UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 2005
Commission File Number 1-3506
GEORGIA-PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
| Georgia | 93-0432081 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
133 Peachtree Street, N.E.,
Atlanta, Georgia 30303
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: (404) 652-4000
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 Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨
As of the close of business on April 25, 2005, Georgia-Pacific Corporation had 260,135,475 shares of Georgia-Pacific Common Stock outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
| First Quarter | ||||||
| (In millions, except per share amounts) | 2005 | 2004 | ||||
| Net sales |
$ | 4,615 | $ | 5,222 | ||
| Costs and expenses: |
||||||
| Cost of sales |
3,435 | 3,965 | ||||
| Selling and distribution |
272 | 358 | ||||
| Depreciation, amortization and accretion |
233 | 244 | ||||
| General and administrative |
185 | 219 | ||||
| Other losses, net |
21 | 26 | ||||
| Operating profit |
469 | 410 | ||||
| Interest, net |
155 | 197 | ||||
| Income from continuing operations before income taxes |
314 | 213 | ||||
| Provision for income taxes |
109 | 71 | ||||
| Income from continuing operations |
205 | 142 | ||||
| Income from discontinued operations, net of taxes |
— | 5 | ||||
| Net income |
$ | 205 | $ | 147 | ||
| Basic per share: |
||||||
| Income from continuing operations |
$ | 0.80 | $ | 0.56 | ||
| Income from discontinued operations, net of taxes |
— | 0.02 | ||||
| Net income |
$ | 0.80 | $ | 0.58 | ||
| Diluted per share: |
||||||
| Income from continuing operations |
$ | 0.78 | $ | 0.55 | ||
| Income from discontinued operations, net of taxes |
— | 0.02 | ||||
| Net income |
$ | 0.78 | $ | 0.57 | ||
| Shares (denominator): |
||||||
| Weighted average shares outstanding |
257.8 | 253.5 | ||||
| Dilutive securities: |
||||||
| Options and other equity securities |
6.5 | 3.9 | ||||
| Total assuming conversion |
264.3 | 257.4 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
| First Quarter |
||||||||
| (In millions) | 2005 | 2004 | ||||||
| Cash flows from operating activities |
||||||||
| Net income |
$ | 205 | $ | 147 | ||||
| Adjustments to reconcile net income to cash provided by (used for) operations (excluding the effect of dispositions): |
||||||||
| Depreciation |
224 | 247 | ||||||
| Amortization of intangible assets, deferred charges and accretion |
14 | 21 | ||||||
| Stock compensation expense |
3 | 35 | ||||||
| Deferred income taxes |
(27 | ) | (46 | ) | ||||
| Other losses, net |
21 | 26 | ||||||
| Increase in receivables |
(125 | ) | (325 | ) | ||||
| Increase in inventories |
(104 | ) | (172 | ) | ||||
| (Decrease) increase in accounts payable |
(137 | ) | 101 | |||||
| Change in other working capital |
(102 | ) | 50 | |||||
| Change in taxes payable/receivable |
111 | — | ||||||
| Change in other assets and other long-term liabilities |
(14 | ) | (111 | ) | ||||
| Other, net |
23 | — | ||||||
| Cash provided by (used for) operations |
92 | (27 | ) | |||||
| Cash flows from investing activities |
||||||||
| Property, plant and equipment investments |
(141 | ) | (109 | ) | ||||
| Net (cost) proceeds from sales of assets |
(5 | ) | 7 | |||||
| Other |
(5 | ) | (8 | ) | ||||
| Cash used for investing activities |
(151 | ) | (110 | ) | ||||
| Cash flows from financing activities |
||||||||
| Repayments of long-term debt |
(970 | ) | (1,304 | ) | ||||
| Additions to long-term debt |
937 | 934 | ||||||
| Fees paid to retire debt |
(3 | ) | (18 | ) | ||||
| Net change in bank overdrafts |
7 | (6 | ) | |||||
| Net increase in accounts receivable secured borrowings and short-term notes |
110 | 570 | ||||||
| Proceeds from option plan exercises |
9 | 34 | ||||||
| Cash dividends paid ($0.175 per share and $0.125 per share) |
(45 | ) | (32 | ) | ||||
| Other, net |
(1 | ) | — | |||||
| Cash provided by financing activities |
44 | 178 | ||||||
| Effect of exchange rate changes on cash and equivalents |
(13 | ) | (13 | ) | ||||
| (Decrease) increase in cash |
(28 | ) | 28 | |||||
| Balance at beginning of period |
225 | 51 | ||||||
| Balance at end of period |
$ | 197 | $ | 79 | ||||
| Supplemental disclosures of cash flow information: |
||||||||
| Total interest cost, net — continuing operations |
$ | 156 | $ | 201 | ||||
| Interest capitalized |
(1 | ) | (4 | ) | ||||
| Interest expense, net — continuing operations |
155 | 197 | ||||||
| Interest expense, net — discontinued operations |
— | 3 | ||||||
| Total interest expense, net |
$ | 155 | $ | 200 | ||||
| Interest paid |
$ | 162 | $ | 186 | ||||
| Income tax paid, net |
$ | 21 | $ | 126 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CONSOLIDATED BALANCE SHEETS (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
| (In millions, except shares and per share amounts) | April 2, 2005 |
January 1, 2005 |
||||||
| ASSETS |
||||||||
| Current assets |
||||||||
| Cash and equivalents |
$ | 197 | $ | 225 | ||||
| Receivables, less allowances of $28 and $26, respectively |
1,864 | 1,766 | ||||||
| Inventories |
1,640 | 1,548 | ||||||
| Deferred income tax assets |
27 | 28 | ||||||
| Taxes receivable |
— | 56 | ||||||
| Other current assets |
335 | 324 | ||||||
| Total current assets |
4,063 | 3,947 | ||||||
| Property, plant and equipment |
||||||||
| Land, buildings, machinery and equipment, at cost |
17,842 | 17,934 | ||||||
| Accumulated depreciation |
(9,586 | ) | (9,529 | ) | ||||
| Property, plant and equipment, net |
8,256 | 8,405 | ||||||
| Goodwill, net |
7,498 | 7,551 | ||||||
| Intangible assets, net |
682 | 701 | ||||||
| Other assets |
2,461 | 2,468 | ||||||
| Total assets |
$ | 22,960 | $ | 23,072 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities |
||||||||
| Secured borrowings and other short-term notes |
$ | 678 | $ | 568 | ||||
| Current portion of long-term debt |
339 | 57 | ||||||
| Accounts payable |
1,512 | 1,668 | ||||||
| Accrued compensation |
212 | 323 | ||||||
| Taxes payable |
56 | — | ||||||
| Other current liabilities |
1,017 | 1,000 | ||||||
| Total current liabilities |
3,814 | 3,616 | ||||||
| Long-term debt, excluding current portion |
7,752 | 8,070 | ||||||
| Other long-term liabilities |
3,659 | 3,692 | ||||||
| Deferred income tax liabilities |
1,439 | 1,469 | ||||||
| Total liabilities |
16,664 | 16,847 | ||||||
| Commitments and contingencies (Note 11) |
||||||||
| 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; 258,311,000 and 256,992,000 shares issued and outstanding |
206 | 205 | ||||||
| Additional paid-in capital |
3,628 | 3,610 | ||||||
| Retained earnings |
2,250 | 2,090 | ||||||
| Long-term incentive plan deferred compensation |
— | — | ||||||
| Accumulated other comprehensive income |
212 | 320 | ||||||
| Total shareholders’ equity |
6,296 | 6,225 | ||||||
| Total liabilities and shareholders’ equity |
$ | 22,960 | $ | 23,072 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
| First Quarter |
||||||||
| (In millions) | 2005 | 2004 | ||||||
| Net income |
$ | 205 | $ | 147 | ||||
| Other comprehensive income (loss), net of tax: |
||||||||
| Foreign currency translation adjustments |
(119 | ) | (44 | ) | ||||
| Fair market value adjustments on derivatives |
13 | — | ||||||
| Unrealized loss on securities |
(3 | ) | — | |||||
| Minimum pension liability adjustment |
1 | — | ||||||
| Comprehensive income |
$ | 97 | $ | 103 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
April 2, 2005
| 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. |
Management is 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 audited financial statements for the fiscal year ended January 1, 2005 in our Form 10-K filed with the SEC on March 1, 2005.
Certain 2004 amounts have been reclassified to conform with the 2005 presentation.
In March 2005, we corrected our accounting for an insurance policy with a three-year term expiring in June of 2005. From 2002 through 2004, we had recorded all payments made under the policy as prepaid insurance which was amortized into expense. However, a portion of these payments are refundable based upon actual loss experience and, therefore, should have been recorded as a deposit rather than as an insurance expense. Losses covered by the deposit are to be expensed as incurred. We have concluded that the resulting overstatement of insurance expense during 2002 through 2004 is not material, either individually or in the aggregate, to our results of operations, to trends for those periods affected, or to a fair presentation of our financial statements. Accordingly, results for the prior periods have not been restated. Instead, we have reduced our insurance expense (cost of sales) and increased other current assets by $24 million to correct this error in the first quarter of 2005. We expect to receive a total cash refund of $30 million in the third quarter of 2005 assuming no significant losses occur under the policy.
We recorded net losses related to our equity method investments of $3 million and $6 million for the first quarters of 2005 and 2004, respectively. Minority interests in income of less than wholly-owned consolidated subsidiaries totaled $6 million for the first quarter of both 2005 and 2004. These amounts are included in cost of sales on our consolidated statements of operations.
We classify certain shipping and handling costs as selling and distribution expenses. Shipping and handling costs included in selling and distribution expenses were $68 million and $103 million for the first quarter of 2005 and 2004, respectively.
Interest, net is interest expense of $176 million and $216 million, net of interest income of $21 million and $19 million, for the first quarter of 2005 and 2004, respectively, a majority of which is associated with the notes received in connection with our sale of a 60% controlling interest in Unisource in 2002 and sales of various timberlands in prior years.
6
Other Losses, net
The following amounts are included in Other losses, net
| First Quarter | ||||||
| (In millions) | 2005 | 2004 | ||||
| Asset impairments |
$ | 2 | $ | — | ||
| Early extinguishment of debt |
4 | 26 | ||||
| Estimated loss on warehouse sublease |
11 | — | ||||
| Loss on sale of assets |
3 | — | ||||
| Other |
1 | — | ||||
| Other losses, net |
$ | 21 | $ | 26 | ||
Stock-Based Compensation
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 the pro forma effects of the plans on net income and earnings per share as provided under SFAS No. 123. Had compensation cost for the options and other equity securities 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:
| First Quarter |
|||||||
| (In millions, except per share amounts) | 2005 | 2004 | |||||
| Net income as reported |
$ | 205 | $ | 147 | |||
| APB No. 25 stock-based employee compensation expense for 2002 awards |
— | 4 | |||||
| Less total stock-based employee compensation expense determined under the fair value based method, net of taxes |
— | (1 | ) | ||||
| Pro forma net income |
205 | 150 | |||||
| Stock based employee compensation cost, net of taxes, included in the determination of net income as reported |
4 | 23 | |||||
| Basic net income per share: |
|||||||
| As reported |
0.80 | 0.58 | |||||
| Pro forma |
0.80 | 0.59 | |||||