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Georgia-Pacific Reports Q4 & 2002 Results: Loss Widens

Wednesday, January 22, 2003

Press release from the issuing company

ATLANTA, Jan. 21 -- Georgia-Pacific Corp. today reported that its results from continuing operations before unusual items broke even in the fourth quarter 2002 compared with income from continuing operations (before unusual items and goodwill amortization) of $98 million (42 cents diluted earnings per share) in the same period of 2001. Including unusual items, the company reported a loss from continuing operations of $234 million (94 cents diluted loss per share) for fourth quarter 2002 compared with a loss from continuing operations of $187 million (81 cents diluted loss per share) for the same period a year ago. During the fourth quarter 2002, the company incurred total one-time, pre-tax charges of $621 million, or 94 cents diluted loss per share, related primarily to charges for asbestos liabilities and defense costs, net of anticipated insurance recoveries ($315 million), a loss on the sale of the Unisource Worldwide paper distribution business ($298 million), and business separation costs ($8 million). Because the company incurred higher asbestos liabilities and defense costs in 2002 than anticipated, Georgia-Pacific and National Economic Research Associates (NERA) have revised the projection made at the end of 2001 to reflect the impact of these higher costs on the original projection and to extend the projection from 2011 to 2012. As it did last year, Georgia- Pacific, working with Peterson Consulting, also has determined the amount of insurance it expects to receive under its existing product liability policies, and the amounts of such recoveries have been netted against NERA's projected costs over the 10-year period. The fourth quarter 2002 charge of $315 million ($198 million after tax or 79 cents diluted loss per share) is for asbestos liabilities and defense costs, net of anticipated insurance recoveries, Georgia-Pacific expects to pay through 2012. The charge will be added to a similar charge taken at the end of 2001. For the period from 2003 through 2012, Georgia-Pacific anticipates its total gross asbestos liabilities and defense costs will be slightly less than $1.2 billion, and that its expected insurance recoveries during that period will be slightly less than half of such total. The company has limited amounts of product liability insurance remaining beyond such anticipated recoveries. Also during the fourth quarter 2002, Georgia-Pacific sold to Bain Capital a controlling, 60 percent interest in Unisource. As a result, the company recorded a pre-tax loss of $298 million ($30 million after tax or 12 cents diluted loss per share) on the sale for the fourth quarter. In the second quarter 2002, the company recorded a pre-tax loss of $208 million (71 cents diluted loss per share) for impairment of goodwill and long-lived assets of Unisource. In addition, effective for the first quarter 2002, the company recorded a goodwill impairment charge for Unisource of $545 million ($2.29 diluted loss per share) upon adoption of new accounting rules for goodwill. The 2002 operating results reflect new accounting rules under which goodwill is no longer amortized. In the fourth quarter 2001, goodwill amortization totaled $54 million (23 cents diluted loss per share). In the fourth quarter 2001, the company incurred a $350 million ($221 million after tax or 96 cents diluted loss per share) charge for asbestos liabilities, net of insurance recoveries, as well as one-time, unusual pre-tax charges of $18 million ($10 million after tax or 4 cents diluted loss per share) related to restructuring and asset impairment charges, net of one-time gains. For the full year 2002, Georgia-Pacific reported a loss from continuing operations of $190 million (80 cents diluted loss per share), including unusual items. For the full year 2001, including unusual items and goodwill amortization, the company reported a loss from continuing operations of $476 million ($2.09 diluted loss per share). The company's income from continuing operations for all of 2002 was $265 million ($1.12 diluted earnings per share) before unusual items compared with full year 2001 income from continuing operations before unusual items and goodwill amortization of $348 million ($1.52 diluted earnings per share) in 2001. For the fourth quarter 2002, the company's net sales were $5.1 billion versus $5.8 billion in the same period of 2001. For all of 2002, total net sales were $23.3 billion compared with $25 billion in 2001. Total sales in 2001 included results from several businesses that have since been divested, including the stand-alone white paper business that was sold to Domtar Inc. in August 2001 as well as the Unisource business sold in November. Earnings before income taxes, depreciation and amortization (EBITDA) were $446 million in the fourth quarter and $2.3 billion for the full year 2002. The company made capital expenditures for property, plant and equipment of $693 million during 2002. Georgia-Pacific's debt at year end 2002 was $11.5 billion compared with $12.2 billion at year end 2001. Georgia-Pacific's interest expense for the full year 2002 was reduced by $239 million compared with 2001. Beginning in the fourth quarter 2002, Georgia-Pacific realigned its business segments for financial reporting purposes to better align reporting with the company's operating structure. The North American consumer products segment, consisting of the retail tissue, away-from-home tissue and Dixie businesses in North America, recorded a fourth quarter 2002 operating profit of $187 million, including a $14 million insurance recovery from the first quarter 2002 fire at the Crossett, Ark., tissue mill, compared with $180 million in the same period of 2001, which included $37 million of goodwill amortization. For the full year 2002, this segment reported an operating profit of $851 million versus $663 million in 2001, which included a one-time charge of $82 million for the closure of the Bellingham, Wash., pulp mill and goodwill expense of $156 million. The international consumer products segment, consisting of the company's European retail and away-from-home tissue businesses as well as other international tissue joint ventures, reported a fourth quarter 2002 operating profit of $26 million compared with $39 million in the fourth quarter 2001. For the full year 2002, this segment recorded an operating profit of $141 million versus $126 million in 2001. The packaging segment reported an operating profit of $64 million for the fourth quarter 2002 compared with $91 million for the fourth quarter 2001. For the full year 2002, the packaging segment reported an operating profit of $316 million versus $384 million in 2001. The bleached pulp and paper segment reported an operating profit of $23 million for the fourth quarter 2002 compared with $25 million for the fourth quarter 2001. The segment recorded a full-year 2002 operating profit of $65 million versus $28 million in 2001, which included a one-time, pre-tax loss of $63 million on the sale of the four paper and pulp facilities to Domtar. This segment's results include operations of the company's pulp, bleached board and communication papers businesses as well as results from the 40 percent interest Georgia-Pacific retains in Unisource. Unisource is reported as the paper distribution segment for the first 10 months of 2002 and for all of 2001. The paper distribution segment reported a fourth quarter loss of $295 million, which included a $298 million loss on the sale of Unisource, compared with a fourth quarter 2001 operating profit of $3 million. For the full year 2002, the segment recorded an operating loss of $516 million, including $506 million in asset impairment and goodwill write-off charges, and a loss on the sale of Unisource, versus an operating profit of $48 million in 2001. Georgia-Pacific's building products manufacturing segment recorded an operating loss of $18 million in the fourth quarter 2002 compared with operating profit of $4 million in the same period of 2001. The segment recorded full-year 2002 operating profit of $129 million versus operating profit of $83 million in 2001, which included $93 million in unusual pre-tax charges for facility closures and asset write-offs. The segment consists of Georgia-Pacific's structural panels, lumber, gypsum, industrial wood products and chemical manufacturing businesses. The building products distribution segment, which includes the company's network of building products warehouses and sales operations, recorded a fourth quarter 2002 operating loss of $2 million compared with break-even results in the fourth quarter 2001, which included $4 million in unusual pre- tax charges for employee severance costs. For the full year of 2002, this segment recorded an operating profit of $50 million compared with a $65 million operating profit for all of 2001. The Other segment reported a loss of $421 million for the fourth quarter 2002, including $343 million of unusual pre-tax charges primarily for asbestos and business separation costs, compared with a loss of $386 million in the same period of 2001, which included $341 million of pre-tax charges for asbestos, net of other one-time gains. The net change in Other before unusual items was primarily driven by additional pension and litigation expenses in 2002. For the full year 2002, this segment reported a loss of $703 million, including $378 million of unusual pre-tax charges primarily for asbestos and business separation costs, compared with a loss of $612 million in the same period of 2001, which included $341 million of pre-tax charges for asbestos, net of other one-time gains. The net change in Other before unusual items was primarily driven by additional pension and foreign currency translation. "Our results for the fourth quarter were very disappointing," said A.D. "Pete" Correll, chairman and chief executive officer. "Our performance, which is not indicative of these businesses' underlying strengths, was affected by challenging conditions in our building products commodities businesses, and pricing pressure and increased manufacturing costs in our North American consumer products business. "In the face of these continuing difficult market conditions and anticipated higher pension costs in 2003, we expect to reduce administrative overhead costs by approximately $135 million below 2002 levels. This effort, along with our disciplined approach to inventory management and manufacturing to demand, is aimed at ensuring we are doing everything possible to maximize cash flow. "During 2002, we generated $2.3 billion in EBITDA, reduced debt by $700 million and completed the sale of our controlling interest in Unisource. All of our segments suffered from the overriding business environment in the fourth quarter of 2002, but the consumer products and building products results were the most severely impacted. "The North American consumer products segment experienced lower pricing driven by our major competitors across all retail categories. In addition, the segment was negatively impacted by higher wastepaper and energy costs, as well as fixed costs associated with new equipment start-ups," Correll said. "Our building products results were adversely affected by costs associated with the suspension of production at multiple structural panels manufacturing facilities during the quarter, competitive pricing for lumber, particleboard and chemicals, as well as higher wood costs. We continue to be pleased with the improvement in our wallboard business, including the growth of our specialty Dens products. "We were encouraged by the packaging segment's performance, which was stronger than expected. Box shipments by Georgia-Pacific grew at a faster rate than the packaging industry as a whole. "Fourth quarter 2002 results in the bleached pulp and paper segment were essentially unchanged from fourth quarter 2001, although pricing for market pulp and communication papers showed some improvement from a year earlier. "We announced last fall that we were delaying the separation of our consumer products and packaging business from our building products business. Looking ahead, conditions in the financial and capital markets, operating results in our two main businesses and the market's perception of our asbestos liabilities are among the factors we will consider in determining whether to proceed with the separation. "Our near-term priorities are very straightforward: reduce our debt, improve our efficiencies and increase our margins," Correll said. "Our strategy remains to grow profitably in higher margin businesses and effectively manage our cyclical commodity businesses."

 

 

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