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Georgia-Pacific Reports Improved Q4 and 2003 Results

Wednesday, February 04, 2004

Press release from the issuing company

ATLANTA, Feb. 3 -- Georgia-Pacific Corp. today reported fourth quarter 2003 net income of $31 million (12 cents diluted earnings per share) compared with a net loss of $234 million (94 cents diluted loss per share) for the same period of 2002. Fourth quarter 2003 net income was $132 million (52 cents diluted earnings per share) before the following unusual items: A pretax credit of $66 million ($42 million after tax or 17 cents diluted earnings per share) for an adjustment to an environmental reserve in the North America consumer products segment; A previously reported, one-time gain of $50 million ($30 million after tax or 12 cents diluted earnings per share) from the sale of most of the company's short-line railroad operations for $56 million in cash; A pretax charge of $197 million ($163 million after tax or 65 cents diluted loss per share) primarily for asset impairments, machine closures and employee severance costs in several businesses, including a $106 million charge to write off goodwill as a result of the proposed sale of two pulp mills; and A pretax charge of $16 million ($10 million after tax or 4 cents diluted loss per share), net of anticipated insurance recoveries, for adding an additional year to its rolling, 10-year reserve for asbestos liabilities and defense costs. In addition, net income for the fourth quarter 2003 included $27 million ($17 million after tax or 7 cents diluted loss per share) in net stock-based compensation expense due to significant appreciation in the price of its common stock during the quarter. Fourth quarter 2002 net income was at break even before the following unusual items: A pretax charge of $315 million ($198 million after tax or 79 cents diluted loss per share) for asbestos liabilities and defense costs, net of anticipated insurance recoveries; A $298 million pretax loss ($30 million after tax or 12 cents diluted loss per share) on the sale of the Unisource paper distribution business; and A pretax charge of $8 million ($6 million after tax or 3 cents diluted loss per share) for business separation and severance costs. Georgia-Pacific's net sales increased approximately 18 percent to $5.4 billion for the 14-week quarter ending Jan. 3, 2004, compared with $4.5 billion in the fourth quarter 2002, which excludes $570 million of net sales from the Unisource paper distribution business. Georgia-Pacific divested 60 percent of Unisource in the fourth quarter 2002 and now accounts for its 40 percent investment in Unisource using the equity method. "We are very pleased that our fourth quarter 2003 results exceeded the previous year's quarter, including top line sales growth of about 18 percent. Our North America consumer products business finished the fourth quarter with momentum that carried into January, and the mid-year strength in our structural panels business continued for the balance of the year," said A.D. (Pete) Correll, Georgia-Pacific chairman and chief executive officer. "During the year, we made significant progress in advancing our strategic goals by further reducing overhead and operating costs, repaying a significant amount of debt, advancing our ongoing process of rationalizing our asset portfolio, and launching massively improved versions of our flagship tissue and towel brands. We are well positioned to maintain this positive momentum entering 2004. "During 2003, strong cash flow helped reduce debt by nearly $900 million, or 8 percent, to $10.6 billion. We achieved half of this in the fourth quarter. In 2004, we will continue to focus on debt reduction and returning our company to investment grade credit ratings," Correll said. "We will have reduced overhead by more than $200 million in the two-year period including 2003 and 2004. Capital spending control and inventory management remain a way of life, helping ensure that we maximize our cash flow for debt reduction." For the full year 2003, the company reported net income of $254 million ($1.01 diluted earnings per share) compared with a net loss of $735 million ($3.09 diluted loss per share) for 2002. Full year 2003 net income was $349 million ($1.39 diluted earnings per share) before the following unusual items: A pretax credit of $66 million ($42 million after tax or 17 cents diluted earnings per share) for an adjustment to an environmental reserve in the North America Consumer Products segment; A previously reported, one-time gain of $50 million ($30 million after tax or 12 cents diluted earnings per share) from the sale of most of the company's short-line railroad operations for $56 million in cash; A pretax credit of $102 million ($64 million after tax or 25 cents diluted earnings per share) resulting from an increase in asbestos insurance receivables of $118 million offset by a charge to the asbestos liability reserve, net of insurance, of $16 million; A charge of $106 million ($106 million after tax or 42 cents diluted loss per share) to write off goodwill as a result of the proposed sale of two pulp mills; Pretax charges of $243 million ($153 million after tax or 61 cents diluted loss per share) for facility closures, severance costs and impairment of long-lived assets; and An after tax credit of $28 million (11 cents diluted earnings per share) for the adoption of the asset retirement obligations accounting standard. Income for the full year 2003 also included $47 million ($30 million after tax or 12 cents diluted loss per share) in stock compensation costs. For the year 2002, net income was $265 million ($1.12 diluted earnings per share) before the following unusual items: A pretax charge of $315 million ($198 million after tax or 83 cents diluted loss per share) for asbestos liabilities, net of anticipated insurance recoveries; A pretax charge of $298 million ($30 million after tax or 13 cents diluted loss per share) for the loss on the sale of Unisource; A pretax charge of $208 million ($170 million after tax or 71 cents diluted loss per share) for the impairment of goodwill and long-lived assets of Unisource; A pretax charge of $90 million ($57 million after tax or 25 cents diluted loss per share) for facility closures, severance and separation costs; and An after tax charge of $545 million ($2.29 diluted loss per share) from the adoption of the accounting standard on goodwill and other intangible assets. Net sales for the year 2003 were $20.3 billion compared with $18.5 billion in 2002, excluding $4.8 billion from the Unisource business. For the year 2003, cash provided by operations was $1.8 billion. The company made capital expenditures for property, plant and equipment of $710 million during 2003. In 2002, cash provided by operations was $1 billion, and capital expenditures totaled $693 million. North America Consumer Products The North America consumer products segment includes the company's at-home and away-from-home tissue businesses as well as the Dixie disposable tableware business. The segment recorded a fourth quarter 2003 operating profit of $167 million versus $187 million in fourth quarter 2002. Included in the fourth quarter 2003 results were pretax charges of $44 million primarily for asset impairments, employee separation and machine closure costs, and a pretax credit of $66 million from adjusting reserves for the future clean-up of the Fox River in Wisconsin as a result of a revised EPA clean-up procedure for this site. Fourth quarter 2002 results included a $4 million insurance recovery related to a fire at the company's Crossett, Ark., tissue mill. The segment recorded a 2003 operating profit of $601 million, compared with an operating profit of $851 million for the previous year. Operating profit in 2003 included a pretax credit of $66 million on the adjustment of Fox River clean-up reserves and pretax charges of $81 million related to asset impairments, employee separation and machine closure costs. Operating profits in 2002 included pretax charges of $31 million for facility closures and costs related to the Crossett tissue mill fire. "In the North America consumer products segment, costs remained higher for raw materials and energy and, as planned, we incurred additional costs in connection with the launch of our new Brawny paper towels and Quilted Northern bath tissue. Average domestic tissue prices were down slightly compared with last year, while shipments were down about 2 percent from a year ago," Correll commented. "In the past 15 months, we have brought our two new through-air dried (TAD) tissue machines at Port Hudson, La. and Wauna, Ore., on line. At the same time, however, we are in the process of permanently shutting down excess tissue capacity that is no longer competitive. We believe this difficult decision is necessary for our long-term profitability. "Looking ahead to 2004, we are very encouraged by the positive momentum in this business and the easing of promotional price competition," Correll concluded. International Consumer Products The international consumer products segment markets both at-home and away- from-home products such as bathroom and facial tissue, handkerchiefs and paper towels as well as tabletop products for foodservice in Europe and other locations. Market-leading brands include Lotus, Moltonel, Colhogar, Tenderly and Delica. The segment recorded a fourth quarter 2003 operating profit of $37 million, including a pretax charge of $15 million for severance costs, compared with $26 million during the same quarter a year ago. The international consumer products segment reported an operating profit of $160 million for the full year 2003, compared with $141 million for all of 2002. Included in the 2003 results was a pretax charge of $15 million for severance costs. The currency exchange rate between the U.S. dollar and the Euro accounted for approximately $27 million of the year-over-year improvements. "Within our international consumer products segment, we are reorganizing our converting assets as part of a restructuring program to reduce our overhead and operating costs, and to improve our efficiency in the United Kingdom. Our European business remains strong, producing the third consecutive year of earnings growth in a highly competitive market. We are alert for expansion opportunities, such as our recently announced joint venture in Spain," Correll said. Packaging Georgia-Pacific's packaging segment includes four containerboard manufacturing facilities and 55 converting operations. Its Color-Box subsidiary is the largest litho-laminated corrugated manufacturer in North America. The segment recorded an operating profit of $109 million in the fourth quarter 2003, compared with $66 million in the fourth quarter 2002. The fourth quarter 2003 results include a $50 million pretax gain on the sale of railroad operations. The packaging segment reported an operating profit of $345 million for the full year 2003, compared with $323 million for all of 2002. Full-year 2003 results include pretax gains on asset sales of $68 million, including the sale of the railroad operations. "Containerboard rollstock inventories dropped during the fourth quarter 2003, due largely to strong mill shipments. Fourth-quarter box shipments were up 5.7 percent from 2002, which was offset somewhat by box pricing that was 4 percent lower than last year," Correll said. "We continue to closely monitor our containerboard and packaging inventories, and production levels." Bleached Pulp and Paper The bleached pulp and paper segment is comprised of the company's pulp, bleached board and communication papers businesses as well as its 40 percent minority ownership in Unisource. The segment recorded a fourth-quarter 2003 operating loss of $111 million, including the goodwill impairment charge of $106 million in anticipation of the sale of the company's two non-integrated pulp mills at New Augusta, Miss., and Brunswick, Ga., $6 million of pretax machine closure charges and a $4 million operating loss from its equity investment in Unisource. Operating profit for this segment was $21 million in the fourth quarter 2002. The bleached pulp and paper segment reported an operating loss of $133 million for the year 2003, which included pretax charges of $162 million primarily for asset impairments and machine closure costs, compared with operating profit of $58 million for 2002. "Our bleached pulp and paper segment continued to face weak market conditions for communication paper, with pricing down approximately 2 percent and shipments down more than 1 percent versus last year. "In this segment, we took another significant step forward in our ongoing rationalization of our asset portfolio by signing a letter of intent to divest our two remaining non-integrated pulp mills," Correll said. "We are very pleased with the value and the after-tax proceeds we anticipate from this transaction." Paper Distribution In fourth quarter 2002, paper distribution reported a loss of $295 million including a $298 million loss from the sale of Unisource. The full-year loss of $516 million included a loss of $512 million primarily resulting from the sale of Unisource. Building Products Manufacturing The building products manufacturing segment includes the company's structural panels, gypsum, lumber, industrial wood products and chemical manufacturing businesses. The segment recorded a fourth quarter 2003 operating profit of $201 million versus an operating loss of $18 million in the fourth quarter 2002. Included in the 2003 fourth quarter results were pretax charges of $7 million primarily for asset impairments and facility closure costs. The building products manufacturing segment reported an operating profit of $379 million for the full year 2003, compared with $129 million for 2002. Included in the 2003 results were pretax charges of $40 million primarily for asset impairments and facility closure costs. Year-over-year plywood prices were up 15 percent, and lumber prices were up 6 percent. Oriented strand board prices, also year-over-year, remained very strong at 74 percent above last year. "Our structural panels business turned in a record-breaking fourth quarter performance. Overall the panels and lumber businesses were dramatically better than in 2002," Correll said. "Record housing starts and low interest rates kept pricing strong. The continuation of our strategy to produce and market differentiated products is paying off in our gypsum business as evidenced by a 40 percent increase in sales for the Dens family of products. "We are very encouraged by continued strength in the housing sector with December reports indicating housing starts at their strongest level in decades and by stronger panels and lumber prices," Correll continued. "The turnaround in the panels business that occurred mid-year 2003 appears to be sustainable for some time to come." Building Products Distribution The building products distribution segment is the leading business of its kind in North America, supplying lumber and building materials to dealers as well as large do-it-yourself warehouses. The segment reported an operating profit of $22 million in the fourth quarter of 2003 compared with an operating loss of $2 million in the same quarter a year ago. As announced previously, the company is exploring strategic alternatives for this segment. The building products distribution segment reported an operating profit of $98 million for the full year 2003, compared with $50 million for 2002. Other The company's Other segment primarily includes unallocated corporate expenses and the elimination of intersegment sales. The segment reported a fourth quarter 2003 loss of $138 million compared with a loss of $421 million for the same period of 2002. Included in the 2003 results was a pretax charge of $35 million for asbestos costs, net of anticipated insurance recoveries, litigation settlement costs and costs to monetize a portion of its asbestos insurance receivable, as well as $27 million in stock compensation costs. The segment's fourth quarter 2002 results included a $315 million pretax charge, net of expected insurance proceeds, for adding to the company's reserve for asbestos costs. For the year 2003, this segment reported a loss of $282 million including a pretax credit of $102 million for the full-year adjustment to the asbestos reserve after including a $118 million increase in the company's asbestos insurance receivable, as well as pretax charges of $69 million primarily for litigation, monetization of the asbestos insurance receivable, and pension settlement costs. The segment also incurred a pretax charge of $47 million for stock-based compensation costs. For the year 2002, this segment reported a loss of $703 million, including $378 million of unusual pretax charges primarily for asbestos and business separation costs. "We are optimistic that economic conditions are improving, creating a better operating environment for our businesses," Correll said. "We remain committed to our key goals of generating cash to reduce debt, improving margins through higher-value products and cost control, and effectively managing our company for long-term value and maximum competitiveness." Also today, Georgia-Pacific provided an update on its asbestos litigation. Current and projected asbestos liabilities continue to be closely monitored by the company. Its liabilities and defense costs through the fourth quarter 2003 remained in line with projections for the full year. As it has in prior years and as previously disclosed, Georgia-Pacific extended its projections of its asbestos liabilities and insurance recoveries an additional year through 2013 and accrued these amounts in the fourth quarter 2003, resulting in a pretax charge of $16 million, net of anticipated insurance recoveries. In September, Georgia-Pacific completed agreements with two of its insurers to confirm the total amounts of insurance to be paid by those companies for Georgia-Pacific's asbestos liabilities and costs during the period through 2012. Because these amounts were larger than Georgia-Pacific had assumed in calculating its anticipated asbestos insurance receivables at the end of 2002, the company recorded a pretax credit of $118 million to "Other income, net" on its third quarter 2003 statement of operations. At the end of 2003, all of the company's available insurance was included in its insurance receivable.

 

 

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