Minimum Pension Liability Adjustment Unrecognized Actuarial Losses Non-U.S. Defined Benefit Plans 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. 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: 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 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: 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) Change in plan assets: Fair value of plan assets, January 1 $ 6,436) $ 5,584) Actual return on plan assets 797) 1,318) Company contributions 49) 18) Benefits paid (537) (486) 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) In millions 2004 2003 Projected benefit obligation $8,294 $7,899 Accumulated benefit obligation 7,927 7,572 Fair value of plan assets 6,745 6,436 73