Asbestos-related charges dampen Georgia-Pacific’s earnings
Georgia-Pacific Corp. warned its fourth-quarter results will be negatively impacted by unusual charges, including asbestos litigation costs.
The Atlanta-based wood, pulp and paper products company (NYSE: GP) expects to report between a loss of 1 cent to earnings of 4 cents per diluted share for the fourth quarter of 2004, including 46 cents loss per diluted share from unusual items. Georgia-Pacific’s full fourth quarter and year-end 2004 earnings report is scheduled for Feb. 1.
Unusual items will likely include $159 million in pretax asbestos-related charges. This includes an increase of $48 million for the 10th year of the company’s asbestos reserves, a $109 million increase in reserves for its asbestos defense spending through 2014 and a net $2 million reduction of its asbestos insurance receivables. Also expected is a $32 million pretax charge for a combination of other unusual items. In addition, results for the fourth quarter of 2004 is expected to include a pretax charge of $27 million in net stock-based compensation expense.
During 2004, new asbestos claims fell 32 percent from 2003, with approximately 59,700 claims pending at year-end, Georgia-Pacific said. However, total payments to resolve claims in 2004 went up to $200 million, compared with $189 million in 2003.
The company continues to use the 10-year liability forecast of National Economic Research Associates Inc. (NERA), which has concluded that no changes to its forecast of Georgia-Pacific’s asbestos indemnity payments are necessary for the nine years remaining through 2013. NERA also concurs with Georgia-Pacific’s decision to add $48 million to its asbestos reserves at the end of 2004 for 2014, maintaining a 10-year reserve.
Georgia-Pacific also reserves for asbestos-related defense spending. As it has already reported, its defense spending on asbestos claims has increased since late 2003, as Georgia-Pacific responded more aggressively to increased settlement demands. The company has developed additional affirmative defenses, conducted more extensive discovery into the medical condition of plaintiffs and their allegations against Georgia-Pacific, and doubled the number of cases it has taken to trial. As a result, average per claim payments for mesothelioma, cancer and non-malignant claims decreased in 2004.
Georgia-Pacific expects significant defense efforts will continue for the next several years, but that their cost will decline gradually over that period. NERA has concurred with the company’s decision to increase its asbestos defense reserve by $109 million. This increase amounts to approximately $11 million on average for each year through 2014 before tax benefits.
In other news, Georgia-Pacific’s North American and international consumer products businesses, and the paper business, expect to report strong results at or above the company’s expectations. However, its packaging and building products segments expect to report performance below expectations. The packaging results were driven by maintenance downtime and a larger than usual drop off in seasonal demand. The building products segment results were impacted by maintenance downtime, which was postponed to the fourth quarter due to strong demand in the first three quarters, as well as limited wood supply due to seasonal weather conditions.
Charges to dampen Georgia-Pacific’s Q4 earnings - 2005-01-18 - Atlanta Business Chronicle