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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549 |
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FORM 10-Q |
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 2004
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 1 - 3506
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GEORGIA-PACIFIC CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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GEORGIA |
93-0432081 |
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(State of Incorporation) |
(IRS Employer Id. Number) |
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133 PEACHTREE STREET, N.E., ATLANTA, GEORGIA 30303 |
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(Address of Principal Executive Offices) |
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(404) 652 - 4000
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(Telephone Number of Registrant) |
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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No |
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Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes X No |
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As of the close of business on April 26, 2004, Georgia-Pacific Corporation had 254,953,022 shares of Georgia-Pacific Common Stock outstanding. |
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PART I - FINANCIAL INFORMATION
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Item 1. |
Financial Statements |
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CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Georgia-Pacific Corporation and Subsidiaries |
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First Quarter |
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(In millions, except per share amounts) |
2004 |
2003 |
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Net sales |
$ 5,222 |
$ 4,438 |
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Costs and expenses
Cost of sales
Selling and distribution
Depreciation, amortization and accretion
General and administrative
Interest, net
Other losses, net |
3,965
358
244
219
197
26
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3,521
305
243
191
204
78
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Total costs and expenses |
5,009 |
4,542 |
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Income (loss) from continuing operations before income taxes
(Provision) benefit for income taxes |
213
(71) |
(104)
53 |
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Income (loss) from continuing operations
Income (loss) from discontinued operations, net of taxes |
142
5 |
(51)
(7) |
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Income (loss) before accounting change
Cumulative effect of accounting change, net of taxes |
147
- - |
(58)
28 |
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Net income (loss) |
$ 147 |
$ (30) |
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2 |
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CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Continued)
Georgia-Pacific Corporation and Subsidiaries
(In millions, except per share amounts) |
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Basic per share:
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of taxes |
$ 0.56
0.02 |
$ (0.20)
(0.03) |
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Income loss before accounting change
Cumulative effect of accounting change, net of taxes |
0.58
- |
(0.23)
0.11 |
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Net Income (loss) |
$ 0.58 |
$ (0.12) |
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Diluted per share:
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of taxes |
$ 0.55
0.02 |
$ (0.20)
(0.03) |
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Income (loss) before accounting change
Cumulative effect of accounting change, net of taxes |
0.57
- |
(0.23)
0.11 |
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Net income (loss) |
$ 0.57 |
$ (0.12) |
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Shares (denominator):
Weighted average shares outstanding
Dilutive securities:
Options |
253.5
3.9
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250.1
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Total assuming conversion |
257.4 |
250.1 |
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The accompanying notes are an integral part of these consolidated financial statements. |
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3 |
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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Georgia-Pacific Corporation and Subsidiaries |
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First Quarter |
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(In millions, except per share amount) |
2004 |
2003 |
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Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net loss to cash used for operations:
Cumulative effect of accounting change, net of taxes
Other loss, net
Depreciation, amortization and accretion
Deferred income taxes
Increase in receivables
Increase in inventories
Increase in accounts payable
Change in other working capital
Change in taxes payable/receivable
Change in other assets and other long-term liabilities
Other |
$ 147
- -
26
256
(46)
(325)
(170)
101
50
- -
(91)
4
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$ (30)
(28)
79
261
(59)
(162)
(99)
8
(11)
(23)
18
21
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Cash used for operations |
(48) |
(25) |
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Cash flows from investing activities
Property, plant and equipment investments
Net proceeds from sales of assets
Other |
(109)
7
(6)
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(123)
1
(9)
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Cash used for investing activities |
(108) |
(131) |
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Cash flows from financing activities
Repayments of long-term debt
Additions to long-term debt
Fees paid to issue debt
Fees paid to retire debt
Net decrease in bank overdrafts
Net increase (decrease) in short-term debt
Proceeds from option plan exercises
Cash dividends paid ($0.125 per share) |
(1,304)
940
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(18)
(6)
570
34
(32)
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(2,776)
3,132
(38)
- -
(99)
(10)
- --
(31)
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Cash provided by financing activities |
184 |
178 |
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Increase in cash
Balance at beginning of period |
28
51 |
22
42 |
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Balance at end of period |
$ 79 |
$ 64 |
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The accompanying notes are an integral part of these consolidated financial statements. |
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4 |
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CONSOLIDATED BALANCE SHEETS (Unaudited)
Georgia-Pacific Corporation and Subsidiaries |
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(In millions, except shares and per share amounts) |
April 3,
2004 |
January 3,
2004 |
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ASSETS
Current assets
Cash and equivalents
Receivables, less allowances of $32 and $36, respectively
Inventories
Deferred income tax assets
Net assets held for sale
Other current assets |
$ 83
1,663
1,915
117
1,799
280
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$ 51
1,542
1,848
117
1,496
301
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Total current assets |
5,857 |
5,355 |
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Property, plant and equipment
Land, buildings, machinery and equipment, at cost
Accumulated depreciation |
17,816
(9,392)
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17,758
(9,176)
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Property, plant and equipment, net |
8,424 |
8,582 |
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Goodwill, net |
7,465 |
7,484 |
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Intangible assets, net |
702 |
716 |
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Other assets |
2,239 |
2,268 |
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Total assets |
$ 24,687 |
$ 24,405 |
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5 |
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CONSOLIDATED BALANCE SHEETS (Unaudited) (Continued)
Georgia-Pacific Corporation and Subsidiaries |
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(In millions, except shares and per share amounts) |
April 3,
2004 |
January 3,
2004 |
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Secured borrowings and other short-term notes
Current portion of long-term debt
Accounts payable
Accrued compensation
Net liabilities held for sale
Other current liabilities |
$ 1,259
1,248
1,417
213
448
1,208
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$ 689
789
1,404
244
395
1,107
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Total current liabilities |
5,793 |
4,628 |
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Long-term debt, excluding current portion |
8,236 |
9,074 |
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Other long-term liabilities |
3,713 |
3,826 |
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Deferred income tax liabilities |
1,423 |
1,483 |
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Commitments and contingencies ( Note 12) |
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Shareholders' equity
Preferred stock, no par value; 10,000,000 shares authorized;
no shares issued or outstanding
Junior preferred stock, no par value; 25,000,000 shares authorized;
no shares issued or outstanding
Common stock, par value $0.80; 400,000,000 shares authorized;
254,562,000 and 252,980,000 shares issued and outstanding
Additional paid-in capital
Retained earnings
Long-term incentive plan deferred compensation
Accumulated other comprehensive income |
- -
- -
203
3,529
1,711
(1)
80
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- -
- -
202
3,473
1,596
(1)
124
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Total shareholders' equity |
5,522 |
5,394 |
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Total liabilities and shareholders' equity |
$ 24,687 |
$ 24,405 |
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The accompanying notes are an integral part of these consolidated financial statements. |
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6 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
GEORGIA-PACIFIC CORPORATION
April 3, 2004 |
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1. |
PRINCIPLES OF PRESENTATION AND ACCOUNTING POLICIES. These consolidated financial statements include the accounts of Georgia-Pacific Corporation and subsidiaries. We prepared the consolidated financial statements following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP (accounting principles generally accepted in the United States of America) can be condensed or omitted. All significant intercompany balances and transactions were eliminated in consolidation. |
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We are responsible for the unaudited financial statements included in this document. The financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our financial position, results of operations and cash flows. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our annual report on Form 10-K for the fiscal year ended January 3, 2004. |
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On February 26, 2004, we announced that we reached a definitive agreement for Koch Cellulose, LLC ("Koch"), a wholly owned subsidiary of Koch Industries, Inc., to acquire our non-integrated pulp mills at Brunswick, Georgia, and New Augusta, Mississippi, and a short-line railroad. Accordingly, these businesses are reported as discontinued operations in the accompanying statements of operations, and the related assets and liabilities are classified as held for sale in the accompanying balance sheets (see Note 5). |
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Additionally, on March 12, 2004, we announced that we reached a definitive agreement to sell our building products distribution segment to a new company owned by Cerberus Capital Management L.P., a private investment firm, and members of the building products distribution business' management team. On March 30, 2004, we announced that we agreed to sell an interest in our Brazilian pulp businesses. The related assets and liabilities associated with these businesses are classified as held for sale in the accompanying balance sheets (see Note 5). |
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We classify certain shipping and handling costs as selling and distribution expenses. Shipping and handling costs included in selling and distribution expenses were $103 million and $95 million for the first quarter of 2004 and 2003, respectively. |
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Certain 2003 amounts have been reclassified to conform with the 2004 presentation. |
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Stock-Based Compensation |
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Effective December 29, 2002, we adopted Statement of Financial Accounting Standards ("SFAS") No. 148, Accounting for Stock-Based Compensation--Transition and Disclosure ("SFAS No. 148"), an amendment of SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"). SFAS No. 148 provides alternative methods of transition to SFAS No. 123's fair value method of accounting for stock-based compensation and amends the disclosure provisions of SFAS No. 123. We utilized the prospective method in accordance with SFAS No. 148 and applied the expense recognition provisions of SFAS No. 123 to stock options awarded or modified in 2003 and thereafter. Prior to 2003, we accounted for our stock-based compensation plans under APB Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25"), and disclosed pro forma effects of the plans on net income and earnings per share as provided under SFAS No. 123. Because the fair market value on the date of grant
was equal to the exercise price, no compensation expense had been recognized under APB No. 25 for stock options issued prior to 2003. Had compensation cost for the options issued prior to 2003 been determined based on the fair value at the grant dates consistent with the method of SFAS No. 123, the pro forma net income and earnings per share would have been as follows: |
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8 |
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(In millions, except per share amounts) |
First Quarter |
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2004 |
2003 |
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Net income (loss) as reported
Less total stock-based employee compensation expense determined
under the fair value based method, net of taxes |
$ 147
(1) |
$ (30)
(1) |
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Pro forma net income (loss) |
$ 146 |
$ (31) |
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Stock-based employee compensation cost, net of taxes, included in
the determination of net income as reported |
23
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3
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Basic net income (loss) per share:
As reported
Pro forma |
$ 0.58
$ 0.58
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$ (0.12)
$ (0.12)
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Diluted net loss per share:
As reported
Pro forma |
$ 0.57
$ 0.57
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$ (0.12)
$ (0.12)
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Accounting Changes |
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In January 2003, the Financial Accounting Standards Board (the "FASB") released Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46"). FIN 46 requires that all primary beneficiaries of Variable Interest Entities (VIE) consolidate that entity in their financial statements. FIN 46 is effective immediately for VIEs created after January 31, 2003 and for VIEs in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to VIEs in which an enterprise holds a variable interest it acquired before February 1, 2003. In December 2003, the FASB published a revision to FIN 46 ("FIN 46R") to clarify some of the provisions of the interpretation and defer the effective date of implementation for certain entities. Under the guidance of FIN 46R, entities that do not have interests in structures that are commonly referred to as special purpose entities are required to apply the pro
visions of the interpretation in financials statements for periods ending after March 14, 2004. We do not have interests in special purpose entities that are not consolidated. |
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2. |
PROVISION FOR INCOME TAXES. Income from continuing operations before income taxes was $213 million and we reported an income tax provision of $71 million for the first quarter of 2004, compared with a loss from continuing operations before income taxes of $104 million and an income tax benefit of $53 million for the first quarter of 2003. The effective tax rate in 2004 was different from the statutory rate primarily because of lower international income tax rates and utilization of state tax credits. The effective tax rate in 2003 was different from the statutory rate primarily because of lower international income tax rates, utilization of state tax credits and the reversal of approximately $10 million of income tax contingency reserves no longer required in Europe. |
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3. |
EARNINGS PER SHARE. Basic (loss) earnings per share is computed based on net income and the weighted average number of common shares outstanding. Diluted earnings per share reflect the assumed issuance of common shares under long-term incentive stock option and stock purchase plans. The computation of diluted earnings per share does not assume conversion or exercise of securities that would have an antidilutive effect on earnings per share. |
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9 |
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4. |
SUPPLEMENTAL DISCLOSURES -- CONSOLIDATED STATEMENTS OF CASH FLOWS. The cash impact of interest and income taxes is reflected in the table below. The effect of foreign currency exchange rate changes on cash was not material in either period. |
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First quarter |
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(In millions) |
2004 |
2003 |
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Total interest costs -- continuing operations
Interest capitalized |
$ 201
(4) |
$ 206
(2) |
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Interest expense -- continuing operations |
$ 197 |
$ 204 |
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Interest expense -- discontinued operations |
$ 3 |
$ 3 |
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Total interest expense |
$ 200 |
$ 207 |
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Interest paid |
$ 180 |
$ 114 |
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Income tax paid, net |
$ 126 |
$ 28 |
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5. |
DIVESTITURES. On March 12, 2004, we announced that we reached a definitive agreement to sell our building products distribution segment to a new company owned by Cerberus Capital Management L.P., a private investment firm, and members of the building products distribution business' management team. Closing on the sale is subject to customary conditions and is expected to close in the second quarter of 2004. The overall transaction is valued at approximately $810 million, which assumes $630 million of working capital at closing. We expect the transaction to result in net after tax proceeds of approximately $780 million, which will be used to repay debt. Actual cash proceeds could be larger or smaller depending upon the actual working capital value at closing. We expect to record a small gain on the sale upon closing. |
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In connection with the closing of this transaction, we expect to enter into a six-year agreement, which will require the building products distribution business to continue purchasing minimum amounts of structural panels, lumber and other building products manufactured by us. This supply agreement contains terms substantially similar to the current arrangement between our building products manufacturing and building products distribution businesses. Because our continuing involvement with this business under this supply agreement is considered significant to the building products distribution business, the business is not reported as a discontinued operation in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment and Disposal of Long-Lived Assets." The building products distribution business is deemed to be held for sale and the related assets and liabilities are classified as such on the accompanying balance sheet
s. Also, effective March 12, 2004, we ceased depreciation of the related assets. |
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The following are major classes of assets and liabilities for the building products distribution business that were held for sale at April 3, 2004 and January 3, 2004: |
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BUILDING PRODUCTS DISTRIBUTION ASSETS AND LIABILITIES HELD FOR SALE
CONDENSED BALANCE SHEETS
(Unaudited) |
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(In millions) |
April 3,
2004 |
January 3,
2004 |
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ASSETS
Current assets
Property, plant and equipment, net |
$ 873
199
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$ 571
201
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Total assets |
$ 1,072 |
$ 772 |
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LIABILITIES:
Current liabilities
Deferred income tax liabilities |
$ 189
3
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$ 126
3
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Total liabilities |
$ 192 |
$ 129 |
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Net assets |
$ 880 |
$ 643 |
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On March 30, 2004, we announced that we agreed to sell an interest in our Brazilian pulp businesses for $75 million. This transaction is expected to close during the second quarter of 2004. After tax proceeds are expected to be approximately $56 million. We expect to utilize the proceeds of this sale to further reduce debt. We expect to recognize a small after tax gain on the sale upon closing. These equity investments are deemed to be held for sale and $46 million and $45 million has been classified as net assets held for sale at April 3, 2004, and January 3, 2004, respectively. |
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On February 26, 2004, we announced that we reached a definitive agreement for Koch to acquire our non-integrated pulp mills at Brunswick, Georgia, and New Augusta, Mississippi, and a short-line railroad for $610 million, including the assumption of $73 million of indebtedness. The sale, which is contingent on regulatory approvals and satisfaction of customary conditions, is expected to be completed in the second quarter of 2004. We expect the transaction to result in debt reduction of $535 million, which includes cash and $73 million of debt to be assumed by Koch. We also intend to defease an outstanding $24 million tax-exempt bond prior to the consummation of the transaction in order to transfer certain assets to Koch . Based on the expected value of this transaction, we recognized a goodwill impairment loss of $106 million in accordance with SFAS No. 142 in t
he fourth quarter of 2003. We expect to recognize a small after tax loss on the sale upon closing. |
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These businesses are reported as discontinued operations in the accompanying statements of operations and the related assets and liabilities are classified as held for sale in the accompanying balance sheets. Effective February 26, 2004, we ceased depreciation of the related assets. These pulp businesses were previously reported in the bleached pulp and paper segment and the railroad was reported in the packaging segment. |
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The following are major classes of assets and liabilities for these discontinued operations that were held for sale at April 3, 2004 and January 3, 2004: |
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11 |
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DISCONTINUED OPERATIONS
CONDENSED BALANCE SHEETS
(Unaudited) |
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(In millions) |
April 3,
2004 |
January 3,
2004 |
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ASSETS
Current assets
Property, plant and equipment, net
Goodwill, net
Other assets |
$ 176
332
172
1
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$ 168
338
172
1
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Total assets |
$ 681 |
$ 679 |
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LIABILITIES:
Current liabilities
Long-term debt
Deferred income tax liabilities
Other long-term liabilities |
$ 53
97
100
6
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$ 63
97
100
6
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Total liabilities |
$ 256 |
$ 266 |
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Net assets |
$ 425 |
$ 413 |
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The components of income (loss) from discontinued operations for the first quarters of 2004 and 2003 are shown below: |
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DISCONTINUED OPERATIONS
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
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First Quarter |
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(In millions) |
2004 |
2003 |
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Net sales |
$ 157 |
$ 129 |
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Costs and expenses |
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Cost of sales |
121 |
113 |
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Selling and distribution |
10 |
4 |
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Depreciation, amortization and accretion |
13 |
18 |
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General and administrative |
3 |
3 |
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Interest, net |
3 |
3 |
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Total costs and expenses |
150 |
141 |
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Income (loss) from discontinuing operations before income taxes
(Provision) benefit for income taxes |
7
(2) |
(12)
5 |
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Income (loss) from discontinued operations, net of taxes |
$ 5 |
$ (7) |
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12 |
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The interest expense allocated to the discontinued operation represents the interest associated with the debt that will be assumed by the buyer and interest on debt that is required to be repaid as a result of the disposal transaction. |
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6. |
ASSET IMPAIRMENT AND RESTRUCTURING. On April 4, 2003, we announced the closure of tissue-manufacturing and converting operations at our Old Town, Maine mill. The mill's pulp and dryer operations are continuing to operate. The determination to close the tissue operations was based on excess capacity of tissue production, the mill's geographic location and high energy and fiber costs. In connection with this closure, we determined that the value of related tissue assets and certain pulp assets at this location was impaired. Accordingly, in the first quarter of 2003, we recorded a pre-tax impairment charge to earnings in the North America consumer products segment and bleached pulp and paper segment of $25 million and $49 million, respectively. Following the impairment charge, the carrying value of fixed assets was approximately $75 million. The fair value of the impaired assets was determined using the present value of expected
future cash flows. This impairment charge was recorded in "Other losses, net" in the accompanying consolidated statements of operations. |
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On May 2, 2003, the Governor of Maine announced an economic support plan that enabled us to restart one of our closed tissue machines along with eight converting lines and retain related manufacturing and support personnel. In accordance with generally accepted accounting principles, none of the impairment charge recorded in the first quarter of 2003 was reversed. |
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In connection with the acquisition of Fort James, we recorded liabilities totaling approximately $78 million for employee termination costs relating to approximately 960 hourly and salaried employees. In addition, we determined that we would strategically reposition our communication papers business to focus on faster-growing paper segments by retiring four high-cost paper machines and associated pulping facilities at our Camas, Washington mill and recorded liabilities of approximately $26 million to exit these activities. In addition, we recorded liabilities of $35 million primarily for lease and contract termination costs at administrative facilities that have been or will be closed in California, Connecticut, Illinois, Virginia and Wisconsin. During 2001 through 2003, approximately 940 employees were terminated and approximately $74 million of the reserve was used to pay termination benefits. The remaining employee terminations and Camas closing activities (primarily demoli
tion activities) are expected to be completed in the fourth quarter of 2004 due to timing of receipt of the requisite permits. The leases and contracts at the administrative facilities expire at various dates through 2012. The following table provides a rollforward of these reserves from January 3, 2004 through April 3, 2004: |
|
|
|
|
|
Type of Cost
In millions |
Liability
Balance at
January 3, 2004 |
Use |
Liability
Balance at
April 3, 2004 |
|
|
|
|
|
|
Employee termination
Facility closing costs |
$ 4
30 |
$ -
(5) |
$ 4
25 |
|
|
|
|
|
|
Total |
$ 34 |
$ (5) |
$ 29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
8. |
GOODWILL AND INTANGIBLE ASSETS. Effective December 30, 2001, we adopted SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 eliminates the pooling of interests method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires that entities assess the fair value of the net assets underlying all acquisition-related goodwill on a reporting unit basis effective beginning in 2002. When the fair value is less than the related carrying value, entities are required to reduce the amount of goodwill. Our reporting units are: structural panels, lumber, industrial wood products, gypsum, chemical, building products distribution, packaging, pulp, paper, North American retail towel and tissue, North American commercial towel and tissue, Dixie, and international consumer products. |
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|
|
During the first quarter we reached a definitive agreement to sell our non-integrated pulp mills at Brunswick, Georgia, and New Augusta, Mississippi, and a short-line railroad (see Note 5). The goodwill associated with the pulp mill and the railroad was $169 million and $3 million, respectively, at both April 3, 2004 and January 3, 2004, and has been reclassified to "Net assets held for sale" in the accompanying balance sheets. |
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|
|
|
|
The changes in the carrying amount of goodwill for the first three months of 2004 are as follows: |
|
In millions |
North America Consumer Products |
International Consumer Products |
Packaging |
Bleached Pulp and Paper |
|
|
Balance as of January 3, 2004
Foreign currency translation |
$ 5,831
- -
|
$ 987
(19)
|
$ 630
- -
|
$ -
- -
|
|
|
Balance as of April 3, 2004 |
$ 5,831 |
$ 968 |
$ 630 |
$ - |
|
|
|
|
|
|
|
|
In millions |
Building Products Manufacturing |
Building Products Distribution |
All Other |
Consolidated |
|
|
Balance as of January 3, 2004
Foreign currency translation |
$ 36
- -
|
$ -
- -
|
$ -
- -
|
$ 7,484
(19)
|
|
|
Balance as of April 3, 2004 |
$ 36 |
$ - |
$ - |
$ 7,465 |
|
|
|
|
|
|
14 |
|
|
Intangible Assets |
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|
|
The following table sets forth information for intangible assets subject to amortization: |
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|
|
|
|
As of April 3, 2004 |
As of January 3, 2004 |
|
|
In millions
|
Gross Carrying
Amount |
Accumulated
Amortization |
Gross Carrying
Amount |
Accumulated
Amortization |
|
|
|
|
Trademarks
Patents and
other |
$ 676
137 |
$ 50
61 |
$ 677
132 |
$ 40
53 |
|
|
|
|
Total |
$ 813 |
$ 111 |
$ 809 |
$ 93 |
|
|
|
|
|
|
|
|
|
|
|
Aggregate Amortization Expense:
First three months of 2004
Estimated Amortization Expense:
For fiscal year 2004
For fiscal year 2005
For fiscal year 2006
For fiscal year 2007
For fiscal year 2008 |
$ 8
=====
$ 29
29
20
20
20
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9. |
ASSET RETIREMENT OBLIGATIONS. Effective December 29, 2002, we changed our method of accounting for asset retirement obligations in accordance with SFAS No. 143, Accounting for Asset Retirement Obligations. Under SFAS No. 143, we recognize asset retirement obligations in the period in which they are incurred if a reasonable estimate of the fair value can be made. When the liability is initially recorded, we capitalize the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, we will recognize a gain or loss for any difference between the settlement amount and the liability recorded. |
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Our asset retirement obligations consist primarily of landfill capping and closure and post-closure costs and quarry reclamation costs. We are legally required to perform capping and closure and post-closure care on the landfills and reclamation on the quarries. In accordance with SFAS No. 143, for each landfill and quarry we recognized the fair value of a liability for an asset retirement obligation and capitalized that cost as part of the cost basis of the related asset. The related assets are being depreciated on a straight-line basis over 25-years. We have additional asset retirement obligations with indeterminate settlement dates; the fair value of these asset retirement obligations cannot be estimated due to the lack of sufficient information to estimate a range of potential settlement dates for the obligation. An asset retirement obligation related to these assets will be recognized when we know such information. |
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|
|
The following table describes changes to our asset retirement obligation liability: |
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|
|
|
|
(in millions) |
First Quarter 2004 |
|
|
|
|
Asset retirement obligation at the beginning of the year
Accretion expense
Payments |
$ 49
1
(1) |
|
|
|
|
Asset retirement obligation at the end of the quarter |
$ 49 |
|
|
|
|
|
|
|
|
|
|
15 |
|
|
The asset retirement obligation liability balances were as follows: |
|
|
|
|
|
(in millions) |
April 3,
2004 |
January 3,
2004 |
|
|
|
|
Amounts of liability for asset retirement obligations
at beginning of period
Amounts of liability for asset retirement obligations
at end of period |
$ 49
$ 49
|
$ 46
$ 49
|
|
|
|
|
10. |
DEBT. Our debt increased by $192 million to $10,840 million at April 3, 2004 (including approximately $97 million of debt classified as "Net liabilities held for sale") from $10,648 million at January 3, 2004 (including approximately $97 million of debt classified as "Net liabilities held for sale"). This increase was somewhat offset by changes in foreign currency exchange rates of $16 million during this time period. At April 3, 2004, the weighted average interest rate on our total debt, including outstanding interest rate exchange agreements, was 7.2%. |
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As of April 3, 2004, we had $859 million outstanding, under our $900 million accounts receivable secured borrowing program. G-P Receivables, Inc. ("G-P Receivables") is our wholly owned subsidiary and is the special purpose entity into which some of our receivables and the receivables of participating domestic subsidiaries are sold. G-P Receivables, in turn, sells an interest in the receivables to the various banks and entities. This program is accounted for as a secured borrowing. The receivables outstanding under these programs and the corresponding debt are included as both "Receivables" and "Secured borrowings and other short-term notes," respectively, in the accompanying balance sheets. As collections reduce previously pledged interests, new receivables may be pledged. G-P Receivables is a separate corporate entity and its assets will be available first and foremost to satisfy the claims of its creditors. We intend to repurchase the receivable interest sold into the progr
am related to the building products distribution segment. Those receivables will be transferred to the purchaser of that segment pursuant to the divestiture described in Note 5. The amount of that repurchase is currently anticipated to be approximately $380 million. |
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On April 2, 2004, we borrowed a total of $400 million of 2.6% short-term bank loans scheduled to mature on June 4, 2004. Net proceeds from the loans were used to pay down a portion of our Multi-Year Revolving Credit Facility. |
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On February 27, 2004, we called $243 million of our 9.875% debentures due November 1, 2021. We also called $250 million of our 9.625% debentures due March 15, 2022 on March 31, 2004. In conjunction with these transactions we recorded a pretax charge of $26 million for call premiums and to write off deferred debt issuance costs during the first quarter of 2004. This charge for the early extinguishment of debt was included in "Other losses, net" on the accompanying statements of operations. |
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|
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In connection with the proposed sale of our non-integrated pulp mills and short-line railroad to Koch (see Note 5), Koch will assume $73 million of indebtedness. In addition, we also intend to defease an outstanding $24 million tax-exempt bond prior to the consummation of the transaction in order to transfer certain assets to Koch. |
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Also in the first quarter of 2004, we elected to call $250 million of our 9.5% debentures due May 15, 2022 and redeemed these debentures on April 20, 2004. We also announced that we have elected to call $240 million of our 9.125% debentures due July 1, 2022, and we expect to redeem these debentures on or about May 6, 2004. We expect to use funds available under our revolving credit facility to redeem these debentures. We have classified the related debt as "Current portion of long-term debt" on the accompanying balance sheets as of April 3, 2004. In the second quarter of 2004, we expect to record a pretax charge of $24 million for call premiums and to write off deferred debt issuance costs. |
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|
16 |
|
|
Our international operations create exposure to foreign currency exchange rate risks. At April 3, 2004, we had outstanding approximately $361 million (net of discount) of Euro-denominated bonds, which were designated as a hedge against our net investment in Europe. The use of this financial instrument allows us to reduce our overall exposure to exchange rate movements, since the gains and losses on this instrument substantially offsets losses and gains on the assets, liabilities and transactions being hedged. These Euro-denominated bonds mature on June 29, 2004. |
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The indentures associated with our $500 million and $1.5 billion senior notes offerings completed in 2003 allow Georgia-Pacific and any restricted subsidiary (as defined in the indentures) of Georgia-Pacific to incur any debt so long as we meet a fixed charges coverage ratio of 2.00 to 1.00 (as defined in the indentures). In addition, we can incur significant amounts of other items of permitted debt (as defined in the indentures) without being in compliance with the fixed charge coverage ratio. The senior notes indentures allow us to make restricted payments, including making restricted investments, if certain conditions are met. We can, however, make permitted payments and permitted investments without complying with such conditions. These offerings also contain various non-financial covenants. We were in compliance with these debt covenants as of April 3, 2004 . |
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|
At April 3, 2004, we had $408 million outstanding under our Multi-Year Revolving Credit Facility at a weighted-average interest rate of 3.2% with a maturity date of November 28, 2005. In addition, $644 million of borrowing capacity under the facility was committed to support outstanding letters of credit and similar instruments. Borrowings under this facility bear interest at market rates. These interest rates may be adjusted according to a rate grid based on our debt ratings. Fees and margins may also be adjusted according to a pricing grid based on our debt ratings. Fees include a facility fee of 0.4% per annum on the aggregate commitments of the lenders as well as up-front fees. During the first quarter of 2004, we paid $2 million in commitment fees. Amounts outstanding under this facility are included in "Long-term debt, excluding current portion" on the accompanying consolidated balance sheets. We are currently evaluating opportunities to renegotiate the Multi-Year Revolv
ing Credit Facility in advance of its maturity on November 28, 2005. |
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|
17 |
|
|
The amounts outstanding under our credit agreement include the following: |
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|
|
|
|
In millions |
April 3, 2004 |
|
|
|
|
Revolving loans |
$2,250 |
|
|
Term loans |
250 |
|
|
|
|
Credit facilities available |
2,500 |
|
|
|
|
Amounts Outstanding:
Letter of credit agreements*
Revolving loans due November 2005, average rate of 2.9%
Term loans due November 2005, average rate of 3.3% |
(644)
(158)
(250)
|
|
|
|
|
Total credit balance outstanding |
(1,052) |
|
|
|
|
Total credit available |
$ 1,448 |
|
|
|
|
|
|
|
|
* The Letter of Credit Agreements only include Standby Letter of Credits from Bank of America. |
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|
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|
|
Covenants in the Multi-Year Revolving Credit Facility require a maximum leverage ratio (as defined) of 65.00% on April 3, 2004 and thereafter. These covenants also require a minimum interest coverage ratio (as defined), of 2.50 to 1.00 on April 3, 2004; 2.75 to 1.00 on July 3, 2004; and 3.00 to 1.00 on October 2, 2004 and thereafter. In addition, the covenants require a minimum net worth (as defined) that changes quarterly. The covenants also require a maximum debt level of $12,538 million, which changes quarterly, should our leverage ratio be equal to or exceed 65.00%. We were in compliance with these debt covenants as of April 3, 2004, with a leverage ratio of 61.25%, an interest coverage ratio of 3.06 to 1.00, a debt level (as defined) of $10,674 million and an adjusted net worth surplus (as defined) as shown below: |
|
|
|
|
|
In millions |
April 3, 2004 |
|
|
|
|
Adjusted Net Worth: |
|
|
|
Net worth |
$ 5,522 |
|
|
Goodwill impairments |
757 |
|
|
Minimum pension liability adjustment |
473 |
|
|
|
|
Adjusted Net Worth |
6,752 |
|
|
Required Net Worth: |
|
|
|
80% of net worth as of the Credit Agreement closing date |
4,650 |
|
|
50% of net Income from fourth quarter 2000 through 2004* |
281 |
|
|
Proceeds of capital stock or equity interest from fourth quarter 2000 through 2004 |
1,152 |
|
|
The Timber Company Net Worth |
(329) |
|
|
|
|
Required Net Worth |
5,754 |
|
|
|
|
Adjusted Net Worth surplus |
$ 998 |
|
|
|
|
|
|
|
|
* Does not include quarters with net losses. |
|
|
|
|
18 |
|
|
Our borrowing agreements contain a number of financial and non-financial covenants, which restrict our activities. The more significant financial covenants are discussed above. In addition, certain agreements contain cross-default provisions. |
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|
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|
|
Our continued compliance with these restrictive covenants is dependent on a number of factors, many of which are outside of our control. Should events occur that result in noncompliance, we believe there are remedies available that are acceptable to our lenders and us. |
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|
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|
|
Approximately $148 million of our revenue bonds are supported by letters of credit that expire within one year. We intend to renew the letters of credit supporting these revenue bonds. Therefore, maturities of these obligations are reflected in accordance with their stated terms. |
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|
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|
At April 3, 2004, we had interest rate exchange agreements (a collar) that effectively capped $47 million of floating rate obligations to a maximum interest rate of 7.5% and established a minimum interest rate on these obligations of 5.5%. Our interest expense is unaffected by this agreement when the market interest rate falls within this range. During the first quarter of 2004, these agreements reduced interest expense by less than $1 million. The agreements had a weighted-average maturity of approximately two years at April 3, 2004. |
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|
|
The estimated fair value of our interest rate exchange agreements at April 3, 2004 was a $3 million asset. The asset balance represents the estimated amount we would be paid if these agreements were terminated on April 3, 2004. The fair value at April 3, 2004 was estimated by calculating the present value of anticipated cash flows. The discount rate used was an estimated borrowing rate for similar debt instruments with like maturities. |
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|
|
At April 3, 2004 we had $1,902 million of floating rate debt outstanding, which represented approximately 18% of our total debt balance. |
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|
|
As of April 3, 2004, we had $1.5 billion of debt and equity securities available for issuance under a shelf registration statement filed with the Securities and Exchange Commission in 2000. |
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|
11. |
RETIREMENT PLANS |
|
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|
|
Defined Benefit Pension Plans |
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|
|
Most of our employees participate in noncontributory defined benefit pension plans. These include plans that are administered solely by us and union-administered multiemployer plans. Our funding policy for solely administered plans is based on actuarial calculations and the applicable requirements of federal law. Contributions to multiemployer plans are generally based on negotiated labor contracts. |
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|
Benefits under the majority of plans for hourly employees (including multiemployer plans) are primarily related to years of service. We have separate plans for salaried employees and officers under which benefits are primarily related to compensation and age. The officers' plan and the supplemental retirement plan for eligible executives are not funded and are nonqualified for federal income tax purposes. |
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19 |