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NOTE 3: DISCONTINUED OPERATIONS AND ASSETS
HELD FOR SALE Certain reclassifications in our Consolidated Financial Statements have been made to reflect discontinued operations. OPERATIONS INCLUDED IN DISCONTINUED OPERATIONS Discontinued Operations  OUR FINE PAPER BUSINESS AND RELATED ASSETS – DOMTAR TRANSACTION On March 7, 2007, we completed the following set of transactions: • a series of transfers and other transactions resulting in our Fine Paper business and related assets becoming wholly-owned by Domtar Corporation; • the distribution of shares of Domtar Corporation to our shareholders in exchange for 25 million shares of our common stock; and • the acquisition of Domtar, Inc., an unaffiliated Canadian corporation, by Domtar Corporation. Collectively, these transactions are referred to as the “Domtar Transaction.” We also received $1.35 billion of cash proceeds in connection with the Domtar Transaction that were used to pay down debt. We do not allocate interest to discontinued operations unless the interest is directly attributable to the discontinued operations or is interest on debt that is required to be repaid as a result of a disposal transaction. Interest expense included in discontinued operations primarily reflects an estimate of interest expense related to the debt that was paid with the proceeds from the Domtar Transaction. Prior to distributing Domtar Corporation shares to our shareholders, Domtar Corporation was a wholly-owned subsidiary of our company. Concurrent with the distribution to shareholders, Domtar Corporation ceased being a subsidiary of our company. The operating assets divested as part of the Domtar Transaction are referred to as “Fine Paper and related assets” or the “Fine Paper business and related assets” and included the following: • Fine Paper – the Fine Paper business including seven paper mills and one coated groundwood mill with a combined capacity of 2.9 million tons, and 16 paper converting facilities with a total capacity of 2.0 million tons; • Cellulose Fibers – five cellulose fiber manufacturing facilities with total capacity of 0.8 million tons; • Wood Products – one sawmill with a capacity of 160 million board feet; and • Timberlands – forest licenses on 12.2 million acres associated with the Dryden, Ontario and Prince Albert, Saskatchewan facilities. Also included in the Fine Paper and related assets divested were: • the Prince Albert, Saskatchewan pulp and paper facility that the company closed in the first quarter of 2006; and • sawmills in Big River and Wapawekka, Saskatchewan that were closed in the second quarter 2006. Components of the Net Gain on the Domtar Transaction  The U.S. portion of the transaction resulted in a gain that is not taxable while the Canadian portion of the transaction resulted in a net loss for which we have recognized a tax benefit. The net pretax gain on the Domtar Transaction is recorded in the Corporate and Other segment and includes: • $629 million gain recognized in the first quarter of 2007; • a $4 million reduction in the second quarter of 2007 for additional expense; and • a reduction of $19 million in the fourth quarter, due primarily to changes in estimates related to deferred taxes. We also recognized: • a net tax benefit of $92 million in the first quarter of 2007; and • tax expense of $3 million in the fourth quarter of 2007. These net tax benefits were largely due to the rollout of temporary differences on the assets sold in Canada. The finalization of certain matters may result in additional adjustments in future periods. IRISH COMPOSITE PANEL OPERATIONS Selling our Irish composite panel operations in 2006 produced: • a pretax gain of $45 million; • related tax expense of $4 million; • a net gain of $41 million; and • net proceeds of $86 million, including working capital. We sold these operations to Coillte Teoranta. The sale included one facility with an annual production capacity of 230 million square feet of medium density fiberboard. NORTH AMERICAN COMPOSITE PANEL OPERATIONS Selling our North American composite panel operations in 2006 produced: • a pretax gain of $51 million; • related tax expense of $18 million; • a net gain of $33 million; and • net proceeds of $187 million, including working capital. We sold these operations to Flakeboard America Ltd., a wholly owned subsidiary of Flakeboard Company Ltd. The sale included six composite panel mills with a combined annual production capacity of 1.1 billion square feet of medium density fiberboard and particleboard. FRENCH COMPOSITE PANEL OPERATIONS Selling our French composite panel operations in 2005 produced: • a pretax gain of $57 million; • related tax expense of $23 million; • a net gain of $34 million; and • net proceeds of $84 million, including working capital. We sold these operations to Financiera Maderera S.A. The sale included two composite panel manufacturing operations with a combined annual production capacity of 330 million square feet. B.C. COASTAL Selling our B.C. Coastal operations in 2005 produced: • a pretax gain of $63 million; • tax benefit of $46 million; • a net gain of $109 million; and • net proceeds of $1.1 billion, including working capital. Our $46 million tax benefit was the difference between our: • $185 million deferred tax benefit on the assets included in the sale; and • $139 million current tax expense on the taxable gain from the sale. In addition, we recognized an $8 million out-of-period charge in the third quarter of 2006 to write off additional goodwill associated with these operations. We sold our B.C. Coastal operations to Coastal Acquisition Ltd., a wholly-owned subsidiary of Brascan Corporation. The sale included: • 635,000 acres – 258,000 hectares – of private timberlands; • annual harvesting rights to 3.6 million cubic meters of timber subject to public timber leases; • five softwood lumber sawmills with a combined annual production capacity of 690 million board feet; and • two remanufacturing facilities. NET EARNINGS FROM DISCONTINUED OPERATIONS Our net earnings (loss) from discontinued operations for the last three years were: • $739 millions in 2007; • $(611) millions in 2006; and • $(216) millions in 2005. Sales, Earnings and Gains (Losses) From Discontinued Operations  Net earnings (loss) from operations includes the following pretax items: • 2007 – a gain of $43 million on a legal settlement related to the Dryden, Ontario facility we received in the third quarter of 2007. See Note 21: Other Operating Costs (Income), Net; • 2006 – a charge of $749 million for the impairment of goodwill associated with the fine paper reporting unit; and • 2005 – charges of $504 million for facility closures, including the Prince Albert, Saskatchewan pulp and paper facility and sawmills in Big River and Wapawekka, Saskatchewan. CARRYING VALUE OF ASSETS AND LIABILITIES The following table shows carrying values for assets and liabilities classified as discontinued operations as of December 31, 2006. Carrying Value of Assets and Liabilities  ASSETS HELD FOR SALE In February 2007, we announced our intent to sell our Canadian and select U.S. building materials distribution centers. In the second quarter of 2007, we sold our Canadian distribution facilities to Platinum Equity of Los Angeles, California. Certain assets of the Canadian facilities are classified as held for sale on the accompanying Consolidated Balance Sheet as of December 31, 2006, and include: • inventories of $58 million; and • accounts receivable of $47 million. Under the terms of sale, we will continue to sell wood products through these Canadian distribution centers. As a result of this continuing involvement, the operations of these facilities do not meet the technical accounting requirements of discontinued operations and, therefore, have not been included in discontinued operations in the accompanying Consolidated Financial Statements. In connection with the sale of the Canadian distribution facilities, we: • recognized pretax charges of $38 million during 2007, including $22 million for the impairment of goodwill; and • received approximately $100 million in cash proceeds from the sale in the second quarter of 2007. As announced in the first quarter of 2007, we are pursuing alternatives for certain U.S. building materials distribution centers. As of December 30, 2007, transactions related to the U.S. distribution centers have not had a material impact on our Consolidated Financial Statements. The centers that are still included in our operations do not represent a material portion of our Consolidated Balance Sheet and have not been reclassified as Assets Held for Sale. |