Georgia-Pacific Reports Q2: Unisource posts $12.5 Million Loss
Friday, July 18, 2003
ATLANTA, July 17 -- Georgia-Pacific Corp. today reported second quarter 2003 net income of $62 million (25 cents diluted earnings per share) compared with a net loss of $83 million (36 cents diluted loss per share) in the second quarter of 2002. Last year's second quarter included a $235 million pretax loss ($187 million after-tax loss, or 81 cents diluted loss per share) for the impairment of assets in its former Unisource paper distribution business, severance and business separation costs. -- The bleached pulp and paper segment, which is comprised of the company's pulp, bleached board and communication papers businesses as well as its minority ownership in Unisource, recorded an operating profit of $13 million that included a $5 million loss from Unisource. (Editor's note: GP owns 40% of Unisource meaning the total loss at Unisource is $12.5 million.) This segment recorded $5 million in operating profit for the second quarter 2002. -- Georgia-Pacific's net sales during the second quarter 2003 were $5 billion compared with $6.2 billion in the second quarter 2002, which included $1.4 billion from the Unisource paper distribution business, 60 percent of which was divested in the fourth quarter 2002. Georgia-Pacific accounts for its 40 percent investment in Unisource using the equity method. The company reduced its debt by nearly $500 million during the second quarter 2003 to $11.4 billion at the quarter's end. For the first six months of 2003, income before accounting change was $6 million (2 cents diluted earnings per share), compared with a loss before accounting change of $22 million (10 cents diluted loss per share) for the same period a year ago. Net sales for the first six months of 2003 were $9.6 billion compared with $12 billion in 2002, which included $2.8 billion from the Unisource business. In the first quarter of 2003, Georgia-Pacific adopted Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations," resulting in an after-tax cumulative benefit of $28 million (12 cents diluted earnings per share) for the first six months of 2003. Effective in the first quarter of 2002, Georgia-Pacific adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," and recorded an after-tax cumulative effect charge of $545 million ($2.37 diluted loss per share) for the first six months of 2002. The company's North America consumer products segment recorded a second quarter 2003 operating profit of $147 million, which included $11 million in severance and business exit costs related to the closure of a tissue machine and converting equipment at the company's Old Town, Maine, facility versus $241 million in 2002, which included $9 million mainly in severance and business exit costs. The North America consumer products segment includes the retail and away-from-home tissue businesses as well as the Dixie disposable tableware business in North America. Georgia-Pacific's international consumer products segment recorded a second quarter 2003 operating profit of $39 million compared with $37 million during the same quarter a year ago. The company's packaging segment recorded an operating profit of $100 million, including an $18 million gain on the sale of certain packaging assets during the second quarter of 2003. This compares with an operating profit of $94 million in the second quarter 2002. Georgia-Pacific's building products manufacturing segment, which includes the company's structural panels, gypsum, lumber, industrial wood products and chemical manufacturing businesses, recorded second quarter 2003 operating profit of $39 million versus $76 million for the second quarter 2002. The company's building products distribution segment reported an operating profit of $21 million in second quarter 2003 compared with operating profit of $16 million in the same quarter a year ago. "The fundamentals in almost all of our businesses were weaker than a year ago, impacting performance in every segment," said A.D. "Pete" Correll, Georgia-Pacific chairman and chief executive officer. "In addition, typical seasonal improvements in building products demand were much slower developing than originally anticipated and did not begin having an effect until late in the quarter. "A strongly competitive environment persists in our North America consumer products business and higher waste paper, energy and fiber costs continued to impact results. Overall, tissue prices fell about 3 percent and shipments remained flat versus a year ago. Our Dixie business showed seasonal improvement from the first quarter, and prices and shipments remained flat when compared with the same quarter last year. "Our international consumer products segment faced the same trends with higher costs and lower prices in its local currencies. However, shipments were up about 3 percent and the segment results benefited from a weakened U.S. dollar. "In the packaging business, average prices for corrugated packaging were flat but shipments fell about 2 percent from the same quarter a year earlier. Year-to-date, our packaging shipments were up 1.6 percent, while the industry was down 1 percent. "In the bleached pulp and paper segment, average paper prices were flat and shipments were down about 4 percent from the same quarter last year. The segment benefited from improved pulp prices. However, with the industry's growing inventories and reduced demand from Asia, pulp prices are trending downward. "In the building products manufacturing segment, the structural panels business led the way as oriented strand board prices increased significantly from a year ago and plywood prices also strengthened each of the last six weeks of the quarter. In addition, we have launched a national marketing campaign aimed at builders and dealers to reposition plywood as superior to competing panel products. "Our building products distribution segment improved from a year ago due to inventory reductions and improvements in structural panels prices," Correll said. "As we noted in the first quarter of this year, we are emphasizing cost control across our company and are slightly ahead of plan with our previously announced overhead reduction goals. We also have established additional cost reduction goals for 2004 such as a substantial reduction in our information technology budget. In addition, other groups are taking every measure possible to reduce costs. "This quarter we successfully executed a $500 million senior notes offering and used the proceeds to pay down our revolving credit facility. This financing significantly reduced our reliance on bank financing, and moved maturities into years in which we currently have low maturities. "Our asbestos liabilities and defense costs through the second quarter remained in line with our projections for the first six months of this year. As expected, the number of new claims filed against us in the first half of 2003 was higher than projected due to the large number of claims in Mississippi filed by plaintiffs' lawyers seeking to ensure their claims would be governed by law in effect prior to passage of tort reform in that state effective at the end of last year. However, resolution of these cases is not expected to materially affect settlement costs this year or in future years. There were no developments in the second quarter that altered our view of our current and projected asbestos liabilities. We are actively supporting the enactment of national legislation that would provide fair compensation to everyone affected by asbestos while eliminating excessive legal costs and providing certainty about this issue to investors and employees. "Looking ahead, we expect to see continuing improvement in several of our businesses, including the North America consumer products and building products segments. Dynamics for a broader economic recovery seem to be emerging, but the timing still remains unclear. We are focusing on managing our operations within our run-to-demand strategy and wringing out additional costs to maximize our results," Correll concluded.