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. 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. 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. 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 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. 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. 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. 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: 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. The effect on 2004, 2003 and 2002 pro forma net earnings, earnings per common share and earnings per common share 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) Stock-Based Compensation Impairment of Long-Lived Assets Goodwill Income Taxes 43