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. 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. 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. Overview Liquidity and Capital Resources 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). 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 21 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 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. 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. In millions 2004 2003 2002 Sales $1,120 $1,235 $1,455 Operating Profit $ 38 $ 23 $ 18 Specialty Businesses and Other