217		$	35,525
Liabilities and Common Shareholders’ Equity
Current Liabilities
Notes payable and current maturities of long-term debt	$	506		$	2,087
Accounts payable		2,279			2,188
Accrued payroll and benefits		492			445
Liabilities of businesses held for sale		82			645
Other accrued liabilities		1,513			1,905
Total Current Liabilities		4,872			7,270
Long-Term Debt		14,132			13,450
Deferred Income Taxes		1,697			1,387
Other Liabilities		3,714			3,559
Minority Interest		1,548			1,622
Commitments and Contingent Liabilities - Note 10
Common Shareholders’ Equity
Common stock, $1 par value, 2004 - 487.5 shares, 2003 - 485.2 shares		487			485
Paid-in capital		6,562			6,500
Retained earnings		2,562			3,082
Accumulated other comprehensive loss		(1,357	)		(1,690	)
		8,254			8,377
Less: Common stock held in treasury, at cost, 2003 - 3.7 shares		—			140
Total Common Shareholders’ Equity		8,254			8,237
Total Liabilities and Common Shareholders’ Equity	$	34,217		$	35,525

The accompanying notes are an integral part of these financial statements.

39

International Paper Company

CONSOLIDATED STATEMENT OF CASH FLOWS
In millions for the years ended December 31	2004			2003			2002
Operating Activities
Net earnings (loss)	$	(35	)	$	302		$	(880	)
Discontinued operations, net of taxes and minority interest		513			(21	)		(35	)
Cumulative effect of accounting changes, net of taxes and minority interest		—			13			1,175
Depreciation, amortization and cost of timber harvested		1,565			1,538			1,497
Deferred income tax benefit, net		(114	)		(397	)		(389	)
Restructuring and other charges		211			298			695
Payments related to restructuring and legal reserves		(236	)		(270	)		(340	)
Reversals of reserves no longer required, net		(35	)		(40	)		(68	)
Net losses (gains) on sales and impairments of businesses held for sale		144			32			(41	)
Proceeds on Maine timberlands transaction		242			—			—
Other, net		438			421			136
Changes in current assets and liabilities
Accounts and notes receivable		(186	)		74			98
Inventories		(66	)		(21	)		53
Accounts payable		93			(55	)		247
Accrued liabilities		(23	)		(39	)		(47	)
Other		(123	)		(13	)		(7	)
Cash Provided By Operations		2,388			1,822			2,094
Investment Activities
Invested in capital projects
Continuing operations		(1,262	)		(1,094	)		(936	)
Businesses sold and held for sale		(66	)		(72	)		(73	)
Mergers and acquisitions, net of cash acquired		(305	)		—			(28	)
Proceeds from divestitures		1,471			78			535
Other		217			(179	)		22
Cash Provided By (Used For) Investment Activities		55			(1,267	)		(480	)
Financing Activities
Issuance of common stock		164			80			53
Issuance of debt		2,962			2,254			2,011
Reduction of debt		(4,533	)		(839	)		(3,017	)
Redemption of preferred securities of a subsidiary		—			(550	)		—
CHH share repurchase		(158	)		—			—
Change in book overdrafts		(145	)		104			(33	)
Purchases of treasury stock		—			(26	)		(169	)
Dividends paid		(485	)		(480	)		(482	)
Sale of minority interest		—			150			50
Other		(240	)		(102	)		(145	)
Cash (Used For) Provided By Financing Activities		(2,435	)		591			(1,732	)
Effect of Exchange Rate Changes on Cash		225			143			(32	)
Change In Cash and Temporary Investments		233			1,289			(150	)
Cash and Temporary Investments
Beginning of the year		2,363			1,074			1,224
End of the year	$	2,596		$	2,363		$	1,074

The accompanying notes are an integral part of these financial statements.

40

International Paper Company

CONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS’ EQUITY

In millions, except share amounts in thousands
									Accumulated Other Comprehensive Income (Loss)(1)								Total Common Shareholders' Equity
	Common Stock Issued			Paid-in Capital		Retained Earnings						Treasury Stock
	Shares	Amount										Shares		Amount
Balance, January 1, 2002	484,281	$	484	$	6,465	$	4,622		$	(1,175	)	2,693		$	105		$	10,291
Issuance of stock for various plans	479		1		28		—			—		(1,403	)		(55	)		84
Repurchase of stock	—		—		—		—			—		4,390			169			(169	)
Cash dividends - Common stock ($1.00 per share)	—		—		—		(482	)		—		—			—			(482	)
Comprehensive income (loss):
Net loss	—		—		—		(880	)		—		—			—			(880	)
Minimum pension liability adjustment:
U.S. plans (less tax of $964)	—		—		—		—			(1,543	)	—			—			(1,543	)
Non-U.S. plans (less tax of $9)	—		—		—		—			(21	)	—			—			(21	)
Change in cumulative foreign currency translation adjustment (less tax of $2)	—		—		—		—			27		—			—			27
Net gains on cash flow hedging derivatives:
Net gain arising during the period (less tax of $33)	—		—		—		—			71		—			—			71
Less: Reclassification adjustment for gains included in net income (less tax of $3)	—		—		—		—			(4	)	—			—			(4	)
Total comprehensive loss																		(2,350	)
Balance, December 31, 2002	484,760		485		6,493		3,260			(2,645	)	5,680			219			7,374
Issuance of stock for various plans	402		—		7		—			—		(2,725	)		(105	)		112
Repurchase of stock	—		—		—		—			—		713			26			(26	)
Cash dividends - Common stock ($1.00 per share)	—		—		—		(480	)		—		—			—			(480	)
Comprehensive income (loss):
Net income	—		—		—		302			—		—			—			302
Minimum pension liability adjustment:
U.S. plans (less tax of $94)	—		—		—		—			150		—			—			150
Non-U.S. plans (less tax of $2)	—		—		—		—			(4	)	—			—			(4	)
Change in cumulative foreign currency translation adjustment (less tax of $51)	—		—		—		—			808		—			—			808
Net gains on cash flow hedging derivatives:
Net gain arising during the period (less tax of $38)	—		—		—		—			66		—			—			66
Less: Reclassification adjustment for gains included in net income (less tax of $36)	—		—		—		—			(65	)	—			—			(65	)
Total comprehensive income																		1,257
Balance, December 31, 2003	485,162		485		6,500		3,082			(1,690	)	3,668			140			8,237
Issuance of stock for various plans	2,333		2		62		—			—		(3,652	)		(140	)		204
Cash dividends - Common stock ($1.00 per share)	—		—		—		(485	)		—		—			—			(485	)
Comprehensive income (loss):
Net loss	—		—		—		(35	)		—		—			—			(35	)
Minimum pension liability adjustment:
U.S. plans (less tax of $20)	—		—		—		—			33		—			—			33
Non-U.S. plans (less tax of $5)	—		—		—		—			1		—			—			1
Change in cumulative foreign currency translation adjustment (less tax of $17)	—		—		—		—			255		—			—			255
Net gains on cash flow hedging derivatives:
Net gain arising during the period (less tax of $19)	—		—		—		—			70		—			—			70
Less: Reclassification adjustment for gains included in net income (less tax of $13)	—		—		—		—			(26	)	—			—			(26	)
Total comprehensive income																		298
Balance, December 31, 2004	487,495	$	487	$	6,562	$	2,562		$	(1,357	)	16		$	—		$	8,254

(1) The cumulative foreign currency translation adjustment (in millions) was $(29), $(284) and $(1,092) at December 31, 2004, 2003 and 2002, respectively, and is included as a component of accumulated other comprehensive income (loss).

The accompanying notes are an integral part of these financial statements.

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Notes to Consolidated Financial Statements NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Our Business International Paper is a global forest products, paper and packaging company that is complemented by an extensive North American merchant distribution system, with primary markets and manufacturing operations in the United States, Europe, the Pacific Rim and South America. Substantially all of our businesses have experienced, and are likely to continue to experience, cycles relating to available industry capacity and general economic conditions. Financial Statements These financial statements have been prepared in conformity with accounting principles generally accepted in the United States that require the use of management’s estimates. Actual future results could differ from management’s estimates. Consolidation The consolidated financial statements include the accounts of International Paper and its wholly-owned, controlled majority-owned and financially controlled subsidiaries. Minority interest principally represents minority shareholders’ proportionate share of the equity in our consolidated subsidiary, Carter Holt Harvey Limited (CHH). All significant intercompany balances and transactions are eliminated. Investments in affiliated companies are accounted for by the equity method, including companies owned 20% to 50%. International Paper’s share of affiliates’ earnings totalled $18 million, $10 million and ($10) million in 2004, 2003 and 2002, respectively. Revenue Recognition Revenue is recognized when the customer takes title and assumes the risks and rewards of ownership. Revenue is recorded at the time of shipment for terms designated f.o.b. (free on board) shipping point. For sales transactions designated f.o.b. destination, revenue is recorded when the product is delivered to the customer’s delivery site, when title and risk of loss are transferred. Timber and timberland sales revenue is generally recognized when title and risk of loss pass to the buyer. Shipping and Handling Costs Shipping and handling costs, such as freight to our customers’ destinations, are included in distribution expenses in the consolidated statement of operations. These costs, when included in the sales price charged for our products, are recognized in net sales. Annual Maintenance Costs Annual maintenance costs for major planned maintenance shutdowns (in excess of $1 million) are expensed ratably over the year in which the maintenance shutdowns occur since the Company believes that operations benefit throughout the year from the maintenance work performed. These costs, including manufacturing variances and out-of- pocket costs that are directly related to the shutdown, are fully expensed in the year of the shutdown with no amounts remaining accrued at year-end. Other maintenance costs are expensed as incurred. Temporary Investments Temporary investments with an original maturity of three months or less are treated as cash equivalents and are stated at cost, which approximates market. Inventories Inventory is valued at the lower of cost or market and includes all costs directly associated with manufacturing products: materials, labor and manufacturing overhead. In the United States, costs of raw materials, finished lumber and panels and finished pulp and paper products are generally determined using the last-in, first-out method. Other inventories are valued using the first-in, first-out or average cost methods. Plants, Properties and Equipment Plants, properties and equipment are stated at cost, less accumulated depreciation. Expenditures for betterments are capitalized whereas normal repairs and maintenance are expensed as incurred. The units-of-production method of depreciation is used for major pulp and paper mills and certain wood products facilities and the straight-line method for other plants and equipment. Annual straight-line depreciation rates are, for buildings, 2 1/2% to 8 1/2%, and, for machinery and equipment, 5% to 33%. Forestlands At December 31, 2004, International Paper and its subsidiaries owned or controlled about 6.8 million acres of forestlands in the United States, 1.2 million acres in Brazil, 785,000 acres in New Zealand, and had, through licenses and forest management agreements, harvesting rights on government-owned forestlands in Russia. Forestlands include owned property as well as certain timber harvesting rights

42

with terms of one or more years, and are stated at cost, less cost of timber harvested (COTH). Costs attributable to timber are charged against income as trees are cut. The rate charged is determined annually based on the relationship of incurred costs to estimated current merchantable volume. Effective January 1, 2002, International Paper prospectively changed its method of accounting for mid-rotation fertilization expenditures to include such expenditures in the capitalized cost of forestlands. Accordingly, these costs are included as part of the COTH as trees are sold. Goodwill Effective January 1, 2002, International Paper adopted Statement of Financial Accounting Standards (SFAS) No. 142. As required by SFAS No. 142, an initial assessment of recorded goodwill for possible impairment was conducted as of January 1, 2002. Annual testing for possible goodwill impairment is performed as of the end of the third quarter of each year. A transitional impairment charge of $1.2 billion, including all of the goodwill associated with CHH, was recorded upon the initial adoption of this standard in 2002. In addition, CHH recorded $35 million of goodwill upon its acquisition of Plantation Timber Products which was written off by International Paper following an impairment evaluation in 2004 (see Note 5). No impairment charges were recorded in 2003. Goodwill relating to a single business reporting unit is included as an asset of the applicable segment while goodwill arising from major acquisitions that involve multiple business segments is classified as a corporate asset for segment reporting purposes. For goodwill impairment testing, this goodwill is allocated to business segments. Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances that indicate that the carrying value of the assets may not be recoverable, as measured by comparing their net book value to their projected undiscounted future cash flows generated by their use. Impaired assets are recorded at their estimated fair value. Income Taxes International Paper uses the asset and liability method of accounting for income taxes whereby deferred income taxes are recorded for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are revalued to reflect new tax rates in the periods rate changes are enacted.	International Paper records its worldwide tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. Where the Company believes that the deduction of an item is supportable for income tax purposes, the item is deducted in its income tax returns. However, where treatment of an item is uncertain, tax accruals are recorded based upon the expected most probable outcome taking into consideration the specific tax regulations and facts of each matter, the results of historical negotiated settlements, and the results of consultations with outside tax advisors. These accruals for tax contingencies are recorded in the accompanying consolidated balance sheet in Other liabilities. Changes to the reserves are only made when an identifiable event occurs that changes the probable outcome, such as a settlement with relevant tax authority, the expiration of statutes of limitation for the subject tax year, change in tax laws, or a relevant court decision that addresses the matter. While the Company believes that these judgments and estimates are appropriate and reasonable under current circumstances, actual resolution of these matters may differ from recorded estimated amounts. Stock-Based Compensation Stock options and other stock-based compensation awards are accounted for using the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Had compensation cost for International Paper’s stock-based compensation programs been determined consistent with the provisions of SFAS No. 123, its net earnings, earnings per common share and earnings per common share - assuming dilution would have been reduced to the pro forma amounts indicated in the following table:
	In millions, except per share amounts	2004			2003	2002
	Net Earnings (Loss)
	As reported	$	(35	)	$ 302	$(880	)
	Pro forma		(73	)	258	(921	)
	Earnings (Loss) Per
	Common Share
	As reported	$	(0.07	)	$0.63	$(1.83	)
	Pro forma		(0.15	)	0.54	(1.92	)
	Earnings (Loss) Per Common Share - assuming dilution
	As reported	$	(0.07	)	$0.63	$(1.82	)
	Pro forma		(0.15	)	0.54	(1.91	)
	The effect on 2004, 2003 and 2002 pro forma net earnings, earnings per common share and earnings per common share

43

- assuming dilution of expensing the estimated fair market value of stock options is not necessarily representative of the effect on reported earnings for future years due to the vesting period of stock options and the potential for issuance of additional stock-based compensation. Environmental Remediation Costs Costs associated with environmental remediation obligations are accrued when such costs are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are discounted to their present value when the amount and timing of expected cash payments are reliably determinable. Asset Retirement Obligations In accordance with the provisions of SFAS No. 143, “Accounting for Asset Retirement Obligations,” adopted effective January 1, 2003 (see Note 4), a liability and an asset are recorded equal to the present value of the estimated costs associated with the retirement of long-lived assets where a legal or contractual obligation exists. The liability is accreted over time and the asset is depreciated over the life of the related equipment or facility. International Paper’s asset retirement obligations under this standard relate to closure costs for landfills. Revisions to the liability could occur due to changes in the estimated costs or timing of closures, or possible new federal or state regulations affecting these closures. Translation of Financial Statements Balance sheets of international operations are translated into U.S. dollars at year-end exchange rates, while statements of operations are translated at average rates. Adjustments resulting from financial statement translations are included as cumulative translation adjustments in Accumulated other comprehensive income (loss) (OCI). See Note 13 related to derivatives and hedging activities. Reclassifications Certain reclassifications have been made to prior-year amounts to conform to the current year presentation. NOTE 2      EARNINGS PER COMMON SHARE Earnings per common share from continuing operations before the cumulative effect of accounting changes are computed by dividing earnings from continuing operations before the cumulative effect of accounting changes by the weighted average number of common shares outstanding. Earnings per common share from continuing operations	before the cumulative effect of accounting changes, assuming dilution, are computed assuming that all potentially dilutive securities, including “in-the-money” stock options, are converted into common shares at the beginning of each year. In addition, beginning in the fourth quarter of 2004, the computation of diluted earnings per share reflects the inclusion of contingently convertible securities in periods when dilutive (see “Information About Capital Structure – Contingently Convertible Securities” in Note 4). Furthermore, as required by the recent consensus of the Emerging Issues Task Force of the Financial Accounting Standards Board (FASB), the computations of diluted earnings per share for all prior periods have been restated on this basis. A reconciliation of the amounts included in the computation of earnings per common share from continuing operations before the cumulative effect of accounting changes, and earnings per common share from continuing operations before the cumulative effect of accounting changes, assuming dilution, is as follows:
	In millions, except per share amounts	2004		2003		2002
	Earnings from continuing operations before the cumulative effect of accounting changes	$	478	$	294	$	260
	Effect of dilutive securities		—		—		—
	Earnings from continuing operations before the cumulative effect of accounting changes - assuming dilution	$	478	$	294	$	260
	Average common shares outstanding		485.8		479.6		481.4
	Effect of dilutive securities   Stock options		2.6		1.5		1.6
	Average common shares outstanding - assuming dilution		488.4		481.1		483.0
	Earnings per common share from continuing operations before the cumulative effect of accounting changes	$	0.98	$	0.62	$	0.54
	Earnings per common share from continuing operations before the cumulative effect of accounting changes - assuming dilution	$	0.98	$	0.61	$	0.54
	Note: If an amount does not appear in the above table, the security was antidilutive for the period presented. Antidilutive securities included preferred securities of a subsidiary trust for 2002.

44

NOTE 3       INDUSTRY SEGMENT INFORMATION Financial information by industry segment and geographic area for 2004, 2003 and 2002 is presented on pages 33 and 34. NOTE 4       RECENT ACCOUNTING DEVELOPMENTS Share-Based Payment Transactions: In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment,” which will require compensation costs related to share-based payment transactions to be recognized in the financial statements. The amount of the compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. This statement will apply to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. FASB Statement No. 123(R) replaces FASB Statement No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and will be effective for International Paper in the third quarter of 2005. Since, beginning in 2005, stock option grants will be limited only to certain non-U.S. employees, the provisions of this statement will mainly affect only previously issued options that are still outstanding and unvested on the effective date, as well as reload grants. While the exact impact on expense will depend upon the number of remaining unvested options at that time, the adoption of this standard could increase pre-tax compensation expense by approximately $20 million in both 2005 and 2006, with no significant impact on the Company’s financial statements in subsequent years. Exchanges of Nonmonetary Assets: In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29,” which replaces the exception from fair value measurement in APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” for nonmonetary exchanges of similar productive assets with a general exception from fair value measurement for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement is to be applied prospectively and will be effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. International Paper believes that the adoption of SFAS No. 153 will not have a material impact on its consolidated financial statements. Accounting for Income Taxes: In December 2004, the FASB issued FASB Staff Position (FSP) Financial Accounting Standard (FAS) 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004 (the Act)” that provides tax relief to U.S. domestic manufacturers. The FSP states that the manufacturers’ deduction provided for under the Act should be accounted for as a special deduction in accordance with Statement 109 rather than as a tax rate reduction. Also in December 2004, the FASB issued FSP FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004,” addressing accounting and disclosure guidance relating to a company’s repatriation program. The additional disclosures required under this staff position are included in Note 9, Income Taxes. Both FSP’s were effective upon issuance. Inventory Costs: In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4,” which requires that abnormal amounts of idle facility expense, freight, handling costs and wasted material be recognized as current-period charges. This statement also introduces the concept of “normal capacity” and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. Unallocated overheads must be recognized as an expense in the period in which they are incurred. This statement will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. International Paper believes that the adoption of SFAS No. 151 will not have a material impact on its consolidated financial statements. Accounting for Medicare Benefits: In May 2004, the FASB issued FSP FAS 106-2 that provides guidance on the accounting and required disclosures for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. International Paper adopted FSP FAS 106-2 prospectively in the third quarter of 2004. The impact was a reduction of net postretirement benefit cost of approximately $8 million for the last half of 2004 and a reduction of the accumulated postretirement benefit obligation of approximately $110 million. See Note 16 for further discussion.

45

Information about Capital Structure – Contingently Convertible Securities: In April 2004, the FASB issued FSP FAS 129-1, Disclosure Requirements under FASB Statement No. 129, “Disclosure of Information about Capital Structure,” relating to contingently convertible securities and to their potentially dilutive effects on earnings per share. The FSP required expanded disclosures of the significant terms of the conversion features of these securities to enable users of the financial statements to understand the circumstances of the contingencies and the potential impact of conversion. These additional disclosures are presented for International Paper’s contingently convertible securities in Note 12. In October 2004, the FASB ratified a consensus reached by the Emerging Issues Task Force of the FASB that, effective for periods ending after December 15, 2004, contingently convertible securities should be included in the computation of diluted earnings per share regardless of whether or not the market price trigger for issuance of the securities has been met. Furthermore, the calculation of diluted earnings per share for all prior periods presented should be restated to reflect this consensus. At December 31, 2004, International Paper had outstanding $2.1 billion principal amount at maturity of zero-coupon convertible senior debentures. The debentures are contingently convertible into shares of the Company’s common stock at a conversion ratio of 9.5111 shares per $1,000 principal amount at maturity of debentures totaling approximately 20 million shares. See Note 12 for additional information. Accordingly, the calculation of diluted earnings per common share shown in Note 2 considers, when dilutive, the assumed conversion of these debentures for all periods presented. Consolidation of Variable Interest Entities: In January 2003, the FASB issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” This interpretation changed existing consolidation rules for certain entities, those in which equity investors do not have the characteristics of a controlling financial interest, or do not have sufficient equity at risk for the entity to finance the entity’s activities without additional subordinated financial support. The interpretation applied immediately to variable interest entities (VIE’s) created after January 31, 2003, and to VIE’s in which an enterprise obtains an interest after that date. International Paper has neither entered into nor obtained an interest in any VIE’s after January 31, 2003. For VIE’s created before February 1, 2003, this interpretation was effective for the first reporting period ending after December 15, 2003. During December 2003, the FASB issued a revision to FIN 46, FIN 46(R), with varying effective dates. International Paper applied FIN 46(R) to its variable interest entities as of December 31, 2003. As a result of the application of the provisions of FIN 46(R) during 2003, four entities that were required to be consolidated under prior accounting rules were deconsolidated, and one previously unconsolidated entity was consolidated, at December 31, 2003. The following paragraphs describe the entities affected by the new FIN 46(R) consolidation rules and the effects on International Paper’s December 31, 2003 financial statements: (a)      A special purpose leasing entity that was formerly part of an operating lease arrangement between International Paper and a third party was determined to be a VIE and required to be consolidated by the Company. Plants, properties and equipment and Long-term debt of approximately $50 million that were formerly part of this operating lease arrangement were consolidated and a non-cash, after-tax charge of $3 million was recorded as the cumulative effect of an accounting change. (b)      In connection with a forestlands sale in 2001, International Paper received notes having a value of approximately $480 million on the date of sale. During 2001, International Paper contributed the notes to an unconsolidated entity in exchange for a preferred interest in that entity valued at approximately $480 million, and accounted for this transfer as a sale of the notes for financial reporting purposes with no associated gain or loss. Also during 2001, the entity acquired approximately $561 million of other International Paper debt obligations for cash. In December 2002, International Paper acquired an option to purchase the third party’s interest in the unconsolidated entity and modified the terms of the entity’s special loss allocation between the third party and International Paper. These actions required the entity to be consolidated by International Paper at December 31, 2002, resulting in increases in installment notes receivable (included in Deferred charges and other assets) of $480 million, Long-term debt of $460 million and Minority interest of $20 million. In the fourth quarter of 2003, International Paper determined that it is not the primary beneficiary of the entity under the provisions of FIN 46(R) and, accordingly, deconsolidated the entity effective December 31, 2003. At December 31, 2003, International Paper’s $530 million preferred interest in the entity has been offset against $530 million of International Paper debt obligations since International Paper has, and intends to effect, a legal right to net settle these two amounts.

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(c)      In a similar transaction completed in June 2002, approximately $400 million of installment notes received in connection with the sale of forestlands in various states were transferred to a consolidated entity in exchange for a preferred interest in the entity. In the same period, the entity acquired International Paper debt obligations of $450 million for cash. Under the provisions of FIN 46(R), International Paper is not the primary beneficiary of this entity, resulting in its deconsolidation as of December 31, 2003. The deconsolidation increased Investments by $465 million, Long-term debt by $100 million, and decreased notes receivable (included in Deferred charges and other assets) by $415 million and Minority interest by $50 million. (d)      In the third quarter of 2003, International Paper Capital Trust and International Paper Capital Trust III (the Trusts), were determined to be VIE’s for which International Paper is not the primary beneficiary. Prior to July 1, 2003, the Trusts had been consolidated in the Company’s financial statements, and the preferred securities of the Trusts of approximately $1.3 billion were presented in the consolidated balance sheet as International Paper – Obligated Mandatorily Redeemable Preferred Securities of Subsidiaries Holding International Paper Debentures. Effective July 1, 2003, the Trusts were deconsolidated and the previously consolidated Mandatorily Redeemable Securities were replaced with International Paper’s obligations to the Trusts of approximately $1.3 billion that were classified as Long-term debt. In addition, interest on the International Paper debt obligations totaling approximately $44 million was recorded as Interest expense in the last half of 2003, replacing preferred dividends on the Mandatorily Redeemable Securities of the Trusts that, prior to the deconsolidation, would have been recorded as Minority interest expense. Preferred dividends for periods prior to the July 1, 2003 deconsolidation continue to be reported as Minority interest expense. A further discussion of the Company’s obligations to the Trusts is presented in Note 8. In December 2003, International Paper exercised its option to redeem the securities of one of the Trusts effective January 14, 2004, and, consequently, reclassified $830 million to Current maturities of long-term debt. In February 2005, International Paper redeemed the preferred securities of the remaining Trust which were classified in Long-term debt at December 31, 2004. See Notes 8 and 12 for additional information. The following table summarizes increases (decreases) in 2003 Consolidated Balance Sheet captions resulting from the application of FIN 46(R) to the entities described above.
		VIE
	In millions	(a)		(b)			(c)			(d)			(d)			Total
	Assets
	Plants, Properties and Equipment, net	$	50	$	—		$	—		$	—		$	—		$	50
	Investments		—		—			465			25			15			505
	Deferred Charges		—		(480	)		(415	)		—			—			(895	)
	Total Assets	$	50	$	(480	)	$	50		$	25		$	15		$	(340	)
	Liabilities
	Current Maturities of Long-Term Debt	$	—	$	—		$	—		$	830		$	—		$	830
	Long-Term Debt		50		(460	)		100			—			465			155
	Minority Interest		—		(20	)		(50	)		—			—			(70	)
	Mandatorily Redeemable Preferred Securities		—		—			—			(805	)		(450	)		(1,255	)
	Total Liabilities	$	50	$	(480	)	$	50		$	25		$	15		$	(340	)
	The pro forma effects on earnings (loss) before extraordinary items and cumulative effect of accounting changes, and net earnings, for the year ended December 31, 2002, assuming the adoption of FIN 46(R) as of January 1, 2002, were not material to net earnings or earnings per share. Financial Instruments with Characteristics of Both Liabilities and Equity: In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” It established standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This standard was effective for financial instruments entered into or modified after May 31, 2003, and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. International Paper adopted this standard during the third quarter ended September 30, 2003, with no material effect on the Company’s consolidated financial statements. Costs Associated with Exit or Disposal Activities: In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The statement changed the measurement and timing of recognition for exit costs, including restructuring charges, and was effective for activities initiated after December 31, 2002. It requires that a liability for costs associated with an exit or disposal activity, such as one-time termination

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benefits, be recognized when the liability is incurred, rather than at the date of a company’s commitment to an exit plan. It had no effect on charges recorded for exit activities begun prior to December 31, 2002. International Paper adopted this standard effective January 1, 2003, with no material effect on the Company’s consolidated financial statements. Impairment and Disposal of Long-Lived Assets: In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” It established a single accounting model for the impairment of long-lived assets to be held and used or to be disposed of by sale or abandonment, and broadened the definition of discontinued operations. International Paper adopted SFAS No. 144 in 2002, with no significant change in the accounting for the impairment and disposal of long-lived assets. Asset Retirement Obligations: In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” It requires the recording of an asset and a liability equal to the present value of the estimated costs associated with the retirement of long-lived assets where a legal or contractual obligation exists. The asset is required to be depreciated over the life of the related equipment or facility, and the liability accreted each year using a credit-adjusted risk-free rate. International Paper adopted SFAS No. 143 effective January 1, 2003, recording a discounted liability of $22 million, an increase in Property, plant and equipment, net, of $7 million, and a one-time cumulative effect of accounting change charge of $10 million (net of a deferred tax benefit of $5 million). The pro forma effects on earnings (loss) before extraordinary items and cumulative effect of accounting changes, and net earnings, for the year ended December 31, 2002, assuming the adoption of SFAS No. 143 as of January 1, 2002, were not material to net earnings or earnings per share. NOTE 5ACQUISITIONS On July 2, 2004, Carter Holt Harvey (CHH) completed the purchase of an 85% interest in Plantation Timber Products (PTP), a Chinese premium panels manufacturer, for $134 million. PTP is a manufacturer of special medium density fiberboard and flooring products. In connection with this acquisition, CHH recorded $35 million of goodwill. However, in 2002, International Paper wrote off all CHH goodwill under newly adopted U.S. accounting standards. The goodwill arising in subsequent CHH acquisitions must be evaluated for impairment in International Paper’s consolidated financial statements and, in this case, was written off. This acquisition was accounted for using the purchase method with operating	results included in the consolidated statement of operations from the date of acquisition. On July 1, 2004, International Paper completed the previously announced acquisition of Box USA Holdings, Inc. (Box USA). Prior to its acquisition by International Paper, Box USA was America’s largest independent packaging producer with 23 industrial packaging converting facilities across the country. The acquisition of Box USA, which is now included in the Industrial and Consumer Packaging segment, provides improved access to markets, better integration between International Paper mills and converting plants and other operating synergies. International Paper acquired all of the outstanding common and preferred stock of Box USA for approximately $189 million in cash and a $15 million 6% note payable issued to Box USA’s controlling shareholders. In addition, International Paper assumed approximately $197 million of debt, of which approximately $193 million was repaid by July 31, 2004. The note payable represents contingent consideration to be paid within two years from the July 1, 2004 acquisition date provided that no claims for indemnification are offset against the note. This acquisition was accounted for using the purchase method with the operating results of Box USA included in the accompanying consolidated statement of operations from the acquisition date. The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the Box USA acquisition, subject to adjustment upon completion of purchase accounting activities in 2005:
	in millions	July 1, 2004
	Current assets		$	98
	Property, plant and equipment, net			104
	Goodwill			238
	Other assets			40
	Total assets acquired			480
	Current liabilities			72
	Debt			197
	Other liabilities			7
	Total liabilities assumed			276
	Net assets acquired		$	204
	The following unaudited pro forma information for the years ended December 31, 2004, 2003 and 2002, presents the combined results of the continuing operations of International Paper and Box USA as if the acquisition had occurred as of January 1, 2002. This pro forma information does not purport to represent International Paper’s actual results of operations if the transaction described above would have occurred on January 1, 2002, nor is it necessarily indicative of future results.

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					tax balances and a $27 million credit from the reduction of valuation reserves for capital loss carryovers. The following table presents a detail of the $74 million corporate-wide organizational restructuring program charge in 2004, by business:
In millions, except per share amounts, for the years ended December 31	2004		2003	2002
Net sales	$25,802		$24,448	$24,385
Earnings from continuing operations	483		299	273
Net earnings (loss)	(30	)	307	(867)
Earnings from continuing operations per common share	0.99		0.62	0.57	In millions	First Quarter			Second Quarter			Third Quarter					Total
Net earnings (loss) per common share	(0.06	)	0.64	(1.80)	Printing Papers		$	1		$	1			$	5			$		7
In December 2002, CHH acquired Starwood Australia’s Bell Bay medium density fiberboard plant in Tasmania for $28 million in cash. This acquisition was accounted for using the purchase method with operating results included in the consolidated statement of operations from the date of acquisition. NOTE 6 RESTRUCTURING, BUSINESS IMPROVEMENT AND OTHER CHARGES This footnote discusses restructuring, business improvement and other charges recorded for each of the three years included in the period ended December 31, 2004. It includes a summary of activity for each year, a roll forward associated with severance and other cash costs arising in each year, a table presenting details of the 2004 organizational restructuring program, and tables showing quarterly charges by business along with explanations for 2003 and 2002. 2004: During 2004, restructuring and other charges before taxes and minority interest of $211 million ($124 million after taxes and minority interest) were recorded. These charges included a $74 million charge before taxes and minority interest ($43 million after taxes and minority interest) for a corporate-wide organizational restructuring program, a $92 million charge before taxes ($57 million after taxes) for losses on early extinguishment of debt, a $35 million charge before minority interest ($18 million after minority interest) for the impairment of goodwill arising in connection with CHH’s purchase of Plantation Timber Products (PTP) and a $10 million charge before taxes ($6 million after taxes) for legal settlements. In addition, credits of $123 million before taxes ($76 million after taxes) for net insurance recoveries related to the hardboard siding and roofing litigation (see Note 10) and $35 million before taxes and minority interest ($22 million after taxes and minority interest) for the net reversal of restructuring reserves no longer needed were recorded. Also, a $5 million net increase in the tax provision, after minority interest, was recorded reflecting a $32 million charge for an adjustment of deferred					Industrial and Consumer Packaging			5			3				6					14
					Forest Products			4			1				—					5
					Distribution			2			2				3					7
					Specialty Businesses and Other			—			11				—					11
					Administrative Support Groups			2			24				4					30
							$	14		$	42			$	18			$		74
					The following table presents a roll forward of the severance and other costs included in the 2004 restructuring plans:
					In millions								Severance and Other
					Opening Balance (first quarter 2004)											$			14
					Additions (second quarter 2004)														42
					Additions (third quarter 2004)														18
					2004 Activity
					Cash charges														(52		)
					Reclassifications:
					Pension and postretirement curtailments and special termination benefits														(22		)
					Balance, December 31, 2004											$			—
					The severance charges recorded in 2004 related to 984 employees. As of December 31, 2004, 833 employees had been terminated and 151 employees retained. Actual pension and postretirement costs exceeded estimates despite the lower number of employees terminated. 2003: During 2003, restructuring and other charges before taxes and minority interest of $298 million ($184 million after taxes and minority interest) were recorded. These charges included a $236 million charge before taxes and minority interest ($144 million after taxes and minority interest) for asset shutdowns of excess internal capacity and cost reduction actions, a $63 million charge before taxes ($39 million after taxes) for legal reserves, and a $1 million credit before taxes ($1 million charge after taxes) for early debt retirement costs. In addition, a $40 million credit before taxes and minority interest ($25 million after taxes and minority interest) was recorded for the net reversal of restructuring reserves no longer required.

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The $236 million charge in 2003 for the asset shutdowns of excess internal capacity and cost reduction actions consisted of a $91 million charge in the fourth quarter, a $71 million charge in the third quarter, a $51 million charge in the second quarter, and a $23 million charge in the first quarter. The fourth-quarter charge included $49 million of asset write-downs and $42 million of severance and other charges. The third-quarter charge included $9 million of asset write- downs and $62 million of severance and other charges. The second-quarter charge consisted of $16 million of asset write-downs and $35 million of severance and other charges. The first-quarter charge included $2 million of asset write- downs and $21 million of severance and other charges. The following table and discussion present details related to the 2003 fourth-quarter charge:										associated with this shutdown included $10 million of asset write-downs to salvage value and $1 million of other exit costs. (d)      The Distribution business (xpedx) recorded a charge of $3 million to cover lease termination costs related to the Nationwide San Francisco, California facility that was vacated in the fourth quarter of 2003. (e)      CHH recorded a charge of $7 million to shut down the Tokoroa, New Zealand sawmill. Charges associated with this shutdown included $4 million to write down assets to salvage value, $2 million for severance costs covering the termination of 115 employees and other exit costs of $1 million. CHH also implemented a cost reduction initiative recording a charge of $4 million for severance covering the termination of 229 employees.
										(f)       During the fourth quarter of 2003, International Paper implemented the second phase of the previously announced Overhead Reduction Program to improve competitive performance. Charges associated with this initiative included $23 million of severance costs covering the termination of 557 employees. The $23 million charge included: Printing Papers - $6 million; Industrial and Consumer Packaging - $7 million; Forest Products - $5 million; Specialty Businesses and Other - $1 million; and Corporate - $4 million. The following table and discussion present details related to the 2003 third-quarter charge:
In millions	Asset Write-downs			Severance and Other			Total
Printing Papers	(a)	$	19		$	2		$	21
Industrial and Consumer Packaging	(b)		16			6			22
Forest Products	(c)		10			1			11
Distribution	(d)		–			3			3
Carter Holt Harvey	(e)		4			7			11
Administrative Support Groups	(f)		–			23			23
		$	49		$	42		$	91
(a)      The Printing Papers business recorded a charge of $5 million to write off certain assets at the Courtland, Alabama and Franklin, Virginia mills. Management also approved a $14 million charge to write down the assets of the Maresquel, France mill to its net realizable value of approximately $5 million. The Printing Papers business also recorded a charge of $2 million for severance costs relating to 42 employees associated with a manufacturing excellence program. (b)      The Consumer Packaging business recorded an additional charge of $22 million in conjunction with the closure of the Rolark manufacturing facility in Toronto, Canada, and a rationalization plan implemented in the second quarter of 2003. Closure costs for Rolark consisted of an $8 million charge to write down assets to their salvage value, $3 million of severance costs covering the termination of 178 employees and other exit costs of $1 million. The charge also included an additional provision for the previously implemented commercial business rationalization initiative. These charges included $8 million to write down assets to their salvage value and $2 million of severance costs covering the termination of 153 employees. (c)      The Forest Products business approved plans in the fourth quarter of 2003 to shut down the Tuskalusa lumber mill in Moundville, Alabama. Operations at this mill had been temporarily ceased in the second quarter of 2003. Charges										In millions	Asset Write-downs			Severance and Other			Total
										Administrative Support Groups	(a)	$	–		$	38		$	38
										Specialty Businesses and Other	(b)		9			24			33
												$	9		$	62		$	71
										(a)      During the third quarter of 2003, International Paper implemented the initial phase of an Overhead Reduction Program to improve competitive performance. Charges associated with this initiative included $37 million of severance costs covering the termination of 744 employees and other cash costs of $1 million. The $38 million charge included: Printing Papers - $12 million; Industrial and Consumer Packaging - $11 million; Distribution - $2 million; Forest Products - $6 million; Specialty Businesses - $2 million; and Corporate - $5 million. (b)      Specialty Businesses recorded an additional charge of $33 million in connection with the July 15, 2003 shutdown of the Natchez, Mississippi mill. The charge included $9 million of asset write-downs to salvage value, $1 million of severance costs covering the termination of 20 employees, $20 million of environmental closure costs and other cash costs of $3 million.

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The following table and discussion present details related to the 2003 second-quarter charge:								The following table and discussion present details related to the 2003 first-quarter charge:
In millions		Asset Write-downs		Severance and Other		Total		In millions		Asset Write-downs			Severance and Other				Total
Printing Papers	(a)	$	3	$	2	$	5	Industrial and Consumer
Industrial and Consumer								Packaging	(a)		$	–		$	2	$	2
Packaging	(b)		–		6		6	Specialty Businesses
Forest Products	(c)		13		7		20	and Other	(b)			2			18		20
Distribution	(d)		–		4		4	Carter Holt Harvey	(c)			–			1		1
Specialty Businesses
and Other	(e)		–		16		16				$	2		$	21	$	23
		$	16	$	35	$	51	(a)   The Industrial Packaging business implemented a plan to reorganize the Creil and Mortagne locations in France into a single complex. Charges associated with the reorganization included $1 million for severance costs covering the termination of 31 employees and other cash costs of $1 million. (b)   Arizona Chemical recorded a charge of $1 million for severance costs of 51 employees associated with the Valkeakoski, Finland plant closure. Chemical Cellulose implemented a plan to shut down the Natchez, Mississippi dissolving pulp mill by mid-2003. Charges associated with this shutdown included a $1 million charge to write down assets to their salvage value and $12 million of severance costs covering the termination of 141 employees in April and other employees to be terminated upon closure. Additional shutdown charges for severance and closure costs were recorded in the second and third quarters of 2003. Additionally, Industrial Papers approved a plan to restructure converting operations at the Kaukauna, Wisconsin facility, modify its release products organization and implement division-wide productivity improvement actions. Charges associated with these plans included $1 million to write down assets to their salvage value and $5 million of severance costs covering the termination of 130 employees. (c)   CHH recorded a charge of $1 million for severance costs for 33 employees associated with a headcount reduction initiative.
(a)   The Printing Papers business recorded a charge of $2 million for severance costs relating to 19 employees associated with an organizational restructuring initiative. The business also recorded an additional charge of $3 million to write off obsolete equipment. (b)   The Consumer Packaging business implemented a rationalization plan at the Clifton and Englewood, New Jersey plants as a result of increased competition and slowing growth rates in key market segments. Management also approved a plan to exit leased space at the Montvale, New Jersey office in connection with the realignment of the Beverage Packaging and Foodservice businesses. Additionally, the Consumer Packaging business initiated an organizational restructuring program at several of its Bleached Board facilities. Charges associated with the programs included $2 million to cover the termination of 79 employees, lease termination costs of $3 million, and other cash costs of $1 million. (c)   The Forest Products business approved plans to shut down the Springhill, Louisiana lumber facility and the Slaughter Industries Distribution Center in Portland, Oregon, and to temporarily cease operations at the Tuskalusa lumber mill in Moundville, Alabama. Charges associated with the shutdowns included $12 million of asset write-downs to salvage value at Springhill and Slaughter, $5 million of severance costs covering the termination of 198 employees at all three facilities, and $1 million of other exit costs. Management also approved the closure of the Madison, New Hampshire lumber mill. Charges associated with this plan included $1 million to write down assets to their net realizable value and other cash costs of $1 million. (d)   The Distribution business (xpedx) recorded a severance charge of $4 million covering the termination of 176 employees in a continuing effort to consolidate duplicative facilities and reduce ongoing operational expenses. (e)   Specialty Businesses recorded a severance charge of $16 million associated with the termination of 447 employees in connection with the July 15th shutdown of the Natchez, Mississippi mill.

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The following table presents a roll forward of the severance and other costs included in the 2003 restructuring plans:					and other charges. The second-quarter charge consisted of $42 million of asset write-downs and $37 million of severance and other charges. The following table and discussion present details related to the 2002 fourth-quarter charge:
In millions	Severance and Other				In millions		Asset Write-Downs	Severance and Other	Total
Opening Balance (first quarter 2003)		$	21		Printing Papers	(a)	$  2	$26	$28
Additions (second quarter 2003)			35		Industrial and
Additions (third quarter 2003)			62		Consumer
Additions (fourth quarter 2003)			42		Packaging	(b)	16	12	28
2003 Activity					Forest Products	(c)	10	2	12
Cash charges			(72	)	Distribution	(d)	1	5	6
Reclassifications:					Specialty Businesses and Other	(e)	–	16	16
Pension and postretirement curtailments and special termination benefits					Carter Holt Harvey	(f)	–	11	11
			(4	)
Reversals of reserves no longer required			(3	)			$29	$72	$101
2004 Activity
Cash charges			(57	)
Reclassifications:					(a)      The Printing Papers business approved a restructuring plan at the Maresquel, France plant in an effort to improve efficiencies. Charges associated with the plan included $1 million of asset write-downs to salvage value, $7 million of severance costs covering the termination of 80 employees and other cash costs of $1 million. Management also implemented a reduction in force initiative at several of its Coated and SC mills resulting in severance charges of $18 million covering the termination of 245 employees. Also, an additional charge of $1 million was recorded to write down the remaining assets at the Erie, Pennsylvania mill to salvage value. (b)      The Industrial Packaging business recorded a charge of $3 million for severance costs relating to the Las Palmas, Canary Islands facility in the second phase of an effort to consolidate duplicative facilities and eliminate excess internal capacity. Redundancies associated with this charge included 56 employees.            The Consumer Packaging business approved a plan to shut down the Hopkinsville, Kentucky Foodservice plant due to the facility’s financial shortfalls, a continuing weak economy, reduced demand from its Quick Service Restaurant (QSR)customers and increased competition for remaining QSR volumes. Charges associated with this shutdown included $10 million to write down assets to their estimated realizable value of $4 million, $3 million of severance costs covering the termination of 327 employees, and other exit costs of $1 million. The Hopkinsville plant had revenues of $47 million, $31 million and $24 million in 2002, 2001 and 2000, respectively. This plant had operating losses of $8 million in 2002, $1 million in 2001 and zero in 2000. Management also implemented a business-reorganization plan for the Foodservice group that included $2 million to write down assets to salvage value, $3 million of severance costs covering the termination of 113 employees and other cash costs of $1 million. The Consumer Packaging charge also included $4 million of asset
Pension and postretirement curtailments and special termination benefits			(9	)
Environmental			(13	)
Reversals of reserves no longer required			(2	)
Balance, December 31, 2004		$	–
The severance charges recorded in the first, second, third and fourth quarters of 2003 related to 3,343 employees. As of December 31, 2004, 3,305 employees had been terminated and 38 employees retained. 2002: During 2002, restructuring and other charges before taxes and minority interest of $695 million ($435 million after taxes and minority interest) were recorded. These charges included a $199 million charge before taxes and minority interest ($130 million after taxes and minority interest) for asset shutdowns of excess internal capacity and cost reduction actions, a $450 million pre-tax charge ($278 million after taxes) for additional exterior siding legal reserves discussed in Note 10, and a charge of $46 million before taxes and minority interest ($27 million after taxes and minority interest) for early debt retirement costs discussed in Note 12. In addition, a $68 million pre-tax credit ($43 million after taxes) was recorded in 2002, including $45 million for the reversal of 2001 and 2000 reserves no longer required and $23 million for the reversal of excess Champion purchase accounting reserves. The $199 million charge in 2002 for the asset shutdowns of excess internal capacity and cost reduction actions consisted of a $101 million charge in the fourth quarter, a $19 million charge in the third quarter and a $79 million charge in the second quarter. The fourth-quarter charge included $29 million of asset write-downs and $72 million of severance and other charges. The third-quarter charge included $9 million of asset write-downs and $10 million of severance

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write-offs and $1 million of other cash charges associated with its international joint ventures. (c)The Forest Products business charge of $12 million resulted from management’s decision to exit the development of the wood plastic composite business and shut down the Whelen Springs, Arkansas lumber mill. Charges associated with the wood plastic composite business consisted of $10 million of asset write-downs to salvage value and $1 million of other exit costs. The Whelen Springs lumber mill was closed due to the impact of the strong dollar on export sales. The Whelen Springs shut-down charge consisted of $1 million of exit costs. (d)The Distribution business (xpedx) implemented a plan to consolidate duplicative facilities and reduce ongoing operating logistics and selling and administrative expenses. Charges associated with this plan included $1 million of asset write-downs to salvage value, $2 million of severance costs covering the termination of 68 employees, and other cash costs of $3 million. (e)The Specialty Businesses approved a plan to shut down the Valkeakoski, Finland chemicals plant, as well as a management plan to implement headcount reduction programs within the Chemicals group. Charges associated with the Valkeakoski shutdown included $8 million of other cash costs not including severance. The Valkeakoski plant had revenues of $20 million, $19 million and $19 million in 2002, 2001 and 2000, respectively. This plant had operating earnings of $1 million in both 2002 and 2001, and $2 million in 2000. Charges associated with the headcount reduction programs consisted of $3 million of severance covering 11 employees to be terminated and $1 million of other related costs. The Specialty Businesses also implemented a plan to restructure manufacturing operations at the Polyrey facility in France. The plan includes consolidation of decorative high-pressure laminate production in order to optimize efficiencies and provide higher levels of quality and service. Charges associated with the restructuring included $2 million of severance costs covering the termination of 46 employees and $1 million of other exit costs. Other charges included a $1 million reserve for facility environmental costs at the Natchez, Mississippi facility. (f)CHH recorded a charge of $11 million for severance costs associated with a reduction-in-force at its Kinleith, New Zealand facility as part of a continuing program to improve the cost structure at the mill. Redundancies associated with the charge included 260 employees.	The following table and discussion present details related to the 2002 third-quarter charge:
	In millions			Asset Write- downs				Severance and Other					Total
	Specialty Businesses and Other	(a)		$		–		$		3		$		3
	Carter Holt Harvey	(b)				5				7				12
	Other	(c)				4				–				4
				$		9		$		10		$		19
	(a)The Specialty Businesses charge of $3 million relates to the severance costs for 43 employees in Arizona Chemical’s U.S. operations to reduce costs. (b)The CHH severance and other charge of $7 million relates primarily to severance for job reductions at the Kinleith, New Zealand mill (102 employees) and at packaging operations in Australia (45 employees). The Kinleith reductions are part of a continuing program to improve the cost structure at the mill. In addition, CHH recorded a $5 million loss related to a write-down of non-refundable tax credits to their estimated realizable value. (c)This $4 million charge relates to the write-down to zero of International Paper’s investment in Forest Express, a joint venture engaged in electronic commerce transaction processing for the Forest Products Industry. The following table and discussion present details related to the 2002 second-quarter charge:
	In millions				Asset Write- downs				Severance and Other			Total
	Printing Papers		(a)		$		39		$		18	$			57
	Industrial and Consumer Packaging		(b)				3				–				3
	Distribution		(c)				–				7				7
	Administrative Support Groups		(d)				–				12				12
					$		42		$		37	$			79
	(a)The Printing Papers business approved a plan to permanently shut down the Hudson River, New York mill by December 31, 2002, as many of the specialty products produced at the mill were not competitive in current markets. The assets of the mill are currently being marketed for sale. Impairment charges associated with the shutdown included $39 million to write the assets down to their estimated realizable value of approximately $5 million, $9 million of severance costs covering the termination of 294 employees, and other cash costs of $7 million. The Hudson River mill had revenues of $61 million, $80 million and $139 million in 2002, 2001 and 2000, respectively, and operating losses of $15 million in 2002 and $22 million in 2001, and operating earnings of $9 million in 2000. The Printing Papers business also recorded an additional

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charge of $2 million related to the termination of 52 employees in conjunction with the business’s plan to streamline and realign administrative functions at several of its locations. (b)The Consumer Packaging business approved the first phase of a plan to consolidate duplicative facilities and eliminate excess internal capacity. The $3 million charge recorded relates to the write-down of assets to their estimated salvage value. (c)The Distribution business (xpedx) severance charge of $7 million reflects the termination of 145 employees in conjunction with the business’s plan to consolidate duplicative facilities and eliminate excess internal capacity. (d)During the second quarter of 2002, International Paper implemented the second phase of its cost reduction program to realign its administrative functions across all business and staff support groups. As a result, a $12 million severance charge was recorded covering the termination of 102 employees. The following table presents a roll forward of the severance and other costs included in the 2002 restructuring plans:				NOTE 7BUSINESSES HELD FOR SALE AND DIVESTITURES Discontinued Operations: In the third quarter of 2004, International Paper entered into an agreement to sell its Weldwood of Canada Limited (Weldwood) business to West Fraser Timber Co., Ltd. of Vancouver, Canada (West Fraser), for approximately C$1.26 billion in cash, subject to certain adjustments at closing. Accordingly, a $323 million pre-tax loss on impairment ($711 million after taxes), including a $101 million pre-tax credit from cumulative translation adjustments, was recorded in Discontinued operations to write down the assets of Weldwood to their estimated net realizable value upon sale. The Company completed the sale of Weldwood in the fourth quarter for C$1.23 billion. International Paper’s net cash proceeds received from the sale were approximately U.S. $1.1 billion. All periods presented have been restated to present the operating results of Weldwood as a discontinued operation. Revenues associated with this discontinued operation were $1,021 million, $791 million and $708 million for 2004, 2003 and 2002, respectively. Earnings and earnings per share related to Weldwood were as follows:
In millions	Severance         and Other			In millions except per share amounts	2004			2003			2002
Opening Balance (second quarter 2002)		$	37	Earnings (loss) from discontinued operation
Additions (third quarter 2002)			10
Additions (fourth quarter 2002)			72	Earnings from operations	$	153		$	15		$	35
2002 Activity				Income tax expense		(50	)		(6	)		(12	)
Cash charges			(15)
2003 Activity				Earnings from operations, net of taxes		103			9			23
Cash charges			(77)
Reclassifications:
Deferred payments to severed employees			(2)	Asset impairment		(323	)		–			–
Environmental remediation and other exit costs			(15)	Income tax expense (a)		(388	)		–			–
Reversals of reserves no longer required			(10)
				Asset impairment, net of taxes		(711	)		–			–
Balance, December 31, 2003		$	–
				Earnings (loss) from discontinued operation, net of taxes	$	(608	)	$	9		$	23
				Earnings (loss) per common share from discontinued operation
The severance charges recorded in the second, third and fourth quarters of 2002 related to 1,989 employees. As of December 31, 2003, 1,849 employees had been terminated and 140 employees retained.				Earnings from operations, net of taxes	$	0.22		$	0.01		$	0.05
				Asset impairment, net of taxes		(1.47	)		–			–
				Earnings (loss) per common share from discontinued operation, net of taxes	$	(1.25	)	$	0.01		$	0.05

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(a)      Reflects the low historic tax basis in Weldwood that was carried over in connection with the acquisition of Champion in June 2000. Assets and liabilities of Weldwood, included in International Paper’s consolidated balance sheet at December 31, 2003 as Assets and Liabilities of businesses held for sale, were as follows:				Earnings and earnings per share related to the Tissue business were as follows:
				In millions, except per share amounts	2004			2003				2002
				Earnings from discontinued operation
				Earnings from operations	$	13		$	39			$	30
				Income tax expense		(3	)		(15	)			(6			)
In millions	2003			Minority interest, net of taxes		(5	)		(12	)			(12			)
Accounts receivable, net		$	86	Earnings from operations, net of taxes and minority interest		5			12				12
Inventories			129
Plants, properties and equipment, net			738	Gain on sale		268			–				–
Forestlands			90	Income tax expense		(69	)		–				–
Investments			86	Minority interest, net of taxes		(109	)		–				–
Goodwill			548
Other assets			3	Gain on sale, net of taxes and minority interest		90			–				–
Assets of business held for sale		$	1,680
				Earnings from discontinued operation, net of taxes and minority interest	$	95		$	12			$	12
Accounts payable		$	82
Accrued payroll and benefits			16	Earnings per common share from discontinued operation
Other accrued liabilities			4	Earnings from operations, net of taxes and minority interest	$	0.01		$	0.03			$	0.02
Deferred income taxes			212
Other liabilities			78
Minority interest			5	Gain on sale, net of taxes and minority interest		0.19			–				–
Liabilities of business held for sale		$	397	Earnings per common share from discontinued operation, net of taxes and minority interest	$	0.20		$	0.03			$	0.02
In the second quarter of 2004, CHH completed the sale of its Tissue business to Svenska Cellulosa Aktiebolaget (SCA). As a result of this sale, International Paper recognized a gain of $268 million before taxes and minority interest ($90 million after taxes and minority interest). This gain on sale is included along with the net income of the Carter Holt Harvey Tissue business prior to the sale in Discontinued operations in the accompanying consolidated statement of operations. Additionally, all periods presented have also been restated to present the operating results of the Tissue business as a discontinued operation. Revenues associated with this discontinued operation were $153 million in 2004, $433 million in 2003 and $369 million in 2002, respectively.				The assets and liabilities of the Tissue business, included in International Paper’s consolidated balance sheet at December 31, 2003 as a component of Assets and Liabilities of businesses held for sale, were as follows:
				In millions							2003
				Accounts receivable, net										$	41
				Inventories											87
				Plants, properties and equipment, net											277
				Other assets											19
				Assets of business held for sale										$	424
				Accounts payable										$	34
				Accrued payroll and benefits											15
				Other accrued liabilities											8
				Other liabilities											18
				Minority interest											173
				Liabilities of business held for sale										$	248

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Other Divestitures: In December 2004, International Paper committed to plans for the sale in 2005 of its Fine Papers business and its Maresquel mill and Papeteries de France distribution business in France. As a result, charges of $11 million before taxes ($8 million after taxes), $34 million before and after taxes, and $11 million before taxes ($12 million after taxes), respectively, were recorded to write down the assets of these entities to their estimated fair values less costs to sell. In October 2004, International Paper sold two box plants located in China to International Paper Pacific Millennium, resulting in a pre-tax loss of $14 million ($4 million after taxes). Finally, also in the fourth quarter, a $9 million loss before taxes ($6 million after taxes) was recorded to adjust estimated gains/losses of businesses previously sold. In July 2004, International Paper signed an agreement to sell Scaldia Papier B.V., and its subsidiary, Recom B.V. in the Netherlands, to Stora Enso for approximately $36 million in cash. This sale was completed in the third quarter and resulted in a loss of $34 million (no impact from taxes or minority interest). In addition, a $4 million loss (no impact from taxes or minority interest) was recorded to adjust the estimated loss on sale of Papeteries de Souche L.C. in France. In the second quarter of 2004, a $27 million loss before and after taxes was recorded to write down the assets of Papeteries de Souche L.C. in France to their estimated realizable value. In addition, a $9 million loss before taxes and minority interest ($5 million after taxes and minority interest) was recorded to write down the assets of Food Pack S.A. in Chile to their estimated realizable value. In the first quarter of 2004, a $9 million gain before taxes ($6 million after taxes) was recorded to adjust estimated gains/losses of businesses previously sold. The net 2004 pre-tax losses totaling $144 million discussed above are included in Net losses (gains) on sales and impairments of businesses held for sale in the accompanying consolidated statement of operations. In the fourth quarter of 2003, International Paper recorded a $34 million charge to write down the assets of its Polyrey business in France to their estimated fair value. In addition, a $13 million pre-tax gain ($8 million after taxes) was recorded to adjust estimated gains/losses of businesses previously sold. In the third quarter of 2003, a $1 million charge before and after taxes was recorded to adjust estimated gains/losses of businesses previously sold. In the second quarter of 2003, a $10 million pre-tax charge ($6 million after taxes) was recorded to adjust estimated gains/losses of businesses previously sold. The net 2003 pre-tax losses, totaling $32 million, discussed above are included in Net losses (gains) on sales and impairments of businesses held for sale in the accompanying consolidated statement of operations. In the fourth quarter of 2002, International Paper recorded a $10 million pre-tax credit ($4 million after taxes) to adjust estimated accrued costs of businesses previously sold. In the third quarter of 2002, International Paper completed the sale of its Decorative Products operations to an affiliate of Kohlberg & Co. for approximately $100 million in cash and a note receivable with a fair market value of $13 million. This transaction resulted in no gain or loss as these assets had previously been written down to fair market value. Also during the third quarter of 2002, a net gain of $3 million before taxes ($1 million after taxes) was recorded related to adjustments of previously estimated accrued costs of businesses held for sale. During the second quarter of 2002, a net gain on sales of businesses held for sale of $28 million before taxes and minority interest ($96 million after taxes and minority interest) was recorded, including a pre-tax gain of $63 million ($40 million after taxes) from the sale in April 2002 of International Paper’s oriented strand board facilities to Nexfor Inc. for $250 million, and a net charge of $35 million before taxes and minority interest (a gain of $56 million after taxes and minority interest) relating to other sales and adjustments of previously recorded estimated costs of businesses held for sale. This net pre-tax charge included: (1)      a $2 million net loss associated with the sales of the Wilmington, North Carolina carton plant and CHH’s distribution business; (2)      an additional loss of $12 million to write down the net assets of Decorative Products to fair market value; (3)      $11 million of additional expenses relating to the decision to continue to operate Arizona Chemical, including a $3 million adjustment of estimated accrued costs incurred in connection with the prior sale effort and an $8 million charge to permanently close a production facility; and (4)      a $10 million charge for additional expenses relating to prior divestitures. The net tax credit associated with these charges reflects the reversal of an Arizona Chemical impairment tax charge in a prior period. The net 2002 pre-tax gains, totaling $41 million, discussed above are included in Net losses (gains) on sales and impairments of businesses held for sale in the accompanying consolidated statement of operations.

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NOTE 8PREFERRED SECURITIES OF SUBSIDIARIES In March 2003, Southeast Timber, Inc. (Southeast Timber), a consolidated subsidiary of International Paper, issued $150 million of preferred securities to a private investor with future dividend payments based on LIBOR. Southeast Timber, which through a subsidiary initially held approximately 1.5 million acres of forestlands in the southern United States, is International Paper’s primary vehicle for future sales of Southern forestlands. The preferred securities may be put back to International Paper by the private investor upon the occurrence of certain events, and have a liquidation preference that approximates their face amount. The $150 million preferred third-party interest is included in Minority interest in the accompanying consolidated balance sheet. The agreement with the private investor also places certain limitations on International Paper’s ability to sell forestlands in the Southern United States outside of Southeast Timber. In addition, because Southeast Timber is a separate legal entity, the assets of Southeast Timber and its subsidiaries, consisting principally of forestlands having a book value of approximately $280 million at December 31, 2004, will not be available to satisfy future liabilities and obligations of International Paper, although the value of International Paper’s interests in Southeast Timber and its subsidiaries will be available for these purposes. In September 1998, International Paper Capital Trust III issued $805 million of International Paper-obligated mandatorily redeemable preferred securities. Prior to July 1, 2003, International Paper Capital Trust III was a wholly-owned consolidated subsidiary of International Paper (see Note 4). Its sole assets were International Paper 7.875% debentures. The obligations of International Paper Capital Trust III related to its preferred securities were unconditionally guaranteed by International Paper. In January 2004, International Paper redeemed these securities at par plus accrued interest. In the third quarter of 1995, International Paper Capital Trust (the Trust) issued $450 million of International Paper-obligated mandatorily redeemable preferred securities. Prior to July 1, 2003, the Trust was a wholly-owned consolidated subsidiary of International Paper (see Note 4) and its sole assets were International Paper 5.25% convertible subordinated debentures. In February 2005, International Paper redeemed these securities at 100.5% of par plus accrued interest. Effective July 1, 2003, as required by FIN 46, International Paper deconsolidated International Paper Capital Trust III and International Paper Capital Trust, holding approximately $1.3 billion of mandatorily redeemable preferred securities,	previously classified as a separate line item on the Company’s consolidated balance sheet, and recorded approximately $1.3 billion of borrowings from these trusts as Long-term debt. In June 1998, IP Finance (Barbados) Limited, a non-U.S. wholly-owned consolidated subsidiary of International Paper, issued $550 million of preferred securities with a dividend payment based on LIBOR. These preferred securities were redeemed in June 2003 with the proceeds of debt issuances (see Note 12). Timberlands Capital Corp. II, Inc., a wholly-owned consolidated subsidiary of International Paper, issued $170 million of 4.5% preferred securities in March 2003. These securities were not mandatorily redeemable and were classified in the consolidated balance sheet as a Minority interest. In November 2004, these securities became mandatorily redeemable and were reclassified from Minority interest to Current maturities of long-term debt pursuant to SFAS No. 150 and redeemed in December 2004 (see Note 12). Distributions paid under all of the preferred securities noted above were $52 million, $111 million and $115 million in 2004, 2003 and 2002, respectively. The expense related to these preferred securities is shown in Minority interest expense in the consolidated statement of operations, except for $32 million in 2004 and $44 million in 2003 included in Interest expense subsequent to the adoption of FIN 46 and reclassifications mandated under SFAS No. 150. NOTE 9INCOME TAXES The components of International Paper’s earnings (loss) from continuing operations before income taxes and minority interest by taxing jurisdiction were:
	In millions	2004		2003			2002
	Earnings (loss)
	U.S.	$	271	$	(249	)	$	(73	)
	Non-U.S.		475		541			379
	Earnings from continuing operations before income taxes and minority interest	$	746	$	292		$	306

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The provision (benefit) for income taxes by taxing jurisdiction was:																The tax effects of significant temporary differences representing deferred tax assets and liabilities at December 31, 2004 and 2003 were as follows:
In millions	2004						2003			2002
Current tax provision																In millions		2004		2003
U.S. federal	$		161				$	173		$		175
U.S. state and local			24					11				54				Deferred tax assets:
Non-U.S.			135					100				88				Postretirement benefit accruals	$	348		$	372
																Prepaid pension costs		320			322
	$		320				$	284		$		317				Alternative minimum and other tax credits		519			474
																Net operating loss carryforwards		1,540			1,767
Deferred tax provision (benefit)																Compensation reserves		186			196
U.S. federal	$		(26			)	$	(271	)	$		(231			)	Legal reserves		98			147
U.S. state and local			5					(72	)			(146			)	Other		467			449
Non-U.S.			(93			)		(54	)			(12			)
																Gross deferred tax assets		3,478			3,727
	$		(114			)	$	(397	)	$		(389			)	Less: valuation allowance		(137	)		(179	)
Income tax provision (benefit)	$		206				$	(113	)	$		(72			)	Net deferred tax assets	$	3,341		$	3,548
International Paper made income tax payments, net of refunds, of $254 million, $253 million and $270 million in 2004, 2003 and 2002, respectively. A reconciliation of income tax expense (benefit) using the statutory U.S. income tax rate compared with actual income tax expense (benefit) follows:																Deferred tax liabilities:
																Plants, properties and equipment	$	(2,814	)	$	(2,867	)
																Forestlands		(1,215	)		(1,153	)
																Other		(263	)		(264	)
																Total deferred tax liabilities	$	(4,292	)	$	(4,284	)
																Net deferred tax liabilities	$	(951	)	$	(736	)
In millions		2004					2003				2002
																Deferred tax assets and liabilities are recorded in the accompanying consolidated balance sheet under the captions Deferred income tax assets, Deferred charges and other assets, Other accrued liabilities and Deferred income taxes. The increase in 2004 in Deferred income taxes principally reflects the use of U.S. net operating loss carryforwards. The valuation allowance for deferred tax assets as of January 1, 2004 was $179 million. The net change in the total valuation allowance for the year ended December 31, 2004 was a decrease of $42 million. The 2004 second-quarter provision for income taxes included a $54 million credit before minority interest ($27 million after minority interest) from the reduction of valuation reserves for capital loss carryovers and a $32 million charge for the adjustment of deferred tax balances. The reduction of valuation reserves reflected capital gains generated by the sale of the CHH Tissue business. During 2003, International Paper recorded decreases totaling $123 million in the provision for income taxes for significant items occurring in 2003, including a $13 million reduction in the fourth quarter ($26 million before minority interest) for a favorable settlement with Australian tax authorities of netoperating loss carryforwards, a $60 million reduction in the third quarter reflecting a favorable revision of estimated tax accruals upon filing the 2002 federal income tax return and increased research and development credits, and a $50 million
Earnings from continuing operations before income taxes and minority interest
		$		746			$	292			$		306
Statutory U.S. income tax rate				35	%			35	%				35	%
Tax expense using statutory U.S. income tax rate				261				102					107
State and local income taxes				19				(41	)				(60	)
Tax rate and permanent differences on non-U.S. earnings				(67	)			(131	)				(47	)
Permanent differences on sales of non-strategic assets				–				11					(70	)
Non-deductible business expenses				12				14					13
Retirement plan dividends				(7	)			(7	)				–
Tax benefit on export sales				(7	)			(12	)				(4	)
Minority interest				(35	)			(37	)				(40	)
Net U.S. tax on non-U.S. dividends				52				17					26
Tax credits				(37	)			(56	)				–
Other, net				15				27					3
Income tax expense (benefit)		$		206			$	(113	)		$		(72	)
Effective income tax rate				28	%			-39	%				-24	%

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reduction in the second quarter reflecting a favorable tax audit settlement and benefits from an overseas tax program. During the fourth quarter of 2002, International Paper completed a review of its deferred income tax accounts, including the effects of state tax credits and the taxability of the Company’s operations in various state taxing jurisdictions. As a result of this review, the Company recorded a decrease of approximately $46 million in the income tax provision in the 2002 fourth quarter, reflecting the effect of the estimated state income tax effective rate applied to these deferred tax items. International Paper has federal and non-U.S. net operating loss carryforwards that expire as follows: years 2005 through 2014 - $169 million, years 2015 through 2024 - $2.7 billion, and indefinite carryforwards - $829 million. International Paper has tax benefits from net operating loss carryforwards for state taxing jurisdictions of approximately $326 million that expire as follows: years 2005 through 2014 - $84 million, and years 2015 through 2024 - $242 million. International Paper also has federal, non-U.S. and state tax credit carryforwards that expire as follows: years 2005 through 2014 - $52 million, years 2015 through 2024 - $119 million, and indefinite carryforwards - $405 million. Deferred taxes are not provided for temporary differences of approximately $2.7 billion, $2.5 billion and $1.8 billion as of December 31, 2004, 2003 and 2002, respectively, representing earnings of non-U.S. subsidiaries that are intended to be permanently reinvested. Computation of the potential deferred tax liability associated with these undistributed earnings and other basis differences are not practicable. International Paper is currently being audited by various federal, state and non-U.S. taxing authorities for the tax periods 1995 through 2003. Some of these audits are expected to conclude in 2005. The Company believes that it is adequately accrued for any possible audit adjustments. While the overall resolution of these examinations cannot be determined at this time, the Company may realize a tax benefit, the effects of which could be material to the reported operating results for any given period, if such positions are ultimately sustained. In October 2004, the American Jobs Creation Act of 2004 (the Act) was signed into law. The Act provides for a special one-time deduction of 85% of certain foreign earnings that are repatriated. International Paper may elect to apply this provision to qualifying earnings repatriations in 2005. As of December 31, 2004, International Paper has started an evaluation of the effects of the repatriation provision, but does not expect to be able to complete this evaluation until the second quarter of 2005. While no repatriation decisions have been made as of December 31, 2004, the range of possible amounts that the Company is considering for repatriation is between zero and $1.8 billion. The related potential range of deferred taxes that would have to be provided should a repatriation decision be made is between zero and $300 million. NOTE 10COMMITMENTS AND CONTINGENT LIABILITIES Certain property, machinery and equipment are leased under cancelable and non-cancelable agreements. At December 31, 2004, total future minimum rental commitments under non-cancelable leases were $918 million, due as follows: 2005 - $211 million; 2006 - $170 million; 2007 - $141 million; 2008 - $115 million; 2009 - $67 million; and thereafter - $214 million. Rent expense was $259 million, $262 million and $267 million for 2004, 2003 and 2002, respectively. Unconditional purchase obligations have been entered into during the ordinary course of business for the purchase of certain pulpwood, logs, wood chips, raw materials, energy and services. At December 31, 2004, total unconditional purchase obligations were $6,853 million, due as follows: 2005 - $2,723 million; 2006 - $447 million; 2007 - $354 million; 2008 - $337 million; 2009 - $292 million; and thereafter - $2,700 million. International Paper entered into an agreement in 2000 to guarantee, for a fee, an unsecured contractual credit agreement of an unrelated third party customer. The guarantee, which expires in 2008, was made in exchange for a ten-year contract as the exclusive paper supplier to the customer. Both the loan to the customer and the guarantee are unsecured. Under the terms of the guarantee, International Paper could be required to make future payments up to a maximum of $110 million if the third party were to default under the credit agreement. There is no liability recorded on International Paper’s books for the guarantee. It is possible that payments may be required under this guarantee arrangement in the future, although it is uncertain how much or when such payments, if any, might be required. In connection with sales of businesses, property, equipment, forestlands, and other assets, International Paper commonly makes representations and warranties relating to such businesses or assets, and may enter into indemnification arrangements with respect to tax and environmental liabilities, breaches of representations and warranties, and other matters. Where any liabilities for such matters are probable and subject to reasonable estimation, accrued liabilities are recorded at the time of sale as a cost of the transaction. International Paper believes that possible future unrecorded liabilities for these matters, if any, would not have a material adverse effect on its consolidated financial statements.

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Exterior Siding and Roofing Litigation Three nationwide class action lawsuits relating to exterior siding and roofing products manufactured by Masonite that were filed against International Paper have been settled in recent years. The first suit, entitled Judy Naef v. Masonite and International Paper, was filed in December 1994 (Hardboard Lawsuit). The plaintiffs alleged that hardboard siding manufactured by Masonite fails prematurely, allowing moisture intrusion that in turn causes damage to the structure underneath the siding. The class consisted of all U.S. property owners having Masonite hardboard siding installed on and incorporated into buildings between January 1, 1980 and January 15, 1998. The Court granted final approval of the settlement on January 15, 1998. The settlement provides for monetary compensation to class members meeting the settlement requirements on a claims-made basis, which requires a class member to individually submit proof of damage to, or caused by, Masonite product, proof of square footage involved, and proofs of various other matters in order to qualify for payment with respect to a claim. It also provides for the payment of attorneys’ fees equaling 15% of the settlement amounts paid to class members, with a non-refundable advance of $47.5 million plus $2.5 million in costs. Those amounts were paid to class counsel in 1998. For siding that was installed between January 1, 1980 and December 31, 1989, the deadline for filing claims expired January 18, 2005, and for siding installed between January 1, 1990 through January 15, 1998, claims must be made by January 15, 2008. The second suit, entitled Cosby, et. al. v. Masonite Corporation, et. al., was filed in 1997 (Omniwood Lawsuit). The plaintiffs made allegations with regard to Omniwood siding manufactured by Masonite which were similar to those alleged in the Hardboard Lawsuit. The class consisted of all U.S. property owners having Omniwood siding installed on and incorporated into buildings from January 1, 1992 to January 6, 1999. The settlement relating to the Omniwood Lawsuit provides that qualified claims must be made by January 6, 2009 for Omniwood siding that was installed between January 1, 1992 and January 6, 1999. The third suit, entitled Smith, et. al. v. Masonite Corporation, et. al., was filed in 1995 (Woodruf Lawsuit). The plaintiffs alleged that Woodruf roofing manufactured by Masonite is defective and causes damage to the structure underneath the roofing. The class consisted of all U.S. property owners who had incorporated and installed Masonite Woodruf roofing from January 1, 1980 to January 6, 1999. The settlement relating to the Woodruf Lawsuit provides that for product installed between January 1, 1980 and December 31, 1989, claims must be made by January 6, 2006, and for product installed between January 1, 1990 and January 6, 1999, claims must be made by January 6, 2009. The Court granted final approval of the settlements of the Omniwood and Woodruf Lawsuits on January 6, 1999. The settlements provide for monetary compensation to class members meeting the settlement requirements on a claims- made basis, which requires a class member to individually submit proof of damage to, or caused by, Masonite product, proof of square footage involved, and proofs of various other matters. The settlements also provide for payment of attorneys’ fees equaling 13% of the settlement amounts paid to class members with a non-refundable advance of $1.7 million plus $75,000 in costs for each of the two cases. Those amounts were paid in 1999. The liability for these matters was retained after the sale of Masonite to Premdor Inc. in 2001. Claim Filing and Determination Once a claim is determined to be valid under the respective settlement agreement covering the claim, the amount of the claim is determined by reference to a negotiated compensation formula established under the settlement agreements designed to compensate the homeowner for all damage to the structure. The compensation formula is based on (1) the average cost per square foot for product replacement, including material and labor as calculated by industry standards, in the area in which the structure is located, adjusted for inflation, or (2) the cost of appropriate refinishing as determined by industry standards in such area, adjusted for inflation. Persons receiving compensation pursuant to this formula also agree to release International Paper and Masonite from all other property damage claims relating to the product in question. In connection with the products involved in the lawsuits described above, where there is damage, the process of degradation, once begun, continues until repairs are made. International Paper estimates that approximately 4 million structures have installed products that are the subject of the Hardboard Lawsuit, 300,000 structures have installed products that are subject to the Omniwood Lawsuit and 86,000 structures have installed products that are the subject of the Woodruf Lawsuit. Masonite stopped selling the products involved in the Hardboard Lawsuit in May 2001, the products involved in the Woodruf Lawsuit in May 1996, and the products involved in the Omniwood Lawsuit in September 1996. Persons who are class members under the Hardboard, Omniwood and Woodruf Lawsuits who do not pursue remedies under the respective settlement agreement pertaining to such suits may have recourse to warranties, if any, in existence at the expiration of the respective terms established under the settlement agreements for making claims. The warranty period generally extends for 25 years following the installation of the product in question and,

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although the warranties vary from product to product, they generally provide for a payment of up to two times the purchase price. Reserve Analysis The following table presents an analysis of the net reserve activity related to the Hardboard, Omniwood and Woodruf Lawsuits for the years ended December 31, 2004, 2003 and 2002.													During 2002, tracking of the actual versus projected number of claims filed and average cost per claim indicated that although total claims costs were approximately equal to projected amounts, the number of claims filed was higher than projected, offsetting the effect of lower average claims payment amounts. Accordingly, updated projections were developed by two third-party consultants utilizing the most current claims experience data. Principal assumptions used in the development of these projections were that the number of Hardboard claims filed, which account for approximately 85% of all claims costs, would average slightly above current levels until January 2005, then would decline by about 70% in 2005 and remain flat to the end of the claims period. Average claims costs were assumed to continue to decline at the rate experienced during the last twelve months. While management believes that the assumptions used in developing these outcomes represent the most probable scenario, factors which could cause actual results to vary from these assumptions include: (1) area specific assumptions as to growth in claims rates could be incorrect, (2) locations where previously there had been little or no claims could emerge as significant geographic locations, and (3) the cost per claim could vary materially from that projected. The first consultant provided two statistical outcomes, with the higher outcome indicating a required provision of approximately $430 million. The second consultant provided a range of possible outcomes, with the most probable outcome indicating a required provision of approximately $475 million. The estimate ranged from a low (a 95% probability that future charges would exceed this amount) of $338 million to a high (5% probability that future charges would exceed this amount) of $635 million. Using these projections, management determined that a provision of $450 million should be recorded in the fourth quarter of 2002 as an estimate of the most probable outcome based on the consultants’ projections. During 2004 and 2003, claims filed and average costs per claim were in line with 2002 projections and no adjustments of reserve balances were required. Reserve Balances At December 31, 2004, net reserves for these matters totaled $259 million, including $158 million for the Hardboard Lawsuit, $97 million for the Omniwood Lawsuit and $4 million for the Woodruf Lawsuit. At December 31, 2004, there were $33 million of costs associated with claims inspected and not paid ($27 million for Hardboard, $5 million for Omniwood and $1 million for Woodruf) and $29 million of costs associated with claims in process and not yet inspected ($24 million for claims related
In millions	Hard- board			Omni- wood			Woodruf			Total
Balance, December 31, 2001	$	179		$	20		$	9		$	208
Additional provision		305			134			11			450
Payments		(161	)		(16	)		(8	)		(185	)
Insurance collections		34			–			–			34
Balance, December 31, 2002		357			138			12			507
Payments		(129	)		(21	)		(3	)		(153	)
Insurance collections		33			–			–			33
Balance, December 31, 2003		261			117			9			387
Payments		(111	)		(20	)		(5	)		(136	)
Insurancecollections		8			–			–			8
Balance,December 31, 2004	$	158		$	97		$	4		$	259
Additional Provisions In the third quarter of 2001, a determination was made that an additional provision would be required to cover an expected shortfall in the reserves that had arisen since the third quarter of 2000 due to actual claims experience exceeding projections. An additional $225 million was added to the existing reserve balance at that time. This increase was based on third party consultants’ statistical studies of future costs, which analyzed trends in the claims experience through August 31, 2001. The amount was based on a statistical outcome that assumed that Hardboard claims growth continued through mid-2002, then declined by 50% per year. Omniwood claims growth was assumed to continue through mid-2002, decline by 50% in 2003 and thereafter increase at the rate of 10% per year. Woodruf claims were assumed to decline at a rate of 50% per year. Unit costs per claim were assumed to hold at the 2001 level. The statistical model used to develop this outcome also included assumptions on the geographic patterns of claims rates and assumptions related to the cost of claims, including forecasts relating to the rate of inflation. Average claim costs were calculated from historical claims records, taking into consideration structure type, location and source of the claim.

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to the Hardboard Lawsuit, $4 million for claims related to the Omniwood Lawsuit and $1 million for claims related to the Woodruf Lawsuit). In addition, there were approximately $11 million of costs associated with administrative and legal fees incurred but not paid prior to year-end. The estimated claims reserve includes $187 million for unasserted claims that are probable of assertion. While additional reserve balances may be required for future payments under the Woodruf Lawsuit, International Paper believes that the aggregate reserve balance for claims arising in connection with exterior siding and roofing products, described above, are adequate, and that additional amounts will be recovered from its insurance carriers in the future relating to these claims (described below). International Paper is unable to estimate at this time the amount of additional charges, if any, which may be required for these matters in the future. Claims Statistics The average settlement cost per claim for the years ended December 31, 2004, 2003, and 2002 for the Hardboard, Omniwood and Woodruf Lawsuits is set forth in the table below: Average Settlement Cost Per Claim													The above information is calculated by dividing the amount of claims paid by the number of claims paid. Through December 31, 2004, net settlement payments totaled $866 million ($713 million for claims relating to the Hardboard Lawsuit, $105 million for claims relating to the Omniwood Lawsuit and $48 million for claims relating to the Woodruf Lawsuit), including $51 million of non-refundable attorneys’ advances discussed above ($47.5 million for the Hardboard Lawsuit and $1.7 million for each of the Omniwood Lawsuit and Woodruf Lawsuit). Also, payments of $50 million have been made to the attorneys for the plaintiffs in the Hardboard, Omniwood and Woodruf Lawsuits. In addition, through December 31, 2004, International Paper had received $223 million related to the Hardboard Lawsuit from our insurance carriers. The following table shows an analysis of claims statistics related to the Hardboard, Omniwood and Woodruf Lawsuits for the years ended December 31, 2004, 2003 and 2002. The table reflects an increase in the number of claims filed in December 2004 on the eve of the January 2005 deadline for filing certain claims under the Hardboard Lawsuit settlement agreement. These increases were anticipated in prior claim projections and did not adversely affect the evaluation of the adequacy of reserve balances at December 31, 2004.
	Hardboard				Omniwood				Woodruf
In thousands	Single Family		Multi- Family		Single Family		Multi- Family		Single Family		Multi- Family
December 31, 2004	$	2.3	$	3.1	$	4.3	$	4.2	$	4.2	$	4.0
December 31, 2003	$	2.2	$	3.0	$	3.8	$	5.4	$	3.9	$	1.2
December 31, 2002	$	2.4	$	4.3	$	4.4	$	7.7	$	4.7	$	9.3

Claims Activity

In thousands No. of Claims Pending	Hardboard				Omniwood				Woodruf			Total
	Single Family		Multi- Family		Single Family		Multi- Family		Single Family		Multi- Family	Single Family		Multi- Family		Total
December 31, 2001	30.0		5.4		1.4		0.3		1.5		0.2	32.9		5.9		38.8
No. of Claims Filed	48.3		10.9		3.5		0.5		1.4		0.1	53.2		11.5		64.7
No. of Claims Paid	(36.0	)	(9.2	)	(2.6	)	(0.4	)	(1.3	)	–	(39.9	)	(9.6	)	(49.5	)
No. of Claims Dismissed	(13.7	)	(3.1	)	(0.4	)	–		(0.5	)	–	(14.6	)	(3.1	)	(17.7	)
December 31, 2002	28.6		4.0		1.9		0.4		1.1		0.3	31.6		4.7		36.3
No. of Claims Filed	45.0		9.2		4.9		0.3		1.0		–	50.9		9.5		60.4
No. of Claims Paid	(30.9	)	(7.1	)	(4.1	)	(0.2	)	(0.9	)	–	(35.9	)	(7.3	)	(43.2	)
No. of Claims Dismissed	(16.3	)	(3.3	)	(0.9	)	–		(0.4	)	–	(17.6	)	(3.3	)	(20.9	)
December 31, 2003	26.4		2.8		1.8		0.5		0.8		0.3	29.0		3.6		32.6
No. of Claims Filed	56.0		8.0		5.2		–		0.6		–	61.8		8.0		69.8
No. of Claims Paid	(28.6	)	(3.7	)	(4.0	)	(0.1	)	(0.4	)	–	(33.0	)	(3.8	)	(36.8	)
No. of Claims Dismissed	(14.9	)	(2.1	)	(0.6	)	–		(0.1	)	–	(15.6	)	(2.1	)	(17.7	)
December 31, 2004	38.9		5.0		2.4		0.4		0.9		0.3	42.2		5.7		47.9

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Insurance Matters In November 1995, International Paper and Masonite commenced a lawsuit in the Superior Court of the State of California against certain of their insurance carriers (the Indemnification Lawsuit) because of their refusal to indemnify International Paper and Masonite for, among other things, the settlement relating to the Hardboard Lawsuit and the refusal of one insurer, Employer’s Insurance of Wausau (Wausau), to provide a defense of that lawsuit. During the fall of 2001, a trial of Masonite’s claim that Wausau breached its duty to defend (the Breach of Duty Lawsuit) was conducted in a state court in California. The jury found that Wausau had breached its duty to defend Masonite and awarded Masonite $13 million for its expense to defend the Hardboard Lawsuit; an additional $12 million in attorneys’ fees and interest for Masonite’s expense to prosecute the Breach of Duty Lawsuit based on a finding that Wausau had acted in bad faith in refusing to defend the Hardboard Lawsuit and an additional $68 million in punitive damages. In a post-trial proceeding, the court awarded an additional $2 million in attorneys’ fees which Masonite had incurred in the trial of the Breach of Duty Lawsuit. The trial of the Indemnification Lawsuit against 22 insurers (the Defendants) began in April 2003 to recover $470 million paid to claimants pursuant to the settlement of the Hardboard Lawsuit through May 2003. In July 2003, the jury determined that $383 million of International Paper’s payments to settle these claims are covered by its insurance policies (the Phase I Verdict). In the current phase of the case the court will determine how much of the $383 million can be allocated to the policies of the Defendants. The Company anticipates that, before a judgment is entered, the California court will also make a determination about indemnification for future claims based on the Phase I Verdict. The court will also determine whether amounts paid and to be paid to the plaintiff class counsel pursuant to the settlement of the Hardboard Lawsuit, and administrative expenses that have been and will be incurred in connection with that settlement, are covered by insurance. A judgment has not yet been entered on the verdict in the Indemnification Lawsuit. It is difficult to predict when the judgment will be entered. This judgment will be subject to appeal when entered. Because of the uncertainties inherent in the litigation, including the outcome of any appeal, International Paper is unable to estimate the amount that it ultimately may recover against its insurance carriers. The Company is presently engaged in court-ordered mediation with several of the Defendants. During 2004, International Paper reached settlements with Wausau, with respect to both the Indemnification and the Breach of Duty Lawsuits, and with four other insurance companies under which International Paper received $164 million, including approximately $118 million received in 2004, and an additional payment of $46 million in January 2005. In addition, the Company has begun arbitration proceedings against American Excess Insurance Association and ACE Insurance Company, Ltd., to recover additional insurance proceeds. As of December 31, 2004, International Paper had received an aggregate of $223 million in settlement payments from certain of its insurance carriers which had been named as defendants in the Indemnification Lawsuit or which otherwise provided International Paper with insurance coverage for hardboard siding. Under an alternative risk-transfer agreement, International Paper contracted with a third party for payment in an amount up to $100 million for certain costs relating to the Indemnification Lawsuit if payments by International Paper with respect thereto exceeded a specified retention that was indexed to account for inflation over a several year period. The agreement with the third party was in excess of liability insurance recoveries obtained by International Paper, which are the subject of the separate litigation described above. Accordingly, International Paper believes that the obligation of the third party with respect to this agreement did not constitute “other valid and collectible insurance” that would either limit or otherwise affect the Company’s right to collect insurance available to it and Masonite under the insurance policies, which are the subject of the Indemnification Lawsuit. At December 31, 2001, International Paper had received the $100 million from the third party. A dispute between International Paper and the third party, concerning a number of issues, including the relationship of the contract funding obligation to insurance proceeds recovered in the Indemnification Lawsuit, was the subject of an arbitration commenced in 2002 by the third party in London, England and scheduled to begin in February 2004. Before the hearing started, the parties settled the dispute. Under the settlement, International Paper agreed to pay the third party a portion of insurance proceeds recovered by International Paper under its insurance policies, beginning on January 1, 2004 and thereafter, up to a maximum of $95 million. The precise amount that International Paper will pay to the third party under the settlement will depend upon, and will be a specified portion of insurance recoveries received by International Paper after January 1, 2004. As of December 31, 2004, approximately $32 million had been paid to the third party under this settlement.

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Antitrust Matters On May 14, 1999 and May 18, 1999, two lawsuits were filed in federal court in the Eastern District of Pennsylvania against International Paper, the former Union Camp Corporation (acquired by International Paper in 1999), and other manufacturers of linerboard (the Defendants). These suits allege that the Defendants conspired to fix prices for corrugated sheets and containers during the period from October 1, 1993 through November 30, 1995. These lawsuits, which seek injunctive relief as well as treble damages and other costs associated with the litigation, were consolidated and, on September 4, 2001, certified as a class action. On September 22, 2003, International Paper, along with Weyerhaeuser Co. and Georgia-Pacific Corp., agreed with the class plaintiffs to settle the litigation for an aggregate amount of $68 million. The settlement, of which International Paper’s and Union Camp’s share totaled $24.4 million, was approved by the court in an order entered on December 10, 2003. Twelve complaints with multiple plaintiffs who opted out of the class action described above, have been filed in various federal district courts around the country. These suits allege that the defendants conspired to fix prices for corrugated sheets and containers during the period from October 1, 1993 through February 28, 1997. One opt-out plaintiff voluntarily dismissed its complaint on October 10, 2003. Another opt-out plaintiff settled its case. All of the remaining federal opt-out cases have been consolidated for pre-trial purposes in the federal court for the Eastern District of Pennsylvania. Discovery in the federal opt-out cases is currently scheduled to conclude in June 2005. Additionally, one opt-out case was originally filed in Kansas state court, but has been removed to federal court and transferred to the Eastern District of Pennsylvania. The plaintiff in that case has filed a motion to remand the case to Kansas state court. The Company is vigorously defending these cases and believes it has valid defenses. However, due to the complexity of evaluating the factors upon which damages might be based (including, but not limited to, the uncertainties of the class period, defendants’ sales to various opt-out plaintiffs, and other defendants’ potential settlements), the Company cannot assess its potential exposure at this time. In 2000, purchasers of high-pressure laminates filed a number of purported class actions under the federal antitrust laws alleging that International Paper’s Nevamar division (which was part of the Decorative Products division) participated in a price-fixing conspiracy with competitors between January 1, 1994 and June 30, 2000. In 2000 and 2001, indirect purchasers of high-pressure laminates also filed similar purported class action cases under various state antitrust and consumer protection statutes in Arizona, California, Florida, Maine, Michigan, Minnesota, New Mexico, New York, North Carolina, North Dakota, South Dakota, Tennessee, West Virginia, Wisconsin and the District of Columbia. In the third quarter of 2002, International Paper completed the sale of the Decorative Products operations, but retained any liability for these cases. In June 2003, the federal district court certified the consolidated federal cases as a class action. In 2004, the federal and all of the state cases were settled for a total of $38.5 million. The federal settlement has been approved by the court, and the state cases have all received preliminary approval and are proceeding toward final approval. On September 16, 2002, International Paper was served in Federal District Court in Columbia, South Carolina with a class action lawsuit by a group of private landowners alleging that International Paper and certain of its fiber suppliers, known as Quality Suppliers, engaged in an unlawful conspiracy to artificially depress the prices at which International Paper procures fibers for its mills. The suit seeks injunctive relief as well as treble damages and other costs associated with the litigation. On March 31, 2004, the case was certified as a class action. International Paper then asked the U.S. Court of Appeals for the Fourth Circuit for permission to appeal the District Court’s order granting class certification, but that request was denied. Discovery and issues concerning class notice are ongoing. On January 10, 2005, with the District Court’s approval, International Paper filed motions requesting dismissal of the plaintiffs’ claim based on plaintiffs’ lack of standing to sue and decertification of the class. The motions are scheduled for hearing on April 7, 2005. In May 2004, the press reported that European, U.S. and Canadian antitrust authorities were investigating possible cartel activity relating to publication papers. Following these press reports, a number of private plaintiffs filed purported class actions on behalf of purchasers of publication papers in various U.S. federal and state courts. These class actions allege that manufacturers of publication papers, including International Paper, participated in a price fixing consipiracy from 1993 to the present. The cases filed in federal court assert a violation of the federal antitrust laws, while the cases filed in the state court allege violations of state antitrust and consumer protection statutes. These lawsuits seek injunctive relief, as well as treble damages and other costs associated with the litigation. The federal cases were consolidated for pre-trial purposes in December 2004 in the federal court for the District of Connecticut. Discovery and related pretrial proceedings have not yet begun. Discovery in the state cases is expected to be coordinated with the consolidated federal cases. The Company believes it has valid defenses and intends to vigorously defend these cases. However, at this early stage the Company cannot assess its potential exposure.

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Summary International Paper is also involved in various other inquiries, administrative proceedings and litigation relating to contracts, sales of property, environmental protection, tax, antitrust, personal injury and other matters, some of which allege substantial monetary damages. While any proceeding or litigation has the element of uncertainty, International Paper believes that the outcome of any of the lawsuits or claims that are pending or threatened, or all of them combined, including the preceding antitrust matters, will not have a material adverse effect on its consolidated financial statements. NOTE 11SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION Inventories by major category were:							million, $855 million and $904 million, respectively. Total interest expense was $840 million in 2004, $875 million in 2003 and $891 million in 2002. Interest income was $97 million, $103 million and $106 million in 2004, 2003, and 2002, respectively. The following tables present changes in the goodwill balances as allocated to each business segment for the years ended December 31, 2004 and 2003.
							In millions	Balance January 1, 2004			Other (b)					Additions/ Reductions				Balance December 31, 2004
							Printing Papers	$	2,878		$		1				$	(3	)(c)			$	2,876
							Industrial and Consumer Packaging		1,361				9					235	(d)				1,605
							Distribution		334				(35	)(e)				–					299
							Forest Products		190	(a)			–					–					190
In millions at December 31	2004					2003	Carter Holt Harvey		–				35	(f)				(35	)(f)				–
Raw materials	$		371	$		406	Corporate		30				(6	)				–					24
Finished pulp, paper and packaging
products			1,796			1,662	Total	$	4,793		$		4				$	197				$	4,994
Finished lumber and panel products			184			127
Operating supplies			351			506	(a)      Restated for the reclassification of Weldwood to Discontinued operations (b)      Represents the effects of foreign currency translations and reclassifications from other long-term assets (c)      Represents the reclassification of the goodwill of Fine Papers to Assets of businesses held for sale (d)      Includes the effects of the acquisition of Box USA ($238 million) offset by the sale of Food Pack S.A. ($3 million) (e)      Represents the effects of the sale of Scaldia Papier B.V. ($23 million) and the reclassification of the goodwill of Papeteries de France to Assets of businesses held for sale ($12 million) (f)      Represents goodwill recorded by International Paper upon the acquisition of Plantation Timber Products and the subsequent write-off following an impairment evaluation
Other			16			66
Inventories	$		2,718	$		2,767
The last-in, first-out inventory method is used to value most of International Paper’s U.S. inventories. Approximately 70% of total raw materials and finished products inventories were valued using this method. If the first-in, first-out method had been used, it would have increased total inventory balances by approximately $170 million and $133 million at December 31, 2004 and 2003, respectively. Plants, properties and equipment by major classification were:
In millions at December 31	2004					2003	In millions				Balance January 1, 2003						Other (b)			Balance December 31, 2003
Pulp, paper and packaging facilities
Mills	$		22,165	$		21,234
Packaging plants			5,874			5,826	Printing Papers				$	2,864					$	14			$		2,878
Wood products facilities			1,411			1,232	Industrial and Consumer Packaging					1,358						3					1,361
Other plants, properties and equipment			1,925			2,091	Distribution					326						8					334
							Forest Products					187			(a)			3					190
Gross cost		31,375			30,383		Corporate					24						6					30
Less: Accumulated depreciation		17,943			17,123
							Total				$	4,759					$	34			$		4,793
Plants, properties and equipment, net	$		13,432	$		13,260
							(a)      Restated for the reclassification of Weldwood to Discontinued operations (b)      Represents the effects of foreign currency translations and reclassifications from other long-term assets
Interest costs related to the development of certain long-term assets are capitalized and amortized over the related assets’ estimated useful lives. Capitalized net interest costs were $11 million in 2004, $9 million in 2003 and $12 million in 2002. Interest payments made during 2004, 2003 and 2002 were $807

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The following table presents an analysis of activity related to asset retirement obligations since January 1, 2003:											NOTE 12 DEBT AND LINES OF CREDIT In December 2004, Timberlands Capital Corp. II, Inc., a wholly-owned consolidated subsidiary of International Paper, redeemed $170 million of 4.5% preferred securities. In November 2004, these preferred securities were reclassified from Minority interest to Current maturities of long-term debt pursuant to SFAS No. 150. Additionally during the fourth quarter of 2004, International Paper redeemed approximately $295 million of mostly domestic debt, including $108 million of 9.77% notes with a maturity date in December 2009 and $88 million of 6.9% industrial development bonds with a maturity date in August 2022. In November 2004, CHH borrowed $425 million under their multi-currency and commercial paper credit facilities at interest rates ranging from 5.5% to 6.8% to be repaid during 2005. The proceeds from the borrowings were used to repay approximately $305 million of 8.875% notes with a maturity date in December 2004 and to settle maturing cross-currency and interest rate swaps. In August 2004, an International Paper wholly-owned subsidiary issued 500 million of Euro-denominated long-term debt (equivalent to approximately $619 million at issuance) with an initial interest rate of EURIBOR plus 55 basis points that can vary depending upon the credit rating of the Company and a maturity date in August 2009. Also in August 2004, International Paper repurchased $168 million of limited partnership interests in Georgetown Equipment Leasing Associates, L.P. and Trout Creek Equipment Leasing, L.P. In June 2004, these partnership interests had been reclassified from Minority interest to Current maturities of long-term debt pursuant to SFAS No. 150. Additionally, during the third quarter of 2004, approximately $500 million of debt was redeemed, including $150 million of 8.125% notes with a maturity date in June 2024 and $193 million of debt assumed in connection with the Box USA acquisition. In June 2004, an International Paper wholly-owned subsidiary issued $650 million of long-term debt with an interest rate of LIBOR plus 62.5 basis points that can vary depending upon the credit rating of the Company and a maturity date in June 2007, which refinanced $650 million of long-term debt with an interest rate of LIBOR plus 100 basis points and a maturity date in August 2004. In March 2004, International Paper issued $600 million of 4.00% notes due April 2010 and $400 million of 5.25% notes due April 2016. The proceeds from these issuances were used in April 2004 to retire approximately $1.0 billion of 8.125% coupon rate debt with an original maturity date in July 2005.
In millions				2004					2003
Asset retirement obligation at January 1		$		48			$		20
Net transition adjustment				–					22
New liabilities				6					–
Liabilities settled				(8	)				(4	)
Net adjustments to existing liabilities				(6	)				8
Accretion expense				1					2
Asset retirement obligation at December 31		$		41			$		48
This liability is included in Other liabilities in the accompanying consolidated balance sheet together with tax contingency reserves and pension and postretirement liabilities. The following table presents changes in minority interest balances for the years ended December 31, 2004 and 2003:
In millions			2004					2003
Balance, beginning of year	$		1,622				$	1,202
Sale of preferred securities of a subsidiary			–					150
Minority interest related to sale of CHH Tissue business			307					–
Currency translation adjustment			125					250
Reclassification of limited partnership interests to debt			(338			)		–
CHH share repurchase (a)			(158			)		–
Dividends paid			(59			)		(114		)
Minority interest expense			43					109
Other, net			6					25
Balance, end of year	$		1,548				$	1,622
(a) In August 2004, Carter Holt Harvey used a portion of the funds generated in connection with the second quarter sale of its Tissue business to repurchase shares from its shareholders, including approximately $158 million that was paid to minority shareholders. In December 2004, International Paper completed the sale of 1.1 million acres of forestlands in Maine and New Hampshire to a private forest investment company for $244 million. Since International Paper has some continuing interest in these forestlands through a long-term fiber supply agreement, no gain was recognized in 2004 on this transaction. However, the net cash proceeds from the transaction of approximately $242 million are included as a source of cash in the accompanying consolidated statement of cash flows. The deferred gain on the transaction totaling $114 million at December 31, 2004, included in Other liabilities in the accompanying consolidated balance sheet, will be amortized to earnings in future periods over the term of the fiber supply agreement.

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A pre-tax early debt retirement expense of $92 million related to the above 2004 redemptions is included in Restructuring and other charges in the accompanying consolidated statement of operations. In December 2003, International Paper completed a private placement with registration rights of $500 million of 4.25% notes due in January 2009 and $500 million of 5.50% notes due in January 2014. The net proceeds from the notes were used in January 2004 for the redemption of all of the outstanding $805 million aggregate principal amount of International Paper Capital Trust III 7.875% preferred securities originally due in December 2038 and for the repayment or early retirement of other debt. In conjunction with the Company’s adoption of FIN 46 and FIN 46(R) (see Note 4), Long-term debt at December 31, 2003 (1) increased by $50 million due to the consolidation of an entity that was formerly treated as an operating lease arrangement; (2) decreased by $460 million due to the deconsolidation of an entity that had previously been consolidated; and (3) increased by a net $100 million upon the deconsolidation of an entity created in June 2002. The net $100 million increase included an addition to debt of $450 million representing International Paper’s obligations to the deconsolidated entity and a reduction of $350 million due to the deconsolidation of third-party debt owed by the entity. Also, related to the application of FIN 46 to certain entities, effective July 1, 2003, International Paper deconsolidated two trusts with holdings of approximately $1.3 billion of mandatorily redeemable preferred securities, previously classified as a separate line item on the Company’s balance sheet, and recorded approximately $1.3 billion of borrowings from the trusts as Long-term debt. In December 2003, International Paper exercised its option to redeem the securities of one of the trusts effective in January 2004, and consequently, reclassified $830 million to Current maturities of long-term debt. In February 2005, International Paper redeemed the preferred securities of the remaining trust, which were classified in Long-term debt at December 31, 2004. The implementation of FIN 46 and FIN 46(R) had no adverse affect on existing debt covenants. In March 2003, International Paper completed a private placement with registration rights of $300 million of 3.80% notes due in April 2008 and $700 million of 5.30% notes due in April 2015. Proceeds from the notes were used to repay approximately $450 million of commercial paper and long-term debt and to redeem $550 million of preferred securities of IP Finance (Barbados) Limited, a non-U.S. consolidated subsidiary of International Paper. A pre-tax early debt retirement expense of $1 million related to the 2003 redemptions discussed above is included in Restructuring and other charges in the accompanying consolidated statement of operations. In October 2002, International Paper completed a private placement with registration rights of $1.0 billion aggregate principal amount of 5.85% notes due in October 2012. In November 2002, the sale of an additional $200 million principal amount of 5.85% notes due in October 2012 was completed. The net proceeds of these sales were used to refinance most of International Paper’s $1.2 billion aggregate principal amount of 8% notes due in July 2003, that were issued in connection with the Champion acquisition. The pre- tax early debt retirement cost of $41 million is included in Restructuring and other charges in the accompanying consolidated statement of operations. Also during 2002, approximately $1.8 billion of long-term debt was repaid, including about $800 million of Champion acquisition debt. Increases in 2002 included approximately $800 million from new borrowings, and non-cash increases of approximately $620 million, including $460 million relating to the consolidation of a debt obligation of a special purpose entity following the modification of the terms of the related agreement.

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A summary of long-term debt follows:					Total maturities of long-term debt over the next five years are 2005 - $506 million; 2006 - $882 million; 2007 - $1.2 billion; 2008 - $326 million; and 2009 - $1.3 billion. At December 31, 2004 and 2003, International Paper classified $87 million and $1.5 billion, respectively, of tenderable bonds, commercial paper and bank notes and Current maturities of long-term debt as Long-term debt. International Paper has the intent and ability to renew or convert these obligations, as evidenced by the available bank credit agreements described below. At December 31, 2004, International Paper’s unused contractually committed bank credit agreements amounted to $3.2 billion. The agreements generally provide for interest rates at a floating rate index plus a pre-determined margin dependent upon International Paper’s credit rating. In March 2004, International Paper replaced its maturing $750 million bank credit agreement with a five-year, $1.25 billion bank credit facility maturing in March 2009. Concurrently, an existing three-year bank credit agreement maturing in March 2006 was reduced from $1.5 billion to $750 million. These agreements have a facility fee of 0.15% that is payable quarterly. In addition, in November 2004, International Paper amended its receivables securitization program established in December 2001 to increase the line of credit from $650 million to $1.2 billion of commercial paper-based financings, based on the amount of qualifying receivables. The program extends through November 2007 with a facility fee of 0.20%. There were no borrowings under either the bank credit agreements or receivables securitization program at December 31, 2004. In November 2004, CHH entered into a short-term multi- currency credit facility with a NZ$400 million line of credit that extends through August 2005 with a facility fee of 0.05%. Also, CHH has an existing NZ$ 325 million multi-currency credit facility that supports its commercial paper program. This facility matures in two tranches from 2006 to 2008. The facility fee ranges from 0.27% to 0.32% at current credit ratings and is payable quarterly. The unused portion of these facilities at December 31, 2004 amounted to approximately NZ$344 million. At December 31, 2004, outstanding debt included approximately $227 million of commercial paper and bank notes with interest rates that fluctuate based on market conditions and the Company’s credit rating. Maintaining a strong investment-grade rating is an important element of International Paper’s corporate finance strategy. At December 31, 2004, the Company held long-term credit ratings of BBB (negative outlook) and Baa2 (negative outlook) by Standard & Poor’s (S&P) and Moody’s Investor Services (Moody’s), respectively. The Company currently has short-term credit ratings by S&P and Moody’s of A-3 and P-2, respectively.
In millions at December 31		2004		2003
8 7/8% to 10% notes - due 2011 - 2012	$	175	$	392
8 7/8% notes		––		305
9.25% debentures - due 2011		125		125
8 3/8% to 9 1/2% debentures - due 2015 - 2024		300		300
8 1/8% notes		––		1,000
7 7/8% subordinated debentures		––		830
7% to 7 7/8% notes - due 2005 - 2007		649		1,041
6 7/8% notes - due 2023 - 2029		394		544
6.75% notes - due 2011		1,000		1,000
6.65% notes - due 2037		97		94
6.5% notes - due 2007		149		149
6.4% to 7.75% debentures - due 2025 - 2027		797		791
5.85% notes - due 2012		1,202		1,202
5 1/4% convertible subordinated debentures - due 2025		464		464
5.25% to 5.5% notes - due 2014 - 2015		1,596		1,197
5 3/8% euro notes - due 2006		334		308
5 1/8% debentures - due 2012		102		99
3.8% to 4.25% notes - due 2008 - 2010		1,399		799
Zero-coupon convertible debentures - due 2021		1,141		1,099
Medium-term notes - due 2006 - 2009 (a)		43		52
Floating rate notes - due 2006 - 2010 (b)		1,794		1,127
Environmental and industrial development bonds - due 2005 - 2033 (c,d)		2,150		2,317
Commercial paper and bank notes (e)		227		53
Other (f)		500		249
Total (g)		14,638		15,537
Less: Current maturities		506		2,087
Long-term debt	$	14,132	$	13,450
(a)The weighted average interest rate on these notes was 8.1% in 2004 and 2003. (b)The weighted average interest rate on these notes was 2.9% in 2004 and 2.4% in 2003. Includes $670 million of Euro borrowings with a weighted average interest rate of 2.7% in 2004. (c)The weighted average interest rate on these bonds was 5.6% in 2004 and 5.8% in 2003. (d)Includes $22 million of bonds at December 31, 2004 and $23 million of bonds at December 31, 2003, which may be tendered at various dates and/or under certain circumstances. (e)The weighted average interest rate was 6.1% in 2004 and 4.2% in 2003. Includes $162 million of New Zealand dollar commercial paper borrowings with an interest rate of 6.8% in 2004. (f)Includes $245 million of Australian dollar borrowings with a fixed interest rate of 5.5% and $29 million of New Zealand dollar borrowings with a fixed interest rate of 6.8% in 2004. Also includes $54 million at December 31, 2004 and $86 million at December 31, 2003 related to interest rate swaps treated as fair value hedges. (g)The fair market value was approximately $15.3 billion at December 31, 2004 and $16.4 billion at December 31, 2003.

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Contingently Convertible Securities Included in debt at December 31, 2004 and 2003 were $2.1 billion principal amount at maturity of zero-coupon convertible senior debentures with a 20-year term. This debt accretes to face value at maturity at a rate of 3.75% per annum. Beginning on June 20, 2004, and every June 20th and December 20th until maturity, the debentures are subject to an increased accretion rate if the closing sales price of the Company’s common stock is equal to or less than 60% of the then current conversion price of the notes for any 20 trading days out of the last 30 consecutive trading days ending three business days prior to June 20, 2004, or later semiannual date. The conversion price of the notes as of December 31, 2004 was $56.96, and the bonds were not subject to an increased accretion rate for the semiannual period beginning December 20, 2004. These debentures may be converted into shares of the Company’s common stock at a conversion ratio of 9.5111 shares per $1,000 principal amount at maturity of debentures, which was equal to an initial conversion price of $50.01 per share of the Company’s common stock. The debenture holders may convert their debentures into the Company’s common stock prior to maturity under any of the following circumstances: (1) the closing sales price of the Company’s common stock for at least 20 trading days in the 30 consecutive trading days ending on the day prior to the surrender date is more than 120% (declining by .256% at the end of each semi-annual period over the life of the debentures to 110%) of the then-current conversion price; (2) International Paper’s credit rating is downgraded by each of Moody’s and S&P to below Baa3 and BBB-, respectively; (3) the Company has called the notes for redemption; (4) the Company distributes to all holders of the Company’s common stock certain rights entitling them to purchase, for a period expiring within 60 days, common stock at less than the closing sales price of the Company’s common stock at the time; or (5) the Company distributes to all holders of our common stock, the assets, debt securities or certain rights to purchase the Company’s debt securities, which distribution has a per share value exceeding 12.5% of the closing sales price of the Company’s common stock on the day preceding the declaration for such distribution. Beginning in the fourth quarter of 2004, as required by a recent FASB consensus, the dilutive effect of the convertible notes has been reflected in diluted earnings per share in periods when dilutive (see the caption “Information About Capital Structure – Contingently Convertible Securities” in Note 4), with prior periods restated. Security holders have the right to require repurchase of these securities on June 20th in each of the years 2006, 2011 and 2016, at a repurchase price equal to the accreted principal amount to the repurchase date. The repurchase may be for International Paper common stock or cash, or a combination of both, at the Company’s option. International Paper also has the option to redeem the securities for cash after June 19, 2006. On or after June 20, 2006 and prior to June 20, 2008, the redemption may only occur if the closing sales price of the Company’s common stock exceeds 120% of the then-current conversion price for at least 20 trading days in the 30 consecutive trading days ending on the date redemption notice is given. On or after June 20, 2008, the redemption price will be equal to the then-accreted principal amount plus any accrued and unpaid cash interest to the redemption date. NOTE 13 DERIVATIVES AND HEDGING ACTIVITIES International Paper periodically uses derivatives and other financial instruments to hedge exposures to interest rate, commodity and currency risks. For hedges that meet the criteria under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” International Paper, at inception, formally designates and documents the instrument as a hedge of a specific underlying exposure, as well as the risk management objective and strategy for undertaking each hedge transaction. Because of the high degree of effectiveness between the hedging instrument and the underlying exposure being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the value or cash flows of the underlying exposures being hedged. Derivatives are recorded in the consolidated balance sheet at fair value, determined using available market information or other appropriate valuation methodologies, in other current or noncurrent assets or liabilities. The earnings impact resulting from the change in fair value of the derivative instruments is recorded in the same line item in the consolidated statement of operations as the underlying exposure being hedged. The financial instruments that are used in hedging transactions are assessed both at inception and quarterly thereafter to ensure they are effective in offsetting changes in either the fair value or cash flows of the related underlying exposures. The ineffective portion of a financial instrument’s change in fair value, if any, would be recognized currently in earnings together with the changes in fair value of any derivatives not designated as hedges. Interest Rate Risk Interest rate swaps may be used to manage interest rate risks associated with International Paper’s debt. Some of these instruments qualify for hedge accounting in accordance with SFAS No. 133 and others do not. Interest rate swap agreements with a total notional amount at December 31,

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2004 of approximately $500 million and maturities ranging from two to 19 years do not qualify as hedges under SFAS No. 133 and, consequently, were recorded at fair value on the transition date by a pre-tax charge of approximately $20 million to earnings in 2001 upon adoption of SFAS No. 133. For the years ended December 31, 2004, 2003 and 2002, the change in fair value of these swaps was immaterial. The remainder of International Paper’s interest rate swap agreements qualify as fully effective fair value hedges under SFAS No. 133. At December 31, 2004 and 2003, outstanding notional amounts for its interest rate swap fair value hedges amounted to approximately $2.2 billion and $2.1 billion, respectively. The fair values of these swaps were net assets of approximately $70 million and $113 million at December 31, 2004 and 2003, respectively. In 2004, International Paper cash settled interest rate swaption contracts for a loss of $10 million, which was recorded in earnings. In April 2004, interest rate swaps with a notional value of $500 million were terminated in connection with the early retirement of International Paper’s $1.0 billion notes due in July 2005. The resulting gain of approximately $14 million is included in Restructuring and other charges in the accompanying consolidated statement of operations (see Note 6). In November 2002, interest rate swaps with a notional value of $550 million were terminated in connection with the early retirement of International Paper’s $1.2 billion notes due in July 2003. The resulting gain of approximately $6 million is included in Restructuring and other charges in the accompanying consolidated statement of operations (see Note 6). During 2002, International Paper entered into agreements to fix interest rates on an anticipated $1.15 billion issuance of debt. Upon issuance of the debt in the fourth quarter of 2002, these agreements generated a pre-tax loss of $2.8 million that was recorded in Accumulated other comprehensive income (OCI). This amount is being amortized to interest expense over the term of the bonds through October 30, 2012, yielding an effective interest rate of 5.94%. Commodity Risk To minimize volatility in earnings due to large fluctuations in the price of commodities, International Paper has used swap and option contracts to manage risks associated with market fluctuations in energy prices. Such cash flow hedges are accounted for by deferring the after-tax quarterly change in fair value of the outstanding contracts in OCI. On the date a contract matures, the gain or loss is reclassified into cost of products sold concurrently with the recognition of the commodity purchased. For the year ended December 31, 2004, the reclassification from OCI to earnings was immaterial. For the years ended 2003 and 2002, the reclassifications to earnings were after-tax gains of $24 million and after-tax losses of $10 million, respectively. These amounts represent the after-tax cash settlements on the maturing energy hedge contracts. Unrealized after-tax losses of $2 million and after-tax gains of $12 million and $24 million were recorded to OCI during the years ended December 31, 2004, 2003 and 2002, respectively. There were no outstanding energy hedge contracts as of December 31, 2004. Foreign Currency Risk International Paper’s policy has been to hedge certain investments in non-U.S. operations with borrowings denominated in the same currency as the operation’s functional currency, or by entering into long-term cross- currency and interest rate swaps or short-term foreign exchange contracts. These financial instruments are effective as a hedge against fluctuations in currency exchange rates. Gains or losses from changes in the fair value of these instruments, which are offset in whole or in part by translation gains and losses on the non-U.S. operation’s net assets hedged, are recorded as translation adjustments in OCI. Upon liquidation or sale of the foreign investments, the accumulated gains or losses from the revaluation of the hedging instruments, together with the translation gains and losses on the net assets, are included in earnings. For the years ended December 31, 2004, 2003 and 2002, net losses included in the cumulative translation adjustment on derivative and debt instruments hedging foreign net investments amounted to $74 million, $89 million and $46 million after taxes and minority interest, respectively. Cumulative after-tax losses of $50 million on net investment hedges were included in the loss on sale of Weldwood in Discontinued operations in 2004. Long-term cross-currency and interest rate swaps and short- term currency swaps have been used to mitigate the risk associated with changes in foreign exchange rates, affecting the fair value of debt denominated in a foreign currency. In 2004, CHH paid $180 million to settle these hedges concurrent with the repayment of the related debt. Prior to the settlement, the impact on earnings from the derivative revaluations were substantially offset by the earnings impact from remeasuring the foreign currency debt each period. Foreign exchange contracts (including forward, swap and purchase option contracts) are also used to hedge certain transactions, primarily trade receipts and payments denominated in foreign currencies, to manage volatility associated with these transactions and to protect International Paper from currency fluctuations between the contract date and ultimate settlement. These contracts, most of which have

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been designated as cash flow hedges, had maturities of five years or less as of December 31, 2004. For the years ended December 31, 2004, 2003 and 2002, net unrealized gains totaling $72 million, $53 million and $49 million after taxes and minority interest, respectively, were recorded to OCI. Net gains after taxes and minority interest of $26 million, $41 million and $14 million were reclassified to earnings for the years ended December 31, 2004, 2003 and 2002, respectively. Of the net gains reclassified to earnings in 2004, $6 million related to hedges that are no longer probable. As of December 31, 2004, gains of $40 million after taxes and minority interest are expected to be reclassified to earnings in 2005. Other contracts are used to offset the earnings impact relating to the variability in exchange rates on certain short-term monetary assets and liabilities denominated in non-functional currencies and are not designated as hedges. Changes in the fair value of these instruments, recognized currently in earnings to offset the remeasurement of the related assets and liabilities, were not significant. International Paper does not hold or issue financial instruments for trading purposes. The counterparties to swap agreements and foreign exchange contracts consist of a number of major international financial institutions. International Paper continually monitors its positions with and the credit quality of these financial institutions and does not expect nonperformance by the counterparties. NOTE 14 CAPITAL STOCK The authorized capital stock at both December 31, 2004 and 2003 consisted of 990,850,000 shares of common stock, $1 par value; 400,000 shares of cumulative $4 preferred stock, without par value (stated value $100 per share); and 8,750,000 shares of serial preferred stock, $1 par value. The serial preferred stock is issuable in one or more series by the Board of Directors without further shareholder action. NOTE 15 RETIREMENT PLANS U.S. Defined Benefit Plans International Paper maintains pension plans that provide retirement benefits to substantially all domestic employees hired prior to July 1, 2004. These employees generally are eligible to participate in the plans upon completion of one year of service and attainment of age 21. Employees hired after June 30, 2004, who are not eligible for this pension plan will receive an additional company contribution to their savings plan (see “Other Plans” on page 74). The plans provide defined benefits based on years of credited service and either final average earnings (salaried	employees), hourly job rates or specified benefit rates (hourly and union employees). International Paper makes contributions that are sufficient to fully fund its actuarially determined costs, generally equal to the minimum amounts required by the Employee Retirement Income Security Act (ERISA). International Paper made no contribution in 2003 or 2004, and does not expect to make any contributions in 2005 or 2006, to the qualified defined benefit plan. The nonqualified plan is only funded to the extent of benefits paid which are expected to be $21 million in 2005. Net Periodic Pension Expense (Income) Service cost is the actuarial present value of benefits attributed by the plans’ benefit formula to services rendered by employees during the year. Interest cost represents the increase in the projected benefit obligation, which is a discounted amount, due to the passage of time. The expected return on plan assets reflects the computed amount of current year earnings from the investment of plan assets using an estimated long-term rate of return. Net periodic pension expense (income) for qualified and nonqualified U.S. defined benefit plans comprised the following:
	In millions	2004			2003			2002
	Service cost	$	115		$	107		$	96
	Interest cost		467			469			466
	Expected return on plan assets		(592	)		(598	)		(663	)
	Actuarial loss		94			57			7
	Amortization of prior service cost		27			25			19
	Net periodic pension expense (income) (a)	$	111		$	60		$	(75	)
	(a)      Excludes $3.4 million, $8.3 million and $2.6 million in 2004, 2003 and 2002, respectively, in curtailment losses, and $1.4 million, $6.3 million and $2.4 million in 2004, 2003 and 2002, respectively, of special termination benefits, in connection with a cost reduction program and facility rationalizations that were recorded in Restructuring and other charges in the consolidated statement of operations. Also excludes $0.3 million and $8.8 million of curtailment losses in 2003 and 2002, respectively, and $10.6 million of settlement gains in 2002, related to the divestitures of Masonite, Flexible Packaging, Decorative Products and other smaller businesses that were recorded in Net losses (gains) on sales and impairments of businesses held for sale in the consolidated statement of operations. The increase in 2004 U.S. pension expense, and the change in 2003 to net pension expense from income in 2002, were principally due to a reduction in 2003 in the expected long-

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term rate of return on plan assets and an increase in the amortization of unrecognized actuarial losses, with smaller impacts from reductions in the discount rate and the assumed rate of future compensation increase. International Paper evaluates its actuarial assumptions annually as of December 31 (the measurement date) and considers changes in these long-term factors based upon market conditions and the requirements of SFAS No. 87, “Employers’ Accounting for Pensions.” These assumptions are used to calculate benefit obligations as of December 31 of the current year and pension expense to be recorded in the following year. Weighted average assumptions used to determine net pension expense (income) for 2004, 2003 and 2002 were as follows:											discount rate to 5.75% in 2005 from 6.00% in 2004, and a decrease in the expected return on assets to 8.50% in 2005 from 8.75% in 2004. The following illustrates the effect on pension expense for 2005 of a 25 basis point decrease in these assumptions:
											In millions							2005
											Expense/(Income):
											Discount rate							$22
											Expected long-term return on plan assets							16
											Rate of compensation increase							(5	)
	2004		2003					2002			Investment Policy / Strategy Plan assets are invested to maximize returns within prudent levels of risk and to maintain full funding of the benefit obligations. The target allocations by asset class are summarized in the following table. Investments are diversified across classes and within each class to minimize risk. The investment policy permits the use of swaps, options, forwards and futures contracts. Periodic reviews are made of investment policy objectives and investment managers. International Paper’s pension plan asset allocation by type of fund at December 31, 2004 and 2003, and target allocations by asset category are as follows:
Discount rate	6.00	%	6.50			%		7.25		%
Expected long-term return on plan assets	8.75	%	8.75			%		9.25		%
Rate of compensation increase	3.25	%	3.75			%		4.50		%
Weighted average assumptions used to determine benefit obligations as of December 31, 2004 and 2003 were as follows:
				2004			2003						Percentage of Plan Assets
													at December 31,
Discount rate				5.75	%		6.00		%		Asset Category	Target Allocations	2004				2003
Rate of compensation increase				3.25	%		3.25		%
The expected long-term rate of return on plan assets is based on projected rates of return for current and planned asset classes in the plan’s investment portfolio. Projected rates of return are developed through an asset/liability study, in which projected returns for each of the plan’s asset classes are determined after analyzing historical experience and future expectations of returns and volatility of the various asset classes. Based on the target asset allocation for each asset class, the overall expected rate of return for the portfolio is developed considering the effects of active portfolio management and expenses paid from plan assets. The discount rate assumption is determined based on a yield curve that incorporates approximately 570 Aa-graded bonds. The plan’s projected cash flows are then matched to the yield curve to develop the discount rate. To calculate pension expense for 2005, the Company will use an expected long-term rate of return on plan assets of 8.50%, a discount rate of 5.75% and an assumed rate of compensation increase of 3.25%. The Company estimates that it will record net pension expense of approximately $210 million for its U.S. defined benefit plans in 2005, principally reflecting an increase in the amortization of unrecognized actuarial losses over a shorter average remaining service period, a decrease in the assumed											Equity securities	52% - 63%	62	%			62		%
											Debt securities	26% - 34%	27	%			27		%
											Real estate	5% - 10%	8	%			8		%
											Other	2% - 8%	3	%			3		%
											Total		100	%			100		%
											No plan assets were invested in International Paper common stock at December 31, 2004 or 2003. At December 31, 2004, total future pension benefit payments are estimated as follows:
											In millions
											2005				$	516
											2006					511
											2007					508
											2008					510
											2009					514
											2010 - 2014					2,746

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Minimum Pension Liability Adjustment At December 31, 2002, International Paper’s qualified defined benefit pension plan had a prepaid benefit cost of approximately $1.7 billion. At the same date, the market value of the plan assets was less than the accumulated benefit obligation (ABO) for this plan. In accordance with the requirements of SFAS No. 87, the prepaid asset was reversed and an additional minimum liability of $2.7 billion was established equal to the shortfall of the market value of plan assets below the ABO plus the prepaid benefit cost. This resulted in an after-tax direct charge to Accumulated other comprehensive income (OCI) of $1.5 billion, with no impact on earnings, earnings per share or cash. This reduction to Shareholders’ equity had no adverse affect on International Paper’s debt covenants. Strong actual returns on plan assets in the fourth quarters of 2004 and 2003 increased the market value of plan assets by more than the increase in the ABO, resulting in a reduction in the required additional minimum pension liability. As a result, credits to after-tax OCI were recognized in the amount of $41 million and $163 million at December 31, 2004 and 2003, respectively. International Paper also incurred adjustments to the nonqualified plan additional minimum liabilities and recorded charges to OCI of $8 million and $13 million, at December 31, 2004 and 2003, respectively. The following table summarizes the projected and accumulated benefit obligations and fair values of plan assets for the qualified and nonqualified defined benefit plans at December 31, 2004 and 2003:					million in 2005 and $41 million in 2006, while decreasing expense by $14 million in 2007. The following table shows the changes in the benefit obligation and plan assets for 2004 and 2003, and the plans’ funded status and amounts recognized in the consolidated balance sheet as of December 31, 2004 and 2003. The benefit obligation as of December 31, 2004 increased by $395 million, principally as a result of a decrease in the discount rate used in computing the estimated benefit obligation. Plan assets increased by $309 million, principally reflecting higher actual market returns.
					In millions	2004			2003
					Change in projected benefit obligation:
					Benefit obligation, January 1	$	7,899		$	7,111
					Service cost		115			107
					Interest cost		467			469
					Actuarial loss		288			555
					Benefits paid		(537	)		(486	)
					Acquisitions		1			–
					Restructuring		1			(13	)
					Special termination benefits		1			6
					Plan amendments		59			150
					Benefit obligation, December 31	$	8,294		$	7,899
In millions		2004		2003
					Change in plan assets:
Projected benefit obligation	$	8,294	$	7,899	Fair value of plan assets, January 1	$	6,436		$	5,584
Accumulated benefit obligation		7,927		7,572	Actual return on plan assets		797			1,318
Fair value of plan assets		6,745		6,436	Company contributions		49			18
					Benefits paid		(537	)		(486	)
Unrecognized Actuarial Losses SFAS No. 87 provides for delayed recognition of actuarial gains and losses, including amounts arising from changes in the estimated projected plan benefit obligation due to changes in the assumed discount rate, differences between the actual and expected return on plan assets, and other assumption changes. These net gains and losses are recognized prospectively over a period that approximates the average remaining service period of active employees expected to receive benefits under the plans (approximately 13 years) to the extent that they are not offset by gains and losses in subsequent years. Unrecognized actuarial losses shown in the following table were $2.6 billion in 2004 and 2003. While actual future amortization charges will be affected by future gains/losses, amortization of cumulative unrecognized losses as of December 31, 2004 is expected to increase pension expense by approximately $53					Acquisitions		–			4
					Divestitures		–			(2	)
					Fair value of plan assets, December 31	$	6,745		$	6,436
					Funded status	$	(1,549	)	$	(1,463	)
					Unrecognized actuarial loss		2,632			2,645
					Unamortized prior service cost		330			300
					Prepaid benefit costs	$	1,413		$	1,482
					Amounts recognized in the consolidated balance sheet consist of:
					Accrued benefit liability	$	(1,182	)	$	(1,136	)
					Intangible asset		330			300
					Minimum pension liability adjustment included in accumulated other comprehensive income		2,265			2,318
					Net amount recognized	$	1,413		$	1,482
					Non-U.S. Defined Benefit Plans Generally, International Paper’s non-U.S. pension plans are funded using the projected benefit as a target, except in certain countries where funding of benefit plans is not required. Net periodic pension expense for non-U.S. plans was as follows:

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																and certain hourly employees of International Paper an opportunity to accumulate personal funds, and to provide additional benefits to employees hired after June 30, 2004 for their retirement. Contributions may be made on a before-tax basis to substantially all of these plans. As determined by the provisions of each plan, International Paper matches the employees’ basic voluntary contributions and, for employees hired after June 30, 2004, contributes an additional percentage of pay. Such contributions to the plans totaled approximately $87 million, $95 million and $66 million for the plan years ending in 2004, 2003 and 2002, respectively. The net assets of these plans were approximately $4.3 billion as of the 2004 plan year-end including approximately $789 million (18.5%) in International Paper common stock. NOTE 16POSTRETIREMENT BENEFITS U.S. Postretirement Benefits International Paper provides certain retiree health care and life insurance benefits covering a majority of U.S. salaried and certain hourly employees. These employees are generally eligible for benefits upon retirement and completion of a specified number of years of creditable service. Excluded from company-provided medical benefits are salaried employees whose age plus years of employment with the Company total less than 60 as of January 1, 2004. International Paper does not fund these benefits prior to payment and has the right to modify or terminate certain of these plans in the future. On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. This Act introduces a prescription drug benefit under Medicare (Medicare Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In accordance with FSP FAS 106-2, the effects of the Act on International Paper’s plans have been recorded prospectively beginning July 1, 2004. This resulted in a reduction in 2004 of net postretirement benefit cost of approximately $8 million and a reduction of the accumulated postretirement benefit obligation of approximately $110 million, which is treated as a reduction of unrecognized actuarial losses that are amortized to expense over the average remaining service period of employees eligible for postretirement benefits. In addition, net postretirement benefit cost in 2004 was reduced by $5 million, and the accumulated postretirement benefit obligation by $56 million, reflecting assumptions about plan participation.
In millions	2004						2003						2002
Service cost	$	32			$		28				$		22
Interest cost		34					29						25
Expected return on plan assets		(29	)				(24	)					(24	)
Actuarial loss		5					5						1
Amortization of prior service cost		1					1						1
Curtailment gain		–					(1	)					–
Estimated expenses		1					1						1
Net periodic pension expense (a)	$	44			$		39				$		26
(a)      Excludes $19.4 million of net settlement gains and $1.2 million of curtailment gains in 2004 related to the divestitures ofWeldwood, Papeteries de Souche and the CHH Tissue business that were recorded in Net losses (gains) on sales andimpairments of businesses held for sale in the consolidated statement of operations. The following table shows the changes in the benefit obligation for 2004 and 2003.
In millions				2004						2003
Change in projected benefit obligation:
Benefit obligation, January 1				$		587				$		422
Obligations for additional plans						9						15
Service cost						32						28
Interest cost						34						29
Plan participants’ contributions						7						4
Plan amendments						(3			)			–
Divestitures						(292			)			–
Settlement / curtailment gains						–						(1			)
Actuarial loss						10						18
Benefits paid						(41			)			(24			)
Effect of foreign currency exchange rate movements						22						96
Benefit obligation, December 31				$		365				$		587
The fair value of plan assets for non-U.S. plans amounted to $255 million and $423 million at December 31, 2004 and2003, respectively. The reduction in plan assets is mainly due to the sale of Weldwood. For non-U.S. plans with accumulated benefit obligations in excess of plan assets, the projected benefit obligations, accumulated benefit obligations, and fair values of plan assets totaled $272 million, $240 million, and $164million, respectively. Plan assets consist principally of common stock and fixed income securities. Adjustments to the non-U.S. plans’ additional minimum liabilities resulted in a credit to OCI of $1 million and a charge of $4 million after taxes andminority interest at December 31, 2004 and 2003, respectively. Other Plans International Paper sponsors defined contribution plans(primarily 401(k)) to provide substantially all U.S. salaried

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The components of postretirement benefit expense in 2004, 2003 and 2002 were as follows:															A 1% increase in the assumed annual health care cost trend rate would have increased the accumulated postretirement benefit obligation at December 31, 2004 by approximately $54 million. A 1% decrease in the annual trend rate would have decreased the accumulated postretirement benefitobligation at December 31, 2004 by approximately $50million. The effect on net postretirement benefit cost from a 1% increase or decrease would be approximately $4 million. The plan is only funded in an amount equal to benefits paid. The following table presents the changes in benefit obligation and plan assets for 2004 and 2003:
In millions		2004					2003					2002
Service cost		$	6				$	7				$	8
Interest cost			52					54					59
Actuarial loss			35					23					12
Amortization of prior service cost			(40		)			(29	)				(20	)	In millions					2004					2003
Net postretirement benefit cost (a)		$	53				$	55				$	59		Change in benefit obligation:
															Benefit obligation, January 1				$	1,000			$		890
(a)      Excludes $1.0 million, $5.3 million and $1.2 million ofcurtailment gains in 2004, 2003 and 2002, respectively, and$1.0 million and $1.3 million of special termination benefits in 2004 and 2003, respectively, related to cost reduction programs and facility rationalizations that were recorded in Restructuring and other charges in the consolidated statement of operations. Also excludes $1 million of curtailment gains in 2002 related to the divestitures of Masonite, Flexible Packaging, DecorativeProducts and other smaller businesses that were recorded inNet losses (gains) on sales and impairments of businesses held for sale in the consolidated statement of operations. International Paper evaluates its actuarial assumptionsannually as of December 31 (the measurement date) andconsiders changes in these long-term factors based uponmarket conditions and the requirements of SFAS No. 106,“Employers’ Accounting for Postretirement Benefits OtherThan Pensions.” The discount rate assumptions used to determine net cost for the years ended December 31, 2004, 2003 and 2002 were as follows:															Service cost					6					7
															Interest cost					52					54
															Participants’ contributions					38					31
															Actuarial (gain) loss					(118		)			292
															Benefits paid					(138		)			(134			)
															Plan amendments					(5		)			(141			)
															Restructuring					2					–
															Special termination benefits					1					1
															Benefit obligation, December 31				$	838			$		1,000
															Change in plan assets:
															Fair value of plan assets, January 1				$	–			$		–
															Company contributions					100					103
															Participants’ contributions					38					31
															Benefits paid					(138		)			(134			)
															Fair value of plan assets, December 31				$	–			$		–
	2004					2003					2002
Discount rate	6.00%					6.38%					7.25%				Funded status				$	(838		)	$		(1,000			)
															Unamortized prior service cost					(229		)			(267			)
The weighted average assumptions used to determine the benefit obligation at December 31, 2004 and 2003 were as follows:															Unrecognized actuarial loss					357					510
															Accrued benefit cost				$	(710		)	$		(757			)
															At December 31, 2004, estimated total future postretirement benefit payments, net of participant contributions, and estimated future Medicare Part D subsidy receipts are as follows:
				2004						2003
Discount rate				5.75%						6.00%
Health care cost trend rate assumed for the next year				10.00%						10.00%					In millions	Benefit Payments					Subsidy Receipts
Rate that the cost trend rate gradually declines to				5.00%						5.00%
Year that the rate reaches the rate it is assumed to remain				2009						2008					2005		$	95						$		–
															2006			94								(11	)
															2007			92								(11	)
															2008			89								(11	)
															2009			86								(11	)
															2010 - 2014			390								(55	)

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Non-U.S. Postretirement Benefits In addition to the U.S. plan, certain Canadian and Brazilian employees are eligible for retiree health care and life insurance. Net postretirement benefit costs for our non-U.S. plans were $5 million for 2004, which excludes $22.1 million of income for settlements related to the divestiture of Weldwood that were recorded in net losses on sales in Discontinued operations in the consolidated statement of operations, and $5 million for 2003. The benefit obligation for these plans was $20 million in 2004 and $43 million in 2003. The reduction in benefit obligation reflects the sale of Weldwood. NOTE 17      INCENTIVE PLANS International Paper currently has a Long-Term Incentive Compensation Plan (LTICP) that includes a Stock Option Program, a Restricted Performance Share Program and a Continuity Award Program, administered by a committee of nonemployee members of the Board of Directors (Committee) who are not eligible for awards. Also, stock appreciation rights (SAR’s) have been awarded to employees of a non-U.S. subsidiary, with 5,435 and 9,710 issued and outstanding at December 31, 2004 and 2003, respectively. We also have other performance-based restricted share/unit programs available to senior executives and directors. International Paper applies the provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations and the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” in accounting for our plans. Stock Option Program International Paper accounts for stock options using the intrinsic value method under APB Opinion No. 25. Under this method, compensation expense is recorded over the related service period when the market price exceeds the option price at the measurement date, which is the grant date for International Paper’s options. No compensation expense is recorded as options are issued with an exercise price equal to the market price of International Paper stock on the grant date. During each reporting period, fully diluted earnings per share is calculated by assuming that “in-the-money” options are exercised and the exercise proceeds are used to repurchase shares in the marketplace. When options are actually exercised, option proceeds are credited to equity and issued shares are included in the computation of earnings per common share, with no effect on reported earnings. Equity is also increased by the tax benefit that International Paper will receive in its tax return for income reported by the optionees in their individual tax returns.	Under the program, officers and certain other employees may be granted options to purchase International Paper common stock. The option price is the market price of the stock on the close of business on the day prior to the date of grant. Options must be vested before they can be exercised. Upon exercise of an option, a replacement option may be granted under certain circumstances with an exercise price equal to the market price at the time of exercise and with a term extending to the expiration date of the original option. Beginning in 2005, U.S. employees will no longer receive stock option awards. These benefits will be replaced with performance share awards or enhanced management incentive plan awards. For pro forma disclosure purposes, the fair market value of each option grant has been estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2004, 2003 and 2002, respectively:
		2004	2003	2002
	Initial Options (a)
	Risk-Free Interest Rate	3.23%	2.46%	3.29%
	Price Volatility	24.41%	24.06%	33.99%
	Dividend Yield	2.53%	2.71%	2.74%
	Expected Term in Years	3.50	3.50	3.50
	Replacement Options (b)
	Risk-Free Interest Rate	2.14%	1.59%	2.92%
	Price Volatility	22.83%	23.70%	38.62%
	Dividend Yield	2.30%	2.57%	2.33%
	Expected Term in Years	1.60	1.75	1.80
	(a)      The average fair market values of initial option grants during 2004, 2003 and 2002 were $6.90, $5.86 and $8.77, respectively. (b)      The average fair market values of replacement option grants during 2004, 2003 and 2002 were $4.76, $4.39 and $8.59, respectively.

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The following summarizes the status of the Stock Option Program and the changes during the three years ending December 31, 2004:														Performance - Based Restricted Shares Under the Restricted Performance Share Program, contingent awards of International Paper common stock are granted by the Committee. Shares are earned on the basis of International Paper’s financial performance over a period of consecutive calendar years as determined by the Committee. Under a Restricted Performance Share Program approved during 2001 and amended in 2004, awards vesting over a three-year period were granted in 2002, 2003 and 2004. Compensation expense for this variable plan is recorded over the applicable vesting period. The following summarizes the activity of all performance-based programs for the three years ending December 31, 2004:
						Options (a,b)			Weighted Average Exercise Price
Outstanding at December 31, 2001					29,110,125					$	41.28
Granted					11,927,766						37.36
Exercised					(1,345,421			)			34.62
Forfeited					(1,841,489			)			40.51
Expired					(696,961			)			51.24
Outstanding at December 31, 2002					37,154,020						40.11				Shares
Granted					11,315,401						37.08			Outstanding at December 31, 2001	1,214,100
Exercised					(2,778,038			)			31.87			Granted (a)	583,690
Forfeited					(1,823,244			)			41.19			Issued	(330,437	)
Expired					(1,062,311			)			51.71			Forfeited	(190,013	)
Outstanding at December 31, 2003					42,805,828						39.51			Outstanding at December 31, 2002	1,277,340
Granted					9,663,303						39.70			Granted (a)	658,155
Exercised					(4,726,957			)			34.60			Issued	(586,237	)
Forfeited					(1,059,215			)			40.86			Forfeited	(164,803	)
Expired					(1,248,052			)			51.40
														Outstanding at December 31, 2003	1,184,455
Outstanding at December 31, 2004					45,434,907					$	39.70			Granted (a)	1,581,442
														Issued	(391,691	)
(a)      The table does not include Continuity Award tandem stock options described below. No fair market value is assigned to these options under SFAS No. 123. The tandem restricted shares accompanying these options are expensed over their vesting period. (b)The table includes options outstanding under an acquired company plan under which options may no longer be granted.														Forfeited	(128,957	)
														Outstanding at December 31, 2004	2,245,249
														(a)      The weighted average fair value of performance shares granted was $42.95, $35.34 and $40.09 in 2004, 2003 and 2002, respectively. Continuity Award Program The Continuity Award Program provides for the granting of tandem awards of restricted stock and/or nonqualified stock options to key executives. Grants are restricted and awards conditioned on attainment of specified age and years of service requirements. Awarding of a tandem stock option results in the cancellation of the related restricted shares. The Continuity Award Program also provides for awards of restricted stock to key employees.
The following table summarizes information about stock options outstanding at December 31, 2004:
	Options Outstanding						Options Exercisable
Range of Exercise Prices	Options Outstanding as of 12/31/04	Weighted Average Remaining Life		Weighted Average Exercise Price			Options Outstanding as of 12/31/04					Weighted Average Exercise Price
$29.31-$33.80	6,995,810		6.6			$31.80	6,880,025						$31.77
$33.81-$39.77	20,253,440		7.7			$37.16	6,407,275						$36.34
$39.78-$45.74	12,435,641		6.8			$41.38	7,737,871						$41.84
$45.75-$51.71	2,023,345		3.6			$47.37	2,023,345						$47.37
$51.72-$57.68	594,292		0.8			$54.52	594,292						$54.52
$57.69-$63.65	2,954,179		4.5			$59.10	2,954,179						$59.10
$63.66-$66.81	178,200		5.0			$64.70	178,200						$64.70
	45,434,907		6.8			$39.70	26,775,187						$40.69

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The following summarizes the activity of the Continuity Award Program for the three years ending December 31, 2004:
	Shares
Outstanding at December 31, 2001	344,098
Granted (a)	14,000
Issued	(79,526	)
Forfeited (b)	(40,500	)
Outstanding at December 31, 2002	238,072
Granted (a)	149,500
Issued	(60,912	)
Forfeited (b)	(22,500	)
Outstanding at December 31, 2003	304,160
Granted (a)	31,500
Issued	(22,700	)
Forfeited (b)	(26,461	)
Outstanding at December 31, 2004	286,499
(a)      The weighted average fair value of restricted shares granted was $43.20, $37.20 and $43.88 in 2004, 2003 and 2002, respectively.
(b)      Also includes restricted shares canceled when tandem stock options were awarded. No tandem options were awarded in 2004, 2003 or 2002.
At December 31, 2004 and 2003, a total of 20.3 million and 14.9 million shares, respectively, were available for grant under the LTICP. In 2004, shareholders approved anadditional 14 million shares to be used for restricted stock, including grants of performance-based restricted stock, as well as stock options, SARs and performance-based restricted stock units. In 2003, shareholders had approved an additional 10 million shares to be made available for grant, with 100 thousand of these shares reserved specifically for the granting of restricted stock. No additional shares were made available during 2002. A total of 14.9 million shares and 2.3 million shares were available for the granting of restricted stock as of December 31, 2004 and 2003, respectively.
The compensation cost charged to earnings for all the incentive plans under the LTICP was $29 million for both 2004 and 2003, and $28 million for 2002.

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Interim Financial Results (Unaudited) (a)

In millions, except per share amounts and stock prices	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			Year
2004
Net Sales	$	6,138		$	6,229		$	6,578		$	6,603		$	25,548
Gross Margin(b)		1,518			1,599			1,720			1,715			6,552
Earnings From Continuing Operations Before Income Taxes and Minority Interest		96	(c)		110	(e)		332	(g)		208	(h)		746	(c,e,g,h)
Earnings (Loss) From Discontinued Operations		22	(d)		131	(d)		(678)	(d)		12	(d)		(513	)(d)
Net Earnings (Loss)		73	(c,d)		193	(d,e,f)		(470)	(d,g)		169	(d,h)		(35	)(c-h)
Basic Earnings Per Share of Common Stock
Earnings From Continuing Operations	$	0.10	(c)	$	0.13	(e,f)	$	0.43	(g)	$	0.32	(h)	$	0.98	(c,e,f,g,h)
Earnings (Loss) From Discontinued Operations		0.05	(d)		0.27	(d)		(1.40)	(d)		0.03	(d)		(1.05	)(d)
Net Earnings (Loss)		0.15	(c,d)		0.40	(d,e,f)		(0.97)	(d,g)		0.35	(d,h)		(0.07	)(c-h)
Diluted Earnings Per Share of Common Stock
Earnings From Continuing Operations	$	0.10	(c)	$	0.13	(e,f)	$	0.42	(g)	$	0.32	(h)	$	0.98	(c,e,f,g,h)
Earnings (Loss) From Discontinued Operations		0.05	(d)		0.27	(d)		(1.33)	(d)		0.03	(d)		(1.05	)(d)
Net Earnings (Loss)		0.15	(c,d)		0.40	(d,e,f)		(0.91)	(d,g)		0.35	(d,h)		(0.07	)(c-h)
Dividends Per Share of Common Stock		0.25			0.25			0.25			0.25			1.00
Common Stock Prices
High	$	45.01		$	44.81		$	44.65		$	42.52		$	45.01
Low		39.80			37.91			38.22			37.12			37.12
2003
Net Sales	$	5,803		$	5,965		$	6,053		$	6,134		$	23,955
Gross Margin(b)		1,508			1,540			1,536			1,493			6,077
Earnings From Continuing Operations Before Income Taxes and Minority Interest		128	(i)		92	(k)		65	(m)		7	(o)		292	(i,k,m,o)
Earnings (Loss) From Discontinued Operations		1	(d)		(5)	(d)		9	(d)		16	(d)		21	(d)
Net Earnings		44	(d,i,j)		88	(d,k,l)		122	(d,m,n)		48	(d,o,p)		302	(d,i-p)
Basic Earnings Per Share of Common Stock Earnings From Continuing Operations	$	0.11	(i)	$	0.20	(k,l)	$	0.23	(m,n)	$	0.08	(o,p)	$	0.62	(i,k-p)
Earnings (Loss) From Discontinued Operations		–	(d)		(0.01)	(d)		0.02	(d)		0.03	(d)		0.04	(d)
Net Earnings		0.09	(d,i,j)		0.19	(d,k,l)		0.25	(d,m,n)		0.10	(d,o-q)		0.63	(d,i-q)
Diluted Earnings Per Share of Common Stock
Earnings From Continuing Operations	$	0.11	(i)	$	0.19	(k,l)	$	0.23	(m,n)	$	0.07	(o,p)	$	0.61	(i,k-p)
Earnings (Loss) From Discontinued Operations		–	(d)		(0.01)	(d)		0.02	(d)		0.03	(d)		0.04	(d)
Net Earnings		0.09	(d,i,j)		0.18	(d,k,l)		0.25	(d,m,n)		0.10	(d,o-q)		0.63	(d,i-q)
Dividends Per Share of Common Stock		0.25			0.25			0.25			0.25			1.00
Common Stock Prices
High	$	38.65		$	39.39		$	41.50		$	43.32		$	43.32
Low		33.09			33.17			35.31			36.57			33.09

Note: Since basic and diluted earnings per share are computed independently for each period and category, full year per share amount may not equal to the sum of the four quarters.

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Footnotes to Interim Financial Results (a)      All periods presented have been restated to reflect the Carter Holt Harvey Tissue business and the Weldwood of Canada Limited business as Discontinued operations. (b)      Gross margin represents net sales less cost of products sold. (c)      Includes a $14 million charge before taxes ($9 million after taxes) for organizational restructuring programs, a $16 million charge before taxes ($10 million after taxes) for losses on early debt extinguishment, a credit of $9 million before taxes ($6 million after taxes) to adjust estimated gains/losses of businesses previously sold, and a credit of $7 million before taxes ($4 million after taxes) for the net reversal of restructuring and realignment reserves no longer required. (d)      Includes net income of Weldwood and Carter Holt Harvey’s Tissue business prior to their sales in the fourth and second quarters of 2004, respectively. Also included in the 2004 second quarter is a gain of $268 million before taxes and minority interest ($90 million after taxes and minority interest) for sale of the Carter Holt Tissue business; in the 2004 third quarter is a charge of $306 million before taxes ($716 million after taxes) to write down the assets of Weldwood to their estimated net realizable value; and in the 2004 fourth quarter is a charge of $17 million before taxes ($5 million credit after taxes) to adjust the loss on the sale of Weldwood. (e)      Includes a $42 million charge before taxes and minority interest ($23 million after taxes and minority interest) for organizational restructuring programs, a $65 million charge before taxes ($40 million after taxes) for losses on early debt extinguishment, a charge of $36 million before taxes and minority interest ($32 million after taxes and minority interest) for estimated losses of businesses held for sale, and a credit of $5 million before taxes and minority interest ($3 million after taxes and minority interest) for the net reversal of restructuring and realignment reserves no longer required. (f)       Includes a $5 million increase, net of minority interest, in the income tax provision reflecting an adjustment of deferred tax balances and a reduction of valuation reserves for capital loss carryovers. (g)      Includes an $18 million charge before taxes and minority interest ($11 million after taxes and minority interest) for organizational restructuring programs, a charge of $29 million before minority interest ($15 million after minority interest) for the impairment of goodwill, a charge of $8 million before taxes ($5 million after taxes) for losses on early debt extinguishment, a credit of $103 million before taxes ($64 million after taxes) for insurance recoveries, a net charge of $38 million before and after taxes for estimated losses of businesses sold or held for sale, and a credit of $6 million before taxes ($4 million after taxes) for the net reversal of restructuring and realignment reserves no longer required. (h)      Includes a $10 million charge before taxes ($6 million after taxes) for litigation settlements, a $6 million charge before minority interest ($3 million after minority interest) for the impairment of goodwill, a $3 million charge before taxes ($2 million after taxes) for losses on early debt extinguishment, a credit of $20 million before taxes ($12 million after taxes) for insurance recoveries related to the hardboard siding and roofing litigation, a charge of $79 million before taxes ($64 million after taxes) for estimated losses of businesses sold or held for sale, and a credit of $17 million before taxes ($11 million after taxes) for the net reversal of restructuring and realignment reserves no longer required. (i)       Includes a $23 million charge before taxes and minority interest ($14 million after taxes and minority interest) for asset shutdowns of excess internal capacity and cost reduction actions. (j)       Includes a charge of $10 million after taxes for the cumulative effect of an accounting change to record the charge for the adoption of SFAS No. 143, “Accounting for Asset Retirement Obligations.” (k)      Includes a pre-tax charge of $51 million ($32 million after taxes) for facility shutdown costs and severance costs associated with organizational restructuring programs, a $20 million pre-tax charge ($12 million after taxes) for legal reserves, a $10 million charge before taxes ($6 million after taxes) for early debt retirement costs, a $10 million pre-tax charge ($6 million after taxes) to adjust previous estimated gains/losses of businesses previously sold, and a $9 million credit before taxes and minority interest ($5 million after taxes and minority interest) for the reversal of restructuring reserves no longer required. (l)       Includes a $50 million reduction of the income tax provision resulting from settlements of prior period tax issues and benefits from an overseas tax program. (m)     Includes a pre-tax charge of $71 million ($43 million after taxes) for facility closure costs and severance costs associated with organizational restructuring programs, a $14 million charge before taxes ($9 million after taxes) for legal reserves, an $8 million charge before taxes ($7 million after taxes) for early debt retirement costs, a

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$1 million pre-tax charge ($1 million after taxes) to adjust estimated gains/losses of businesses previously sold, and an $8 million pre-tax credit ($5 million after taxes) for the net reversal of restructuring and realignment reserves no longer required.

(n)      Includes a decrease in the income tax provision of $60 million reflecting a favorable revision of estimated tax accruals upon filing the 2002 federal income tax return and increased research and development credits.

(o)      Includes a $91 million charge before taxes and minority interest ($55 million after taxes and minority interest) for asset shutdowns of excess internal capacity and cost reduction actions, a $29 million pre-tax charge ($18 million after taxes) for legal reserves, a credit of $19 million before taxes ($12 million after taxes) for gains on early extinguishment of debt, a $21 million charge before taxes ($26 million after taxes) for net losses on sales and impairments of businesses held for sale, and a $23 million credit before taxes ($15 million after taxes) for the reversal of restructuring reserves no longer required.

(p)      Includes a $13 million credit after minority interest related to a favorable settlement with Australian tax authorities of net operating loss carryforward credits.

(q)      Includes a charge of $3 million after taxes for the cumulative effect of an accounting change to record the transitional charge for the adoption of FIN 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.”

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ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None ITEM 9A.CONTROLS AND PROCEDURES Disclosure Controls and Procedures As of December 31, 2004, an evaluation was carried out under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15 under the Securities Exchange Act (the Act). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports we file under the Act is recorded, processed, summarized, and reported by management of the Company on a timely basis in order to comply with the Company’s disclosure obligations under the Act and the SEC rules thereunder. Management’s Report on Internal Control Over
Financial Reporting As of December 31, 2004, management has assessed the effectiveness of the Company’s internal control over financial reporting. In a report included on page 35, management concluded that, based on its assessment, the Company’s internal control over financial reporting is effective as of December 31, 2004. Changes in Internal Control over Financial Reporting During the fourth quarter of 2004, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B.OTHER INFORMATION The following information is being provided in lieu of filing a Form 8-K to report our entry into a material definitive agreement under Item 1.01: Consistent with the Company’s compensation philosophy and its objective to attract and retain top talent, the Management Development and Compensation Committee of the Board, composed entirely of independent non-employee directors, reviews the base salaries of senior management on an annual basis and makes adjustments, as necessary, to recognize individual performance against objectives, promotions and competitive compensation levels. In connection with this annual review, on March 7, 2005, the Management Development and Compensation Committee and the Board of Directors made changes to the salaries of the Company’s named executive officers, effective as of April 1, 2005. The adjustment to Mr. Faraci’s base salary was made in recognition of both his performance against objectives as Chairmen and CEO, as well as competitive market salary levels. The salary adjustments for each of the named executive officers are set forth in Exhibit 10.17.   PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
                      REGISTRANT Information concerning our directors is hereby incorporated by reference to our definitive proxy statement which will be filed with the Securities and Exchange Commission (SEC) within 120 days of the close of our fiscal year. The Audit and Finance Committee of the Board of Directors has at least one member who is a financial expert. Further information concerning the composition of the Audit and Finance Committee and our audit committee financial experts is hereby incorporated by reference to our definitive proxy statement that will be filed with the SEC within 120 days of the close of our fiscal year. Information with respect to our executive officers is set forth on pages 4 and 5 in Part I of this Form 10-K under the caption, “Executive Officers of the Registrant.” Executive officers of International Paper are elected to hold office until the next annual meeting of the Board of Directors following the annual meeting of shareholders and until election of successors, subject to removal by the Board. The Company’s Code of Business Ethics is applicable to all employees of the Company, including the chief executive officer and senior financial officers, as well as the Board of Directors. No amendments or waivers of the Code have occurred. We intend to disclose any amendments to our Code of Business Ethics and any waivers from a provision of our Code of Business Ethics granted to our directors, chief executive officer and senior financial officers on our Internet Web site within five business days following such amendment or waiver. We make available free of charge on our Internet Web site at www.internationalpaper.com, and in print to any shareholder who requests, our Corporate Governance Principles, our Code of Business Ethics and the charters of our Audit and Finance Committee, Management Development and Compensation Committee, Governance Committee and Public Policy and Environment Committee. Requests for copies may be directed to the corporate

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secretary at our corporate headquarters. Information with respect to compliance with Section 16(a) of the Securities and Exchange Act is hereby incorporated by reference to our definitive proxy statement that will be filed with the SEC within 120 days of the close of our fiscal year. ITEM 11.EXECUTIVE COMPENSATION Information with respect to the compensation of executives and directors of the Company is hereby incorporated by reference to our definitive proxy statement that will be filed with the SEC within 120 days of the close of our fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT A description of the security ownership of certain beneficial owners and management and equity compensation plan information is hereby incorporated by reference to our definitive proxy statement which will be filed with the SEC within 120 days of the close of our fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS A description of certain relationships and related transactions is hereby incorporated by reference to our definitive proxy statement that will be filed with the SEC within 120 days of the close of our fiscal year. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information with respect to fees paid to, and services rendered by, our principal accountant and our policies and procedures for pre-approving those services is hereby incorporated by reference to our definitive proxy statement which will be filed with the SEC within 120 days of the close of our fiscal year. PART IV

they are not applicable, or the required information is shown in the financial statements or the notes thereto. Additional Financial Data 2004, 2003 and 2002 Report of Independent Registered Public Accounting Firm on Financial Statement Schedule for 2004 and 2003 ............................ 86 Consolidated Schedule: II-Valuation and Qualifying Accounts ................ 87 (3)     Exhibits: (3.1)   Form of Restated Certificate of Incorporation of International Paper Company (incorporated by reference to the Company’s Report on Form 8-K dated November 20, 1990, File No. 1-3157). (3.2)   Certificate of Amendment to the Certificate of Incorporation of International Paper Company (incorporated herein by reference to Exhibit (3) (i) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 1-3157). (3.3)   Certificate of Amendment of the Certificate of Incorporation of International Paper Company (incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, File No. 1-3157). (3.4)   By-laws of the Company, as amended (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, File No. 1-3157). (4.1)   Specimen Common Stock Certificate (incorporated by reference to Exhibit 2-A to the Company’s registration statement on Form S-7, No. 2-56588, dated June 10, 1976). (4.2)   Indenture, dated as of April 12, 1999, between International Paper and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to International Paper’s Report on Form 8-K filed on June 29, 2000, File No. 1-3157). (4.3)   Floating Rate Notes Supplemental Indenture, dated as of June 14, 2000, between International Paper and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.2 to International Paper’s Report on Form 8-K filed on June 29, 2000, File No. 1-3157). (4.4)   8%Notes Due July 8, 2003 Supplemental Indenture, dated as of June 14, 2000, between International Paper and The Bank of New York, as Trustee(incorporated by reference to Exhibit 4.3 to

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) (1)   Financial Statements – See Item 8. Financial  Statements and Supplementary Data. (2)   Financial Statement Schedules – The following additional financial data should be read in conjunction with the financial statements in Item 8. Schedules not included with this additional financial data have been omitted because

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International Paper’s Report on Form 8-K filed on June 29, 2000, File No. 1-3157). (4.5)   8 1/8% Notes Due July 8, 2005 Supplemental Indenture dated as of June 14, 2000, between International Paper and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.4 to International Paper’s Report on Form 8-K filed on June 29, 2000, File No. 1-3157). (4.6)   Form of new 8 1/8% Notes due July 8, 2005 (incorporated by reference to Exhibit 4.1 to International Paper Company’s Registration Statement on Form S-4 dated October 23, 2000, as amended November 15, 2000, File No. 333-48434). (4.7)   Zero Coupon Convertible Senior Debentures due June 20, 2021 (incorporated by reference to Exhibit 4.2 to International Paper Company’s Registration Statement on Form S-3 dated June 20, 2001, as amended September 7, 2001, October 31, 2001 and January 16, 2002, File No. 333-69082). (4.8)    6.75% Notes due 2011 Supplemental Indenture between International Paper Company and The Bank of New York (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, File No. 1-3157). (4.9)    4.25% Notes due 2009 and 5.50% Notes due 2014 Supplemental Indenture dates as of December 15, 2003, between International Paper Company and The Bank of New York (incorporated by reference to Exhibit 4.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003,
File No. 1-3157). (4.10)  4.00% Notes due 2010 and 5.25% Notes due 2016 Supplemental Indenture, dated as of March 18, 2004, between International Paper Company and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Report on Form 8-K dated March 19, 2004, File No. 1-3157). (4.11)  In accordance with Item 601 (b) (4) (iii) (A) of Regulation S-K, certain instruments respecting long- term debt of the Company have been omitted but will be furnished to the Commission upon request. (10.1)  Amended and Restated Long-Term Incentive Compensation Plan, as of February 2, 2005 (incorporated by reference to Exhibit 99.1 of the Company’s Report on Form 8-K dated February 11, 2005, File No. 1-3157). (10.2)  Form of Confidentiality and Non-Competition Agreement entered into by Company employees who may receive restricted stock awards pursuant to the Long-Term Incentive Compensation Plan of the Company (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, File No. 1-3157). (10.3)  Management Incentive Plan, amended and restated as of January 1, 2003 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, File No. 1-3157). (10.4)  Form of individual non-qualified stock option agreement under the Company’s Long-Term Incentive Compensation Plan (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, File No. 1-3157). (10.5)  Form of individual executive continuity award under the Company Long-Term Incentive Compensation Plan (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999, File No. 1-3157). (10.6a) Form of Change of Control Agreement for Chief Executive Officer (incorporated by reference to Exhibit 10.8a to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, File No. 1-3157). (10.6b) Form of Change of Control Agreement--Tier I (incorporated by reference to Exhibit 10.8b to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, File No. 1-3157). (10.6c) Form of Change of Control Agreement--Tier II (incorporated by reference to Exhibit 10.8c to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, File No. 1-3157). (10.7)  Unfunded Supplemental Retirement Plan for Senior Managers, as amended (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, File No. 1-3157). (10.8)  International Paper Company Unfunded Savings Plan (incorporated by reference to Exhibit 10.11 to the Company’s Form 10K/A for the year 2000 dated January 16, 2002, File No. 1-3157). (10.9)  International Paper Company Pension Restoration Plan for Salaried Employees (incorporated by reference to Exhibit 10.12 to the Company’s Form

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10K/A for the year 2000 dated January 16, 2002, File No. 1-3157). (10.10)  $650 million credit agreement dated as of June 28, 2004, among the Company, Ngahere   Aotearoa, the Lenders Party thereto, Bank of Tokyo-Mitsubishi Trust Company. As   Syndication Agent, Mizoho Corporate Bank, USA, as Documentation Agent, and Deutsche   Bank AG New York Branch, as Administrative Agent (incorporated by reference to Exhibit  10.1 and the Company’s Report on Form 8-K dated July 1, 2004, File No. 1-3157). (10.11)  $1.5 Billion 3-Year Credit Agreement dated as of March 6, 2003 between International Paper Company, the Lenders Party thereto, Citibank, N.A., as Syndication Agent, Bank of America, N.A., BNP Paribas and Deutsche Bank Securities Inc., as Documentation Agents and J.P. Morgan Securities Inc. and Salomon Smith Barney Inc., as Joint Lead Arrangers and Joint Bookrunners (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, File No. 1-3157). (10.12) 5-Year Credit Agreement, dated as of March 30, 2004, between International Paper Company, the lenders party thereto, Bank of America, N.A., as syndication agent, BNP Paribas, Citibank, N.A. and Deutsche Bank Securities inc., as Co- Documentation Agents, J.P. Morgan Securities Inc. and Banc of America Securities LLC, as Lead Arrangers and Joint Bookrunners, and JPMorgan Chase Bank, as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 8-K dated April 2, 2004, File No. 1-3157). (10.13) Amended and Restated Credit and Security Agreement dated as of November 17, 2004 among Red Bird Receivables, Inc., as Borrower, International Paper Financial Services, Inc., as Servicer, International Paper Company, as Performance Guarantor, The Conduits from Time to Time Party thereto, The Bank of Tokyo-Mitsubishi, Ltd., New York Branch, as Gotham Agent, JPMorgan Chase Bank, N.A., as Prefco Agent, BNP Paribas, Acting through its New York Branch, as StarBird Agent, Citicorp North America, Inc., as CAFCO Agent and Wachovia Bank, National Association as Blue Ridge Agent and as Administrative Agent (incorporated by reference to Exhibit 10.01 to the Company’s Report on Form 8-K/A dated December 9, 2004, File No. 1-3157). (10.14) EUR500 million 5-year credit facility, dated as of August 26, 2004, among the Company, as Guarantor, International Paper Investments (France) S.A.S., a French wholly-owned subsidiary of the Company, as Borrower, BNP Paribas, Barclays Capital and ABN AMRO N.V., as mandated lead arrangers, certain financial institutions named therein and BNP Paribas, as facility agent. (10.15) Form of Indemnification Agreement for Directors (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, File No. 1-3157). (10.16) Supplemental Pension Benefit Agreement between International Paper Company and Christopher P. Liddell dated December 14, 2004 (incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 8-K dated December 20, 2004, File No. 1-3157). (10.17)   Amendments to Compensation for Named Executive Officers. (11)        Statement of Computation of Per Share Earnings. (12)        Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. (21)        List of Subsidiaries of Registrant. (23)        Consent of Independent Auditors. (24)        Power of Attorney. (31.1)     Certification by John V. Faraci, Chairman and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (31.2)     Certification by Christopher P. Liddell, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (32)        Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (99.1)     Board Policy on Severance Agreements with Senior Executives (incorporated by reference to Exhibit 99.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, File No. 1-3157). (99.2)     Board Policy on Change of Control Agreements (Incorporated by reference to Exhibit 99.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, File No. 1-3157).

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of International Paper Company
Stamford, Connecticut

We have audited the consolidated financial statements of International Paper Company and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and for each of the three years in the period ended December 31, 2004, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, and the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, and have issued our reports thereon dated March 7, 2005; such consolidated financial statements and reports are included in your 2004 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of the Company listed in Item 15. This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

NEW YORK, N.Y.
MARCH 7, 2005

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SCHEDULE II

INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

In millions
	For the Year Ended December 31, 2004
	Balance at Beginning of Period	Additions Charged to Earnings	Additions Charged to Other Accounts	Deductions from Reserves		Balance at End of Period
Description
Reserves Applied Against Specific Assets Shown on Balance Sheet:
Doubtful accounts - current	$135	$18	$–	$(25)	(a)	$128
Restructuring reserves	81	74	–	(155)	(b)	–
In millions
	For the Year Ended December 31, 2003
	Balance at Beginning of Period	Additions Charged to Earnings	Additions Charged to Other Accounts	Deductions from Reserves		Balance at End of Period
Description
Reserves Applied Against Specific Assets Shown on Balance Sheet:
Doubtful accounts - current	$167	$20	$–	$(52)	(a)	$135
Restructuring reserves	104	160	–	(183)	(b)	81
In millions
	For the Year Ended December 31, 2002
	Balance at Beginning of Period	Additions Charged to Earnings	Additions Charged to Other Accounts	Deductions from Reserves		Balance at End of Period
Description
Reserves Applied Against Specific Assets Shown on Balance Sheet:
Doubtful accounts - current	$178	$29	$–	$(40)	(a)	$167
Restructuring reserves	321	119	–	(336)	(b)	104

(a) Includes write-off, less recoveries, of accounts determined to be uncollectible and other adjustments.

(b)Includes payments and deductions for reversals of previously established reserves that were no longer required.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INTERNATIONAL PAPER COMPANY
By:	/S/ MAURA A. SMITH	March 10, 2005
	Maura A. Smith Senior Vice President, General Counsel and Corporate Secretary

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Maura A. Smith and Andrea L. Dulberg, jointly and severally, as his or her true and lawful attorney-in-fact and agent, acting alone, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this annual report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact full power and authority to do and reform each and every act and thing requisite or necessary to be done, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Signature	Title	Date
/S/ JOHN V. FARACI	Chairman of the Board, Chief Executive Officer and Director	March 10, 2005
John V. Faraci
/S/ ROBERT M. AMEN	President and Director	March 10, 2005
Robert M. Amen
/S/ MARTHA FINN BROOKS	Director	March 10, 2005
Martha Finn Brooks
/S/ SAMIR G. GIBARA	Director	March 10, 2005
Samir G. Gibara
/S/ JAMES A. HENDERSON	Director	March 10, 2005
James A. Henderson
/S/ W. CRAIG MCCLELLAND	Director	March 10, 2005
W. Craig McClelland

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Signature	Title	Date
/S/ DONALD F. MCHENRY	Director	March 10, 2005
Donald F. McHenry
/S/ CHARLES R. SHOEMATE	Director	March 10, 2005
Charles R. Shoemate
/S/ WILLIAM G. WALTER	Director	March 10, 2005
William G. Walter
/S/ CHRISTOPHER P. LIDDELL	Senior Vice President and Chief Financial Officer	March 10, 2005
Christopher P. Liddell
/S/ ROBERT J. GRILLET	Vice President - Finance and Controller	March 10, 2005
Robert J. Grillet

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APPENDIX 1

2004 Listing of Facilities	Svetogorsk, Russia	Hartford City, Indiana
(all facilities are owned except as noted otherwise)	Inverurie, Scotland	Portland, Indiana leased
		Lexington, Kentucky
		Louisville, Kentucky
	INDUSTRIAL AND CONSUMER PACKAGING	Lafayette, Louisiana
PRINTING PAPERS		Shreveport, Louisiana
		Springhill, Louisiana
Business Papers, Coated Papers, Fine Papers and Pulp	INDUSTRIAL PACKAGING	Auburn, Maine
		Brownstown, Michigan
	Containerboard	Howell, Michigan
U.S.:		Kalamazoo, Michigan
Courtland, Alabama	U.S.:	Minneapolis, Minnesota (2 locations) 1leased
Selma, Alabama	Prattville, Alabama	Houston, Mississippi
(Riverdale Mill)	Savannah, Georgia	Kansas City, Missouri
Pine Bluff, Arkansas	Terre Haute, Indiana	North Kansas City, Missouri leased
Ontario, California leased	Ft. Madison, Iowa	Geneva, New York
(C & D Center)	Mansfield, Louisiana	King’s Mountain, North Carolina leased
Cantonment, Florida	Pineville, Louisiana	Statesville, North Carolina
(Pensacola Mill)	Vicksburg, Mississippi	Bethesda, Ohio leased
Augusta, Georgia		Cincinnati, Ohio
Bastrop, Louisiana	International:	Newark, Ohio
(Louisiana Mill)	Arles, France	Solon, Ohio
Springhill, Louisiana		Wooster, Ohio
(C & D Center)	Corrugated Container	Eighty-four, Pennsylvania
Bucksport, Maine		Lancaster, Pennsylvania
Jay, Maine	U.S.:	Mount Carmel, Pennsylvania
(Androscoggin Mill)	Bay Minette, Alabama	Sharpsburg, Pennsylvania
Westfield, Massachusetts	Decatur, Alabama	Washington, Pennsylvania
(C & D Center)	Dothan, Alabama leased	Georgetown, South Carolina
Quinnesec, Michigan	Conway, Arkansas	Laurens, South Carolina
Sturgis, Michigan	Fordyce, Arkansas leased	Spartanburg, South Carolina
(C & D Center)	Jonesboro, Arkansas	Morristown, Tennessee
Sartell, Minnesota	Russellville, Arkansas	Murfreesboro, Tennessee
Ticonderoga, New York	Carson, California	Dallas, Texas
Riegelwood, North Carolina	Hanford, California	Edinburg, Texas (2 locations)
Hamilton, Ohio	Modesto, California	El Paso, Texas
Saybrook, Ohio leased	San Leandro, California leased	Ft. Worth, Texas
(C & D Center)	Stockton, California	San Antonio, Texas
Hazleton, Pennsylvania	Vernon, California	Chesapeake, Virginia
(C & D Center)	Putnam, Connecticut	Richmond, Virginia
Eastover, South Carolina	Auburndale, Florida	Cedarburg, Wisconsin
Georgetown, South Carolina	Jacksonville, Florida leased	Fond du Lac, Wisconsin
Sumter, South Carolina	Lake Wales, Florida
(C & D Center)	Forest Park, Georgia
Franklin, Virginia (2 locations)	Savannah, Georgia	International:
	Stockbridge, Georgia leased	Las Palmas, Canary Islands
International:	Bedford Park, Illinois leased	Tenerife, Canary Islands
Arapoti, Parana, Brazil	Chicago, Illinois	Rancagua, Chile
Mogi Guacu, São Paulo, Brazil	Des Plaines, Illinois	Arles, France
Maresquel, France	Litchfield, Illinois leased	Chalon-sur-Saone, France
Saillat, France	Northlake, Illinois	Chantilly, France
Kwidzyn, Poland	Fort Wayne, Indiana	Creil, France

A-1

LePuy, France	Jeddah, Saudi Arabia	35 branches in the Southeast States
Mortagne, France	Taipei, Taiwan	and Ohio
Guadeloupe, French West Indies	Guacara,Venezuela	21leased
Asbourne, Ireland		Midwest Region
Bellusco, Italy	Foodservice	Denver, Colorado
Catania, Italy		37 branches in the Great Lakes,
Pomezia, Italy	U.S.:	Mid-America, Rocky Mountain
San Felice, Italy	Visalia, California	and South Plain States
Alcala, Spain leased	Shelbyville, Illinois	22leased
Almeria, Spain leased	Kenton, Ohio	West Region
Barcelona, Spain	Jackson, Tennessee	Downey, California
Bilbao, Spain		27 branches in the
Gandia, Spain	International:	Northwest and Pacific States
Valladolid, Spain	Brisbane, Australia	21leased
Thrapston, United Kingdom	Shanghai, China	Northeast Region
Winsford, United Kingdom	Bogota, Columbia leased	Hartford, Connecticut
		22 branches in New England
Kraft Paper	Shorewood Packaging	and Middle Atlantic States
Courtland, Alabama		17leased
Bastrop, Louisiana	U.S.:
Roanoke Rapids, North Carolina	Waterbury, Connecticut	International:
Franklin, Virginia	Indianapolis, Indiana	Mexico (15 locations)
	Louisville, Kentucky	all leased
	Edison, New Jersey	Papeteries de France
CONSUMER PACKAGING	Harrison, New Jersey leased	Pantin, France (2 locations)
	West Deptford, New Jersey	1 leased
Bleached Board	Hendersonville, North Carolina
Pine Bluff, Arkansas	Weaverville, North Carolina
Augusta, Georgia	Springfield, Oregon	FOREST PRODUCTS
Riegelwood, North Carolina	Danville, Virginia
Prosperity, South Carolina	Newport News, Virginia	Forest Resources
Texarkana, Texas	Roanoke, Virginia
		U.S.:
Beverage Packaging	International:	Approximately 6.8 million acres
	Brockville, Ontario, Canada	in the South and North
U.S.:	Smith Falls, Ontario, Canada
Turlock, California	Toronto, Ontario, Canada	International:
Plant City, Florida	Guangzhou, China	Approximately 1.2 million
Cedar Rapids, Iowa	Ebbw Vale, Wales, United Kingdom	acres in Brazil
Framingham, Massachusetts
Kalamazoo, Michigan		Realty Projects
Raleigh, North Carolina	DISTRIBUTION	Daufuskie Island, South Carolina
		(Haig Point Incorporated)
International:	xpedx
London, Ontario, Canada		Wood Products
Longueuil, Quebec, Canada leased	U.S.:
Shanghai, China	Stores Group	U.S.:
Santiago, Dominican Republic	Chicago, Illinois	Chapman, Alabama
San Salvador, El Salvador leased	148 locations nationwide	Citronelle, Alabama
Ashrat, Israel	138leased	Maplesville, Alabama
Fukusaki, Japan	South Central Region	Opelika, Alabama
Seoul, Korea	Greensboro, North Carolina	Thorsby, Alabama

A-2

Gurdon, Arkansas	Plywood Mills	Packaging
Leola, Arkansas	Myrtleford, Victoria, Australia	Case Manufacturing
McDavid, Florida	Tokoroa, New Zealand	Suva, Fiji
Whitehouse, Florida	Laminated Veneer Lumber	Auckland, New Zealand
Augusta, Georgia	Auckland, New Zealand leased	Christchurch, New Zealand
Folkston, Georgia	Nangwarry, South Australia,	Hamilton, New Zealand
Meldrim, Georgia	Australia	Levin, New Zealand
Springhill, Louisiana	Marsden Point, New Zealand	Carton Manufacturing
Wiggins, Mississippi	Decorative Products Processing Plant	Sydney, New South Wales,
Joplin, Missouri	Auckland, New Zealand	Australia
Armour, North Carolina	Decorative Products Distribution Center	Brisbane, Queensland,
Seaboard, North Carolina	Christchurch, New Zealand leased	Australia leased
Johnston, South Carolina	Panel Production Plants - New Zealand	Adelaide, South Australia,
Newberry, South Carolina	Auckland	Australia
Sampit, South Carolina	Kopu	Melbourne, Victoria,
Camden, Texas	Rangiora	Australia (2 locations) leased
Corrigan, Texas	Panel Production Plants - Australia	Auckland, New Zealand
Henderson, Texas	Oberon, New South Wales (2 plants)	Corrugated Manufacturing
New Boston, Texas	Tumut, New South Wales	Melbourne, Australia leased
Franklin, Virginia	Gympie, Queensland leased	Sydney, Australia leased
	Mt. Gambier, South Australia (2 plants)	Paper Bag Manufacturing
International:	Bell Bay, Tasmania	Auckland, New Zealand
Santana, Amapa, Brazil	Medium Density Fiberboard Plants	Paper Cups
Arapoti, Parana, Brazil	Leshan City, Sichuan Province, China	Brisbane, Queensland, Australia
	Shishou City, Hubei Province, China	Graphics (Pre-Press)
	Flooring Overlay Panel Plant	Melbourne, Victoria, Australia leased
CARTER HOLT HARVEY	Leshan City, Sichuan Province, China
	Building Supplies Retail Outlets
Forestlands	Retail Outlets, 43 branches	SPECIALTY BUSINESSES AND OTHER
Approximately 785,000	in New Zealand (26 leased)
acres in New Zealand owned & leased	Frame and Truss
	Auckland, New Zealand (2 locations)	Chemicals
Wood Products	2 leased
Sawmills and Processing Plants	Christchurch, New Zealand leased	U.S.:
Morwell, Victoria, Australia	Rotorua, New Zealand leased	Panama City, Florida
Oberon, New South Wales,	Upper Hutt, New Zealand leased	Pensacola, Florida
Australia		Port St. Joe, Florida
Mt. Gambier, South Australia,	Pulp and Paper	Savannah, Georgia
Australia (2 plants)	Kraft Paper, Pulp, Coated and	Valdosta, Georgia
Myrtleford, Victoria, Australia	Uncoated Papers and Bristols	Picayune, Mississippi
Kopu, New Zealand	Kinleith, New Zealand	Dover, Ohio
Nelson, New Zealand	Pulp Mill
Putaruru, New Zealand	Kawerau, New Zealand	International:
Rotorua, New Zealand	Cartonboard	Oulu, Finland
Taupo, New Zealand	Whakatane, New Zealand	Niort, France
Tokoroa, New Zealand	Containerboard	Greaker, Norway
Timber Merchants Warehousing -	Kinleith, New Zealand	Sandarne, Sweden
Australia	Auckland, New Zealand	Bedlington, United Kingdom
Sydney, New South Wales leased	Fiber Recycling Operations	Chester-le-Street, United Kingdom
Brisbane, Queensland leased	Auckland, New Zealand leased
Perth, Western Australia leased
Melbourne, Victoria leased

A-3

IP Mineral Resources

Houston, Texas leased

Chocolate Bayou Water Company

Alvin, Texas

Industrial Papers

U.S.:

Lancaster, Ohio

De Pere, Wisconsin

Kaukauna, Wisconsin

Menasha, Wisconsin

International:

Heerlen, Netherlands

Polyrey

Couze, France

Ussel, France

A-4

APPENDIX II

2004 CAPACITY INFORMATION

		(in thousands of short tons)
			Americas, Other
	U.S.	Europe		Than U.S.		Total
Printing Papers
Uncoated Freesheet	4,000	1,286			463	5,749
Bristols	820	–			–	820
Uncoated Papers and Bristols	4,820	1,286			463	6,569
Coated Freesheet	700	44			–	744
Coated Groundwood	1,200	–			224	1,424
Total Coated Papers	1,900	44			224	2,168
Uncoated Groundwood (SC Paper)	100	–			–	100
Total Coated and SC Papers	2,000	44			224	2,268
Dried Pulp*	1,325	231			23	1,579
Newsprint	–	124			–	124
Total Printing Papers	8,145	1,685			710	10,540
Industrial and Consumer Packaging
Containerboard	4,500	170			–	4,670
Kraft Paper	600	–			–	600
Bleached Board	1,800	280			–	2,080
Specialty Papers	360	15			–	375
Total Industrial and Consumer Packaging	7,260	465			–	7,725

Carter Holt Harvey (CHH) (Pacific Rim)		Forest Products
owned 50.5% by International Paper
		U.S. Wood Business	(Units - MM)
Pulp & Paper	(in thousands of short tons)	21 Lumber mills (board. ft.)	2,500
Containerboard	441	5 Plywood mills (sq. ft. 3/8” basis)	1,600
Dried Pulp	579	1 Laminated Veneer Lumber mill
Bleached Board	120	(cubic ft.)	3
		2 Pole plants (cubic ft.)	4
Wood Products	(Units - MM)
Medium Density Fiberboard		Forest Resources	(M Acres)
(sq. ft. 3/4” basis)	565	We own, manage or have an interest in more than 9 million acres of forestlands worldwide. These forestlands and associated acres are located in the following regions:
Particle Board (sq. ft. 3/4” basis)	318	South		5,985
Plywood (sq. ft. 3/8” basis)	189	North		840
Laminated Veneer Lumber (sq. ft.)	90
Lumber (board ft.)	467	Total U.S.		6,825
		CHH		785
Forestlands	(M Acres)	Brazil		1,220
	785
*    International Paper has a net surplus pulp position of 0.6 million tons.  This is the difference between the 1.6 million tons of dried pulp capacity and 1.0 million tons of dried pulp purchased and consumed.		Total		8,830
		We have harvesting rights in:
		Russia		502
		Total		502

A-5

 STATEMENT OF DIFFERENCES

In Exhibit 10.14:

The British pound sterling sign shall be expressed as ‘L’
The Euro sign shall be expressed as ‘E’

EX-10

                                    AGREEMENT

                              DATED     AUGUST, 2004

                                  'E'500,000,000

                                 CREDIT FACILITY

                                       for

                 INTERNATIONAL PAPER INVESTMENTS (FRANCE) S.A.S.

                                   arranged by

                                   BNP PARIBAS

                                BARCLAYS CAPITAL

                                       and

                               ABN AMRO BANK N.V.

                                      with

                                   BNP PARIBAS

                                as Facility Agent





                            [ALLEN & OVERY LLP LOGO]

                                ALLEN & OVERY LLP

                                     LONDON






                                    CONTENTS



Clause                                                                                                    Page

                                                                                                    
1.       Interpretation.......................................................................................1
2.       Facility............................................................................................12
3.       Purpose.............................................................................................13
4.       Conditions precedent................................................................................13
5.       Utilisation - Loans.................................................................................13
6.       Optional Currencies.................................................................................14
7.       Repayment...........................................................................................18
8.       Prepayment and cancellation.........................................................................18
9.       Interest............................................................................................21
10.      Terms...............................................................................................23
11.      Market disruption...................................................................................24
12.      Taxes...............................................................................................25
13.      Increased Costs.....................................................................................28
14.      Mitigation..........................................................................................29
15.      Payments............................................................................................31
16.      Guarantee...........................................................................................33
17.      Representations.....................................................................................36
18.      Information covenants...............................................................................41
19.      Financial covenants.................................................................................44
20.      General covenants...................................................................................44
21.      Default.............................................................................................48
22.      The Administrative Parties..........................................................................51
23.      Evidence and calculations...........................................................................56
24.      Fees................................................................................................56
25.      Indemnities and Break Costs.........................................................................56
26.      Expenses............................................................................................58
27.      Amendments and waivers..............................................................................58
28.      Changes to the Parties..............................................................................59
29.      Disclosure of information...........................................................................62
30.      Set-off.............................................................................................63
31.      Pro Rata Sharing....................................................................................63
32.      Severability........................................................................................64
33.      Counterparts........................................................................................64
34.      Notices.............................................................................................64
35.      Language............................................................................................66
36.      USA Patriot Act.....................................................................................66
37.      Governing law.......................................................................................66
38.      Enforcement.........................................................................................66
39.      Complete agreement..................................................................................68









Schedule

                                                                                                      
1.       Original Parties....................................................................................69
2.       Conditions precedent documents......................................................................70
3.       Form of Request.....................................................................................71
4.       Calculation of the Mandatory Cost...................................................................72
5.       Form of Transfer Certificate........................................................................75
6.       Existing Liens......................................................................................77
7.       Form of Compliance Certificate......................................................................78
8.       Existing Facilities.................................................................................79
9.       Form of Taux effectif global Letter.................................................................81
10.      Indebtedness of the company.........................................................................83


Signatories..................................................................................................84







THIS AGREEMENT is dated     August, 2004

BETWEEN:

(1)  INTERNATIONAL PAPER INVESTMENTS (FRANCE) S.A.S. (societe par actions
     simplifiee) a company registered in France with the Registry of Commerce
     and Companies of Versailles under number 350 372 934 R.C.S. Versailles (the
     Company);

(2)  INTERNATIONAL PAPER COMPANY a company incorporated under the laws of the
     State of New York, U.S.A. (the Guarantor);

(3)  BNP PARIBAS, BARCLAYS CAPITAL and ABN AMRO BANK N.V. as mandated lead
     arrangers (in this capacity the Mandated Lead Arrangers);

(4)  THE FINANCIAL INSTITUTIONS listed in Schedule 1 (Original Parties) as
     original lenders (the Original Lenders); and

(5)  BNP PARIBAS as facility agent (in this capacity the Facility Agent).

IT IS AGREED as follows:

1.   INTERPRETATION

1.1  Definitions

     In this Agreement:

     Administrative Party means the Mandated Lead Arrangers or the Facility
     Agent.

     Affiliate means, with respect to a specified Person, another Person that
     directly, or indirectly through one or more intermediaries, Controls or is
     Controlled by or is under common Control with the Person specified.

     Availability Period means the period from and including the date of this
     Agreement to and including ninety days from the date of this Agreement.

     Bankruptcy Code means the United States Bankruptcy Code 1978 or any other
     United States Federal of State bankruptcy, insolvency or similar law.

     Barclays Capital means the investment banking division of Barclays Bank
     PLC.

     Board means the Board of Governors of the Federal Reserve System of the
     United States of America (or any successor).

     Bookrunners means BNP Paribas and Barclays Capital.

     Break Costs means the amount (if any) which a Lender is entitled to receive
     under Clause 25.3 (Break Costs) as compensation if any part of a Loan or
     overdue amount is repaid or prepaid.



                                       1






     Business Day means a day (other than a Saturday or a Sunday) on which banks
     are open for general business in London, Paris and New York City and:

     (a)  if on that day a payment in or a purchase of a currency (other than
          euro) is to be made, the principal financial centre of the country of
          that currency; or

     (b)  if on that day a payment in or a purchase of euro is to be made, which
          is also a TARGET Day.

     Capital Lease Obligations means, as to any Person, the obligations of such
     Person to pay rent or other amounts under a lease of (or other agreement
     conveying the right to use) real and/or personal property which obligations
     are required to be classified and accounted for as a capital lease on a
     balance sheet of such Person under GAAP (including Statement of Financial
     Accounting Standards No. 13 of the Financial Accounting Standards Board)
     and, for the purposes of this Agreement, the amount of such obligations
     shall be the capitalised amount thereof, determined in accordance with GAAP
     (including such Statement No. 13).

     Code means the Internal Revenue Code of 1986, as amended from time to time.

     Commitment means:

     (a)  for an Original Lender, the amount set opposite its name in Schedule 1
          (Original Parties) under the heading Commitments and the amount of any
          other Commitment it acquires; and

     (b)  for any other Lender, the amount of any Commitment it acquires,

     to the extent not cancelled, transferred or reduced under this Agreement.

     Compliance Certificate means a certificate substantially in the form of
     Schedule 7 (Form of Compliance Certificate) setting out, among other
     things, calculations of the financial covenants.

     Consolidated Net Worth means, as at any time, the sum of the following for
     the Guarantor and its Consolidated Subsidiaries determined on a
     consolidated basis (without duplication) in accordance with GAAP:

     (a)  the amount of capital stock; plus

     (b)  the amount of surplus and retained earnings (or, in the case of a
          surplus or retained earnings deficit, minus the amount of such
          deficit); minus

     (c)  the cost of treasury shares,

     provided, however, the foregoing calculation shall not take into account
     any impairment of goodwill arising under FASB 142.

     Consolidated Subsidiary means, as to any Person, each Subsidiary of such
     Person (whether now existing or hereafter created or acquired) the
     financial statements of which shall be (or should have been) consolidated
     with the financial statements of such Person in accordance with GAAP.



                                       2






     Control means the possession, directly or indirectly, of the power to
     direct or cause the direction of the management or policies of a Person,
     whether through the ability to exercise voting power, by contract or
     otherwise. Controlling and controlled have meanings correlative thereto.

     Environmental Laws means any and all Federal, state, local and foreign
     statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
     permits, concessions, grants, franchises, licences, agreements or other
     governmental restrictions relating to the environment or to emissions,
     discharges, releases or threatened releases of pollutants, contaminants,
     chemicals, or industrial, toxic or hazardous substances or wastes into the
     environment including ambient air, surface water, ground water, or land, or
     otherwise relating to the manufacture, processing, distribution, use,
     treatment, storage, disposal, transport, or handling of pollutants,
     contaminants, chemicals, or industrial, toxic or hazardous substances or
     wastes.

     ERISA means the Employee Retirement Income Security Act of 1974, as amended
     from time to time.

     ERISA Affiliate means any corporation or trade or business which is a
     member of the same controlled group of corporations (within the meaning of
     Section 414(b) of the Code) as the Guarantor or is under common control
     (within the meaning of Section 414(c) of the Code) with the Guarantor.

     EURIBOR means for a Term of any Loan or overdue amount in euro:

     (a)  the applicable Screen Rate; or

     (b)  if no Screen Rate is available for that Term of that Loan or overdue
          amount, the arithmetic mean (rounded upward to four decimal places) of
          the rates as supplied to the Facility Agent at its request quoted by
          the Reference Banks to leading banks in the European interbank market,

     as of 11.00 a.m. (Brussels time) on the Rate Fixing Day for the offering of
     deposits in euro for a period comparable to that Term.

     euro means the single currency of the Participating Member States.

     Event of Default means an event specified as such in Clause 21 (Default).

     Excluded Taxes means any Tax other than a Tax that is imposed on or
     calculated with reference to net income of a Finance Party in respect of
     any income imputed to such Finance Party on account of a Gross-Up Payment
     (as defined in Clause 12.2 (c)).

     Facility means the credit facility made available under this Agreement.

     Facility Office means the office(s) notified by a Lender to the Facility
     Agent:

     (a)  on or before the date it becomes a Lender; or

     (b)  by not less than five Business Days' notice,

     as the office(s) through which it will perform its obligations under this
     Agreement.



                                       3






     Fee Letter means any letter entered into by reference to this Agreement
     between one or more Administrative Parties and the Company setting out the
     amount of certain fees referred to in this Agreement.

     Final Maturity Date means the fifth anniversary of the date of this
     Agreement.

     Finance Document means:

     (a)  this Agreement;

     (b)  a Fee Letter;

     (c)  a Transfer Certificate; or

     (d)  any other document designated as such by written agreement of both the
          Facility Agent and the Company.

     Finance Party means a Lender or an Administrative Party.

     GAAP means generally accepted accounting principles applied on a basis
     consistent with those which, in accordance with Clause 18.2 (Form of
     financial statements), are to be used in making the calculations for
     purposes of determining compliance with the terms of this Agreement.

     Governmental Authority means the government of the United States of
     America, France, any other nation or any political subdivision thereof,
     whether state or local, and any agency, authority, instrumentality,
     regulatory body, court, central bank or other entity exercising executive,
     legislative, judicial, taxing, regulatory or administrative powers or
     functions of or pertaining to government.

     Group means the Guarantor and its Consolidated Subsidiaries.

     Guarantee means a guarantee, an endorsement, a contingent agreement to
     purchase or to furnish funds for the payment or maintenance of, or
     otherwise to be or become contingently liable under or with respect to, the
     Indebtedness, other obligations, net worth, working capital or earnings of
     any Person, or a guarantee of the payment of dividends or other
     distributions upon the stock of any corporation, or an agreement to
     purchase, sell or lease (as lessee or lessor) property, products,
     materials, supplies or services primarily for the purpose of enabling a
     debtor to make payment of his, her or its obligations or an agreement to
     assure a creditor against loss, and including causing a bank to open a
     letter of credit for the benefit of another Person, but excluding
     endorsements for collection or deposit in the ordinary course of business.
     The terms Guarantee and Guaranteed used as a verb shall have a correlative
     meaning.

     IBOR means LIBOR or EURIBOR.

     Increased Cost means:

     (a)  an additional or increased cost;

     (b)  a reduction in the rate of return from a Facility or on its overall
          capital; or

     (c)  a reduction of an amount due and payable under any Finance Document,



                                       4






     which is incurred or suffered by a Finance Party or any of its Affiliates
     but only to the extent attributable to that Finance Party having entered
     into any Finance Document or funding or performing its obligations under
     any Finance Document.

     Indebtedness means, as to any Person:

     (a)  indebtedness created, issued or incurred by such Person for borrowed
          money (whether by loan or the issuance and sale of debt securities);

     (b)  obligations of such Person to pay the deferred purchase or acquisition
          price of property or services, other than trade accounts payable
          (other than for borrowed money) arising, and accrued expenses
          incurred, in the ordinary course of business so long as such trade
          accounts payable are payable within 90 days of the date the respective
          goods are delivered or the respective services are rendered;

     (c)  indebtedness of others secured by a Lien on the property of such
          Person, whether or not the respective indebtedness so secured has been
          assumed by such Person;

     (d)  obligations of such Person in respect of letters of credit or similar
          instruments issued or accepted by banks and other financial
          institutions for the account of such Person;

     (e)  Capital Lease Obligations of such Person; and

     (f)  Indebtedness of others Guaranteed by such Person.

     Information Package means the confidential information package dated July
     2004 prepared by the Mandated Lead Arrangers based on information received
     from the Guarantor for the purpose of providing information with regard to
     the Group in connection with this Agreement.

     Lender means:

     (a)  an Original Lender; or

     (b)  any person which becomes a Lender after the date of this Agreement.

     LIBOR means for a Term of any Loan or overdue amount:

     (a)  the applicable Screen Rate; or

     (b)  if no Screen Rate is available for the relevant currency or Term of
          that Loan or overdue amount, the arithmetic mean (rounded upward to
          four decimal places) of the rates, as supplied to the Facility Agent
          at its request, quoted by the Reference Banks to leading banks in the
          London interbank market,

     as of 11.00 a.m. (London time) on the Rate Fixing Day for the offering of
     deposits in the currency of that Loan or overdue amount for a period
     comparable to that Term.

     Lien means, with respect to any asset, any mortgage, lien, pledge, charge,
     security interest or encumbrance of any kind in respect of such asset. For
     the purposes of this Agreement, the Guarantor or any of its Subsidiaries
     shall be deemed to own subject to a Lien any asset which it has acquired or
     holds subject to the interest of a vendor or lessor under any conditional
     sale agreement, capital lease or other title retention agreement relating
     to such asset.



                                       5






     Loan means, unless otherwise stated in this Agreement, the principal amount
     of each borrowing under this Agreement or the principal amount outstanding
     of that borrowing.

     Majority Lenders means, at any time, Lenders:

     (a)  whose share in the outstanding Loans then aggregate 66 2/3 per cent.
          or more of the aggregate of all the outstanding Loans;

     (b)  if there is no Loan then outstanding, whose undrawn Commitments then
          aggregate 662/3 per cent. or more of the Total Commitments; or

     (c)  if there is no Loan then outstanding and the Total Commitments have
          been reduced to zero, whose Commitments aggregated 66 2/3 per cent. or
          more of the Total Commitments immediately before the reduction.

     Mandatory Cost means the percentage rate per annum calculated by the
     Facility Agent under Schedule 4 (Calculation of the Mandatory Cost).

     Margin means the rate per annum calculated in accordance with Clause 9.3
     (Margin adjustments).

     Margin Stock means margin stock within the meaning of Regulations U and X.

     Material Adverse Effect means a material adverse change in, or material
     adverse effect on the business, results of operations or financial
     condition of the Guarantor and its Subsidiaries taken as a whole.

     Material Subsidiaries means, at any time, (a) the Company, and (b) any
     Subsidiary of the Guarantor that has total assets equal to 5 per cent. or
     more of Consolidated Net Worth.

     Moody's means Moody's Investors Service Limited or any successor to its
     rating business.

     Multiemployer Plan means a multiemployer plan defined as such in Section
     3(37) of ERISA to which contributions have been made by the Guarantor or
     any ERISA Affiliate and which is covered by Title IV of ERISA.

     Obligor means the Company or the Guarantor.

     Original Financial Statements means the audited consolidated financial
     statements of the Group for the year ended 31st December, 2003.

     Participating Member State means a member state of the European Communities
     that adopts or has adopted the euro as its lawful currency under the
     legislation of the European Community for Economic Monetary Union.

     Party means a party to this Agreement.

     PBGC means the Pension Benefit Guaranty Corporation or any entity
     succeeding to any or all of its functions under ERISA.

     Person means any natural person, corporation, limited liability company,
     trust, joint venture, association, company, partnership, Governmental
     Authority or other entity.



                                       6






     Plan means any employee benefit or other plan established or maintained by
     the Guarantor or any ERISA Affiliate and which is covered by Title IV of
     ERISA, other than a Multiemployer Plan.

     Potential Event of Default means any event or condition which upon notice,
     expiry of any applicable grace period or both would, unless cured or
     waived, become an Event of Default.

     Project Indebtedness means Indebtedness of the Guarantor or any Subsidiary
     incurred to finance the acquisition, construction or development of Project
     Assets; provided that (x) such Indebtedness is non-recourse to any other
     assets and (y) the aggregate principal amount of such Indebtedness for the
     Guarantor and its Subsidiaries taken as a whole may at no time exceed
     US$425,000,000.

     Pro Rata Share means:

     (a)  for the purpose of determining a Lender's share in a utilisation of
          the Facility, the proportion which its Commitment bears to the Total
          Commitments; and

     (b)  for any other purpose on a particular date:

          (i)  the proportion which a Lender's share of the Loans (if any) bears
               to all the Loans;

          (ii) if there is no Loan outstanding on that date, the proportion
               which its Commitment bears to the Total Commitments on that date;
               or

          (iii) if the Total Commitments have been cancelled, the proportion
               which its Commitment bore to the Total Commitments immediately
               before being cancelled.

     Rate Fixing Day means:

     (a)  the first day of a Term for a Loan denominated in Sterling;

     (b)  the second Business Day before the first day of a Term for a Loan
          denominated in any other currency (other than euro); or

     (c)  the second TARGET Day before the first day of a Term for a Loan
          denominated in euro,

     or such other day as the Facility Agent determines is generally treated as
     the rate fixing day by market practice in the relevant interbank market.

     Reference Banks means the Facility Agent, Barclays Bank plc and ABN AMRO
     Bank N.V. and any other bank or financial institution appointed as such by
     the Facility Agent under this Agreement.

     Regulations D, U and X means, respectively, Regulations D, U and X of the
     Board, as the same may be amended or supplemented from time to time.

     Repeating Representations means the representations which are deemed to be
     repeated under Clause 17.21 (Times for making representations).



                                       7






     Request means a request for a Loan, substantially in the form of Schedule 3
     (Form of Request).

     S&P means Standard & Poor's Rating Services, a division of The McGraw-Hill
     Companies, Inc. or any successor to its rating business.

     Screen Rate means:

     (a)  for LIBOR, the British Bankers Association Interest Settlement Rate;
          and

     (b)  for EURIBOR, the percentage rate per annum determined by the Banking
          Federation of the European Union,

     for the relevant currency and Term displayed on page 3740 or 3750 in
     respect of LIBOR and page 248 in respect of EURIBOR in each case of the
     Telerate screen. If the relevant page is replaced or the service ceases to
     be available, the Facility Agent (after consultation with the Company and
     the Lenders) may specify another page or service displaying the appropriate
     rate.

     Solvent means, as to any Person, that, as of any date of determination, (a)
     the amount of the "present fair saleable value" of the assets of such
     Person shall, as of such date, exceed the amount of all "liabilities of
     such Person, contingent or otherwise", as of such date, as such terms are
     determined in accordance with applicable federal and state laws governing
     determinations of the insolvency of debtors, (b) the present fair saleable
     value of the assets of such Person shall, as of such date, be greater than
     the amount that will be required to pay the liability of such Person on its
     debts as such debts become absolute and matured, or, in relation to the
     Company or any other French person, such Person is in a state of "cessation
     des paiements" within the meaning of French law; (c) such Person will not
     have, as of such date, an unreasonably small amount of capital with which
     to conduct its business, and (d) such Person shall be able to pay its debts
     as they mature. For purposes of this definition, (i) debt means liability
     on a claim, and (ii) claim means any (A) right to payment, whether or not
     such a right is reduced to judgment, liquidated, unliquidated, fixed,
     contingent, matured, unmatured, disputed, undisputed, legal, equitable,
     secured or unsecured or (B) right to an equitable remedy for breach of
     performance if such breach gives rise to a right to payment, whether or not
     such right to an equitable remedy is reduced to judgment, fixed,
     contingent, matured or unmatured, disputed, undisputed, secured or
     unsecured.

     Subsidiary means, as to any Person:

     (a)  any corporation of which at least a majority of the outstanding shares
          of stock whose class or classes have by the terms thereof ordinary
          voting power to elect a majority of the board of directors of such
          corporation (irrespective of whether or not at the time stock of any
          other class or classes of such corporation shall have or might have
          voting power by reason of the happening of any contingency) is at the
          time directly or indirectly owned or controlled by such Person or one
          or more Subsidiaries of such Person or by such Person and one or more
          Subsidiaries of such Person; and

     (b)  any partnership or other entity in which such Person and/or one or
          more Subsidiaries of such Person shall have an ownership or
          controlling interest (whether in the form of voting or participation
          in profits or capital contribution) of more than 50 per cent.

     Tangible Assets means, at any time, Total Assets minus the sum of the items
     identified in paragraph (c) of the defined term Tangible Net Worth.



                                       8






     Tangible Net Worth means, as at any time, the sum of the following for the
     Guarantor and its Consolidated Subsidiaries determined on a consolidated
     basis (without duplication) in accordance with GAAP and based on the latest
     published audited consolidated balance sheet of the Guarantor:

     (a)  the amount of capital stock; plus

     (b)  the amount of surplus and retained earnings (or, in the case of a
          surplus or retained earnings deficit, minus the amount of such
          deficit); minus

     (c)  the sum of the following: cost of treasury shares and the book value
          of all assets of the Guarantor and its Consolidated Subsidiaries which
          should be classified as intangibles (without duplication of deductions
          in respect of items already deducted in arriving at surplus and
          retained earnings) but in any event including goodwill, research and
          development costs, trademarks, trade names, copyrights, patents and
          franchises, unamortized debt discount and expense, and any write up in
          the book value of assets resulting from a revaluation thereof
          subsequent to 30th June, 2004 (other than any write-up, at the time of
          its acquisition, in the book value of any asset acquired subsequent to
          30th June, 2004).

     TARGET Day means a day on which the Trans-European Automated Real-time
     Gross Settlement Express Transfer payment system is open for the settlement
     of payments in euro.

     Tax means any tax, levy, impost, duty or other charge or withholding of a
     similar nature (including any related penalty or interest).

     Tax Deduction means a deduction or withholding for or on account of Tax
     from a payment under a Finance Document.

     Tax Payment means a payment made by an Obligor to a Finance Party in any
     way relating to a Tax Deduction or under any indemnity given by that
     Obligor in respect of Tax under any Finance Document.

     Term means each period determined under this Agreement by reference to
     which interest on a Loan or an overdue amount is calculated.

     Total Assets means, at any time, the total assets of the Guarantor and its
     Consolidated Subsidiaries at such time determined on a consolidated basis
     (without duplication) in accordance with GAAP.

     Total Capital means, at any date, Consolidated Net Worth plus Total Debt
     plus (i) the amount of the minority interest in Carter Holt Harvey Limited,
     and (ii) the amount of the minority interest represented by the tax
     deductible convertible preferred shares issued by International Paper
     Capital Trust, each determined as of such date.

     Total Commitments means the aggregate of the Commitments of all the
     Lenders.

     Total Debt means, at any time, the aggregate outstanding principal amount
     of all Indebtedness of the Guarantor and its Consolidated Subsidiaries at
     such time determined on a consolidated basis (without duplication) in
     accordance with GAAP.

     Trading Contract means a contract entered into for purely commercial
     purposes by a Finance Party with an Obligor which relates to its trading
     activities and which is not related to any banking business which is
     conducted between the contracting parties.



                                       9






     Transactions means collectively, the transactions contemplated hereby.

     Transfer Certificate means a certificate, substantially in the form of
     Schedule 5 (Form of Transfer Certificate), with such amendments as the
     Facility Agent may approve or reasonably require or any other form agreed
     between the Facility Agent and the Company.

     U.K. means the United Kingdom.

     Utilisation Date means each date on which the Facility is utilised.

     Wholly Owned Subsidiary means, as to any Person, any Subsidiary of such
     Person all of the shares or ownership interests of which, other than (in
     the case of a corporation) directors' qualifying shares, are owned or
     controlled by such Person and/or any of its Wholly Owned Subsidiary.

1.2  Construction

(a)  In this Agreement, unless the contrary intention appears, a reference to:

       (i)    an amendment includes a supplement, novation, restatement or
              re-enactment and amended will be construed accordingly;

       (ii)   assets includes present and future properties, revenues and rights
              of every description;

       (iii)  an authorisation includes an authorisation, consent, approval,
              resolution, licence, exemption, filing, registration or
              notarisation;

       (iv)   disposal means a sale, transfer, grant, lease or other disposal,
              whether voluntary or involuntary, and dispose will be construed
              accordingly;

       (v)    indebtedness includes any obligation (whether incurred as
              principal or as surety) for the payment or repayment of money;

       (vi)   know your customer requirements are the identification checks that
              a Finance Party requests in order to meet its obligations under
              any applicable law or regulation to identify a person who is (or
              is to become) its customer;

       (vii)  a regulation includes any regulation, rule or official directive
              (whether or not having the force of law but, if not having the
              force of law, being of a type with which any person to which it
              applies are obliged to comply) of any governmental,
              inter-governmental or supranational body, agency, department or
              regulatory, self-regulatory or other authority or organisation;

       (viii) a currency is a reference to the lawful currency for the time
              being of the relevant country;

       (ix)   (A)    an Event of Default being outstanding means that it has not
                     been remedied or waived and any applicable grace period in
                     relation thereto has expired;

              (B)    a Potential Event of Default being outstanding means that
                     it has not been remedied or waived;



                                       10






       (x)    a provision of law is a reference to that provision as extended,
              applied, amended or re-enacted and includes any subordinate
              legislation;

       (xi)   a Clause, a Subclause or a Schedule is a reference to a clause or
              subclause of, or a schedule to, this Agreement;

       (xii)  a Party or any other person includes its successors in title,
              permitted assigns and permitted transferees;

       (xiii) a Finance Document or another document is a reference to that
              Finance Document or other document as amended; and

       (xiv)  a time of day is a reference to Paris time.

(b)    Unless the contrary intention appears, a reference to a month or months
       is a reference to a period starting on one day in a calendar month and
       ending on the numerically corresponding day in the next calendar month or
       the calendar month in which it is to end, except that:

       (i)    if the numerically corresponding day is not a Business Day, the
              period will end on the next Business Day in that month (if there
              is one) or the preceding Business Day (if there is not);

       (ii)   if there is no numerically corresponding day in that month, that
              period will end on the last Business Day in that month; and

       (iii)  notwithstanding subparagraph (i) above, a period which commences
              on the last Business Day of a month will end on the last Business
              Day in the next month or the calendar month in which it is to end,
              as appropriate.

(c)    Unless expressly provided to the contrary in a Finance Document, a person
       who is not a party to a Finance Document may not enforce any of its terms
       under the Contracts (Rights of Third Parties) Act 1999 and,
       notwithstanding any term of any Finance Document, no consent of any third
       party is required for any variation (including any release or compromise
       of any liability) or termination of any Finance Document.

(d)    Unless the contrary intention appears:

       (i)    a reference to a Party will not include that Party if it has
              ceased to be a Party under this Agreement;

       (ii)   a word or expression used in any other Finance Document or in any
              notice given in connection with any Finance Document has the same
              meaning in that Finance Document or notice as in this Agreement;
              and

       (iii)  any obligation of an Obligor under the Finance Documents which is
              not a payment obligation remains in force for so long as any
              payment obligation of an Obligor is or may be outstanding under
              the Finance Documents.

(e)    The headings in this Agreement do not affect its interpretation.



                                       11






1.3    French terms

       In this Agreement, a reference to:

       (a)    a winding-up or dissolution includes a redressement judiciaire,
              cession totale de l'entreprise or liquidation judiciaire under
              Articles L.620-1 et seq. of the French Commercial Code;

       (b)    a composition or similar arrangement with any creditor includes a
              reglement amiable under Articles L.611-3 et seq. of the French
              Commercial Code;

       (c)    a receiver, administrator includes an administrateur judiciaire,
              administrateur provisoire, mandataire ad hoc, conciliateur or
              mandataire liquidateur;

       (d)    a lease includes an operation de credit-bail;

       (e)    a Lien includes any type of security (surete reelle) and transfer
              by way of security;

       (f)    a person being unable to pay its debts includes that person being
              in a state of cessation des paiements; and

       (g)    the French Commercial Code means the Code de Commerce.

2.     FACILITY

2.1    Facility

       Subject to the terms of this Agreement, the Lenders make available to the
       Company a term loan facility in an aggregate amount equal to the Total
       Commitments.

2.2    Nature of a Finance Party's rights and obligations

       Unless all the Finance Parties agree otherwise:

       (a)    the obligations of a Finance Party under the Finance Documents are
              several;

       (b)    failure by a Finance Party to perform its obligations does not
              affect the obligations of any other Party under the Finance
              Documents except as set forth in this Agreement;

       (c)    no Finance Party is responsible for the obligations of any other
              Finance Party under the Finance Documents;

       (d)    the rights of a Finance Party under the Finance Documents are
              separate and independent rights;

       (e)    a Finance Party may, except as otherwise stated in the Finance
              Documents, separately enforce those rights; and

       (f)    a debt arising under the Finance Documents to a Finance Party is a
              separate and independent debt.



                                       12






3.     PURPOSE

3.1    Loans

       Each Loan may only be used for general corporate purposes.

3.2    No obligation to monitor

       No Finance Party is bound to monitor or verify the utilisation of the
       Facility.

4.     CONDITIONS PRECEDENT

4.1    Conditions precedent documents

       A Request may not be given until the Facility Agent has notified the
       Company and the Lenders that it has received all of the documents and
       evidence set out in Schedule 2 (Conditions precedent documents) in form
       and substance satisfactory to the Facility Agent. The Facility Agent must
       give this notification to the Company and the Lenders promptly upon being
       so satisfied.

4.2    Further conditions precedent

       The obligations of each Lender to participate in any Loan are subject to
       the further conditions precedent that on both the date of the Request and
       the Utilisation Date for that Loan:

       (a)    the Repeating Representations are correct in all material
              respects; and

       (b)    no Potential Event of Default or Event of Default is outstanding
              or would result from the Loan.

4.3    Maximum number

       Unless the Facility Agent agrees, a Request may not be given if, as a
       result, there would be more than seven Loans outstanding.

5.     UTILISATION - LOANS

5.1    Giving of Requests

       (a)    The Company may borrow a Loan by giving to the Facility Agent a
              duly completed Request.

       (b)    Unless the Facility Agent otherwise agrees, the latest time for
              receipt by the Facility Agent of a duly completed Request is 11.00
              a.m. (i) three Business Days in respect of a Loan denominated in
              Sterling, (ii) one Business Day in respect of a Loan denominated
              in any other currency (other than euro) and (iii) one TARGET day
              in respect of a Loan denominated in euro, in each case before the
              Rate Fixing Day for the proposed borrowing.

       (c)    Each Request is irrevocable.

5.2    Completion of Requests

       A Request for a Loan will not be regarded as having been duly completed
       unless:

       (a)    the Utilisation Date is a Business Day falling within the
              Availability Period;



                                       13






       (b)    the amount of the Loan requested is:

              (i)    a minimum of 'E'25,000,000 or an amount which complies
                     with Clause 6 (Optional Currencies) and an integral
                     multiple of 1,000,000 units of that currency;

              (ii)   the maximum undrawn amount available under the Facility on
                     the proposed Utilisation Date; or

              (iii)  such other amount as the Facility Agent may agree; and

       (c)    the proposed currency and Term comply with this Agreement.

       Only one Loan may be requested in a Request.

5.3    Advance of Loan

(a)    The Facility Agent must promptly notify each Lender of the details of the
       requested Loan and the amount of its share in that Loan.

(b)    The amount of each Lender's share of the Loan will be its Pro Rata Share
       on the proposed Utilisation Date.

(c)    No Lender is obliged to participate in a Loan if, as a result, the Loans
       would exceed the Total Commitments.

(d)    If the conditions set out in this Agreement have been met, each Lender
       must make its share in the Loan available to the Facility Agent for the
       Company through its Facility Office in sufficient time so that the Loan
       will be received by the Company, in an account specified by it, in
       immediately available funds, on the Utilisation Date.

(e)    Subject to paragraph (d) above, on each Utilisation Date, the amount
       provided in immediately available funds to the Facility Agent by the
       Lenders in accordance with paragraph (d) above will be provided to the
       Company in an account specified by it, in immediately available funds.

6.     OPTIONAL CURRENCIES

6.1    General

       In this Clause:

       Agent's Spot Rate of Exchange means the Facility Agent's spot rate of
       exchange for the purchase of the relevant currency in the London foreign
       exchange market with euros as of 11.00 a.m. on a particular day.

       euro Amount of a Loan or part of a Loan means:

       (a)    if the Loan is denominated in euros, its amount; or

       (b)    if the Loan is denominated in an Optional Currency, its equivalent
              in euros as if it had first been drawn down and had remained
              denominated in euros, adjusted to reflect any repayment,
              prepayment, consolidation or splitting of that Loan.



                                       14






       Optional Currency means any currency (other than euros) in which a Loan
       may be denominated under this Agreement.

6.2    Selection

(a)    The Company must select the currency of a Loan in its Request.

(b)    (i)    The amount of a Loan requested in an Optional Currency
              must be a minimum euro Amount of 'E'25,000,000 and, if
              required by the Facility Agent, an integral multiple of a euro
              Amount of 'E'1,000,000.

       (ii)   The amount of a Loan in an Optional Currency will be its euro
              Amount notionally converted into that Optional Currency at the
              Agent's Spot Rate of Exchange one Business Day before the Rate
              Fixing Day for the first Term of that Loan.

(c)    Unless the Facility Agent otherwise agrees, the Loans may not be
       denominated at any one time in more than three currencies.

6.3    Conditions relating to Optional Currencies

(a)    A Loan may be denominated in an Optional Currency for a Term if:

       (i)    that Optional Currency is readily available in the amount required
              and freely convertible into euros in the relevant interbank market
              on the Rate Fixing Day and the first day of that Term; and

       (ii)   that Optional Currency has been previously approved by the
              Facility Agent (acting on the instructions of all the Lenders).

(b)    If the Facility Agent has received a request from the Company for a
       currency to be approved as an Optional Currency, the Facility Agent must,
       within five Business Days, confirm to the Company:

       (i)    whether or not the Lenders have given their approval; and

       (ii)   if approval has been given, the minimum amount (and, if required,
              integral multiples) for any Loan in that currency.

6.4    Revocation of currency

(a)    Notwithstanding any other term of this Agreement, if before 9.30 a.m. on
       any Rate Fixing Day the Facility Agent receives notice from a Lender
       that:

       (i)    the Optional Currency requested is not readily available to it in
              the relevant interbank market in the amount and for the period
              required; or

       (ii)   participating in a Loan in the proposed Optional Currency will
              contravene any law or regulation applicable to it,

       the Facility Agent must give notice to the Company to that effect
       promptly and in any event before 11.00 a.m. on that day.

(b)    In this event:

       (i)    that Lender must participate in the Loan in euros; and



                                       15






       (ii)   the share of that Lender in the Loan and any other similarly
              affected Lender(s) will be treated as a separate Loan denominated
              in euros during that Term.

6.5    Optional Currency equivalents

(a)    The equivalent in euros of a Loan or part of a Loan in an Optional
       Currency for the purposes of calculating:

       (i)    whether any limit under this Agreement has been exceeded;

       (ii)   the amount of a Loan;

       (iii)  the share of a Lender in a Loan;

       (iv)   the amount of any repayment or prepayment of a Loan; or

       (v)    the undrawn amount of a Lender's Commitment,

       is its euro Amount.

(b)    The rate of exchange to be used for calculating the amount in euros of
       any repayment or prepayment of a Loan in an Optional Currency is that
       last used for determining the current amount of that Loan in that
       Optional Currency.

6.6    Loans - change of currency

(a)    A Loan will remain denominated in the same currency through successive
       Terms, unless the currency is changed under paragraph (c) below.

(b)    The Company may change the currency of a Loan with effect from the start
       of a Term by giving notice to the Facility Agent by 9.00 a.m. three
       Business Days before the first day of that Term. The Loan will remain
       denominated in that currency until it is changed again under this
       Subclause.

(c)    If a Loan is to be denominated in different currencies during successive
       Terms:

       (i)    the Company must repay that Loan on the last day of its current
              Term in the currency in which it is then denominated (the old
              currency); and

       (ii)   the Lenders must, subject to the terms of this Agreement,
              re-advance the Loan in the currency in which the Company requires
              the Loan to be denominated for the next Term (the new currency).

       The amount of the Loan in the new currency will be calculated by
       reference to its euro Amount.

(d)    Alternatively, if the Facility Agent and the Company agree:

       (i)    the Facility Agent may apply the amount (or so much of that amount
              as is necessary) of the Loan in the new currency to purchase an
              amount of the old currency sufficient to discharge the obligation
              of the Company to repay the Loan in the old currency;

       (ii)   the Facility Agent must apply any amount of the old currency
              purchased under subparagraph (i) above towards repaying the Loan
              in the old currency;



                                       16






       (iii)  the Facility Agent will promptly notify the Company if there is a
              shortfall or an excess;

       (iv)   if there is a shortfall, the Company must pay to the Facility
              Agent on the date the Loan is due to be repaid in the old currency
              an amount in the old currency equal to the shortfall; and

       (v)    if there is an excess, the Facility Agent must pay to the Company
              on the date the Loan is due to be repaid in the old currency an
              amount in the new currency equal to the excess.

(e)    If the day on which the old currency is due to be repaid is not also a
       Business Day for the new currency:

       (i)    the Facility Agent must notify the Company and the Lenders
              promptly;

       (ii)   the Loan will remain in the old currency until the next day which
              is a Business Day for both the old and the new currencies; and

       (iii)  during this period, the Loan will have Terms running from one
              Business Day to the next Business Day.

(f)    The Company must indemnify the Facility Agent against any loss or
       liability incurred by the Facility Agent as a result of any foreign
       exchange contract entered into for the purpose of this Clause.

6.7    Loans - continuing in same Optional Currency

(a)    If a Loan is to be denominated in the same Optional Currency during two
       successive Terms, the Facility Agent must calculate the amount of the
       Loan in the Optional Currency for the second of those Terms.

(b)    The amount of the Loan in the Optional Currency for the second Term will
       be the amount determined by notionally converting into that Optional
       Currency the euro Amount of the Loan on the basis of the Agent's Spot
       Rate of Exchange one Business Day before the Rate Fixing Day for that
       Term.

(c)    If the amount calculated is less than the existing amount of that Loan in
       the Optional Currency during the first Term, the Company must repay,
       subject to paragraph (e) below, on the last day of the first Term an
       amount equal to the difference and the amount of the Loan will be reduced
       accordingly.

(d)    If the amount calculated is more than the existing amount of that Loan in
       the Optional Currency during the first Term, each Lender must advance,
       subject to paragraph (e) below, on the last day of the first Term its Pro
       Rata Share of the difference and the amount of the Loan will be increased
       accordingly.

(e)    If the calculation made by the Facility Agent under paragraph (a) above
       shows that the amount of the Loan in the Optional Currency has increased
       or decreased by less than five per cent. since it was borrowed or (if
       later) the most recent adjustment under paragraph (c) above or (d) above,
       no payment is required under paragraph (c) above or (d) above and the
       amount of the Loan will remain the same.



                                       17






6.8    Conditions precedent

       The obligation of each Lender under this Clause to re-advance its share
       of a Loan in a new currency or make any payment increasing the amount of
       a Loan in an Optional Currency is subject to the condition precedent that
       on the date of the relevant payment:

       (a)    the Repeating Representations are correct in all material
              respects; and

       (b)    no Potential Event of Default or Event of Default is outstanding
              or would result from that payment.

6.9    Notification

       The Facility Agent must notify the Lenders and the Company of the
       relevant euro Amount (and the applicable Agent's Spot Rate of Exchange)
       promptly after they are ascertained.

7.     REPAYMENT

       The Company must repay the Loans in full on the Final Maturity Date.

8.     PREPAYMENT AND CANCELLATION

8.1    Mandatory prepayment - illegality

(a)    A Lender must notify the Company promptly if it becomes aware that it is
       unlawful in any jurisdiction for that Lender to perform any of its
       obligations under a Finance Document or to fund or maintain its share in
       any Loan.

(b)    After notification under paragraph (a) above:

       (i)    the Company must repay or prepay the share of that Lender in each
              Loan made to it on the date specified in paragraph (c) below; and

       (ii)   the Commitment of that Lender will be immediately cancelled.

(c)    The date for repayment or prepayment of a Lender's share in a Loan will
       be:

       (i)    the last day of the current Term of that Loan; or

       (ii)   if earlier, the date specified by the Lender in the notification
              under paragraph (a) above and which must not be earlier than the
              last day of any applicable grace period allowed by law.

(d)    In the event that repayment or prepayment of a Lender's share in a Loan
       is made in accordance with paragraph (b) above, any applicable Break
       Costs shall be apportioned as follows:

       (i)    one-half to be paid by the Company; and

       (ii)   one-half to be borne by the Lender requiring repayment or
              prepayment in accordance with this Subclause.



                                       18






8.2    Mandatory prepayment - tax gross up illegal

(a)    The Company must promptly notify the Facility Agent if it becomes
       unlawful for any Obligor to perform any of its obligations under Clause
       12.2(c) (Tax gross-up).

(b)    After notification under paragraph (a) above:

       (i)    the Commitments of that Lender will be immediately cancelled; and

       (ii)   the Company must repay or prepay that Lender's share in each Loan
              made to it on the date specified in paragraph (c) below.

(c)    The date for repayment of a Lender's share in a Loan will be the last day
       of the Term applicable to that Loan which ends after the Company has
       given notice under paragraph (a).

(d)    Notwithstanding any other term of this Agreement, the circumstances
       giving rise to notification by the Company under paragraph (a) above will
       not constitute an Event of Default.

8.3    Voluntary prepayment

(a)    The Company may, by giving not less than three Business Days' prior
       notice to the Facility Agent (such notice to be given to the Facility
       Agent not later than 11.00am on the third Business Day prior to the
       proposed prepayment), prepay any Loan at any time in whole or in part.

(b)      A prepayment of part of a Loan must be in a minimum amount of
         'E'1,000,000 or an amount which complies with Clause 6 (Optional
         Currencies) and an integral multiple of 1,000,000 units of that
         currency.

8.4      Automatic cancellation

         The Commitment of each Lender will be automatically cancelled at the
         close of business on the last day of the Availability Period.

8.5      Voluntary cancellation

(a)      The Company may, by giving not less than five Business Days' prior
         notice to the Facility Agent, cancel the unutilised amount of the Total
         Commitments in whole or in part.

(b)      Partial cancellation of the Total Commitments must be in a minimum
         amount of 'E'25,000,000 and an integral multiple of 'E'1,000,000.

(c)      Any cancellation in part will be applied against the Commitment of each
         Lender pro rata.

8.6    Involuntary prepayment and cancellation

(a)    If the Company is, or will be, required to pay to a Lender:

       (i)    a Tax Payment;


       (ii)   an Increased Cost; or

       (iii)  any amount under paragraph 3 of Schedule 4 (Calculation of the
              Mandatory Cost),



                                       19






       the Company may, while the requirement continues, give notice to the
       Facility Agent requesting prepayment and cancellation in respect of that
       Lender.

(b)    After notification under paragraph (a) above:

       (i)    the Company must repay or prepay that Lender's share in each Loan
              made to it on the date specified in paragraph (c) below; and

       (ii)   the Commitment of that Lender will be immediately cancelled.

(c)    The date for repayment or prepayment of a Lender's share in a Loan will
       be:

       (i)    the last day of the current Term for that Loan; or

       (ii)   if earlier, the date specified by the Company in its notification.

(d)    A Finance Party making a claim in respect of a Tax Payment, an Increased
       Cost or any amount under paragraph 3 of Schedule 4 (Calculation of the
       Mandatory Cost) (each an Increased Payment) must supply to the Facility
       Agent for the Company a certificate setting forth in reasonable detail
       (including the calculations of such amount) the amount of the claim. No
       amount shall be payable by the Company in respect of such claim until
       such certificate has been provided to the Company, at which time payment
       shall be due in respect of the entire period throughout which the
       Increased Payment was incurred. However, if the Company does not receive
       notification of the Increased Payment within 90 days of the relevant
       Finance Party becoming aware of such Increased Payment being incurred,
       the Company is not obliged to make any payment in respect of that
       Increased Payment.

8.7    Partial prepayment of Loans

       No amount of a Loan prepaid under this Agreement may subsequently be
       re-borrowed.

8.8    Miscellaneous provisions

(a)    Any notice of prepayment and/or cancellation under this Agreement is
       irrevocable and must specify the relevant date(s) and the affected Loans
       and Commitments. The Facility Agent must notify the Lenders promptly of
       receipt of any such notice.

(b)    All prepayments under this Agreement must be made with accrued interest
       on the amount prepaid. No premium or penalty is payable in respect of any
       prepayment except for Break Costs.

(c)    The Majority Lenders may agree a shorter notice period for a voluntary
       prepayment or a voluntary cancellation.

(d)    No prepayment or cancellation is allowed except in accordance with the
       express terms of this Agreement.

(e)    No amount of the Total Commitments cancelled under this Agreement may
       subsequently be reinstated.



                                       20






9.     INTEREST

9.1    Calculation of interest

       The rate of interest on each Loan for each Term is the percentage rate
       per annum equal to the aggregate of the applicable:

       (a)    Margin;

       (b)    IBOR; and

       (c)    Mandatory Cost.

9.2    Payment of interest

       Except where it is provided to the contrary in this Agreement, the
       Company must pay accrued interest on each Loan made to it on the last day
       of each Term and also, if the Term is longer than six months, on the
       dates falling at six-monthly intervals after the first day of that Term.

9.3    Margin adjustments

(a)    In this Subclause:

       Rating Agency means Moody's, S&P or any other rating agency approved by
       the Majority Lenders and the Company.

(b)    The initial Margin is 0.55 per cent. per annum.

(c)    Subject to the other provisions of this Subclause, the Margin will be
       subsequently calculated by reference to the table below:



         ------------------------------------------ ----------------------------------------------
                         Column 1                                     Column 2
                  Long-term credit rating                              Margin
                     of the Guarantor                           (per cent. per annum)
         ------------------ ----------------------- ----------------------------------------------
                                                                 
              Moody's                S&P
         ------------------ ----------------------- ----------------------------------------------
                A3               A- or higher                           0.45
         ------------------ ----------------------- ----------------------------------------------
               Baa1                  BBB+                               0.50
         ------------------ ----------------------- ----------------------------------------------
               Baa2                  BBB                                0.55
         ------------------ ----------------------- ----------------------------------------------
               Baa3                  BBB-                               0.60
         ------------------ ----------------------- ----------------------------------------------
                Ba1              BB+ or lower                           1.00
         ------------------ ----------------------- ----------------------------------------------


(d)    The Company must notify, or must procure that the Guarantor notifies, the
       Facility Agent of any notification to the Guarantor by a Rating Agency of
       a change in its long-term credit rating.

       In the event that there is a split long-term credit rating from Moody's
       and S&P, the applicable Margin shall be (1) the Margin applicable to the
       higher of such ratings in the event such ratings are one level apart, (2)
       the Margin applicable to the midpoint (if any) in the event such ratings
       are two or more levels apart or (3) the Margin applicable to the higher
       of the two intermediate ratings in the event there is no midpoint rating.

       If at any time the Guarantor does not have a long-term credit rating in
       effect with either Moody's or S&P (other than by reason of a change in
       the long-term credit rating system of Moody's or S&P or if either such
       rating agency ceases to be in the business of rating



                                       21






       corporate debt obligations), the Margin will be the highest applicable
       rate, being 1.00 per cent. per annum. If the long-term credit rating
       system of Moody's or S&P changes, or if either such rating agency shall
       cease to be in the business of rating corporate debt obligations, the
       Guarantor (on its own behalf and on behalf of the Company) and the
       Lenders shall negotiate in good faith to amend this provision to reflect
       such changed rating system or the unavailability of ratings from such
       rating agency and, pending the effectiveness of any such amendment, the
       Margin shall be determined by reference to the rating most recently in
       effect prior to such change or cessation.

       If at any time the Guarantor only has a long-term credit rating from one
       of Moody's or S&P, the Margin shall be calculated solely by reference to
       the long-term credit rating established by the rating agency that does
       have a long-term credit rating for the Guarantor then in effect.

       If at any time the long-term credit rating of the Guarantor established
       or deemed to have been established by Moody's and S&P shall be changed
       (other than as a result of a change in the rating system of Moody's or
       S&P), such change shall be effective as of the date on which it is first
       announced by the applicable rating agency;

(e)    Any change in the Margin will, subject to paragraph (f) below, apply as
       of the date it is first announced by the applicable rating agency (other
       than as a result of a change in the rating system of Moody's or S&P).

(f)    For so long as an Event of Default is outstanding, the Margin will be the
       highest applicable rate, being 1.00 per cent. per annum.

9.4    Interest on overdue amounts

(a)    If an Obligor fails to pay any amount payable by it under the Finance
       Documents, it must immediately on demand by the Facility Agent pay
       interest on the overdue amount from its due date up to the date of actual
       payment, both before, on and after judgment.

(b)    Interest on an overdue amount is payable at a rate determined by the
       Facility Agent to be one per cent. per annum above the rate which would
       have been payable if the overdue amount had, during the period of
       non-payment, constituted a Loan in the currency of the overdue amount.
       For this purpose, the Facility Agent may (acting reasonably):

       (i)    select successive Terms of any duration of up to three months; and

       (ii)   determine the appropriate Rate Fixing Day for that Term.

(c)    Notwithstanding paragraph (b) above, if the overdue amount is a principal
       amount of a Loan and becomes due and payable before the last day of its
       current Term, then:

       (i)    the first Term for that overdue amount will be the unexpired
              portion of that Term; and

       (ii)   the rate of interest on the overdue amount for that first Term
              will be one per cent. per annum above the rate then payable on
              that Loan.

       After the expiry of the first Term for that overdue amount, the rate on
       the overdue amount will be calculated in accordance with paragraph (b)
       above.

(d)    Interest (if unpaid) on an overdue amount will be compounded with that
       overdue amount at the end of each of its Terms but will remain
       immediately due and payable.



                                       22






9.5    Notification of rates of interest

       The Facility Agent must promptly notify each relevant Party of the
       determination of a rate of interest under this Agreement.

9.6    Effective Global Rate (Taux Effectif Global)

       For the purpose of Articles L.313-1, L.313-2, R 313-1 and R 313-2 of the
       French Consumer Code (Code de la Consommation), each Party acknowledges
       that:

       (a)    by virtue of certain characteristics of this Agreement (including
              the variable interest rate applicable to Loans and the Company's
              right to select the currency and the duration of a Term), the
              taux effectif global cannot be calculated on the date of this
              Agreement, but that an indicative calculation of the taux effectif
              global, based on assumptions as to the taux de periode and the
              duree de periode, will be set out in a letter from the Facility
              Agent to the Company substantially in the form of Schedule 9
              (Form of Taux effectif global Letter); and

(b)    that letter forms part of this Agreement.

10.    TERMS

10.1   Selection

(a)    Each Loan has successive Terms.

(b)    The Company must select the first Term for a Loan in the relevant Request
       and each subsequent Term in an irrevocable notice received by the
       Facility Agent not later than 11.00 a.m. one Business Day before the Rate
       Fixing Day for that Term. Each Term for a Loan will start on its
       Utilisation Date or on the expiry of its preceding Term.

(c)    If the Company fails to select a Term for an outstanding Loan under
       paragraph (b) above, that Term will, subject to the other provisions of
       this Clause, be three months.

(d)    Subject to the following provisions of this Clause, each Term for a Loan
       will be one, two, three or six months or any other period agreed by the
       Company and the Lenders.

10.2   Consolidation

       If the Company so requests a Term for a Loan will end on the same day as
       the current Term for any other Loan denominated in the same currency as
       that Loan. On the last day of those Terms, those Loans will be
       consolidated and treated as one Loan.

10.3   No overrunning the Final Maturity Date

       If a Term would otherwise overrun the Final Maturity Date, it will be
       shortened so that it ends on the Final Maturity Date.

10.4   Other adjustments

       The Facility Agent and the Company may enter into such other arrangements
       as they may agree for the adjustment of Terms and the consolidation
       and/or splitting of Loans.



                                       23






10.5   Notification

       The Facility Agent must notify each relevant Party of the duration of
       each Term promptly after ascertaining its duration.

11.    MARKET DISRUPTION

11.1   Failure of a Reference Bank to supply a rate

       If IBOR is to be calculated by reference to the Reference Banks but a
       Reference Bank does not supply a rate by 12.00 noon (local time) on a
       Rate Fixing Day, the applicable IBOR will, subject as provided below, be
       calculated on the basis of the rates of the remaining Reference Banks.

11.2   Market disruption

(a)    In this Clause, each of the following events is a market disruption
       event:

       (i)    IBOR is to be calculated by reference to the Reference Banks but
              no, or only one, Reference Bank supplies a rate by 12.00 noon
              (local time) on the Rate Fixing Day; or

       (ii)   the Facility Agent receives by close of business on the Rate
              Fixing Day notification from Lenders whose shares in the relevant
              Loan exceed 30 per cent. of that Loan that the cost to them of
              obtaining matching deposits in the relevant interbank market is in
              excess of IBOR for the relevant Term.

(b)    The Facility Agent must promptly notify the Company and the Lenders of a
       market disruption event.

(c)    After notification under paragraph (b) above, the rate of interest on
       each Lender's share in the affected Loan for the relevant Term will be
       the aggregate of the applicable:

       (i)    Margin;

       (ii)   rate notified to the Facility Agent by that Lender as soon as
              practicable, and in any event before interest is due to be paid in
              respect of that Term, to be that which expresses as a percentage
              rate per annum the cost to that Lender of funding its share in
              that Loan from whatever source it may reasonably select; and

       (iii)  Mandatory Cost.

11.3   Alternative basis of interest or funding

(a)    If a market disruption event occurs and the Facility Agent or the Company
       so requires, the Company and the Facility Agent must enter into
       negotiations for a period of not more than 30 days with a view to
       agreeing an alternative basis for determining the rate of interest and/or
       funding for the affected Loan.

(b)    Any alternative basis agreed will be, with the prior consent of all the
       Lenders, binding on all the Parties.



                                       24






12.    TAXES

12.1   General

       In this Clause:

       Qualifying Lender means:

       (a)    in respect of payments by the Company, a Lender which:

              (i)    has its Facility Office in France;

              (ii)   is a Treaty Lender; or

              (iii)  is otherwise entitled to receive a payment under this
                     Agreement without any Tax Deduction; and

       (b)    in respect of payments by the Guarantor, a Lender which is:

              (i)    a US person; or

              (ii)   not a US person, and

              (A)    is entitled to the benefits of an appropriate double
                     taxation agreement to which the United States is a party
                     that fully exempts payments of interest from deduction or
                     withholding of United States federal income tax and does
                     not conduct a trade or business in the United States
                     through a permanent establishment with which a payment is
                     effectively connected; or

              (B)    is not entitled to the benefits of a double taxation
                     agreement to which the United States is a party but
                     conducts a trade or business in the US to which a payment
                     is effectively connected.

       Tax Credit means any Tax benefit, including any refund of Taxes
       (including interest received thereon), any credit against any Tax, any
       Tax deduction, and any relief from or remission for Tax (or its
       repayment).

       Treaty Lender means a Lender which, on the date a payment of interest
       falls due under this Agreement, fulfils the conditions imposed by any
       double taxation agreement to which France is a party for the payment to
       be made without a Tax Deduction.

       US person has the meaning given to it in Section 7701(a)(30) of the
       United States Internal Revenue Code of 1986.

12.2   Tax gross-up

(a)    Each Obligor must make all payments to be made by it under the Finance
       Documents without any Tax Deduction, unless a Tax Deduction is required
       by (or by the interpretation, administration, or application of) any law
       or regulation.

(b)    If:

       (i)    a Lender is not, or ceases to be a Qualifying Lender; or



                                       25






       (ii)   an Obligor or a Lender is aware that an Obligor must make a Tax
              Deduction (or that there is a change in the rate or the basis of a
              Tax Deduction),

       it must promptly notify the Facility Agent with a copy of such
       notification to the Company. The Facility Agent must then promptly notify
       the affected Parties.

(c)    Except as provided below, if a Tax Deduction is required by (or by the
       interpretation, administration, or application of) any law or regulation
       to be made by an Obligor or the Facility Agent, the amount of the payment
       due from the Obligor will be increased by an additional amount (the
       Gross-Up Payment) such that the total payment (inclusive of the Gross-Up
       Payment), after making the Tax Deduction, leaves a net amount equal to
       the payment which would have been due if no Tax Deduction had been
       required.

(d)    Except as provided below, an Obligor is not required to make an increased
       payment under paragraph (c) above to a Lender that is not, or has ceased
       to be, a Qualifying Lender in excess of the amount that the Obligor would
       have had to pay had the Lender been, or not ceased to be, a Qualifying
       Lender.

(e)    Paragraph (d) above will not apply if the Lender is not or has ceased to
       be a Qualifying Lender by reason of any change after the date of this
       Agreement in (or in the interpretation, administration, or application
       of) any law or regulation.

(f)    An Obligor is not required to make payment to a Lender under paragraph
       (c) above if the Obligor making the payment would not have been required
       to make the Tax Deduction if the Lender had complied with its obligations
       under paragraph (i) below.

(g)    If an Obligor is required to make a Tax Deduction, that Obligor must make
       the minimum Tax Deduction and must make any payment required in
       connection with that Tax Deduction within the time allowed by law. This
       provision shall not apply during a period of time that a Lender has
       ceased to be a Qualifying Lender and the Company has not received
       notification of such cessation. For the avoidance of doubt the provisions
       of this paragraph (g) shall not affect each Lender's obligations under
       paragraph (b) above.

(h)    Within a reasonable time of making either a Tax Deduction or a payment
       required in connection with a Tax Deduction, the Obligor making that Tax
       Deduction must deliver to the Facility Agent for the relevant Finance
       Party evidence satisfactory to that Finance Party (acting reasonably)
       that the Tax Deduction has been made or (as applicable) the appropriate
       payment has been paid to the relevant taxing authority.

(i)    Each Lender must co-operate with each Obligor by using its reasonable
       endeavours to complete any procedural formalities (including but not
       limited to providing any completed and executed applicable tax forms of a
       Governmental Authority) necessary for that Obligor to obtain
       authorisation to make that payment without a Tax Deduction or with a
       reduced Tax Deduction.

(j)    Except as provided below, a Lender must reimburse the Company within 30
       Business Days of receipt of a certificate described below in respect of
       any loss or liability which the Company (in its absolute discretion,
       acting reasonably) determines will be or has been suffered (directly or
       indirectly) by the Company due to that Lender's failure to comply with
       its obligations under Clause 12.2 (b) to promptly notify the Facility
       Agent (with a copy of such notification to the Company) that it had
       ceased to be a Qualifying Lender which has directly resulted in the
       failure by the Company to make a Tax Deduction or a payment in connection
       with a Tax Deduction required to be made to the relevant taxing
       authority. Such loss or liability shall include any penalties or interest
       payable to such taxing authority. No amount shall be payable


                                       26






       under this paragraph (j) by a Lender until receipt by that Lender of a
       certificate setting forth in reasonable detail (including the calculation
       of such amount) the amount of the claim. Any such certificate shall be
       provided by the Company to the Facility Agent and the relevant Lender. If
       the Lender does not receive notification of the said loss or liability
       within 90 days of the Company becoming aware of such loss or liability
       being incurred, the Lender is not obliged to make any payment in respect
       of that loss or liability. The Company must take all reasonable steps to
       mitigate any circumstances that would result in any payment being
       required to be made by a Lender under this paragraph (j); provided
       however that the Company is not obliged to take any such step if, in the
       opinion of the Company (acting reasonably), to do so might reasonably be
       expected to be prejudicial to it, unless it is only prejudicial in an
       immaterial respect.

12.3   Tax indemnity

(a)    Without prejudice to Clause 12.2 (Tax gross-up) and except as provided
       below, the Company must indemnify a Finance Party within 30 Business Days
       of receipt of a certificate described in Clause 8.6 (d) (Involuntary
       prepayment and cancellation) against any loss or liability which that
       Finance Party (in its absolute discretion, acting reasonably) determines
       will be or has been suffered (directly or indirectly) by that Finance
       Party for or on account of Tax (taking into account any Tax Credits) in
       relation to a payment received or receivable (or any payment deemed to be
       received or receivable) under a Finance Document.

(b)    Paragraph (a) above does not apply to any Excluded Taxes.

(c)    A Finance Party making, or intending to make, a claim under paragraph (a)
       above must promptly notify the Company of the event which will give, or
       has given, rise to the claim.

12.4   Tax Credit

       If an Obligor makes a Tax Payment and the relevant Finance Party (in its
       absolute discretion, acting reasonably) determines that:

       (a)    a Tax Credit is attributable to that Tax Payment or the Tax giving
              rise thereto (not accounted for in the original calculation of a
              claim under Clause 12.3(a)); and

       (b)    it has used or otherwise enjoyed the benefit of that Tax Credit,

       the Finance Party must pay an amount to the Obligor which that Finance
       Party determines (in its absolute discretion, acting reasonably) will
       leave it (after that payment) in the same after-tax position as it would
       have been if the Tax Payment had not been required to be made by the
       Obligor.

12.5   Stamp taxes

       The Company must pay and indemnify each Finance Party against any stamp
       duty, stamp duty land tax, registration or other similar Tax payable in
       connection with the entry into, performance or enforcement of any Finance
       Document, except for any such Tax payable in connection with the entry
       into a Transfer Certificate.

12.6   Value added taxes

(a)    Subject to paragraph (c) below, any amount payable under a Finance
       Document by an Obligor is exclusive of any value added tax or any other
       Tax of a similar nature which might be chargeable in connection with that
       amount. If any such Tax is chargeable, the Obligor must



                                       27






       pay to the Finance Party (in addition to and at the same time as paying
       that amount) an amount equal to the amount of that Tax.

(b)    Where a Finance Document requires any Party to reimburse a Finance Party
       for any costs or expenses, that Party must also at the same time pay and
       indemnify the Finance Party against all value added tax or any other Tax
       of a similar nature incurred by the Finance Party in respect of those
       costs or expenses but only to the extent that the Finance Party (acting
       reasonably) determines that it is not entitled to credit or repayment
       from the relevant tax authority in respect of the Tax.

(c)    Any amount payable under the Fee Letters referred to in Clauses 24.2
       (Arrangement fee) and 24.3 (Participation fee) is inclusive of any value
       added tax or other Tax of a similar nature which might be chargeable in
       connection with that amount.

12.7   U.S. Tax forms

(a)    Except as provided below, each Lender that is not a U.S. person must
       supply to the Facility Agent and the Guarantor the U.S. Internal Revenue
       Service forms that are necessary to enable the Guarantor to make payments
       to that Lender under the Finance Documents without any deduction or
       withholding in respect of any Tax in the United States of America and
       certifying that such Lender is entitled to a complete exemption from U.S.
       withholding tax with respect to payments hereunder.

(b)    A Lender must comply with its obligations under paragraph (a) above (i)
       on or before the date it becomes a Party, and (ii) as soon as practicable
       after a change of circumstances makes any identifying information of a
       Lender provided on a form supplied to the Facility Agent or Guarantor
       incorrect or such form expires or (without prejudice to paragraph (c)
       below) a Governmental Authority publishes a successor form, but in any
       event prior to the date that the first payment is due to that Lender
       under the Finance Documents after the date that the change of
       circumstances occurs or the form expires

(c)    A Lender is not obliged to supply any form under paragraph (a) above if
       it is unable to do so by reason of any change after the date of this
       Agreement in (or in the interpretation, administration or application of)
       any law or regulation.

(d)    The Guarantor is not obliged to pay any Tax Payment to a Lender to the
       extent that the Tax Payment would not have been payable if that Lender
       had complied with its obligations under this Subclause.

12.8   Confirmation by Lenders

       As at the date of this Agreement, each Lender confirms in respect of
       itself that it is a Qualifying Lender and therefore no Tax Deductions are
       required to be made by the Obligors in respect of payments to be made by
       the Obligors under the Finance Documents.

13.    INCREASED COSTS

13.1   Increased Costs

       Except as provided below in this Clause, the Company must pay to a
       Finance Party the amount of any Increased Cost incurred by that Finance
       Party or any of its Affiliates as a result of:

       (a)    (i)    the introduction of any law or regulation after the date
                     of this Agreement; or



                                       28






              (ii)   any change in, or any change in the interpretation,
                     administration or application of, any law or regulation,
                     such change occurring after the date of this Agreement; or

       (b)    compliance with any law or regulation made after the date of this
              Agreement.

13.2   Exceptions

       The Company need not make any payment for an Increased Cost to the extent
       that the Increased Cost is:

       (a)    compensated for under another Clause or would have been but for an
              exception to that Clause; or

       (b)    attributable to a Finance Party or its Affiliate either
              (i) deliberately failing to comply with any law or regulation
              (or any interpretation, administration or application thereof)
              or (ii) causing such Increased Cost to be incurred by reason of
              its failure to comply with its obligations under this Agreement.

13.3   Claims

(a)    A Finance Party intending to make a claim for an Increased Cost must
       notify the Facility Agent of the circumstances giving rise to and the
       amount of the claim, following which the Facility Agent will promptly
       notify the Company.

(b)    If the Company does not receive notification of the Increased Cost within
       90 days of the relevant Finance Party becoming aware of such Increased
       Cost being incurred, the Company is not obliged to make any payment in
       respect of that Increased Cost.

(c)    A Finance Party making a claim under this Clause must comply with
       paragraph (d) of Clause 8.6 (Involuntary prepayment and cancellation).

14.    MITIGATION

14.1   Mitigation

(a)    Each Finance Party must, in consultation with the Company, take all
       reasonable steps to mitigate any circumstances which arise and which
       result or would result in:

       (i)    any Tax Payment or Increased Cost being payable to that Finance
              Party;

       (ii)   that Finance Party being able to exercise any right of prepayment
              and/or cancellation under this Agreement by reason of any
              illegality; or

       (iii)  that Finance Party incurring any amount under paragraph 3 of
              Schedule 4 (Calculation of the Mandatory Cost),

       including transferring its rights and obligations under the Finance
       Documents to an Affiliate or changing its Facility Office.

(b)

       (i)    In this Clause 14.1 (b):



                                       29






              Increased Payment means any additional payment which an Obligor is
              obliged to make which is referred to in any of sub-paragraphs (i)
              to (iii) of paragraph (a) above;

              Reasonable Period means, in relation to an Increased Payment, a
              period of time which is reasonable in order to enable a Finance
              Party to give effect to any Relevant Step which has been agreed in
              accordance with paragraph (c)(i) below, such period beginning on
              the date upon which such Relevant Step was agreed; and

              Relevant Step means any step agreed to by the Company in
              accordance with paragraph (c) (i) below for the purposes of
              mitigating any Increased Payment;

       (ii)   Subject to sub-paragraph (b) (iii) below, paragraph (a) above does
              not in any way limit the obligations of any Obligor under the
              Finance Documents.

       (iii)  An Obligor is not liable to make any Increased Payment for the
              benefit of any Finance Party which has failed to comply with its
              obligations under paragraph (a) above within a Reasonable Period.

(c)

       (i)    The Company must indemnify each Finance Party for all costs and
              expenses reasonably incurred by that Finance Party as a result of
              any step taken by it under this Subclause which has been agreed to
              in advance by the Company.

       (ii)   The relevant Finance Party will, within 10 Business Days of such
              Finance Party becoming aware of the circumstances giving rise to
              the obligation in paragraph (a) above, provide the Company with an
              estimate of the costs and expenses that are likely to be incurred
              by taking the step suggested by it in accordance with
              sub-paragraph (i) above.

(d)    A Finance Party is not obliged to take any step under this Subclause if,
       in the opinion of that Finance Party (acting reasonably), to do so might
       reasonably be expected to be prejudicial to it, unless it is only
       prejudicial in an immaterial respect.

14.2   Conduct of business by a Finance Party

       No term of this Agreement will:

       (a)    interfere with the right of any Finance Party to arrange its
              affairs (Tax or otherwise) in whatever manner it thinks fit;

       (b)    oblige any Finance Party to investigate or claim any credit,
              relief, remission or repayment available to it in respect of Tax
              or the extent, order and manner of any claim; or

       (c)    oblige any Finance Party to disclose any information relating to
              its affairs (Tax or otherwise) or any computation in respect of
              Tax.



                                       30






15.    PAYMENTS

15.1   Place

       Unless a Finance Document specifies that payments under it are to be made
       in another manner, all payments by a Party (other than the Facility
       Agent) under the Finance Documents must be made to the Facility Agent to
       its account at such office or bank:

       (a)    in the principal financial centre of the country of the relevant
              currency; or

       (b)    in the case of euro, in the principal financial centre of a
              Participating Member State or London,

       as it may notify to that Party for this purpose by not less than five
       Business Days' prior notice.

15.2   Funds

       Payments under the Finance Documents to the Facility Agent must be made
       for value on the due date at such times and in such funds as the Facility
       Agent may specify to the Party concerned as being customary at the time
       for the settlement of transactions in the relevant currency in the place
       for payment.

15.3   Distribution

(a)    Each payment received by the Facility Agent under the Finance Documents
       for another Party must, except as provided below, be made available by
       the Facility Agent to that Party by payment (as soon as practicable after
       receipt) to its account with such office or bank:

       (i)    in the principal financial centre of the country of the relevant
              currency; or

       (ii)   in the case of euro, in the principal financial centre of a
              Participating Member State or London,

       as it may notify to the Facility Agent for this purpose by not less than
       five Business Days' prior notice.

(b)    The Facility Agent may apply any amount received by it for an Obligor in
       or towards payment (as soon as practicable after receipt) of any amount
       due from that Obligor under the Finance Documents or in or towards the
       purchase of any amount of any currency to be so applied.

(c)    Where a sum is paid to the Facility Agent under this Agreement for
       another Party, the Facility Agent is not obliged to pay that sum to that
       Party until it has established that it has actually received it. However,
       the Facility Agent may assume that the sum has been paid to it, and, in
       reliance on that assumption, make available to that Party a corresponding
       amount. If it transpires that the sum has not been received by the
       Facility Agent, that Party must immediately on demand by the Facility
       Agent refund any corresponding amount made available to it together with
       interest on that amount from the date of payment to the date of receipt
       by the Facility Agent at a rate calculated by the Facility Agent to
       reflect its cost of funds.



                                       31






15.4   Currency

(a)    Unless a Finance Document specifies that payments under it are to be made
       in a different manner, the currency of each amount payable under the
       Finance Documents is determined under this Clause.

(b)    Interest is payable in the currency in which the relevant amount in
       respect of which it is payable is denominated.

(c)    A repayment or prepayment of any principal amount is payable in the
       currency in which that principal amount is denominated on its due date.

(d)    Amounts payable in respect of Taxes, fees, costs and expenses are payable
       in the currency in which they are incurred.

(e)    Each other amount payable under the Finance Documents is payable in
       euros.

15.5   No set-off or counterclaim

       All payments made by an Obligor under the Finance Documents must be made
       without set-off or counterclaim.

15.6   Business Days

(a)    If a payment under the Finance Documents is due on a day which is not a
       Business Day, the due date for that payment will instead be the next
       Business Day in the same calendar month (if there is one) or the
       preceding Business Day (if there is not).

(b)    During any extension of the due date for payment of any principal under
       this Agreement interest is payable on that principal at the rate payable
       on the original due date.

15.7   Partial payments

(a)    If any Administrative Party receives a payment insufficient to discharge
       all the amounts then due and payable by the Obligors under the Finance
       Documents, the Administrative Party must apply that payment towards the
       obligations of the Obligors under the Finance Documents in the following
       order:

       (i)    first, in or towards payment pro rata of any unpaid fees, costs
              and expenses of the Administrative Parties under the Finance
              Documents;

       (ii)   secondly, in or towards payment pro rata of any accrued interest
              or fee due but unpaid under this Agreement;

       (iii)  thirdly, in or towards payment pro rata of any principal amount
              due but unpaid under this Agreement; and

       (iv)   fourthly, in or towards payment pro rata of any other sum due but
              unpaid under the Finance Documents.

(b)    The Facility Agent must, if so directed by the Majority Lenders, vary the
       order set out in subparagraphs (a)(ii) to (iv) above.

(c)    This Subclause will override any appropriation made by an Obligor.



                                       32






15.8   Timing of payments

       If a Finance Document does not provide for when a particular payment is
       due, that payment will be due within ten days of demand by the relevant
       Finance Party.

16.    GUARANTEE

16.1   Guarantee

       The Guarantor irrevocably and unconditionally:

       (a)    guarantees to each Finance Party punctual performance by the
              Company of all its obligations under the Finance Documents;

       (b)    undertakes with each Finance Party that, whenever the Company does
              not pay any amount when due under any Finance Document, the
              Guarantor must immediately on demand by the Facility Agent pay
              that amount as if it were the principal obligor; and

       (c)    indemnifies each Finance Party immediately on demand against any
              loss or liability suffered by that Finance Party if any payment
              obligation guaranteed by it is or becomes unenforceable, invalid
              or illegal; the amount of the loss or liability under this
              indemnity will be equal to the amount the Finance Party would
              otherwise have been entitled to recover.

16.2   Continuing guarantee

       This guarantee is a continuing guarantee and will extend to the ultimate
       balance of all sums payable by the Company under the Finance Documents,
       regardless of any intermediate payment or discharge in whole or in part.

16.3   Reinstatement

(a)    If any discharge (whether in respect of the obligations of an Obligor or
       any security for those obligations or otherwise) or arrangement is made
       in whole or in part on the faith of any payment, security or other
       disposition which is avoided or must be restored on insolvency,
       liquidation or otherwise without limitation, the liability of the
       Guarantor under this Clause will continue as if the discharge or
       arrangement had not occurred.

(b)    Each Finance Party may concede or compromise any claim that any payment,
       security or other disposition is liable to avoidance or restoration.

16.4   Waiver of defences

       The obligations of the Guarantor under this Clause will not be affected
       by any act, omission or thing which, but for this provision, would
       reduce, release or prejudice any of its obligations under this Clause
       (whether or not known to it or any Finance Party). This includes:

       (a)    any time or waiver granted to, or composition with, any person;

       (b)    any release of any person under the terms of any composition or
              arrangement;

       (c)    the taking, variation, compromise, exchange, renewal or release
              of, or refusal or neglect to perfect, take up or enforce, any
              rights against, or security over assets of, any person;



                                       33






       (d)    any non-presentation or non-observance of any formality or other
              requirement in respect of any instrument or any failure to realise
              the full value of any security;

       (e)    any incapacity or lack of power, authority or legal personality of
              or dissolution or change in the members or status of any person;

       (f)    any amendment (however fundamental) of a Finance Document or any
              other document or security; or

       (g)    any unenforceability, illegality, invalidity or non-provability of
              any obligation of any person under any Finance Document or any
              other document or security.

16.5   Immediate recourse

       The Guarantor waives any right it may have of first requiring any Finance
       Party (or any trustee or agent on its behalf) to proceed against or
       enforce any other right or security or claim payment from any person
       before claiming from the Guarantor under this Clause.

16.6   Appropriations

       Until all amounts which may be or become payable by the Obligors under
       the Finance Documents have been irrevocably paid in full, each Finance
       Party (or any trustee or agent on its behalf) may, without affecting the
       liability of the Guarantor under this Clause, and if it believes that
       such action is advisable due to the likelihood of the events set out in
       paragraph (f) or (g) of Clause 21 (Default) occurring in respect of an
       Obligor:

       (a)    refrain from applying or enforcing any other moneys, security or
              rights held or received by that Finance Party (or any trustee or
              agent on its behalf) in respect of those amounts; or

       (b)    apply and enforce them in such manner and order as it sees fit
              (whether against those amounts or otherwise); and

       (c)    hold in an interest-bearing suspense account any moneys received
              from the Guarantor or on account of the Guarantor's liability
              under this Clause.

16.7   Non-competition

       Unless:

       (a)    all amounts which may be or become payable by the Obligors under
              the Finance Documents have been irrevocably paid in full; or

       (b)    the Facility Agent otherwise directs,

       the Guarantor will not, after a claim has been made or by virtue of any
       payment or performance by it under this Clause:

       (i)    be subrogated to any rights, security or moneys held, received or
              receivable by any Finance Party (or any trustee or agent on its
              behalf);

       (ii)   be entitled to any right of contribution or indemnity in respect
              of any payment made or moneys received on account of the
              Guarantor's liability under this Clause;



                                       34






       (iii)  claim, rank, prove or vote as a creditor of the Company or its
              estate in competition with any Finance Party (or any trustee or
              agent on its behalf); or

       (iv)   receive, claim or have the benefit of any payment, distribution or
              security from or on account of the Company, or exercise any right
              of set-off as against the Company.

       The Guarantor must hold in trust for and immediately pay or transfer to
       the Facility Agent for the Finance Parties any payment or distribution or
       benefit of security received by it contrary to this Clause or in
       accordance with any directions given by the Facility Agent under this
       Clause.

16.8   U.S. Guarantee Provisions

(a)    In this Subclause fraudulent transfer law means any applicable United
       States bankruptcy and State fraudulent transfer and conveyance statute
       and any related case law; and terms used in this Subclause are to be
       construed in accordance with the fraudulent transfer laws.

(b)    The Guarantor acknowledges that:

       (i)    it will receive valuable direct or indirect benefits as a result
              of the transactions financed by the Finance Documents;

       (ii)   those benefits will constitute reasonably equivalent value and
              fair consideration for the purpose of any fraudulent transfer law;
              and

       (iii)  each Finance Party has acted in good faith in connection with the
              guarantee given by the Guarantor and the transactions contemplated
              by the Finance Documents.

(c)    Each Finance Party agrees that the Guarantor's liability under this
       Clause is limited so that no obligation of, or transfer by, the Guarantor
       under this Clause is subject to avoidance and turnover under any
       fraudulent transfer law.

(d)    The Guarantor represents and warrants to each Finance Party that:

       (i)    the aggregate amount of its debts (including its obligations under
              the Finance Documents) is less than the aggregate value (being the
              lesser of fair valuation and present fair saleable value) of its
              assets;

       (ii)   its capital is not unreasonably small to carry on its business as
              it is being conducted;

       (iii)  it has not incurred and does not intend to incur debts beyond its
              ability to pay as they mature; and

       (iv)   it has not made a transfer or incurred any obligation under any
              Finance Document with the intent to hinder, delay or defraud any
              of its present or future creditors.

(e)    Each representation and warranty in this Subclause:

       (i)    is made by the Guarantor on the date of this Agreement;

       (ii)   is deemed to be repeated by the Guarantor on the date of each
              Request and the first day of each Term; and

       (iii)  is, when repeated, applied to the circumstances existing at the
              time of repetition.



                                       35






16.9   Additional security

       This guarantee is in addition to and is not in any way prejudiced by any
       other security now or subsequently held by any Finance Party.

17.    REPRESENTATIONS

17.1   Representations

       The representations set out in this Clause are made by each Obligor or
       (if it so states) either one of them to each Finance Party.

17.2   Jurisdiction/governing law

       Its:

       (a)    irrevocable submission under this Agreement to the jurisdiction of
              the courts of England and New York;

       (b)    agreement that this Agreement is governed by English law; and

       (c)    agreement not to claim any immunity to which it or its assets may
              be entitled,

       are legal, valid and binding under the laws of its jurisdiction of
       incorporation.

17.3   Corporate Existence

       Each of the Guarantor and its Material Subsidiaries:

       (a)    is a corporation duly organised and validly existing under the
              laws of the jurisdiction of its incorporation (or in the case of a
              Material Subsidiary that is not a corporation, is a partnership or
              other entity duly organised and validly existing under the laws of
              its jurisdiction of organisation);

       (b)    has all requisite legal power, and has all material governmental
              licences, authorisations, consents and approvals, necessary to own
              its assets and carry on its business as now being or as proposed
              to be conducted; and

       (c)    is qualified to do business in all jurisdictions in which the
              nature of the business conducted by it makes such qualification
              necessary and where failure so to qualify would have a Material
              Adverse Effect. The Company is a Wholly Owned Subsidiary of the
              Guarantor.

       17.4   Financial Condition

(a)    The audited consolidated balance sheet of the Guarantor and its
       Consolidated Subsidiaries as at 31st December, 2003 and the related
       consolidated statements of earnings, cash flow and common shareholders'
       equity of the Guarantor and its Consolidated Subsidiaries for the fiscal
       year ended on said date, with the opinion thereon of Deloitte & Touche
       LLP, and the unaudited consolidated balance sheet of the Guarantor and
       its Consolidated Subsidiaries as at 30th June, 2004 and the related
       consolidated statements of earnings and cash flow of the Guarantor and
       its Consolidated Subsidiaries for the three-month period ended on said
       date, in each case heretofore furnished to each of the Lenders, are
       complete and correct and fairly present the consolidated financial
       condition of the Guarantor and its Consolidated



                                       36






       Subsidiaries as at said dates and the consolidated results of their
       operations for the fiscal year, and three-month period ended on said
       dates (subject, in the case of such financial statements as at 30th
       June, 2004, to normal year-end audit adjustments), all in accordance
       with generally accepted accounting principles and practices applied
       on a consistent basis. Neither the Guarantor nor any of its Material
       Subsidiaries had, on said dates, any material contingent liabilities,
       liabilities for taxes, unusual forward or long-term commitments or
       unrealised or anticipated losses from any unfavourable commitments,
       except as referred to or reflected or provided for in said balance
       sheets as at said dates. Since 31st December, 2003, there has been
       no event or condition that could result in a Material Adverse Effect.

(b)    The Guarantor has prepared and delivered to the Facility Agent selected,
       unaudited financial data with respect to the financial condition and
       results of operation of the Company for the half-year ended 30th June,
       2004. Such financial data was prepared in accordance with the Guarantor's
       internal management reporting and consolidation processes but does not
       constitute a complete financial statement of the Company.

17.5   Litigation

       As at the date of this Agreement, the actions, suits, legal or arbitral
       proceedings, or proceedings by or before any Governmental Authority, now
       pending or (to the knowledge of the Guarantor) threatened against the
       Guarantor and/or any of its Material Subsidiaries will not, in the
       opinion of the General Counsel of the Guarantor, result in imposition of
       liability or assessment against (including seizure of) property that
       would result in a Material Adverse Effect.

17.6   No Breach

       None of the execution and delivery of this Agreement, the consummation of
       the transactions herein contemplated and compliance with the terms and
       provisions hereof will conflict with or result in a breach of, or require
       any consent under, the charter or by-laws of the Guarantor or the
       Company, or any applicable law or regulation, or any order, writ,
       injunction or decree of any Governmental Authority, or any agreement or
       instrument to which the Guarantor and/or any of its Material Subsidiaries
       is a party or by which any of them is bound or to which any of them is
       subject, or constitute a default under any such agreement or instrument.

17.7   Corporate Action of the Company

       The Guarantor and the Company have all necessary corporate power and
       authority to execute, deliver and perform its obligations under this
       Agreement; the execution, delivery and performance by the Guarantor and
       the Company of this Agreement have been duly authorised by all necessary
       corporate action on its part; and this Agreement has been duly and
       validly executed and delivered by the Guarantor and the Company and
       constitutes the legal, valid and binding obligation of the Guarantor and
       the Company, enforceable in accordance with its terms, except as
       enforcement may be limited by equitable principles or by bankruptcy,
       insolvency, reorganisation, moratorium or similar laws relating to or
       limiting creditors' rights generally.

17.8   Approvals

       No authorisations, approvals or consents of, and no filings or
       registrations with, any Governmental Authority are necessary for the
       execution, delivery or performance by the Guarantor or the Company of
       this Agreement or for the validity or enforceability thereof.



                                       37






17.9   ERISA

       The Guarantor and the ERISA Affiliates have fulfilled their respective
       obligations under the minimum funding standards of ERISA and the Code
       with respect to each Plan and are in compliance in all material respects
       with the presently applicable provisions of ERISA and the Code, and have
       not incurred any liability to the PBGC or any Plan or Multiemployer Plan
       (other than to make contributions in the ordinary course of business).

17.10  Taxes

       United States Federal income tax returns of the Guarantor have been
       examined and closed through the fiscal year of the Guarantor and its
       Subsidiaries ended 31st December, 1996. The Guarantor and its
       Subsidiaries have filed all United States Federal and French income tax
       returns and all other material tax returns which are required to be filed
       by them and have paid all taxes due pursuant to such returns or pursuant
       to any assessment received by the Guarantor or any of its Subsidiaries
       except for those being contested in good faith and for which adequate
       reserves have been established in accordance with GAAP. The charges,
       accruals and reserves on the books of the Guarantor and its Material
       Subsidiaries in respect of taxes and other governmental charges not yet
       due and payable are, in the opinion of the Guarantor, adequate. If the
       Guarantor is a member of an affiliated group of corporations filing
       consolidated returns for United States Federal income tax purposes, it is
       the "common Guarantor" of such group.

17.11  Investment Company Act

       Neither the Guarantor nor any of its Subsidiaries is an "investment
       company", or a company "controlled" by an "investment company", within
       the meaning of the Investment Company Act of 1940, as amended.

17.12  Public Utility Holding Company Act

       Neither the Guarantor nor any of its Subsidiaries is a "holding company",
       or an "affiliate" of a "holding company" or a "subsidiary company" of a
       "holding company", within the meaning of the Public Utility Holding
       Company Act of 1935, as amended.

17.13  Credit Agreements

       Schedule 8 (Existing Facilities) is a complete and correct list, as of
       the date of this Agreement, of each credit agreement, loan agreement,
       indenture, purchase agreement, guarantee or other arrangement providing
       for or otherwise relating to any Indebtedness or any extension of credit
       (or commitment for any extension of credit) to, or guarantee by, the
       Guarantor or any of its Material Subsidiaries, in each case to the extent
       the aggregate principal or face amount of any such credit agreement, loan
       agreement, indenture, purchase agreement, guarantee or other arrangement
       equals or exceeds (or may equal or exceed) US$150,000,000 and the
       aggregate principal or face amount outstanding or which may become
       outstanding under each such arrangement is correctly described in
       Schedule 8 (Existing Facilities).

17.14  Hazardous Materials and Environmental Matters

(a)    Licences and Permits, Etc: The Guarantor and each of its Material
       Subsidiaries have obtained all permits, licenses and other authorisations
       required under all Environmental Laws, except to the extent failure to
       have any such permit, licence or authorisation could not in the aggregate
       reduce by more than 25 per cent. the annual tonnage capacity of the paper



                                       38






       processing operations of the Guarantor and its Consolidated Subsidiaries.
       The Guarantor and each of its Material Subsidiaries are in compliance
       with the terms and conditions of all such permits, licenses and
       authorisations, and are also in compliance with all other limitations,
       restrictions, conditions, standards, prohibitions, requirements,
       obligations, schedules and timetables contained in any applicable
       Environmental Law or in any regulation, code, plan, order, decree,
       judgment, injunction, notice or demand letter issued, entered,
       promulgated or approved thereunder, except to the extent failure to
       comply could not in the aggregate reduce by more than 25 per cent. the
       annual tonnage capacity of the paper processing operations of the
       Guarantor and its Consolidated Subsidiaries.

(b)    Compliance Review: In the ordinary course of its business, the Guarantor
       conducts an ongoing review of the effect of Environmental Laws on the
       business, operations and properties of the Guarantor and its
       Subsidiaries, in the course of which it identifies and evaluates
       associated liabilities and costs (including any capital or operating
       expenditures required for clean-up or closure of properties presently or
       previously owned, any capital or operating expenditures required to
       achieve or maintain compliance with environmental protection standards
       imposed by law or as a condition of any licence, permit or contract, any
       related constraints on operating activities, including any periodic or
       permanent shutdown of any facility or reduction in the level of or change
       in the nature of operations conducted thereat, any costs or liabilities
       in connection with off-site disposal of wastes or hazardous substances,
       and any actual or potential liabilities to third parties, including
       employees, and any related costs and expenses). On the basis of this
       review, the Guarantor has reasonably concluded that such associated
       liabilities and costs, including the costs of compliance with
       Environmental Laws, are unlikely to have a Material Adverse Effect.

17.15  Full Disclosure

(a)    The Guarantor has heretofore furnished to each of the Lenders a true copy
       of (i) the Guarantor's annual report to shareholders for 2003 setting
       forth consolidated audited financial statements for the year ended 31st
       December, 2003, (ii) the Guarantor's quarterly reports on Form 10-Q for
       the quarter-years ended 31st March and 30th June, 2004 and (iii) the
       Guarantor's report on Form 10-K for the year ended 31st December, 2003,
       in each case as filed with the Securities and Exchange Commission. Except
       as disclosed in writing to the Lenders, the Information Package and the
       annual, quarterly and other periodic reports most recently delivered to
       the Lenders pursuant to this Clause or Clause 17.4 (Financial Condition)
       do not contain an untrue statement of a material fact or omit to state a
       material fact necessary to make the statements therein not misleading, it
       being understood and agreed that for purposes of this Clause, such
       factual information and data shall not include projections and pro forma
       financial information.

(b)    The projections and pro forma financial information contained in the
       information and data referred to in paragraph (a) above were based on
       good faith estimates and assumptions believed by such Persons to be
       reasonable at the time made, it being recognised by the Lenders that such
       projections as to future events are not to be viewed as facts and that
       actual results during the period or periods covered by any such
       projections may differ from the projected results.

17.16  Federal Margin Regulations

(a)    The Company is not principally, or as one of its important activities, in
       the business of extending credit for the purpose, whether immediate,
       incidental or ultimate, of buying or carrying Margin Stock.



                                       39






(b)    No part of the proceeds of any Loan shall be used for "purchasing" or
       "carrying" any "margin stock" within the respective meanings of each of
       the quoted terms under Regulation U as now and from time to time
       hereafter in effect, or for any other purpose, in any case in a manner
       which violates the provisions of Regulations U and X. If the Company is
       requested by any Lender or the Facility Agent, it shall furnish to the
       Facility Agent and each Lender a statement to the foregoing effect in
       conformity with the requirements of Form FR U-1 referred to in said
       Regulation U.

17.17  Solvency

       Upon each date on which this representation is either made or deemed to
       be repeated, after giving effect to the Transactions completed prior
       thereto or on that date, each of the Guarantor and the Company on a
       stand-alone basis is Solvent as at that date.

17.18  Adverse change etc

       Nothing has occurred since 30th June, 2004 (and neither the Lenders nor
       the Facility Agent shall have become aware of any facts or conditions not
       previously known) which the Majority Lenders or the Facility Agent could
       reasonably expect to have a material adverse change on the consolidated
       financial condition, operations, business or prospects taken as a whole
       of the Guarantor and its Consolidated Subsidiaries.

17.19  Indebtedness

       Upon each date on which this representation is either made or deemed to
       be repeated after giving effect to the Transactions completed prior
       thereto or on that date, there is no other Indebtedness of the Company
       other than the Indebtedness set out in Schedule 10 (Indebtedness of the
       Company) as at that date.

17.20  United States laws

(a)    In this Subclause:

       Anti-Terrorism Law means each of:

       (i)    Executive Order No. 13224 of September 23, 2001 - Blocking
              Property and Prohibiting Transactions With Persons Who Commit,
              Threaten To Commit, or Support Terrorism (the Executive Order);

       (ii)   the Uniting and Strengthening America by Providing Appropriate
              Tools Required to Intercept and Obstruct Terrorism Act of 2001,
              Public Law 107-56 (commonly known as the USA Patriot Act);

       (iii)  the Money Laundering Control Act of 1986, Public Law 99-570; and

       (iv)   any similar law enacted in the United States of America subsequent
              to the date of this Agreement.

       public utility has the meaning given to it in the United States Federal
       Power Act of 1920.

       Restricted Party means any person listed:

       (i)    in the Annex to the Executive Order;



                                       40






       (ii)   on the "Specially Designated Nationals and Blocked Persons" list
              maintained by the Office of Foreign Assets Control of the United
              States Department of the Treasury; or

       (iii)  in any successor list to either of the foregoing.

(b)    The Guarantor is not:

       (i)    a public utility or subject to regulation under the United States
              Federal Power Act of 1920; or

       (ii)   subject to regulation under any United States Federal or State law
              or regulation that limits its ability to incur or guarantee
              indebtedness.

(c)    To its knowledge, neither the Guarantor nor any of its Affiliates:

       (i)    is, or is controlled by, a Restricted Party; or

       (ii)   is in breach of or is the subject of any action or investigation
              under any Anti-Terrorism Law.

(d)    It and each of its Affiliates have taken reasonable measures to ensure
       compliance with the Anti-Terrorism Laws.

17.21  Times for making representations

(a)    The representations set out in this Clause are made by each Obligor on
       the date of this Agreement.

(b)    Unless a representation is expressed to be given at a specific date, each
       representation is deemed to be repeated by each Obligor on the date of
       each Request and the first day of each Term.

(c)    When a representation is repeated, it is applied to the circumstances
       existing at the time of repetition.

18.    INFORMATION COVENANTS

18.1   Financial Statements

       The Guarantor shall deliver to the Facility Agent on behalf of the
       Lenders (and upon receipt thereof the Facility Agent shall promptly
       deliver to the Lenders):

       (a)    as soon as available and in any event within 55 days after the end
              of each of the first three quarters of each financial year of the
              Guarantor, consolidated statements of earnings and cash flow of
              the Guarantor and its Consolidated Subsidiaries for such period
              and for the period from the beginning of the respective financial
              year to the end of such period, and the related consolidated
              balance sheet as at the end of such period, setting forth in each
              case in comparative form the corresponding consolidated figures
              for the corresponding period in the preceding financial year,
              accompanied by a Compliance Certificate signed by a senior
              financial officer of the Guarantor;

       (b)    as soon as available and in any event within 100 days after the
              end of each financial year of the Guarantor, consolidated
              statements of earnings, cash flow and common shareholders' equity
              of the Guarantor and its Consolidated Subsidiaries for such year




                                       41






              and the related consolidated balance sheet as at the end of such
              year, setting forth in each case in comparative form the
              corresponding consolidated figures for the preceding financial
              year, and accompanied by an unqualified opinion thereon of
              Deloitte & Touche LLP or any other independent certified public
              accountants of recognized national standing, which opinion shall
              state that said consolidated financial statements fairly present
              the consolidated financial condition and results of operations of
              the Guarantor and its Consolidated Subsidiaries as at the end of,
              and for, such financial year;

       (c)    promptly upon their becoming available, copies of all regular
              periodic reports which the Guarantor shall have filed with the
              Securities and Exchange Commission (or any Governmental Authority
              substituted therefor) or any national securities exchange;

18.2   Form of financial statements

(a)    Except as otherwise expressly provided in this Agreement, all accounting
       terms used herein shall be interpreted, and all financial statements and
       certificates and reports as to financial matters required to be delivered
       to the Lenders hereunder shall (unless otherwise disclosed to the Lenders
       at the time of delivery thereof in the manner described in paragraph (c)
       below) be prepared in accordance with GAAP, applied on a basis consistent
       with that used in the preparation of the latest financial statements
       supplied under this Agreement (which, until the first financial
       statements are supplied under Clause 18.1 (Financial Statements) shall
       mean the Original Financial Statements).

(b)    All calculations made for the purpose of determining compliance with this
       Agreement shall (except as otherwise expressly provided herein) be made
       by application of GAAP applied on a basis consistent with that used in
       the preparation of the latest annual or quarterly financial statements
       supplied under Clause 18.1 (Financial Statements) unless:

       (i)    the Guarantor shall have objected to determining such compliance
              on such basis at the time of delivery of such financial
              statements; or

       (ii)   the Majority Lenders shall so object in writing within 30 days of
              delivery of such financial statements,

       in either of which events such calculations shall be made on a basis
       consistent with those used in the preparation of the latest financial
       statements as to which such objection shall not have been made (which, if
       such objection is made in respect of the first financial statements
       delivered under Clause 18.1 (Financial Statements), shall mean the
       Original Financial Statements).

(c)    The Guarantor shall deliver to the Facility Agent at the same time as the
       delivery of any annual or quarterly financial statement under Clause 18.1
       (Financial Statements) a description in reasonable detail of any material
       variation between the application of accounting principles employed in
       the preparation of such financial statement and the application of
       accounting principles employed in the preparation of the immediately
       preceding annual or quarterly financial statements as to which no
       objection has been made in accordance with the last sentence of paragraph
       (b) above and reasonable estimates of the difference between such
       financial statements arising as a consequence thereof.

18.3   Information - miscellaneous

       The Guarantor shall deliver to the Facility Agent on behalf of the
       Lenders (and upon receipt thereof the Facility Agent shall promptly
       deliver to the Lenders):



                                       42






       (a)    promptly upon the mailing thereof to the shareholders of the
              Guarantor generally, copies of all financial statements, reports
              and proxy statements so mailed;

       (b)    promptly after the Guarantor or the Company knows or has reason to
              know that any Potential Event of Default or Event of Default has
              occurred, a notice of such Potential Event of Default or Event of
              Default describing the same in reasonable detail and, together
              with such notice or as soon thereafter as possible, a description
              of the action that the Guarantor or the Company has taken and
              proposes to take with respect thereto;

       (c)    as soon as available and in any event within 100 days after the
              end of each financial year of the Company, statement of earnings,
              cash flow and common shareholders' equity (if any) of the Company
              for such financial year and the related balance sheet as at the
              end of such year, setting forth in each case in comparative form
              the corresponding figures for the preceding financial year,
              accompanied by a certificate of a senior financial officer of the
              Guarantor, which certificate shall state that said financial
              statements fairly present the financial condition and results of
              operations of the Company in accordance with generally accepted
              accounting principles, consistently applied, as at the end of, and
              for, such financial year; and

       (d)    from time to time such other information regarding the business,
              affairs or financial condition of the Guarantor or any of its
              Material Subsidiaries (including any Plan or Multiemployer Plan
              and any reports or other information required to be filed under
              ERISA) as the Facility Agent may reasonably request (on its own
              behalf or on behalf of any Lender).

       The Guarantor will furnish to the Facility Agent, at the time it
       furnishes each set of financial statements pursuant to Clause 18.1
       (Financial statements), a Compliance Certificate.

18.4   Litigation

       The Guarantor will promptly give to the Facility Agent (and upon receipt
       thereof the Facility Agent shall promptly give to the Lenders) notice of
       all legal or arbitral proceedings, and of all proceedings by or before
       any governmental or regulatory authority or agency, and any material
       development in respect of such legal or other proceedings, affecting the
       Guarantor or any of its Material Subsidiaries, except any proceeding
       which, if adversely determined, would not have a Material Adverse Effect.

18.5   Know your customer requirements

(a)    Each Obligor must promptly on the request of any Finance Party (such
       request to be made through the Facility Agent) supply to the Facility
       Agent on behalf of that Finance Party any documentation or other evidence
       which is reasonably requested by that Finance Party through the Facility
       Agent (whether for itself, on behalf of any Finance Party or any
       prospective new Lender) to enable a Finance Party or prospective new
       Lender to carry out and be satisfied with the results of all know your
       customer requirements, provided that no Obligors will be obliged to
       provide any information which that Obligor determines (in its reasonable
       discretion) may not legally be provided.

(b)    Each Lender must promptly on the request of the Facility Agent supply to
       the Facility Agent any documentation or other evidence which is
       reasonably required by the Facility Agent to carry out and be satisfied
       with the results of all applicable know your customer requirements.



                                       43






19.    FINANCIAL COVENANTS

19.1   Interpretation

(a)    Except as provided to the contrary in this Agreement, an accounting term
       used in this Clause is to be construed in accordance with the principles
       applied in connection with the Original Financial Statements.

(b)    Any amount in a currency other than euros is to be taken into account at
       its euro equivalent calculated on the basis of:

       (i)    the Facility Agent's spot rate of exchange for the purchase of the
              relevant currency in the London foreign exchange market with euros
              at or about 11.00 a.m. on the day the relevant amount falls to be
              calculated; or

       (ii)   if the amount is to be calculated on the last day of a financial
              period of the Company, the relevant rates of exchange used by the
              Company in, or in connection with, its financial statements for
              that period.

(c)    No item must be credited or deducted more than once in any calculation
       under this Clause.

19.2 Total Debt to Total Capital Ratio

       The Guarantor will not at any time permit the ratio of Total Debt to
       Total Capital to exceed 0.60 to 1.

19.3   Minimum Consolidated Net Worth

       The Guarantor will not at any time permit Consolidated Net Worth to be
       less than US$9,000,000,000.

20.    GENERAL COVENANTS

20.1   General

       The Guarantor and the Company agree that, so long as any of the Total
       Commitments are in effect and until payment in full of all Loans
       hereunder, all interest thereon and all other amounts payable by any
       Obligor hereunder:

20.2   Corporate Existence, Etc.

       The Guarantor will, and will cause each of its Material Subsidiaries to:

       (a)    preserve and maintain its legal existence and all of its material
              rights, privileges and franchises (provided that nothing in this
              Clause shall prohibit any transaction expressly permitted under
              Clause 20.4 (Prohibition of Fundamental Changes));

       (b)    comply with the requirements of all applicable laws, rules,
              regulations and orders of any Governmental Authority if failure to
              comply with such requirements (i) will in the opinion of the
              General Counsel of the Guarantor result in imposition of liability
              or assessment against (including seizure of) property in an
              aggregate amount (as to all such failures to comply) exceeding 10
              per cent. of Consolidated Net Worth, (ii) could in the aggregate
              (as to all such failures to comply) reduce by more than 25 per
              cent. the annual tonnage capacity of the paper processing
              operations of the Guarantor and

                                       44






              its Consolidated Subsidiaries or (iii) in respect of the Obligors
              only, would result in an Obligor being unable to perform its
              obligations under, or affect the validity or enforceability of,
              any Finance Document;

       (c)    pay and discharge all taxes, assessments and governmental charges
              or levies imposed on it or on its income or profits or on any of
              its property prior to the date on which penalties attach thereto,
              except for any such tax, assessment, charge or levy the payment of
              which is being contested in good faith and by proper proceedings
              and against which adequate reserves are being maintained;

       (d)    maintain all of its properties used or useful in its business in
              good working order and condition, ordinary wear and tear excepted;
              provided, however, that the Guarantor or any Subsidiary of the
              Guarantor may discontinue the maintenance of a property if such
              discontinuance is, in the opinion of the Guarantor, desirable in
              the conduct of its business and is not likely to have a Material
              Adverse Effect; and

       (e)    upon reasonable advance notice, permit representatives of any
              Lender or the Facility Agent, during normal business hours, to
              examine, copy and make extracts from its books and records, to
              inspect its properties, and to discuss its business and affairs
              with its officers, all to the extent reasonably requested by such
              Lender or the Facility Agent.

20.3   Insurance

       The Guarantor will maintain, and will cause each of its Subsidiaries to
       maintain, insurance underwritten by financially sound and reputable
       insurers, or self insurance (in accordance with normal industry practice)
       in such amounts and against such risks as ordinarily is carried or
       maintained by owners of like businesses and properties in similar
       circumstances.

20.4   Prohibition of Fundamental Changes

       The Guarantor will not, nor will it permit any of its Material
       Subsidiaries to, enter into any transaction of merger or consolidation or
       amalgamation, or liquidate, wind up or dissolve itself (or suffer any
       liquidation or dissolution). The Guarantor will not, and will not permit
       any of its Material Subsidiaries to, convey, sell, lease, transfer or
       otherwise dispose of, in one transaction or a series of transactions, all
       or a substantial part of its business or assets, whether now owned or
       hereafter acquired (excluding any inventory or other assets sold or
       disposed of in the ordinary course of business). Notwithstanding the
       foregoing provisions of this Clause:

       (a)    any Subsidiary of the Guarantor may be merged or consolidated with
              or into: (i) the Guarantor if the Guarantor shall be the
              continuing or surviving corporation or (ii) any other Subsidiary;
              provided that if any such transaction shall be between a
              Subsidiary and a Wholly Owned Subsidiary, the Wholly Owned
              Subsidiary shall be the continuing or surviving corporation;

       (b)    any Subsidiary of the Guarantor may sell, lease, transfer or
              otherwise dispose of any or all of its assets (upon voluntary
              liquidation or otherwise) to the Guarantor or a Wholly Owned
              Subsidiary of the Guarantor;

       (c)    the Guarantor or any Subsidiary of the Guarantor may merge or
              consolidate with any other Person if (i) in the case of a merger
              or consolidation of the Guarantor, any successor entity (if other
              than Guarantor) assumes, in a manner satisfactory to the Facility
              Agent, all of the Guarantor's obligations under this Agreement
              (and, in that connection, delivers to the Facility Agent such
              evidence of corporate authorisation



                                       45






              and opinions of counsel as are consistent with those delivered by
              the Guarantor pursuant to Clause 4 (Conditions Precedent) and are
              reasonably requested by the Facility Agent) and, in the case of a
              merger or consolidation of any Subsidiary, the surviving
              corporation is a Wholly Owned Subsidiary of the Guarantor and (ii)
              after giving effect thereto no Potential Event of Default or Event
              of Default would exist hereunder; and

       (d)    in addition to the dispositions permitted pursuant to paragraphs
              (a) to (c) of this Clause, the Guarantor or any Subsidiary of the
              Guarantor may sell or otherwise dispose of assets (including by
              merger or consolidation) if, after giving effect to any such sale
              or disposition, the book value of such assets, together with the
              aggregate book value of the assets so sold or disposed of since
              30th June, 2004, does not exceed 20 per cent. of Total Assets at
              30th June, 2004.

20.5   Limitation on Liens

       The Guarantor will not, nor will it permit any of its Material
       Subsidiaries to, create, incur, assume or suffer to exist any Lien upon
       any of its property, assets or revenues, whether now owned or hereafter
       acquired, except:

       (a)    Liens imposed by any Governmental Authority for taxes, assessments
              or charges not yet due or which are being contested in good faith
              and by appropriate proceedings if, unless the amount thereof is
              not material with respect to it or its financial condition,
              adequate reserves with respect thereto are maintained on the books
              of the Guarantor or any of its Material Subsidiaries, as the case
              may be, in accordance with GAAP;

       (b)    carriers', warehousemen's, mechanics', materialmen's, repairmen's
              or other like Liens arising in the ordinary course of business
              which are not overdue for a period of more than 30 days or which
              are being contested in good faith and by appropriate proceedings;

       (c)    pledges or deposits under worker's compensation, unemployment
              insurance and other social security legislation;

       (d)    deposits to secure the performance of bids, trade contracts (other
              than for borrowed money), leases, statutory obligations, surety
              and appeal bonds, performance bonds and other obligations of a
              like nature incurred in the ordinary course of business;

       (e)    easements, rights-of-way, restrictions and other similar
              encumbrances incurred in the ordinary course of business and
              encumbrances consisting of zoning restrictions, easements,
              licences, restrictions on the use of property or minor
              imperfections in title thereto which, in the aggregate, are not
              material in amount, and which do not in any case materially
              detract from the value of the property subject thereto or
              interfere with the ordinary conduct of the business of the
              Guarantor or any of its Material Subsidiaries;

       (f)    Liens on assets of Persons that become Subsidiaries of the
              Guarantor after the date of this Agreement, provided that such
              Liens are in existence at the time the respective Persons become
              Subsidiaries of the Guarantor and were not created in anticipation
              thereof;

       (g)    Liens upon real and/or tangible personal property acquired after
              the date hereof (by purchase, construction or otherwise) by the
              Guarantor or any of its Material Subsidiaries, each of which Liens
              either (i) existed on such property before the time



                                       46






              of its acquisition and was not created in anticipation thereof, or
              (ii) was created solely for the purpose of securing Indebtedness
              representing, or incurred to finance, refinance or refund, the
              cost (including the cost of construction) of the respective
              property; provided in the case of paragraph (ii) that such Lien
              attaches to such asset within 270 days after the acquisition or
              completion of construction and commencement of full operations
              thereof; provided further that no such Lien shall extend to or
              cover any property of the Guarantor or such Material Subsidiary
              other than the respective property so acquired and improvements
              thereon; and provided further, that the principal amount of
              Indebtedness secured by any such Lien shall at no time exceed
              95 per cent. of the fair market value (as determined in good
              faith by a senior financial officer of the Guarantor) of the
              respective property at the time it was acquired (by purchase,
              construction or otherwise);

       (h)    Liens on assets consisting of a capital project and rights related
              thereto (Project Assets) securing Indebtedness incurred to finance
              the acquisition, construction or development of such Project
              Assets; provided that (i) such Indebtedness is non-recourse to any
              other assets; (ii) the aggregate principal amount of Indebtedness
              secured by Liens permitted by this paragraph (h) may at no time
              exceed US$425,000,000 and (iii) such Liens attach to such Project
              Assets within two years after the initial acquisition or
              completion of construction or development of such Project Assets;

       (i)    Liens upon real and/or personal property of the Guarantor or any
              Material Subsidiary of the Guarantor in favour of the United
              States of America or any State thereof, any department, agency or
              instrumentality or political subdivision of the United States or
              any State thereof, or any bonding authority (including any
              authority established for the issuance of industrial revenue bonds
              or similar instruments) to secure partial, progress, or advance or
              other payments pursuant to any contract or statute or to secure
              Indebtedness (including, but not limited to, industrial revenue
              bonds and similar instruments) incurred for the purpose of
              refinancing all or any part of the purchase price or cost of
              constructing or improving such property;

       (j)    Liens on accounts receivable and related contract rights, letters
              of credit, accounts and similar assets arising in connection with
              any securitisation transaction, and Liens on promissory notes,
              regulatory and any other related assets in connection with any
              financing transaction, in each case whether denominated as sales
              or borrowings;

       (k)    Liens granted to provide security in substitution for collateral
              presently securing existing Indebtedness, so long as such
              substitute collateral does not cover any property other than the
              property securing such existing Indebtedness;

       (l)    Liens securing judgments up to US$200,000,000 for the payment of
              money in an amount not resulting (whether immediately or with the
              passage of time) in an Event of Default under Clause 21 (Default);

       (m)    Liens in existence on the date hereof:

              (i)    which in aggregate do not exceed 7.5 per cent. of Tangible
                     Assets; or

              (ii)   are listed in Schedule 6 (Existing Liens);

       (n)    additional Liens upon property, assets or revenues created after
              the date hereof, provided that the aggregate outstanding
              Indebtedness secured thereby and incurred on


                                       47






              and after the date hereof shall not at any time exceed 10 per
              cent. of Tangible Assets; and

       (o)    any extension, renewal or replacement of the foregoing, provided,
              however, that the Liens permitted hereunder shall not be spread to
              cover any additional Indebtedness or property (other than a
              substitution of like property);

       and provided further that the sale, mortgage or other transfer of timber
       in connection with an arrangement under which the Guarantor or any of its
       Subsidiaries is obligated to cut such timber (or any portion thereof) in
       order to provide the transferee with a specified amount of money (however
       determined) shall not be deemed to create Indebtedness secured by a Lien
       hereunder.

20.6   Pari passu ranking

       Each Obligor must ensure that its payment obligations under the Finance
       Documents rank at least pari passu with all its other present and future
       unsecured payment obligations, except for obligations mandatorily
       preferred by law applying to companies generally.

20.7   Year end

       To enable the ready and consistent determination of compliance with the
       financial covenants set out in Clause 19 (Financial Covenants), the
       Guarantor will not change its financial year end from 31st December of
       each year, or the last days of the first three quarter years in each of
       its financial years from 31st March, 30th June and 30th September of each
       year, respectively, without giving prior notice of such change to each
       Lender and the Facility Agent.

21.    DEFAULT

       If one or more of the following Events of Default shall occur and be
       continuing:

       (a)    non-payment: the Company shall default in the payment when due of
              any principal of any Loan; or the Company shall default in the
              payment when due of any interest on any Loan or any other amount
              payable by it hereunder and such default shall continue unremedied
              for five or more Business Days; or

       (b)    indebtedness: any event specified in any note, agreement,
              indenture or other document evidencing or relating to any
              Indebtedness (other than (i) Indebtedness hereunder, (ii) Project
              Indebtedness, or (iii) Indebtedness owed by any Material
              Subsidiary to the Guarantor) of the Guarantor or any of its
              Material Subsidiaries aggregating US$200,000,000 or more shall
              occur if the effect of such event is to cause, or (with the giving
              of any notice or the lapse of time or both) to permit the holder
              or holders of such Indebtedness (or a trustee or agent on behalf
              of such holder or holders) to cause, such Indebtedness to become
              due, or to be prepaid in full (whether by redemption, purchase or
              otherwise), prior to its stated maturity; or

       (c)    misrepresentation: any representation, warranty or certification
              made or deemed made herein (or in any modification or supplement
              hereto or thereto) by any Obligor, or any certificate furnished to
              any Lender or the Facility Agent pursuant to the provisions
              hereof, shall prove to have been false or misleading in any
              material respect as of the time made or furnished (except to the
              extent that any such representation, warranty or certification
              contains a materiality qualifier in which case such
              representation, warranty or certification shall be true and
              correct in all respects); or



                                       48






       (d)    breach of other obligations: the Guarantor shall default in the
              performance of any of its obligations under Clause 16 (Guarantee),
              Clause 19.2 (Total Debt to Total Capital Ratio), Clause 19.3
              (Minimum Consolidated Net Worth), paragraph (a) of Clause 20.2
              (Corporate Existence, etc.) or any of Clauses 20.4 (Prohibition of
              Fundamental Changes) to 20.7 (Year end) or any Obligor shall
              default in the performance of any of its other obligations in this
              Agreement and such default shall continue unremedied for a period
              of thirty days after notice thereof to such Obligor (through
              notification to the Guarantor) by the Facility Agent or any Lender
              (through the Facility Agent); or

       (e)    inability to pay debts: the Guarantor or any of its Material
              Subsidiaries shall admit in writing its inability to, or be
              generally unable to, pay its debts as such debts become due; or

       (f)    insolvency: the Guarantor or any of its Material Subsidiaries
              shall (i) apply for or consent to the appointment of, or the
              taking of possession by, a receiver, custodian, trustee or
              liquidator of itself or of all or a substantial part of its
              property, (ii) make a general assignment for the benefit of its
              creditors, (iii) commence a voluntary case under the Bankruptcy
              Code (as now or hereafter in effect), (iv) file a petition seeking
              to take advantage of any other law relating to bankruptcy,
              insolvency, reorganisation, winding-up, or composition or
              readjustment of debts, (v) fail to controvert in a timely and
              appropriate manner, or acquiesce in writing to, any petition filed
              against it in an involuntary case under the Bankruptcy Code, or
              (vi) take any corporate action for the purpose of effecting any of
              the foregoing; or, in respect of the Company (i) it is, or is
              deemed for the purposes of any law to be, unable to pay its debts
              as they fall due or insolvent (including without limitation en
              etat de cessation des paiements), (ii) it admits its inability to
              pay its debts as they fall due, (iii) it suspends making payments
              on any of its debts or announces an intention to do so, (iv) by
              reason of actual or anticipated financial difficulties, it applies
              for, or is subject to, an amicable settlement or a reglement
              amiable pursuant to Articles L.611-1 et seq. of the French
              Commercial Code (Code de commerce) or begins negotiations with any
              creditor for the rescheduling of any of its indebtedness, or (v) a
              moratorium is declared in respect of any class of its
              indebtedness.

       (g)    insolvency proceedings - third parties: a proceeding or case shall
              be commenced, without the application or consent of the Guarantor
              or any of its Material Subsidiaries, in any court of competent
              jurisdiction, seeking (i) its liquidation, reorganisation,
              dissolution or winding-up, or the composition or readjustment of
              its debts, (ii) the appointment of a trustee, receiver, custodian,
              liquidator, administrateur judiciaire ou provisoire, mandataire ad
              hoc, conciliateur or mandataire liquidateur or similar officer or
              the like of the Guarantor or such Material Subsidiary or of all or
              any substantial part of its assets, or (iii) similar relief in
              respect of the Guarantor or such Material Subsidiary under any law
              relating to bankruptcy, insolvency, reorganisation, winding-up, or
              composition or adjustment of debts, and such proceeding or case
              shall continue undismissed, or an order, judgment or decree
              approving or ordering any of the foregoing shall be entered and
              continue unstayed and in effect, for a period of 90 or more days;
              or an order for relief against the Guarantor or such Material
              Subsidiary shall be entered in an involuntary case under the
              Bankruptcy Code; or

       (h)    judgment: a final judgment or judgments for the payment of money
              in excess of US$200,000,000 in the aggregate shall be rendered by
              a court or courts against the Guarantor and/or any of its Material
              Subsidiaries or US$20,000,000 against the Company and the same
              shall not be discharged (or provision shall not be made for



                                       49






              such discharge), or a stay of execution thereof shall not be
              procured, within 30 days from the date of entry thereof and the
              Guarantor, the relevant Material Subsidiary or the Company shall
              not, within said period of 30 days, or such longer period during
              which execution of the same shall have been stayed, appeal
              therefrom and cause the execution thereof to be stayed during such
              appeal; or

       (i)    ERISA event: an event or condition shall occur or exist with
              respect to any Plan or Multiemployer Plan and, as a result of such
              event or condition, together with all other such events or
              conditions, the Guarantor or any ERISA Affiliate shall be
              reasonably likely in the opinion of the General Counsel of the
              Guarantor to incur a liability to a Plan, a Multiemployer Plan or
              PBGC (or any combination of the foregoing) which is in excess of
              10 per cent. of Consolidated Net Worth; or

       (j)    control of Guarantor: any person or group of persons (within the
              meaning of Section 13 or 14 of the Securities Exchange Act of
              1934, as amended, it being agreed that an employee of the
              Guarantor or any Consolidated Subsidiary for whom shares are held
              under an employee stock ownership, employee retirement, employee
              savings or similar plan and whose shares are voted in accordance
              with the instructions of such employee shall not be a member of a
              group of persons within the meaning of said Section 13 or 14
              solely because such employee's shares are held by a trustee under
              said plan) shall acquire, directly or indirectly, beneficial
              ownership (within the meaning of Rule 13d-3 promulgated by the SEC
              under said Act, as amended) of 20 per cent. or more of the
              outstanding shares of stock of the Guarantor having by the terms
              thereof ordinary voting power to elect (whether immediately or
              ultimately) a majority of the board of directors of the Guarantor
              (irrespective of whether or not at the time stock of any other
              class or classes of stock of the Guarantor shall have or might
              have voting power by reason of the happening of any contingency);
              or

       (k)    board of directors of Guarantor: during any period of 24
              consecutive calendar months, a majority of the board of directors
              of the Guarantor shall no longer be composed of individuals (i)
              who were members of said board of directors on the first day of
              such period or (ii) whose election or nomination to said board of
              directors was approved by individuals referred to in paragraph (i)
              above constituting at the time of such election or nomination at
              least a majority of said board of directors;

       (l)    Guarantee: the guarantee given by the Guarantor under this
              Agreement or any provision thereof shall cease to be in full force
              or effect, or any Person acting by or on behalf of the Guarantor
              shall deny or disaffirm in writing the Guarantor's obligations
              under the guarantee given by the Guarantor under this Agreement;

       (m)    ownership of the Company: the Company is not or ceases to be a
              Wholly Owned Subsidiary of the Guarantor;

       THEREUPON: (1) in the case of an Event of Default other than one referred
       to in paragraph (f) or (g) of this Clause with respect to any Obligor,
       (A) the Facility Agent may and, upon request of the Majority Lenders,
       shall, by notice to the Company, cancel the Total Commitments and they
       shall thereupon terminate, and (B) the Facility Agent may and, upon
       request of the Majority Lenders shall, by notice to the Company, declare
       the principal amount then outstanding of, and the accrued interest on,
       the Loans and all other amounts payable by the Obligors hereunder
       (including any amounts payable under Clause 25.3 (Break Costs) to be
       forthwith due and payable, whereupon such amounts shall be immediately
       due and payable without presentment, demand, protest or other formalities
       of any kind, all of which are hereby expressly waived by each Obligor;
       and (2) in the case of the occurrence of an Event of Default referred to
       in paragraph (f) or (g) of this Clause with respect to any Obligor, the



                                       50






       Commitments of each Lender shall automatically be cancelled and the
       principal amount then outstanding of, and the accrued interest on, the
       Loans and all other amounts payable by the Obligors hereunder (including
       any amounts payable under Clause 25.3 (Break Costs)) shall automatically
       become immediately due and payable without presentment, demand, protest
       or other formalities of any kind, all of which are hereby expressly
       waived by each Obligor.

22.    THE ADMINISTRATIVE PARTIES

22.1   Appointment and duties of the Facility Agent

(a)    Each Finance Party (other than the Facility Agent) irrevocably appoints
       the Facility Agent to act as its agent under the Finance Documents.

(b)    Each Finance Party irrevocably authorises the Facility Agent to:

       (i)    perform the duties and to exercise the rights, powers and
              discretions that are specifically given to it under the Finance
              Documents, together with any other incidental rights, powers and
              discretions; and

       (ii)   execute each Finance Document expressed to be executed by the
              Facility Agent.

(c)    The Facility Agent has only those duties which are expressly specified in
       the Finance Documents. Those duties are solely of a mechanical and
       administrative nature.

22.2   Role of the Mandated Lead Arrangers

       Except as specifically provided in the Finance Documents, the Mandated
       Lead Arrangers have no obligations of any kind to any other Party in
       connection with any Finance Document.

22.3   No fiduciary duties

       Except as specifically provided in a Finance Document, nothing in the
       Finance Documents makes an Administrative Party a trustee or fiduciary
       for any other Party or any other person. No Administrative Party need
       hold in trust any moneys paid to it for a Party or be liable to account
       for interest on those moneys.

22.4   Individual position of an Administrative Party

(a)    If it is also a Lender, each Administrative Party has the same rights and
       powers under the Finance Documents as any other Lender and may exercise
       those rights and powers as though it were not an Administrative Party.

(b)    Each Administrative Party may:

       (i)    carry on any business with any Obligor or its related entities
              (including acting as an agent or a trustee for any other
              financing); and

       (ii)   retain any profits or remuneration it receives under the Finance
              Documents or in relation to any other business it carries on with
              any Obligor or its related entities.



                                       51






22.5   Reliance

       The Facility Agent may:

       (a)    rely on any notice or document believed by it to be genuine and
              correct and to have been signed by, or with the authority of, the
              proper person;

       (b)    rely on any statement made by any person regarding any matters
              which may reasonably be assumed to be within his knowledge or
              within his power to verify;

       (c)    engage, pay for and rely on professional advisers selected by it
              (including those representing a Party other than the Facility
              Agent); and

       (d)    act under the Finance Documents through its personnel and agents.

22.6   Majority Lenders' instructions

(a)    The Facility Agent is fully protected if it acts on the instructions of
       the Majority Lenders in the exercise of any right, power or discretion or
       any matter not expressly provided for in the Finance Documents. Any such
       instructions given by the Majority Lenders will be binding on all the
       Lenders. In the absence of instructions, the Facility Agent may act as it
       considers to be in the best interests of all the Lenders.

(b)    The Facility Agent may assume that unless it has received notice to the
       contrary, any right, power, authority or discretion vested in any Party
       or the Majority Lenders has not been exercised.

(c)    The Facility Agent is not authorised to act on behalf of a Lender
       (without first obtaining that Lender's consent) in any legal or
       arbitration proceedings in connection with any Finance Document.

(d)    The Facility Agent may require the receipt of security satisfactory to
       it, whether by way of payment in advance or otherwise, against any
       liability or loss which it may incur in complying with the instructions
       of the Majority Lenders.

22.7   Responsibility

(a)    No Administrative Party is responsible for the adequacy, accuracy or
       completeness of any statement or information (whether written or oral)
       made in or supplied in connection with any Finance Document.

(b)    No Administrative Party is responsible for the legality, validity,
       effectiveness, adequacy, completeness or enforceability of any Finance
       Document or any other document.

(c)    Without affecting the responsibility of any Obligor for information
       supplied by it or on its behalf in connection with any Finance Document,
       each Lender confirms that it:

       (i)    has made, and will continue to make, its own independent appraisal
              of all risks arising under or in connection with the Finance
              Documents (including the financial condition and affairs of each
              Obligor and its related entities and the nature and extent of any
              recourse against any Party or its assets); and

       (ii)   has not relied exclusively on any information provided to it by
              any Administrative Party in connection with any Finance Document.



                                       52






22.8   Exclusion of liability

(a)    The Facility Agent is not liable or responsible to any other Finance
       Party for any action taken or not taken by it in connection with any
       Finance Document, unless directly caused by its gross negligence or
       wilful misconduct.

(b)    No Party (other than the Facility Agent) may take any proceedings against
       any officer, employee or agent of the Facility Agent in respect of any
       claim it might have against the Facility Agent or in respect of any act
       or omission of any kind by that officer, employee or agent in connection
       with any Finance Document. Any officer, employee or agent of the Facility
       Agent may rely on this Subclause and enforce its terms under the
       Contracts (Rights of Third Parties) Act 1999.

(c)    The Facility Agent is not liable for any delay (or any related
       consequences) in crediting an account with an amount required under the
       Finance Documents to be paid by the Facility Agent if the Facility Agent
       has taken all necessary steps as soon as reasonably practicable to comply
       with the regulations or operating procedures of any recognised clearing
       or settlement system used by the Facility Agent for that purpose.

(d)    (i)    Nothing in this Agreement will oblige any Administrative Party to
              satisfy any know your customer requirement in relation to the
              identity of any person on behalf of any Finance Party.

       (ii)   Each Finance Party confirms to each Administrative Party that it
              is solely responsible for any know your customer requirements it
              is required to carry out and that it may not rely on any statement
              in relation to those requirements made by any Administrative
              Party.

22.9   Default

(a)    The Facility Agent is not obliged to monitor or enquire whether a
       Potential Event of Default or Event of Default has occurred. The Facility
       Agent is not deemed to have knowledge of the occurrence of a Potential
       Event of Default or Event of Default.

(b)    If the Facility Agent:

       (i)    receives notice from a Party referring to this Agreement,
              describing a Potential Event of Default or Event of Default and
              stating that the event is a Potential Event of Default or Event of
              Default, as the case may be; or

       (ii)   is aware of the non-payment of any principal, interest or fee
              payable to a Finance Party (other than the Facility Agent or a
              Mandated Lead Arranger) under this Agreement, it must promptly
              notify the other Finance Parties.

22.10  Information

(a)    The Facility Agent must promptly forward to the person concerned the
       original or a copy of any document which is delivered to the Facility
       Agent by a Party for that person.

(b)    Except where a Finance Document specifically provides otherwise, the
       Facility Agent is not obliged to review or check the adequacy, accuracy
       or completeness of any document it forwards to another Party.



                                       53






(c)    Except as provided above, the Facility Agent has no duty:

       (i)    either initially or on a continuing basis to provide any Lender
              with any credit or other information concerning the risks arising
              under or in connection with the Finance Documents (including any
              information relating to the financial condition or affairs of any
              Obligor or its related entities or the nature or extent of
              recourse against any Party or its assets) whether coming into its
              possession before, on or after the date of this Agreement; or

       (ii)   unless specifically requested to do so by a Lender in accordance
              with a Finance Document, to request any certificate or other
              document from any Obligor.

(d)    In acting as the Facility Agent, the agency division of the Facility
       Agent is treated as a separate entity from its other divisions and
       departments. Any information acquired by the Facility Agent which, in its
       opinion, is acquired by it otherwise than in its capacity as the Facility
       Agent may be treated as confidential by the Facility Agent and will not
       be treated as information possessed by the Facility Agent in its capacity
       as such.

(e)    The Facility Agent is not obliged to disclose to any person any
       confidential information supplied to it by or on behalf of a member of
       the Group solely for the purpose of evaluating whether any waiver or
       amendment is required in respect of any term of the Finance Documents.

(f)    Each Obligor irrevocably authorises the Facility Agent to disclose to the
       other Finance Parties any information which, in its opinion, is received
       by it in its capacity as the Facility Agent.

22.11  Indemnities

(a)    Without limiting the liability of any Obligor under the Finance
       Documents, each Lender must indemnify the Facility Agent for that
       Lender's Pro Rata Share of any loss or liability incurred by the Facility
       Agent in acting as the Facility Agent, except to the extent that the loss
       or liability is caused by the Facility Agent's gross negligence or wilful
       misconduct.

(b)    The Facility Agent may deduct from any amount received by it for a Lender
       any amount due to the Facility Agent from that Lender under a Finance
       Document but unpaid.

22.12  Compliance

       Each Administrative Party may refrain from doing anything (including
       disclosing any information) which might, in its opinion, constitute a
       breach of any law or regulation or be otherwise actionable at the suit of
       any person, and may do anything which, in its opinion, is necessary or
       desirable to comply with any law or regulation.

22.13  Resignation of the Facility Agent

(a)    The Facility Agent may resign and appoint any of its Affiliates as
       successor Facility Agent by giving notice to the other Finance Parties
       and the Company.

(b)    Alternatively, the Facility Agent may resign by giving notice to the
       Finance Parties and the Company, in which case the Majority Lenders may
       appoint a successor Facility Agent.

(c)    If no successor Facility Agent has been appointed under paragraph (b)
       above within 30 days after notice of resignation was given, the Facility
       Agent may appoint a successor Facility Agent.



                                       54






(d)    The person(s) appointing a successor Facility Agent must, if practicable,
       consult with the Company prior to the appointment.

(e)    The resignation of the Facility Agent and the appointment of any
       successor Facility Agent will both become effective only when the
       successor Facility Agent notifies all the Parties that it accepts its
       appointment. On giving the notification, the successor Facility Agent
       will succeed to the position of the Facility Agent and the term Facility
       Agent will mean the successor Facility Agent.

(f)    The retiring Facility Agent must, at its own cost, make available to the
       successor Facility Agent such documents and records and provide such
       assistance as the successor Facility Agent may reasonably request for the
       purposes of performing its functions as the Facility Agent under the
       Finance Documents.

(g)    Upon its resignation becoming effective, this Clause will continue to
       benefit the retiring Facility Agent in respect of any action taken or not
       taken by it in connection with the Finance Documents while it was the
       Facility Agent, and, subject to paragraph (f) above, it will have no
       further obligations under any Finance Document.

(h)    The Majority Lenders may, by notice to the Facility Agent, require it to
       resign under paragraph (b) above.

22.14  Relationship with Lenders

(a)    The Facility Agent may treat each Lender as a Lender, entitled to
       payments under this Agreement and as acting through its Facility
       Office(s) until it has received not less than five Business Days' prior
       notice from that Lender to the contrary.

(b)    The Facility Agent may at any time, and must if requested to do so by the
       Majority Lenders, convene a meeting of the Lenders.

(c)    The Facility Agent must keep a register of all the Parties and supply any
       other Party with a copy of the register on request. The register will
       include each Lender's Facility Office(s) and contact details for the
       purposes of this Agreement.

22.15  Facility Agent's management time

       If the Facility Agent requires, any amount payable to the Facility Agent
       by any Party under any indemnity or in respect of any costs or expenses
       incurred by the Facility Agent under the Finance Documents after the date
       of this Agreement may include the cost of using its management time or
       other resources and will be calculated on the basis of such reasonable
       daily or hourly rates as the Facility Agent may notify to the relevant
       Party. This is in addition to any amount in respect of fees or expenses
       paid or payable to the Facility Agent under any other term of the Finance
       Documents.

22.16  Notice period

       Where this Agreement specifies a minimum period of notice to be given to
       the Facility Agent, the Facility Agent may, at its discretion, accept a
       shorter notice period.



                                       55






23.    EVIDENCE AND CALCULATIONS

23.1   Accounts

       Accounts maintained by a Finance Party in connection with this Agreement
       are prima facie evidence of the matters to which they relate for the
       purpose of any litigation or arbitration proceedings.

23.2   Certificates and determinations

       Any certification or determination by a Finance Party of a rate or amount
       under the Finance Documents will be, in the absence of manifest error,
       conclusive evidence of the matters to which it relates.

23.3   Calculations

       Any interest or fee accruing under this Agreement accrues from day to day
       and is calculated on the basis of the actual number of days elapsed and a
       year of 360 or 365 days or otherwise, depending on what the Facility
       Agent determines is market practice.

24.    FEES

24.1   Facility Agent's fee

       The Company must pay to the Facility Agent for its own account an agency
       fee in the manner agreed in the Fee Letter between the Facility Agent and
       the Company.

24.2   Arrangement fee

       The Company must pay to the Bookrunners for their own account an
       arrangement fee in the manner agreed in the Fee Letter between the
       Bookrunners and the Company.

24.3   Participation fee

       The Company must pay to the Bookrunners a participation fee in the manner
       agreed in the Fee Letter between the Bookrunners and the Company.

25.    INDEMNITIES AND BREAK COSTS

25.1   Currency indemnity

(a)    The Company must, as an independent obligation, indemnify each Finance
       Party against any loss or liability which that Finance Party incurs as a
       consequence of:

       (i)    that Finance Party receiving an amount in respect of an Obligor's
              liability under the Finance Documents; or

       (ii)   that liability being converted into a claim, proof, judgment or
              order,

       in a currency other than the currency in which the amount is expressed to
       be payable under the relevant Finance Document.

(b)    Unless otherwise required by law, each Obligor waives any right it may
       have in any jurisdiction to pay any amount under the Finance Documents in
       a currency other than that in which it is expressed to be payable.



                                       56






25.2   Other indemnities

(a)    The Company must indemnify each Finance Party against any loss or
       liability which that Finance Party incurs as a consequence of:

       (i)    the occurrence of any Event of Default;

       (ii)   any failure by an Obligor to pay any amount due under a Finance
              Document on its due date, including any resulting from any
              distribution or redistribution of any amount among the Lenders
              under this Agreement;

       (iii)  (other than by reason of negligence or default by that Finance
              Party) a Loan not being made after a Request has been delivered
              for that Loan; or

       (iv)   a Loan (or part of a Loan) not being prepaid in accordance with
              this Agreement.

       The Company's liability in each case includes any loss or expense on
       account of funds borrowed, contracted for or utilised to fund any amount
       payable under any Finance Document or any Loan, other than in respect of
       sub-paragraph (a) (iii) above, where the Company's liability is limited
       to the payment of Break Costs.

(b)    The Company must indemnify the Facility Agent against any loss or
       liability incurred by the Facility Agent as a result of:

       (i)    investigating any event which the Facility Agent reasonably
              believes to be a Potential Event of Default or Event of Default,
              unless such investigation shows that no Potential Event of Default
              or Event of Default had occurred, in which case the Lenders must
              indemnify on a pro rata basis the Facility Agent against any such
              loss or liability incurred; or

       (ii)   acting or relying on any notice which the Facility Agent
              reasonably believes to be genuine, correct and appropriately
              authorised.

25.3   Break Costs

(a)    The Company must pay to each Lender its Break Costs.

(b)    Break Costs are the amount (if any) determined by the relevant Lender by
       which:

       (i)    the interest which that Lender would have received for the period
              from the date of receipt of any part of its share in a Loan or an
              overdue amount to the last day of the applicable Term for that
              Loan or overdue amount if the principal or overdue amount received
              had been paid on the last day of that Term;

       exceeds

       (ii)   the amount which that Lender would be able to obtain by
              redeploying such amount for a period starting on the date of
              receipt and ending on the last day of the applicable Term.

(c)    Each Lender must supply to the Facility Agent for the Company a
       certificate setting forth in reasonable detail (including the
       calculations of such amount) the amount of any Break Costs claimed by it
       under this Clause. No amount shall be payable by the Company under this
       Clause until such certificate has been provided to the Company.



                                       57






26.    EXPENSES

26.1   Initial costs

       The Company must pay to each Administrative Party the amount of all costs
       and expenses (including legal fees, subject to the cap on legal fees as
       set out in the mandate letter between the Guarantor and the Bookrunners
       dated 17th July, 2004) reasonably incurred by it in connection with the
       negotiation, preparation, printing, execution and syndication of the
       Finance Documents.

26.2   Subsequent costs

       The Company must pay to the Facility Agent the amount of all costs and
       expenses (including legal fees) reasonably incurred by it in connection
       with:

       (a)    the negotiation, preparation, printing and execution of any
              Finance Document (other than a Transfer Certificate) executed
              after the date of this Agreement; and

       (b)    any amendment, waiver or consent requested by or on behalf of an
              Obligor or specifically allowed by this Agreement (other than any
              amendment, waiver or consent requested by a Finance Party).

       For the avoidance of doubt paragraph (a) of this Subclause does not apply
       to any Finance Document required under Clause 4.1 (Conditions precedent
       documents) or in respect of the first Request.

26.3   Enforcement costs

       The Company must pay to each Finance Party the amount of all reasonable
       costs and expenses (including reasonable legal fees) incurred by it in
       connection with the successful enforcement of, or the preservation of any
       rights under, any Finance Document.

27.    AMENDMENTS AND WAIVERS

27.1   Procedure

(a)    Except as provided in this Clause, any term of the Finance Documents may
       be amended or waived with the agreement of the Company and the Majority
       Lenders. The Facility Agent may effect, on behalf of any Finance Party,
       an amendment or waiver allowed under this Clause.

(b)    The Facility Agent must promptly notify the other Parties of any
       amendment or waiver effected by it under paragraph (a) above. Any such
       amendment or waiver is binding on all the Parties.

27.2   Exceptions

(a)    An amendment or waiver which relates to:

       (i)    the definition of Majority Lenders in Clause 1.1 (Definitions);

       (ii)   an extension of the date of payment of any amount to a Lender
              under the Finance Documents;



                                       58






       (iii)  a reduction in the Margin or a reduction in the amount of any
              payment of principal, interest, fee or other amount payable to a
              Lender under the Finance Documents;

       (iv)   an increase in, or an extension of, a Commitment or the Total
              Commitments;

       (v)    a release of an Obligor other than in accordance with the terms of
              this Agreement;

       (vi)   a term of a Finance Document which expressly requires the consent
              of each Lender;

       (vii)  the right of a Lender to assign or transfer its rights or
              obligations under the Finance Documents; or

       (viii) Clause 2.2 (Nature of a Finance Party's rights and obligations) or
              this Clause,

       may only be made with the consent of all the Lenders.

(b)    An amendment or waiver which relates to the rights or obligations of an
       Administrative Party may only be made with the consent of that
       Administrative Party.

(c)    A Fee Letter may be amended or waived with the agreement of the
       Administrative Party that is a party to that Fee Letter and the Company.

27.3   Change of currency

       If a change in any currency of a country occurs (including where there is
       more than one currency or currency unit recognised at the same time as
       the lawful currency of a country), the Finance Documents will be amended
       to the extent the Facility Agent (acting reasonably and after
       consultation with the Company) determines is necessary to reflect the
       change.

27.4   Waivers and remedies cumulative

       The rights of each Party under the Finance Documents:

       (a)    may be exercised as often as necessary subject to the terms of
              this Agreement;

       (b)    are cumulative and not exclusive of its rights under the general
              law; and

       (c)    may be waived only in writing and specifically.

       Delay in exercising or non-exercise of any right is not a waiver of that
       right.

28.    CHANGES TO THE PARTIES

28.1   Assignments and transfers by Obligors

       Neither Obligor may assign or transfer any of its rights and obligations
       under the Finance Documents without the prior consent of all the Lenders.

28.2   Assignments and transfers by Lenders

(a)    A Lender (the Existing Lender) may, subject to the following provisions
       of this Subclause, at any time assign or transfer (including by way of
       novation) any of its rights and obligations under this Agreement to any
       other bank or financial institution or to a trust, fund or other
       financial entity which is regularly engaged in or established for the
       purpose of making, purchasing or investing in loans, securities or other
       financial assets (the New Lender).



                                       59






(b)    The consent of the Company is required for any assignment or transfer
       unless the New Lender is another Lender or an Affiliate of a Lender or an
       Event of Default is outstanding. The consent of the Company must not be
       unreasonably withheld or delayed.

(c)    The Facility Agent is not obliged to execute a Transfer Certificate until
       it has completed all know your customer requirements to its satisfaction.
       The Facility Agent must promptly notify the Existing Lender and the New
       Lender if there are any such requirements.

(d)    A transfer of obligations will be effective only if either:

       (i)    the obligations are novated in accordance with the following
              provisions of this Clause; or

       (ii)   the New Lender confirms to the Facility Agent and the Company in
              form and substance satisfactory to the Facility Agent that it is
              bound by the terms of this Agreement as a Lender. On the transfer
              becoming effective in this manner the Existing Lender will be
              released from its obligations under this Agreement to the extent
              that they are transferred to the New Lender.

(e)    Unless the Facility Agent otherwise agrees, the New Lender must pay to
       the Facility Agent for its own account, on or before the date any
       assignment or transfer occurs, a fee of 'E'1,500.

(f)    Any reference in this Agreement to a Lender includes a New Lender but
       excludes a Lender if no amount is or may be owed to or by it under this
       Agreement.

(g)    An assignment of rights will only be effective if, at the cost of the
       Lender, the assignment is notified to the Company by a bailiff (huissier)
       in accordance with Article 1690 of the French Civil Code.

(h)    A new Lender shall not be entitled to receive any greater payments than
       the Existing Lender would have received had the assignment or transfer
       not taken place if such increase in payment arises as a result of
       circumstances existing at the date of assignment or transfer .

(i)    The liabilities and obligations of the Obligors shall not be increased by
       reason of any assignment or transfer if such increase arises as a result
       of circumstances existing at the date of assignment or transfer.

28.3   Procedure for transfer by way of novations

(a)    In this Subclause:

       Transfer Date means, for a Transfer Certificate, the later of:

       (i)    the proposed Transfer Date specified in that Transfer Certificate;
              and

       (ii)   the date on which the Facility Agent executes that Transfer
              Certificate.

(b)    A novation is effected if:

       (i)    the Existing Lender and the New Lender deliver to the Facility
              Agent a duly completed Transfer Certificate; and

       (ii)   the Facility Agent executes it.



                                       60






       The Facility Agent must execute as soon as reasonably practicable a
       Transfer Certificate delivered to it and which appears on its face to be
       in order.

(c)    Each Party (other than the Existing Lender and the New Lender)
       irrevocably authorises the Facility Agent to execute any duly completed
       Transfer Certificate on its behalf provided that, in circumstances where
       there is a requirement for the Company to give its prior consent to the
       assignment or transfer, such authorisation is only given by the Company
       under this paragraph (c) if it has already given its consent to the
       assignment or transfer.

(d)    On the Transfer Date:

       (i)    the New Lender will assume the rights and obligations of the
              Existing Lender expressed to be the subject of the novation in the
              Transfer Certificate in substitution for the Existing Lender; and

       (ii)   the Existing Lender will be released from those obligations and
              cease to have those rights.

(e)    The Facility Agent must, as soon as reasonably practicable after it has
       executed a Transfer Certificate, send to the Company a copy of that
       Transfer Certificate.

(f)    Subject to the terms of this Agreement, the obligations of the Guarantor
       under this Agreement will continue in full force and effect following any
       novation under this Clause. A novation under this Clause is a novation
       (novation) within the meaning of Article 1271 et seq. of the French Civil
       Code.

28.4   Limitation of responsibility of Existing Lender

(a)    Unless expressly agreed to the contrary, an Existing Lender is not
       responsible to a New Lender for the legality, validity, adequacy,
       accuracy, completeness or performance of:

       (i)    any Finance Document or any other document; or

       (ii)   any statement or information (whether written or oral) made in or
              supplied in connection with any Finance Document,

       and any representations or warranties implied by law are excluded.

(b)    Each New Lender confirms to the Existing Lender and the other Finance
       Parties that it:

       (i)    has made, and will continue to make, its own independent appraisal
              of all risks arising under or in connection with the Finance
              Documents (including the financial condition and affairs of each
              Obligor and its related entities and the nature and extent of any
              recourse against any Party or its assets) in connection with its
              participation in this Agreement; and

       (ii)   has not relied exclusively on any information supplied to it by
              the Existing Lender in connection with any Finance Document.

(c)    Nothing in any Finance Document requires an Existing Lender to:

       (i)    accept a re-transfer from a New Lender of any of the rights and
              obligations assigned or transferred under this Clause; or



                                       61






       (ii)   support any losses incurred by the New Lender by reason of the
              non-performance by either Obligor of its obligations under any
              Finance Document or otherwise.

28.5   Costs resulting from change of Lender or Facility Office

       If:

       (a)    a Lender assigns or transfers any of its rights and obligations
              under the Finance Documents or changes its Facility Office; and

       (b)    as a result of circumstances existing at the date the assignment,
              transfer or change occurs, an Obligor would be obliged to pay a
              Tax Payment or an Increased Cost,

       then, unless the assignment, transfer or change is made by a Lender to
       mitigate any circumstances giving rise to the Tax Payment, Increased Cost
       or a right to be prepaid and/or cancelled by reason of illegality, the
       relevant Obligor need only pay that Tax Payment or Increased Cost to the
       same extent that it would have been obliged to if no assignment, transfer
       or change had occurred.

28.6   Changes to the Reference Banks

       If a Reference Bank (or, if a Reference Bank is not a Lender, the Lender
       of which it is an Affiliate) ceases to be a Lender, the Facility Agent
       must (in consultation with the Company) appoint another Lender or an
       Affiliate of a Lender to replace that Reference Bank.

29.    DISCLOSURE OF INFORMATION

29.1   Each Finance Party must keep confidential any information supplied to it
       by or on behalf of any Obligor in connection with the Finance Documents.
       However, a Finance Party is entitled to disclose information:

       (a)    which is publicly available, other than as a result of a breach by
              that Finance Party of this Clause;

       (b)    if required to do so in connection with any legal or arbitration
              proceedings;

       (c)    if required to do so under any law or regulation;

       (d)    if required to do so to a governmental, banking, taxation or other
              regulatory authority;

       (e)    to its professional advisers in connection with this transmission;

       (f)    to the extent allowed under Clause 29.2 below;

       (g)    to another Obligor; or

       (h)    with the prior written agreement of the relevant Obligor.

29.2   A Finance Party may disclose to an Affiliate or any person with whom it
       may enter, or has entered into, any kind of transfer, participation or
       other agreement in relation to this Agreement (a participant):

       (a)    a copy of any Finance Document; and

                                       62







       (b)    any information which that Finance Party has acquired under or in
              connection with any Finance Document.

       However, before a participant may receive any confidential information,
       it must agree with the relevant Finance Party to keep that information
       confidential on the terms of paragraph (a) above.

29.3   This Clause supersedes any previous confidentiality undertaking given by
       a Finance Party in connection with this Agreement prior to it becoming a
       Party.

30.    SET-OFF

       Following the occurrence of an Event of Default which is outstanding, a
       Finance Party may set off any matured obligation owed to it by an Obligor
       under the Finance Documents (to the extent beneficially owned by that
       Finance Party) against any matured obligation owed by that Finance Party
       to that Obligor (other than amounts due by that Finance Party under a
       Trading Contract), regardless of the place of payment, booking branch or
       currency of either obligation. If the obligations are in different
       currencies, the Finance Party may convert either obligation at a market
       rate of exchange in its usual course of business for the purpose of the
       set-off.

31.    PRO RATA SHARING

31.1   Redistribution

       If any amount owing by an Obligor under this Agreement to a Lender (the
       recovering Lender) is discharged by payment, set-off or any other manner
       other than through the Facility Agent under this Agreement (a recovery),
       then:

       (a)    the recovering Lender must, within three Business Days, supply
              details of the recovery to the Facility Agent;

       (b)    the Facility Agent must calculate whether the recovery is in
              excess of the amount which the recovering Lender would have
              received if the recovery had been received and distributed by the
              Facility Agent under this Agreement; and

       (c)    the recovering Lender must pay to the Facility Agent an amount
              equal to the excess (the redistribution).

31.2   Effect of redistribution

(a)    The Facility Agent must treat a redistribution as if it were a payment by
       the relevant Obligor under this Agreement and distribute it among the
       Lenders, other than the recovering Lender, accordingly.

(b)    When the Facility Agent makes a distribution under paragraph (a) above,
       the recovering Lender will be subrogated to the rights of the Finance
       Parties which have shared in that redistribution.

(c)    If and to the extent that the recovering Lender is not able to rely on
       any rights of subrogation under paragraph (b) above, the relevant Obligor
       will owe the recovering Lender a debt which is equal to the
       redistribution, immediately payable and of the type originally
       discharged.



                                       63






(d)    If:

       (i)    a recovering Lender must subsequently return a recovery, or an
              amount measured by reference to a recovery, to an Obligor; and

       (ii)   the recovering Lender has paid a redistribution in relation to
              that recovery,

       each Finance Party must reimburse the recovering Lender all or the
       appropriate portion of the redistribution paid to that Finance Party,
       together with interest for the period while it held the redistribution.
       In this event, the subrogation in paragraph (b) above will operate in
       reverse to the extent of the reimbursement.

31.3   Exceptions

       Notwithstanding any other term of this Clause, a recovering Lender need
       not pay a redistribution to the extent that:

       (a)    it would not, after the payment, have a valid claim against the
              relevant Obligor in the amount of the redistribution; or

       (b)    it would be sharing with another Finance Party any amount which
              the recovering Lender has received or recovered as a result of
              legal or arbitration proceedings, where:

              (i)    the recovering Lender notified the Facility Agent of those
                     proceedings; and

              (ii)   the other Finance Party had an opportunity to participate
                     in those proceedings but did not do so or did not take
                     separate legal or arbitration proceedings as soon as
                     reasonably practicable after receiving notice of them.

32.    SEVERABILITY

       If a term of a Finance Document is or becomes illegal, invalid or
       unenforceable in any jurisdiction, that will not affect:

       (a)    the legality, validity or enforceability in that jurisdiction of
              any other term of the Finance Documents; or

       (b)    the legality, validity or enforceability in other jurisdictions of
              that or any other term of the Finance Documents.

33.    COUNTERPARTS

       Each Finance Document may be executed in any number of counterparts. This
       has the same effect as if the signatures on the counterparts were on a
       single copy of the Finance Document.

34.    NOTICES

34.1   In writing

(a)    Any communication in connection with a Finance Document must be in
       writing and, unless otherwise stated, may be given:

       (i)    in person, by post, fax or any other electronic communication
              approved by the Facility Agent and the Company; or



                                       64






       (ii)   if between the Facility Agent and a Lender and the Facility Agent
              and the Lender agree, by e-mail or other electronic communication.

(b)    For the purpose of the Finance Documents, an electronic communication
       will be treated as being in writing.

       Unless it is agreed to the contrary, any consent or agreement required
       under a Finance Document must be given in writing.

34.2   Contact details

(a)    Except as provided below, the contact details of each Party for all
       communications in connection with the Finance Documents are those
       notified by that Party for this purpose to the Facility Agent on or
       before the date it becomes a Party.

(b)    The contact details of the Company and the Guarantor for this purpose
       are:

       Address:          International Paper Company,
                         400 Atlantic Street,
                         Stamford, Connecticut 06921

       Fax number:       (203) 541-8263

       Attention:        Vice President-Treasury

       With a copy to:

       David S. Stein, Esq,
       International Paper Company,
       400 Atlantic Street,
       Stamford,
       Connecticut 06921

       Fax number:       (203) 541-8208

(c)    The contact details of the Facility Agent for this purpose are:

       Address:          37 Place du Marche Saint Honore 75031 Paris Cedex 01
       Fax number:       + 33 (0) 1 42 98 43 17
       E-mail:           thierry.bonnel@ bnpparibas.com
       Attention:        Thierry Bonnel.

(d)    Any Party may change its contact details by giving five Business Days'
       notice to the Facility Agent or (in the case of the Facility Agent) to
       the other Parties.

(e)    Where a Party nominates a particular department or officer to receive a
       communication, a communication will not be effective if it fails to
       specify that department or officer.

34.3   Effectiveness

(a)    Except as provided below, any communication in connection with a Finance
       Document will be deemed to be given as follows:

       (i)    if delivered in person, at the time of delivery;



                                       65






       (ii)   if posted, five days after being deposited in the post, postage
              prepaid, in a correctly addressed envelope;

       (iii)  if by fax, 24 hours after despatch; and

       (iv)   if by e-mail or any other electronic communication, when received
              in legible form.

(b)    A communication given under paragraph (a) above but received on a
       non-working day or after business hours in the place of receipt will only
       be deemed to be given on the next working day in that place.

(c)    A communication to the Facility Agent, the Company or the Guarantor will
       only be effective on actual receipt by it.

34.4   Obligors

(a)    All communications under the Finance Documents to or from an Obligor must
       be sent through the Facility Agent.

(b)    All communication in connection with a Finance Document will be given to
       each Obligor.

(c)    The Facility Agent may assume that any communication made by an Obligor
       is made with the consent of the other Obligor.

35.    LANGUAGE

(a)    Any notice given in connection with a Finance Document must be in
       English.

(b)    Any other document provided in connection with a Finance Document must
       be:

       (i)    in English; or

       (ii)   (unless the Facility Agent otherwise agrees) accompanied by a
              certified English translation. In this case, the English
              translation prevails unless the document is a statutory or other
              official document.

36.    USA PATRIOT ACT

       Each Lender hereby notifies each Obligor, that pursuant to the
       requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed
       into law 26th October, 2001)) (the Patriot Act), it is required to
       obtain, verify and record information that identifies each Obligor, which
       information includes the name and address of each Obligor and other
       information that will allow such Lender to identify such Obligor in
       accordance with the Patriot Act.

37.    GOVERNING LAW

       This Agreement is governed by English law.

38.    ENFORCEMENT

38.1   Jurisdiction

(a)    The English courts have exclusive jurisdiction to settle any dispute in
       connection with any Finance Document.



                                       66






(b)    Notwithstanding paragraph (a) above, any New York State court or Federal
       court sitting in the City and County of New York also has jurisdiction to
       settle any dispute in connection with any Finance Document.

(c)    The English and New York courts are the most appropriate and convenient
       courts to settle any such dispute and each Obligor waives objection to
       those courts on the grounds of inconvenient forum or otherwise in
       relation to proceedings in connection with any Finance Document.

(d)    To the extent allowed by law, a Party may take:

       (i)    proceedings in any other court; and

       (ii)   concurrent proceedings in any number of jurisdictions.

38.2   Service of process

(a)    Each Obligor not incorporated in England and Wales irrevocably appoints
       Dewey Ballantine, One London Wall, London, EC2Y 5EZ as its agent under
       the Finance Documents for service of process in any proceedings before
       the English courts.

(b)    The Company irrevocably appoints the Guarantor as its agent for service
       of process in any proceedings before any New York State courts.

(c)    If any person appointed as process agent is unable for any reason to act
       as agent for service of process, the Company (on behalf of the Obligors)
       must immediately appoint another agent on terms acceptable to the
       Facility Agent. Failing this, the Facility Agent may appoint another
       agent for this purpose.

(d)    Each Obligor agrees that failure by a process agent to notify it of any
       process will not invalidate the relevant proceedings.

(e)    This Clause does not affect any other method of service allowed by law.

38.3   Waiver of immunity

       Each Party irrevocably and unconditionally:

       (a)    agrees not to claim any immunity from proceedings brought by
              another Party against it in relation to a Finance Document and to
              ensure that no such claim is made on its behalf;

       (b)    consents generally to the giving of any relief or the issue of any
              process in connection with those proceedings; and

       (c)    waives all rights of immunity in respect of it or its assets.

 38.4  Waiver of trial by jury

       EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
       APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL
       PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
       AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON
       CONTRACT, TORT OR ANY OTHER THEORY).


                                       67






       EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY
       OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
       OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
       FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES
       HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
       THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

39.    COMPLETE AGREEMENT

       The Finance Documents contain the complete agreement between the Parties
       on the matters to which they are related and supersede all prior
       commitments, agreements and understandings, whether written or oral, on
       those matters.

This Agreement has been entered into on the date stated at the beginning of this
Agreement.



                                       68






                                   SCHEDULE 1

                                ORIGINAL PARTIES



Name of Original Lender                                                    Commitments

                                                                        
BNP Paribas                                                                'E'63,000,000

Barclays Bank plc                                                          'E'63,000,000

ABN Amro Bank N.V.                                                         'E'63,000,000

Citigroup International plc                                                'E'41,500,000

Fortis Banque France                                                       'E'41,500,000

JP Morgan Chase Bank                                                       'E'41,500,000

Mizuho Corporate Bank (USA)                                                'E'41,500,000

The Governor and Company of the Bank of Ireland                            'E'30,000,000

Banco Santander Central Hispano, S.A.                                      'E'30,000,000

Societe Generale                                                           'E'30,000,000

UBS Limited                                                                'E'30,000,000

Sumitomo Mitsui Banking Corporation                                        'E'25,000,000

                                                                           ----------------

Total Commitments                                                         'E'500,000,000
                                                                           ----------------




                                       69






                                   SCHEDULE 2

                         CONDITIONS PRECEDENT DOCUMENTS

Obligors

1.     A copy of the constitutional documents of each Obligor. In respect of the
       Company, this shall be a certified copy of the statuts and an original
       extract of the K-Bis of the Registry of Commerce and Companies each dated
       no earlier than one month before the date of this Agreement.

2.     A copy of a resolution of the board of directors of the Guarantor, and a
       copy of the Decision of the President of the Company, in each case
       approving the terms of, and the transactions contemplated by, this
       Agreement.

3.     A specimen of the signature of each person authorised on behalf of an
       Obligor to execute or witness the execution of any Finance Document or to
       sign or send any document or notice in connection with any Finance
       Document and evidence that each person signing the Finance Documents on
       behalf of the Company is authorised to do so.

4.     A certificate of an authorised signatory of the Company certifying that
       each copy document specified in this Schedule is correct, complete and in
       full force and effect as at a date no earlier than the date of this
       Agreement.

5.     Evidence that any process agent referred to in Clause 38.2 (Service of
       process), if not an Obligor, has accepted its appointment.

Legal opinions

Legal opinions of Allen & Overy LLP, legal advisers in England, New York and
France to all Mandated Lead Arrangers and the Facility Agent, addressed to the
Finance Parties.

Other documents and evidence

Evidence that all fees, costs and expenses then due and payable from the Company
under this Agreement have been or will be paid by the first Utilisation Date.



                                       70






                                   SCHEDULE 3

                                 FORM OF REQUEST

To:    [BNP PARIBAS] as Facility Agent

From:  [        ]

Date:  [        ]



    INTERNATIONAL PAPER INVESTMENTS (FRANCE) S.A.S.-'E'500,000,000 Credit
             Agreement dated [       ] August, 2004 (the Agreement)

1.     We refer to the Agreement. This is a Request.

2.     We wish to borrow a Loan on the following terms:

       (a)    Utilisation Date: [       ]

       (b)    Amount/currency: [        ]

       (c)    Term: [      ].

3.       Our payment instructions are: [        ].

4.       We confirm that each condition precedent under the Agreement which must
         be satisfied on the date of this Request is so satisfied.

5.       This Request is irrevocable.

By:

[       ]



                                       71






                                   SCHEDULE 4

                        CALCULATION OF THE MANDATORY COST

1.     General

(a)    The Mandatory Cost is to compensate a Lender for the cost of compliance
       with:

       (i)    the requirements of the Bank of England and/or the Financial
              Services Authority (or, in either case, any other authority which
              replaces any of its functions); or

       (ii)   the requirements of the European Central Bank.

(b)    The Mandatory Cost is expressed as a percentage rate per annum.

(c)    The Mandatory Cost is the weighted average (weighted in proportion to the
       percentage share of each Lender in the relevant Loan) of the rates for
       the Lenders calculated by the Facility Agent in accordance with this
       Schedule on the first day of a Term (or as soon as possible after then).

(d)    The Facility Agent must distribute each amount of Mandatory Cost among
       the Lenders on the basis of the rate for each Lender.

(e)    Any determination by the Facility Agent pursuant to this Schedule will
       be, in the absence of manifest error, conclusive and binding on all the
       Parties.

2.     For a Lender lending from a Facility Office in the U.K.

(a)    The relevant rate for a Lender lending from a Facility Office in the U.K.
       is calculated in accordance with the following formulae:

       for a Loan in Sterling:

       AB+C(B-D) + E x 0.01
       -------------------- per cent. per annum
             100-(A+C)

       for any other Loan:

        E x 0.01
       ---------- per cent. per annum
           300

       where on the day of application of the formula:

       A      is the percentage of that Lender's eligible liabilities (in excess
              of any stated minimum) which the Bank of England requires it to
              hold on a non-interest-bearing deposit account in accordance with
              its cash ratio requirements;

       B      is the percentage rate of LIBOR for the relevant Term;

       C      is the percentage (if any) of that Lender's eligible liabilities
              which the Bank of England requires it to place as an interest
              bearing special deposit;



                                       72






       D      is the percentage rate per annum payable by the Bank of England on
              interest bearing special deposits; and

       E      is calculated by the Facility Agent as being the average of the
              rates of charge under the fees rules supplied by the Reference
              Banks to the Facility Agent under paragraph (d) below and
              expressed in pounds per 'L'1 million.

(b)    For the purposes of this paragraph 2:

       (i)    eligible liabilities and special deposit(s) have the meanings
              given to them at the time of application of the formula pursuant
              to the Bank of England Act 1988 or (as appropriate) by the Bank of
              England;

       (ii)   fees rules means the then current rules on periodic fees in the
              Supervision Manual of the FSA Handbook or any other law or
              regulation as may then be in force for the payment of fees for the
              acceptance of deposits;

       (iii)  fee tariffs means the fee tariffs specified in the fees rules
              under fee-block Category A1 (Deposit acceptors) (ignoring any
              minimum fee or zero rated fee required pursuant to the fees rules
              but applying any applicable discount rate); and

       (iv)   tariff base has the meaning given to it in, and will be calculated
              in accordance with, the fees rules.

(c)    (i)    In the application of the formulae, A, B, C and D are included as
              figures and not as percentages, e.g. if A = 0.5% and B = 15%, AB
              is calculated as 0.5 x 15. A negative result obtained by
              subtracting D from B is taken as zero.

       (ii)   Each rate calculated in accordance with a formula is, if
              necessary, rounded upward to four decimal places.

(d)    If requested by the Facility Agent, each Reference Bank must, as soon as
       practicable after publication by the Financial Services Authority, supply
       to the Facility Agent the rate of charge payable by that Reference Bank
       to the Financial Services Authority under the fees rules for that
       financial year of the Financial Services Authority (calculated by that
       Reference Bank as being the average of the fee tariffs applicable to that
       Reference Bank for that financial year) and expressed in pounds per
       'L'1 million of the tariff base of that Reference Bank.

(e)    Each Lender must supply to the Facility Agent the information required by
       it to make a calculation of the rate for that Lender. In particular, each
       Lender must supply the following information on or prior to the date on
       which it becomes a Lender:

       (i)    the jurisdiction of its Facility Office; and

       (ii)   any other information that the Facility Agent reasonably requires
              for that purpose.

       Each Lender must promptly notify the Facility Agent of any change to the
       information supplied to it under this paragraph.

(f)    The percentages of each Lender for the purposes of A and C above and the
       rates of charge of each Reference Bank for the purpose of E above are
       determined by the Facility Agent based upon the information supplied to
       it under paragraphs (d) and (e) above. Unless a Lender notifies the
       Facility Agent to the contrary, the Facility Agent may assume that the
       Lender's


                                       73






       obligations in respect of cash ratio deposits and special deposits are
       the same as those of a typical bank from its jurisdiction of
       incorporation with a Facility Office in the U.K.

(g)    The Facility Agent has no liability to any Party if its calculation over
       or under compensates any Lender. The Facility Agent is entitled to assume
       that the information provided by any Lender or Reference Bank under this
       Schedule is true and correct in all respects.

3.     For a Lender lending from a Facility Office in a Participating Member
       State

(a)    The relevant rate for a Lender lending from a Facility Office in a
       Participating Member State is the percentage rate per annum notified by
       that Lender to the Facility Agent. This percentage rate per annum must be
       certified by that Lender in its notice to the Facility Agent as its
       reasonable determination of the cost (expressed as a percentage of that
       Lender's share in all Loans made from that Facility Office) of complying
       with the minimum reserve requirements of the European Central Bank in
       respect of Loans made from that Facility Office.

(b)    If a Lender fails to specify a rate under paragraph (a) above, the
       Facility Agent will assume that the Lender has not incurred any such
       cost.

4.     Changes

(a)    The Facility Agent may, after consultation with the Company and the
       Lenders, determine and notify all the Parties of any amendment to this
       Schedule which is required to reflect:

       (i)    any change in law or regulation; or

       (ii)   any requirement imposed by the Bank of England, the Financial
              Services Authority or the European Central Bank (or, in any case,
              any successor authority).

(b)    If the Facility Agent, after consultation with the Company, determines
       that the Mandatory Cost for a Lender lending from a Facility Office in
       the U.K. can be calculated by reference to a screen, the Facility Agent
       may notify all the Parties of any amendment to this Agreement which is
       required to reflect this.



                                       74






                                   SCHEDULE 5

                          FORM OF TRANSFER CERTIFICATE

To:    [BNP PARIBAS] as Facility Agent

From:  [THE EXISTING LENDER] (the Existing Lender) and [THE NEW LENDER] (the New
       Lender)

Date:  [        ]



   INTERNATIONAL PAPER INVESTMENTS (FRANCE) S.A.S. - 'E'500,000,000 Credit
              Agreement dated [       ] August, 2004 (the Agreement)

We refer to the Agreement. This is a Transfer Certificate.

1.     The Existing Lender transfers by novation to the New Lender the Existing
       Lender's rights and obligations referred to in the Schedule below in
       accordance with the terms of the Agreement.

2.     The proposed Transfer Date is [    ].

3.     The administrative details of the New Lender for the purposes of the
       Agreement are set out in the Schedule.

4.     This Transfer Certificate is governed by English law.


                                       75









                                  THE SCHEDULE

              Rights and obligations to be transferred by novation
      [insert relevant details, including applicable Commitment (or part)]

                    Administrative details of the New Lender
                 [insert details of Facility Office, address for
                        notices and payment details etc.]

[EXISTING LENDER]                            [NEW LENDER]

By:                                          By:

The Transfer Date is confirmed by the Facility Agent as [       ].

[BNP PARIBAS]

By:



                                       76






                                   SCHEDULE 6

                                 EXISTING LIENS



         Member of the Group                   Details of lien           Maximum principal
            creating Liens                                                 amount secured

                                                                  
1.  Georgetown Equipment Leasing                $100,000,000            Sale/leaseback of
Association, L.P.                                                       Georgetown Mill equipment.

2.  Trout Creek Equipment Leasing,               $63,000,000            Sale/leaseback of Ticonderoga
L.P.                                                                    Mill equipment.

3.  Quarterhouse, Limited Partners               $48,000,000            Synthetic Lease of warehouses,
                                                                        printing presses and packaging
                                                                        equipment




                                       77






                                   SCHEDULE 7

                         FORM OF COMPLIANCE CERTIFICATE

To:    [BNP PARIBAS] as Facility Agent

From:  INTERNATIONAL PAPER COMPANY.

Date:  [        ]

   INTERNATIONAL PAPER INVESTMENTS (FRANCE) S.A.S. - 'E'500,000,000 Credit
             Agreement dated [       ] August, 2004 (the Agreement)

1.     We refer to the Agreement. This is a Compliance Certificate.

2.     We confirm that as at [relevant testing date]:

       (a)    The ratio of Total Debt to Total Capital is [     ]; and

       (b)    Consolidated Net Worth is US$[    ].

3.     We set out below calculations establishing the figures in paragraph 2
       above:

       [        ].

4.     We confirm that the following companies were Material Subsidiaries at
       [relevant testing date]:

       [        ].

5.     [We confirm that no Potential Event of Default or Event of Default is
       outstanding as at [relevant testing date].(1)

INTERNATIONAL PAPER COMPANY

By:



- --------
(1)    If this statement cannot be made, the certificate should identify any
       Potential Event of Default or Event of Default that is outstanding and
       the steps, if any, being taken to remedy it.


                                       78






                                   SCHEDULE 8

                               EXISTING FACILITIES

List of all debt instruments or facilities of International Paper Company and
its Material Subsidiaries with principal or face amount of at least
$150,000,000.



                   ISSUE                          PRINCIPAL AMOUNT
- -------------------------------------------  -----------------------------------
                                                     
5.85% Note Due 2012                                       $1,200,000,000
3.75% Zero Coupon Convertible Note Due 2021               $1,001,264,000
6.75% Note Due 2011                                       $1,000,000,000
5.30% Note Due 2015                                         $700,000,000
4.00% Note Due 2010                                         $600,000,000
5.50% Note Due 2014                                         $500,000,000
4.25% Note Due 2009                                         $500,000,000
5.25% Note Due 2016                                         $400,000,000
3.80% Note Due 2008                                         $300,000,000
5.375% Euro Notes Due 2006                               EUR 250,000,000
7.35% Note Due 2025                                         $200,000,000
6.4% Note Due 2026                                          $200,000,000
7.2% Note Due 2026                                          $200,000,000
7.625% Note Due 2007                                        $200,000,000
6.875% Note Due 2023                                        $200,000,000
6.875% Note Due 2029                                        $200,000,000
7.75% Note Due 2025                                         $150,000,000
7.10% Note Due 2005                                         $150,000,000
7% Note Due 2006                                            $150,000,000
6.5% Note Due 2007                                          $150,000,000
7.875% Note Due 2006                                        $150,000,000




            PREFERRED SECURITIES                  PRINCIPAL AMOUNT
- -------------------------------------------  -----------------------------------
                                                     

5.25% Convertible Preferred Securities Due                  $449,831,150
    2025

7.005% Preferred Stock - TCCII Due 2039                     $170,000,000





                                               Amount outstanding as at
                Bank Facility                       26 August, 2004
- -------------------------------------------  -----------------------------------
                                                     
$750,000,000 R/C Facility Due 2006                                     $0
$1,250,000,000 R/C Facility Due 2009                                   $0
$650,000,000 Receivable Securitization 2004                  $600,000,000
$650,000,000 Term Loan in the Name of                        $650,000,000
Ngahere Aotearoa Due 2007




                                       79







                               Carter Holt Harvey



                   ISSUE                         PRINCIPAL AMOUNT
- -------------------------------------------  -----------------------------------
                                                     
9.50% Debentures Due 2024                                  $150,000,000
8.875% Notes Due 2004                                      $305,000,000
8.375% Debentures Due 2015                                 $150,000,000



                                       80






                                   SCHEDULE 9

                       FORM OF TAUX EFFECTIF GLOBAL LETTER

                    [ON THE LETTERHEAD OF THE FACILITY AGENT]

From:  [BNP PARIBAS] as Facility Agent

To:    [        ]

                                                                   Date:  [    ]

Dear Sirs,

   INTERNATIONAL PAPER INVESTMENTS (FRANCE) S.A.S. - 'E'500,000,000 Credit
             Agreement dated [        ] August, 2004 (the Agreement)

We refer to the Agreement.

This is the letter setting out the applicable effective global rate (taux
effectif global) referred to in the Agreement.

The applicable taux effectif global, calculated on the basis of a 365-day year,
is:

(a)    for a Term of one month and at [LIBOR/EURIBOR] rate of [ ] per cent. per
       annum, [TEG rate to be inserted] per cent. (which corresponds to a taux
       de periode of [Period rate to be inserted] per cent. for a duree de
       periode of one month;

(b)    for a Term of two months and at [LIBOR/EURIBOR] rate of [ ] per cent. per
       annum, [TEG rate to be inserted] per cent. (which corresponds to a taux
       de periode of [Period rate to be inserted] per cent. for a duree de
       periode of two months;

(c)    for a Term of three months and at [LIBOR/EURIBOR] rate of [ ] per cent.
       per annum, [TEG rate to be inserted] per cent. (which corresponds to a
       taux de periode of [Period rate to be inserted] per cent. for a duree de
       periode of three months; and

(d)    for a Term of six months and at [LIBOR/EURIBOR] rate of [ ] per cent. per
       annum, (which corresponds to a taux de periode of [Period rate to be
       inserted] per cent. for a duree de periode of six months.

The above rates:

(a)    are given in order to comply with the provisions of article L.313-1 et
       seq. of the French Code de la Consommation and on an indicative basis and
       for information only;

(b)    are calculated on the basis that:

       (i)    drawdown for the full amount of the Facility has been made in
              [CURRENCY] on [DATE];

       (ii)   the [LIBOR/EURIBOR] rate, expressed as an annual rate, is as fixed
              on [DATE];

       (iii)  the Margin is [   ]; and



                                       81






(c)    take into account the various fees, costs and expenses payable by you
       under the Agreement.

This letter is designated a Finance Document.

Please confirm your acceptance of the terms of this letter by signing and
returning to us the enclosed copy.

Yours faithfully,

- --------------------------------------
[BNP PARIBAS]
as Facility Agent

We agree to the above.

- --------------------------------------
INTERNATIONAL PAPER INVESTMENTS (FRANCE) S.A.S.




                                       82






                                   SCHEDULE 10

                           INDEBTEDNESS OF THE COMPANY

None



                                       83







                                   SIGNATORIES

Company

INTERNATIONAL PAPER INVESTMENTS (FRANCE) S.A.S.

By:



Guarantor

INTERNATIONAL PAPER COMPANY

By:



Mandated Lead Arrangers

BNP PARIBAS

By:



BARCLAYS CAPITAL

By:



ABN AMRO BANK N.V.

By:



Original Lenders

BNP PARIBAS

By:



BARCLAYS BANK PLC

By:



                                       84






ABN AMRO BANK N.V.

By:



CITIGROUP INTERNATIONAL PLC

By:



FORTIS BANQUE FRANCE

By:



JP MORGAN CHASE BANK

By:



MIZUHO CORPORATE BANK (USA)

By:



THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND

By:



BANCO SANTANDER CENTRAL HISPANO, S.A.

By:

By:



SOCIETE GENERALE

By:



UBS LIMITED

By:



                                       85






SUMITOMO MITSUI BANKING CORPORATION

By:



Facility Agent

BNP PARIBAS

By:

                                       86

EX-10

Exhibit 10.17

Amendments to Compensation for Named Executive Officers

Management Incentive Plan

The Management and Compensation Committee of the Board of Directors (the “Committee”) has approved awards under the Company’s Management Incentive Plan for 2004 as follows: Mr. Faraci ($1,415,200), Mr. Amen ($782,000), Mr. Liddell ($495,100) and Ms. Smith ($430,300). In addition, the Committee has set performance objectives for the Management Incentive Plan for 2005, which include both financial metrics (based on the Company’s return on investment (“ROI”) compared to its budget, and ROI compared to its peer group), and company-wide performance measures in relation to three drivers: customers, operational excellence and people (diversity and engagement).

Performance Share Plan

Awards made under the Company’s Performance Share Plan, which is included in the Amended and Restated Long-Term Incentive Compensation Plan (filed as Exhibit 10.1 to the Company’s Annual Report on Form 10-K), are measured based on the Company’s acheivement of ROI to peers and total shareholder return (“TSR”) to peers. The Committee determined that, beginning in 2004, awards for certain members of senior management (including the named executive officers), would be equally weighted between ROI to peers and TSR to peers.

Base Salaries

In March 2005, the Committee conducted its annual review of senior management’s base salaries to make adjustments, as necessary, to recognize individual performance against objectives, promotions and competitive compensation levels. The Committee evaluates the competitiveness of its compensation by benchmarking data from a group of companies, including three in the forest products and paper industry and 18 from a select group of large industrial companies (the “comparator group”). As a result of that review, the Committee and the Board approved an increase in the salaries of the Company’s named executive officers to the following, effective April 1, 2005: Mr. Faraci ($1,125,000), Mr. Amen ($809,750), Mr. Liddell ($530,950) and Ms. Smith ($496,613). The adjustment to Mr. Faraci’s salary was made in recognition of both his performance against objectives as Chairman and CEO, as well as competitive market salary levels. Mr. Faraci’s adjusted base salary was determined to be approximately 87.5% of the average of the comparator group’s CEOs.

EX-11

EXHIBIT 11

INTERNATIONAL PAPER COMPANY

STATEMENT OF COMPUTATION OF PER SHARE EARNINGS

(In Millions, Except Per Share Amounts)

	For the Years Ended December 31
	2004			2003			2002
Earnings from continuing operations before accounting changes	$	478		$	294		$	260
Discontinued operations		(513	)		21			35
Cumulative effect of accounting changes		—			(13	)		(1,175	)
Net earnings (loss)		(35	)		302			(880	)
Effect of dilutive securities		—			—			—
Earnings from continuing operations before the cumulative effect of accounting changes - assuming dilution	$	(35	)	$	302		$	(880	)
Average common shares outstanding		485.8			479.6			481.4
Effect of dilutive securities Stock options		2.6			1.5			1.6
Average common shares outstanding - assuming dilution		488.4			481.1			483.0
Earnings per common share from continuing operations before accounting changes	$	0.98		$	0.62		$	0.54
Discontinued operations		(1.05	)		0.04			0.07
Cumulative effect of accounting changes		—			(0.03	)		(2.44	)
Net earnings (loss) per share	$	(0.07	)	$	0.63		$	(1.83	)
Earnings per common share from continuing operations before accounting changes - assuming dilution	$	0.98		$	0.61		$	0.54
Discontinued operations		(1.05	)		0.04			0.07
Cumulative effect of accounting changes		—			(0.03	)		(2.43	)
Net earnings (loss) per common share - assuming dilution	$	(0.07	)	$	0.63		$	(1.82	)

Note: If an amount does not appear in the above table, the security was antidilutive for the period presented. Antidilutive securities included preferred securities of a subsidiary trust for 2002.

EX-12

EXHIBIT 12

INTERNATIONAL PAPER COMPANY

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

AND PREFERRED STOCK DIVIDENDS

(Dollar Amounts in Millions)

(Unaudited)

		For the Years Ended December 31,
TITLE		2000			2001			2002			2003			2004
A)	Earnings (loss) before income taxes, minority interest, extraordinary items and accounting changes	$	652.0		$	(1,330.0	)	$	306.0		$	292.0		$	746.0
B)	Minority interest expense, net of taxes		(228.0	)		(139.6	)		(118.0	)		(111.0	)		(62.0	)
C)	Fixed charges excluding capitalized interest		1,150.6			1,254.6			1,093.9			1,028.6			941.9
D)	Amortization of previously capitalized interest		23.5			31.8			43.3			41.4			42.2
E)	Equity in undistributed earnings of affiliates		10.0			18.1			26.9			5.0			(15.3	)
F)	Earnings (loss) before income taxes, extraordinary items, accounting changes and fixed charges	$	1,608.1		$	(165.1	)	$	1,352.1		$	1,256.0		$	1,652.8
	Fixed Charges
G)	Interest and amortization of debt expense	$	937.8		$	1,049.8		$	891.1		$	874.9		$	840.0
H)	Interest factor attributable to rentals		72.2			75.8			87.8			86.6			86.3
I)	Preferred dividends of subsidiaries		140.6			129.0			115.0			67.1			15.6
J)	Capitalized interest		24.4			13.2			12.3			8.6			10.9
K)	Total fixed charges	$	1,175.0		$	1,267.8		$	1,106.2		$	1,037.2		$	952.8
L)	Ratio of earnings to fixed charges		1.37						1.22			1.21			1.73
M)	Deficiency in earnings necessary to cover fixed charges				$	(1,432.9	)

Note: Dividends on International Paper’s preferred stock are insignificant. As a result, for all periods presented, the ratios of earnings to fixed charges and preferred stock dividends are the same as the ratios of earnings to fixed charges.

EX-21

EXHIBIT 21

INTERNATIONAL PAPER COMPANY

SUBSIDIARIES AS OF DECEMBER 31, 2004

The following table lists the names of certain subsidiaries of International Paper Company. The table omits names of certain subsidiaries since the omitted subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of December 31, 2004.

U.S. Subsidiaries	State or Jurisdiction of Incorporation
IP Pacific Timberlands, Inc. (Including subsidiaries)	Delaware
Federal Forestlands, Inc. (Including subsidiaries)	Delaware
The Branigar Organization, Inc. (Including subsidiaries)	Illinois
Non-U.S. Subsidiaries
Carter Holt Harvey Limited (Including subsidiaries)	New Zealand
International Paper Do Brasil Ltda.	Brazil
International Paper Investments (France) S.A.S. (Including subsidiaries)	France

EX-23

EXHIBIT 23

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in Registration Statements, 33-51447, 33-62283, 333-02137, 333-62661, 333-69082 and 333-103760 on Form S-3, Registration Statements No. 333-00843, 333-24869, 333-47583, 333-75235, 333-37390, 333-48434, 333-103750 and 333-105988, on Form S-4 and Registration Statements No. 033-61335, 333-01667, 333-75235, 333-37390, 333-85830, 333-85828, 333-85826, 333-85824, 333-85822, 333-85818, 333-85820, 333-108046, and 333-120293 on Form S-8 of our reports dated March 7, 2005 relating to the consolidated financial statements of International Paper Company, and management’s report on the effectiveness of internal control over financial reporting appearing in this Annual Report on Form 10-K of International Paper Company for the year ended December 31, 2004.

NEW YORK, N.Y.
MARCH 7, 2004

EX-31

EXHIBIT 31.1

CERTIFICATION

I, John V. Faraci, certify that:

1. I have reviewed this annual report on Form 10-K of International Paper Company;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

d) Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: March 10, 2005

/s/ John V. Faraci

John V. Faraci

Chairman and Chief Executive Officer

EX-31

EXHIBIT 31.2

CERTIFICATION

I, Christopher P. Liddell, certify that:

1. I have reviewed this annual report on Form 10-K of International Paper Company;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

d) Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: March 10, 2005

/s/ Christopher P. Liddell

Christopher P. Liddell
Senior Vice President and Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION PERSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PERSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The certification set forth below is being submitted in connection with the Annual Report of International Paper Company (the “Company”) on Form 10-K for the period ending December 31, 2004 for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code. John V. Faraci, Chief Executive Officer of the Company, and Christopher P. Liddell, Chief Financial Officer of the Company, each certify that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John V. Faraci
John V. Faraci
Chairman and Chief Executive Officer
March 10, 2005

/s/ Christopher P. Liddell
Christopher P. Liddell
Senior Vice President and Chief Financial Officer
March 10, 2005

This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to International Paper Company and will be retained by International Paper Company and furnished to the Securities and Exchange Commission or its staff upon request.