GP Reports Q2: To Write Down $650 Million from Unisource Acquisition
Press release from the issuing company
ATLANTA, July 18 -- Georgia-Pacific Corp. today reported second quarter 2002 income from continuing operations before unusual items of $104 million (45 cents diluted earnings per share) compared with second quarter 2001 income from continuing operations before unusual items and goodwill amortization of $134 million (59 cents diluted earnings per share).
The company's 2002 operating results reflect new Financial Accounting Standards Board rules under which companies are no longer permitted to amortize goodwill. For second quarter 2001, goodwill amortization totaled $62 million (27 cents diluted loss per share).
Including unusual items, income from continuing operations for second quarter 2002 was $87 million (38 cents diluted earnings per share). Unusual items in 2002 consisted primarily of severance and business separation costs. This compares with income from continuing operations of $29 million (13 cents diluted earnings per share) for the same quarter a year ago, which included a one-time charge of $67 million ($43 million after tax, or 19 cents diluted earnings per share) associated with plant closures and indefinite curtailments in the company's commodity gypsum wallboard business and $62 million (27 cents diluted earnings per share) of goodwill amortization expense.
Total sales for Georgia-Pacific in second quarter 2002 were $6.2 billion compared with $6.6 billion in second quarter 2001, which included results from pulp and paper assets that were sold to Domtar Inc. in the third quarter 2001. The company's earnings before income taxes, depreciation, amortization and unusual items (EBITDA) from continuing operations were $644 million in second quarter 2002 compared with $774 million in second quarter 2001. The company's debt was $12.1 billion at the second quarter's end, compared with $12.2 billion at the end of the first quarter of this year.
The company's consumer products segment recorded a second quarter 2002 operating profit of $279 million compared with an operating profit of $214 million (or $257 million excluding goodwill amortization) for second quarter last year. Its consumer products segment includes its retail and away-from-home tissue businesses in North America and Europe, and the Dixie disposable tableware business in North America.
The packaging segment reported an operating profit of $93 million in second quarter 2002 versus $103 million in second quarter 2001 (or $108 million excluding goodwill amortization).
The bleached pulp and paper segment reported break-even operating results for second quarter 2002 compared with a $37 million operating profit (or $50 million excluding goodwill amortization) for second quarter 2001. This segment includes the company's pulp, communication papers and Unisource paper distribution businesses.
The company's building products segment recorded a second quarter 2002 operating profit of $88 million compared with $69 million a year ago (or $137 million excluding goodwill amortization and the one-time charge related to plant closures and production curtailments in commodity gypsum wallboard).
For the first half of 2002, income from continuing operations before unusual items was $174 million (75 cents diluted earnings per share) compared with income from continuing operations before unusual items and goodwill amortization of $111 million (50 cents diluted earnings per share) for the same period a year ago. Income from continuing operations was $148 million (64 cents diluted earnings per share) versus a loss from continuing operations of $107 million (47 cents diluted loss per share) for the same period last year.
During the second quarter 2002, the company completed an assessment of the fair value of assets underlying all acquisition-related goodwill. The assessment determined that only the goodwill related to the Unisource paper distribution business was impaired. Unisource has approximately $650 million of goodwill on its balance sheet and the company estimates that the majority of that amount is impaired. The company is finalizing the impairment charge that will be included in the second quarter Form 10-Q as a cumulative effect of accounting change effective at the beginning of 2002.
"We are pleased to see a substantial improvement in our consumer products segment over the second quarter of last year," said A.D. "Pete" Correll, chairman and chief executive officer. "This business continues to benefit from the achievement of post-acquisition synergies, and also saw a strong seasonal pickup from first quarter 2002 levels in our away-from-home tissueand Dixie businesses.
"Despite a slight decline in the average price of boxes, the packaging business improved profitability from the first quarter 2002. Excluding volumes from our Color-Box business, which was acquired in the third quarter 2001, second quarter box shipments were 6 percent higher than in the same period a year ago. Cost reductions also contributed to our strong performance relative to the industry.
"Increased pulp shipments in the second quarter improved profitability for that business. However, results from paper and paper distribution declined from the first quarter this year, due to weakness in the commercial printing industry and offset the improvements in the pulp business.
"Cyclically low prices continue to affect our building products segment results. Despite the seasonal spike in housing construction activity, wood products prices actually declined during the quarter due to continued over- capacity in the industry. In contrast, prices for gypsum wallboard increased from first quarter levels.
"The third quarter outlook for our consumer products segment is positive for all three domestic businesses. Our European business is also performing well and we will continue working to protect profit margins in the face of rising fiber prices.
"In our packaging business, we are encouraged by improved demand and will continue our cost improvement efforts to maximize our returns in this difficult business environment. We also are more optimistic regarding our pulp and paper business with recent price increases beginning to take effect.
"Looking forward, we expect demand to remain stable in the building products business and we are hopeful that depletion of excess wood products inventories will lead to more favorable pricing in the third quarter," Correll said.
During the second quarter 2002, the company continued making substantial progress toward the separation of its consumer products, packaging, and pulp and paper businesses from its building products and distribution businesses. On June 14, CP&P, Inc., the temporary name of the new consumer products and packaging company, filed a Form S-1 with the Securities and Exchange Commission for an initial public offering of its shares and on June 20, filed a Form S-4 for an offer to exchange its debt for Georgia-Pacific's outstanding public debt.
The company's plans to issue senior notes at Georgia-Pacific and to raise new senior credit facilities for each business are on track. It has requested a tax ruling on the transaction from the Internal Revenue Service, and is taking the internal steps necessary to operate independently as separate companies. The company is on target with its timetable to effect the separation and expects to access the equity and debt capital markets in the September-October timeframe.
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