STAMFORD, Conn., Feb. 3 -- International Paper today reported fourth-quarter 2004 earnings from continuing operations of $157 million ($0.32 per share basic and diluted) compared with $35 million ($0.08 per share basic, $0.07 per share diluted) in the fourth quarter of 2003 and $208 million ($0.43 per share basic, $0.42 per share diluted) in the third quarter of 2004. For the full-year 2004, International Paper reported earnings from continuing operations of $478 million ($0.98 per share basic and diluted) compared with $294 million ($0.62 per share basic, $0.61 per share diluted) in 2003. Diluted per share amounts reflect a recent accounting pronouncement requiring the inclusion of contingently convertible securities in computing diluted earnings per share. The above amounts include the effects of special items in all periods. After discontinued operations relating to the sale of Weldwood of Canada Limited, net earnings for the 2004 fourth quarter totaled $169 million ($0.35 per share basic and diluted) compared with a loss of $470 million ($0.97 per share basic, $0.91 per share diluted) in the 2004 third quarter and earnings of $48 million ($0.10 per share basic and diluted) in the fourth quarter of 2003. Full-year 2004 results totaled a net loss of $35 million ($0.07 per share basic and diluted) compared with net earnings of $302 million ($0.63 per share basic and diluted) in 2003. Earnings from continuing operations and before special items in the 2004 fourth quarter were $209 million ($0.43 per share basic, $0.42 per share diluted), compared with $94 million ($0.20 per share basic, $0.19 per share diluted) in the fourth quarter of 2003 and $209 million ($0.43 per share basic, $0.42 per share diluted) in the third quarter of 2004. Earnings from continuing operations and before special items for the full year 2004 were $637 million ($1.31 per share basic, $1.30 diluted), compared with $363 million ($0.76 per share basic, $0.75 per share diluted) for the year 2003. Fourth-quarter 2004 earnings reflect an effective tax rate, excluding special items, discontinued operations and accounting changes, of 16 percent, which reduced the full-year effective tax rate to 26 percent from 30 percent estimated in the third quarter. The lower tax rate reflects an increase in non-US tax credits, a reduction of tax valuation allowances and a higher proportion of earnings in lower tax rate jurisdictions. Fourth-quarter 2004 net sales rose to $6.6 billion from $6.1 billion in the fourth quarter of 2003, and compared with $6.6 billion in the third quarter of 2004. For the full-year 2004, net sales were $25.5 billion compared with 2003 net sales of $24.0 billion. "Throughout 2004, we experienced healthy business conditions with solid volume and improving average price realizations," said John Faraci, International Paper chairman and chief executive officer. "However, margins and earnings were impacted by dramatically rising raw material costs and lower wood products pricing, particularly in the last quarter." Commenting on the first quarter of 2005, Faraci said, "Going into February, we are seeing demand starting to improve. After a slow month in January, our order activity is picking up, and our average price realizations are moving up on coated paper, some grades of printing papers, bleached board and pulp. However, our profit margins and earnings will be under pressure as the raw material cost environment continues to be severe. We expect higher benefit-related costs, and the investment we are making to improve our supply chain will be somewhat higher this quarter." The company also said it will continue to strengthen its balance sheet through the repayment of debt. For example, by the end of January 2005, the company had used the proceeds from the divestitures of Weldwood of Canada and the Maine and New Hampshire forestlands to repay approximately $1.3 billion in debt. Segment Information Operating profits of $583 million for the 2004 fourth quarter were essentially flat compared with the third-quarter 2004 operating profits of $585 million, as the benefit of higher average price realizations in Printing Papers and Packaging were offset by higher input costs and lower wood products price realizations. Fourth-quarter segment operating profits and business trends compared with the third quarter of 2004 are as follows: Fourth-quarter operating profits for Printing Papers were $196 million compared with third-quarter operating profits of $160 million as a result of the company experiencing higher average pricing for uncoated free sheet and coated paper in the United States. This was somewhat offset by weaker average pulp pricing and higher input costs. Industrial and Consumer Packaging operating profits were $170 million in the fourth quarter, compared with $183 million in the third quarter, as higher average pricing across International Paper's containerboard, corrugated box and bleached board businesses was offset by higher input costs and seasonally lower volumes in Industrial Packaging, maintenance downtime in containerboard and weaker operational performance. The company's distribution business, xpedx, reported operating profits of $22 million for the fourth quarter compared with operating profits in the third quarter of $27 million, due to seasonally weaker business conditions. Fourth-quarter Forest Products operating profits were $176 million, compared with earnings of $191 million in the third quarter primarily as lower average IP wood products price realizations combined with seasonally slower volumes more than offset $20 million of higher income from land and real estate sales. Operating profits at Carter Holt Harvey, International Paper's 50.5 percent owned subsidiary in New Zealand, were $12 million in the fourth quarter, compared with third-quarter operating profits of $17 million as a result of facility reorganization costs. Net corporate expenses of $156 million in the 2004 fourth quarter were higher than the $101 million in the 2004 third quarter and the $144 million in the 2003 fourth quarter. The increase in the 2004 fourth quarter compared with the previous quarter reflects higher inventory-related costs, higher costs from the company's supply chain initiative, and slightly higher administrative overhead costs. Higher inventory-related and supply chain initiative costs were also the major factors in the increase compared to the 2003 fourth quarter, offsetting the effect of lower administrative overhead costs. Discontinued Operations During the 2004 fourth quarter, International Paper completed the sale of Weldwood of Canada Limited for cash proceeds of approximately U.S. $1.1 billion. While still subject to post-closing adjustments, the loss on sale was approximately $84 million less than estimated in the third quarter. The loss on discontinued operations was reduced by $79 million and $5 million in the 2004 third quarter and fourth quarter, respectively. All periods presented have been restated to present the operating results of Weldwood, and the tissue business of Carter Holt Harvey sold in the 2004 second quarter, as discontinued operations. Effects of Special Items Special items in the 2004 fourth quarter included a charge of $79 million ($64 million after taxes) for estimated losses on sales and impairments of businesses held for sale, a charge of $19 million before taxes and minority interest ($11 million after taxes and minority interest) for restructuring and other costs, a pre-tax credit of $20 million ($12 million after taxes) for insurance recoveries related to the hardboard siding and roofing litigation, and a $17 million credit ($11 million after taxes) for the net reversal of restructuring and realignment reserves no longer required. The $19 million charge for restructuring and other costs included $10 million ($6 million after taxes and minority interest) for legal reserves, a $6 million goodwill impairment charge ($3 million after minority interest), and a $3 million charge ($2 million after taxes) for losses on early extinguishment of debt. The net after-tax effect of all of these special items was expense of $0.11 per share. 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 2003 fourth quarter included a pretax charge of $101 million ($61 million after taxes and minority interest) for restructuring and other costs, $21 million ($26 million after taxes) of net losses on sales and impairments of businesses held for sale, and a $23 million credit ($15 million after taxes) for the net reversal of restructuring and realignment reserves no longer required. In addition, a $13 million decrease in the income tax provision, after minority interest, was recorded in the fourth quarter reflecting a favorable settlement with Australian tax authorities of net operating loss carryforward credits. The $101 million charge for restructuring and other costs included $91 million ($55 million after taxes and minority interest) for facility closures and organizational restructuring programs, $29 million ($18 million after taxes) for additional legal reserves, and a credit of $19 million ($12 million after taxes) for gains on early extinguishment of debt. The net after-tax effect of these special items was an expense of $0.12 per share. Additionally, an after-tax charge of $3 million ($0.01 per share) was recorded for the cumulative effect of an accounting change, for a total expense of $0.13 per share in the quarter from special items and accounting changes.