STAMFORD, Conn., Oct. 26 -- International Paper today reported third-quarter 2004 earnings from continuing operations of $208 million ($0.43 per share) compared with $113 million ($0.23 per share) in the third quarter of 2003 and $62 million ($0.13 per share) in the second quarter of 2004. Additionally, a net discontinued operation charge of $757 million was recorded in the 2004 third quarter to reflect a $795 million write-down of the net assets of the Weldwood of Canada, Ltd. subsidiary to their expected net realizable value, net of Weldwood's operating earnings of $38 million for the quarter. The write down is due to the previously announced sale of the Weldwood subsidiary, which is expected to be completed in the fourth quarter. This charge resulted in a net loss of $549 million ($1.13 per share) for the 2004 third quarter, compared with net earnings of $122 million ($0.25 per share) in the third quarter of 2003 and $193 million ($0.40 per share) in the second quarter of 2004. The above amounts include the effects of special items in all periods. Earnings from continuing operations and before special items in the 2004 third quarter were $209 million ($0.43 per share), compared with $108 million ($0.22 per share) in the third quarter of 2003 and $159 million ($0.33 per share) in the second quarter of 2004. Third-quarter 2004 net sales were $6.6 billion, compared with third- quarter 2003 net sales of $6.1 billion and 2004 second-quarter sales of $6.2 billion. "Our volumes remained strong during the quarter, and price increases continued to be implemented across most grades of paper and packaging," said John Faraci, International Paper chairman and chief executive officer. "However this was somewhat offset by lower wood products pricing, rising raw material costs and the effect of the hurricanes that hit Florida and the gulf coast region impacting sixteen of our facilities." In the fourth quarter, the company expects demand and pricing will continue to be solid in packaging and paper, but expects that will be offset by lower average pricing for wood products, sharply rising raw material costs and higher corporate expenses. Segment Information Operating profits of $585 million for the third quarter were up from the second-quarter 2004 operating profits of $516 million due to higher average price realizations and higher volumes. Third-quarter segment operating profits and business trends compared with the second quarter of 2004 are as follows: Third-quarter operating profits for Printing Papers were $160 million compared with second-quarter operating profits of $141 million as a result of higher average pricing for uncoated free sheet and coated paper. Pulp prices were up on average for the quarter but started to trend down as the quarter ended. Coated paper sales volumes were seasonally higher. These improving business conditions were somewhat offset by seasonally lower sales volumes for European papers as well as by the impact of the hurricanes. Industrial and Consumer Packaging operating profits were $183 million in the third quarter, compared with $111 million in the second quarter, as a result of higher average pricing and volumes across containerboard, corrugated boxes and bleached board. The company's distribution business, xpedx, reported operating profits of $27 million for the third quarter compared with operating profits in the second quarter of $21 million, due to improved sales and reduced operating costs. Third-quarter Forest Products operating profits were $191 million, compared with earnings of $222 million in the second quarter primarily as a result of lower average pricing for lumber and plywood. Gains from land sales were flat with second quarter. Operating profits at Carter Holt Harvey, International Paper's 50.5 percent owned subsidiary in New Zealand, were $17 million in the third quarter, compared with second-quarter operating profits of $7 million as a result of improved operations and the absence of a special charge for the sale of a Chilean packaging operation that was recorded in the second quarter. Net corporate expenses of $101 million in the 2004 third quarter were essentially unchanged from $102 million in the 2004 second-quarter, but were lower than net expenses of $138 million in the third quarter of 2003 reflecting lower overhead and benefit related costs. Discontinued Operations During the 2004 third quarter, the company reached agreement to sell its Weldwood of Canada, Ltd. (Weldwood) business for approximately C$1.26 billion in cash, subject to certain adjustments at closing, expected to be completed in the 2004 fourth quarter. Accordingly, a $795 million after tax discontinued operations charge was recorded in the third quarter to write down the assets of Weldwood to their estimated net realizable value upon sale. Discontinued operations for the 2004 second quarter includes a net gain of $90 million after taxes and minority interest relating to the sale of the Carter Holt Harvey tissue business. Furthermore, all periods presented have been restated to present the operating results of Weldwood and the tissue business as discontinued operations. Effects of Special Items Special items in the 2004 third quarter included a charge of $55 million before taxes and minority interest ($31 million after taxes and minority interest) for restructuring and other costs, a pre-tax credit of $103 million ($64 million after taxes) for insurance recoveries related to the hardboard siding and roofing litigation, a charge of $38 million for estimated losses on sales and impairments of businesses held for sale and a $6 million credit ($4 million after taxes) for the net reversal of restructuring and realignment reserves no longer required. The $55 million charge for restructuring and other costs included $18 million ($11 million after taxes and minority interest) for organizational restructuring programs, a $29 million goodwill impairment charge ($15 million after minority interest), and $8 million charge ($5 million after taxes) for losses on early extinguishment of debt. The net after-tax effect of all of these special items was $0.00 per share. Special items in the 2004 second quarter included a charge of $107 million before taxes and minority interest ($63 million after taxes and minority interest) for restructuring and other costs, a charge of $36 million before taxes and minority interest ($32 million after taxes and minority interest) for estimated losses on sales and impairments of businesses held for sale and a $5 million credit ($3 million after taxes and minority interest) for the net reversal of restructuring and realignment reserves no longer required. In addition, a $5 million net increase in the tax provision, after minority interest, was recorded in the quarter reflecting a charge for an adjustment of deferred tax balances and a credit from the reduction of valuation reserves for capital loss carryovers. The $107 million charge for restructuring and other costs included $42 million ($23 million after taxes and minority interest) for organizational restructuring programs and $65 million ($40 million after taxes) for losses on early extinguishment of debt. The $36 million charge for estimated losses on sales and impairments of businesses held for sale included $4 million before taxes recorded in the Packaging segment and $3 million before taxes recorded in the Carter Holt Harvey segment for the estimated loss on the sale of Food Pack S.A. in Chile. The net after- tax effect of all of these special items was an expense of $0.20 per share. Special items in the 2003 third quarter included a pre-tax charge of $93 million ($59 million after taxes), including $33 million for facility closure costs, $38 million for severance costs associated with organizational restructuring programs, $8 million for early debt retirement costs, and $14 million for additional legal reserves; a pre-tax charge of $1 million ($1 million after taxes) to adjust costs of businesses previously sold; and a pre- tax credit of $8 million ($5 million after taxes) for the reversal of restructuring and realignment reserves no longer required. In addition, a decrease in the income tax provision of $60 million was recorded reflecting a favorable revision of estimated tax reserves upon filing of the 2002 Federal income tax return and increased research and development credits. The net after-tax effect of these special items was an increase of $0.01 per share.