Question 1
Based on this case I need 3 measures for each of the four scorecard areas. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED OCTOBER 31, 2007 Eastvaco Corporation (Exact name of registrant as specified in its charter) Part I Item 1. Business General Eastvaco Corporation, a Delaware Corporation incorporated in 1899 as West Virginia Pulp and Paper Company, is one of the major producers of paper and paperboard in the United States. The company converts paper and paperboard into a variety of end products, manufactures a variety of specialty chemicals, produces lumber, sells timber from its timberlands and is engaged in land development. In Brazil, it is a major producer of paperboard and corrugated packaging for the markets of that country and also operates a folding carton plant. Eastvaco also has a folding carton plant in the Czech Republic. Eastvaco exports products from the United States, Brazil and the Czech Republic to other countries throughout the world. The term "Eastvaco" or "the company" includes Eastvaco Corporation and its consolidated subsidiaries unless otherwise noted. Business segments The company's operating divisions have been classified into reportable segments based upon the nature of their products and services within three major product categories, with separate disclosure of our Brazilian packaging operation, Rigesa, Ltda. Financial information about the company's business segments is contained in Note O to the consolidated financial statements, included in the 2007 Eastvaco Annual Report and is incorporated herein by reference. Marketing and distribution The principal markets for Eastvaco's products are in the United States. Sales to customers outside the United States made up approximately 24% of Eastvaco's total sales in 2007 (2006 and 2005- 25%). Substantially all products are sold through the company's own sales force. Eastvaco maintains 30 sales offices located throughout the United States and 30 in foreign countries (Europe and South America). Company ID W11200C Company ID Must Be Included On All Assignments Forest resources The principal raw material used in the manufacture of paper, paperboard and pulp is wood. Eastvaco owns 1,446,000 acres of forest land in the United States and southern Brazil (more than 1,000 miles from the Amazon rainforests). Eastvaco's Cooperative Forest Management Program provides an additional source of wood fiber from the 1,370,000 acres owned by participating landowners and managed with assistance from Eastvaco foresters. Eastvaco's strategy, based on the location of its mills and the composition of surrounding forest land ownership, is to provide a portion of its wood fiber from company-owned land and to rely on private woodland owners and residues from independent solid wood products plants for substantial quantities of wood. During 2007, Eastvaco furnished 39% (2006-36%, 2005-39%) of its wood requirements from company-owned land, and an additional 8% (2006-7%, 2005-8%) was purchased from landowners in the Cooperative Forest Management Program. The remainder was purchased from other private landowners and sawmills by mill wood procurement organizations. The wood procurement system includes 27 pulpwood concentration and processing yards that are strategically located to store and ship wood to the mills as needed. The Cooperative Forest Management Program, private landowners and sawmills continue to provide adequate volumes of timber to meet our external fiber needs. The company has no reason to expect that these sources will be unable to furnish adequate wood supply in the future. Eastvaco supplied 100% of the wood for its Brazilian mill from company plantations. Eastvaco forests include plantations, natural stands and fiber farms. The inventory of growing trees, the basis for volume production, has increased steadily over the last decade in spite of a steady rise in the volume of wood harvested. Most of the pine stands harvested are plantations that are regenerated by establishing new pine plantations. Most hardwood stands that are harvested are re-established by planned natural regeneration from seeds and sprouts. Eastvaco's hardwood plantation and fiber farm programs are expanding and involve several domestic species. The quantity of wood harvested by Eastvaco from its lands in any year is primarily controlled by long-range forest management programs based on integrated wood supply plans. Eastvaco forest are being depleted rapidly without a foreseeable source for future production. World pressure is being focused on the Brazilian rain forest threatening the harvest of timber. The Charlotte plant has focused on recycled materials for the production of envelopes, paper cups and packaging material. The Company has put considerable resources in making the Charlotte facility a ?green? production facility. In addition to recycling the plant has significantly reduced its carbon footprint and the flagship of Eastvaco?s operations. Recently there has been an alarming shortage of recycled wood products. The Company is Company ID W11200C Company ID Must Be Included On All Assignments committed to continue infusing the Charlotte plant with the necessary resources to maintain its status as the leading ?green paper production? plant in the United States. See Charlotte specific financial statements. Patents Eastvaco has obtained a number of foreign and domestic patents as a result of its research and product development efforts. Eastvaco is the owner of many registered trademarks for its products. Although in the aggregate, its patents and trademarks are of material importance to Eastvaco's business, the loss of any one or any related group of such intellectual property rights would not have a material adverse effect on the business of the company. Competition Eastvaco competes in very competitive domestic and foreign markets. Eastvaco's strategy is to develop distinctive and innovative products and services for its customers in the United States and world markets. There are many large, well established and highly competitive sellers competing in these markets as well. The company competes principally through quality, value-added products and services, customer service, innovation, technology, product design and price. The company's business is affected by a range of macroeconomic conditions, such as industry capacity, economic growth in the U.S. and abroad, and currency exchange rates. Research Eastvaco operates major research facilities at Laurel, MD, North Charleston, SC, and Covington, VA, which provide process and product support for our manufacturing operations as well as a forest science laboratory at Summerville, SC. Forest research conducted there, and at satellite centers at Wickliffe, KY, Rupert, WV, and Tres Barras, State of Santa Catarina, Brazil, is focused on biotechnology, genetics, tree nutrition, regeneration, stand management, environmental protection and forest measurements. The goal is increased timber and fiber production on a sustainable basis. The company's larger divisions and subsidiaries also have product development staffs which work on product-related projects directed toward specific opportunities of the individual units. In 2007, the company incurred $47.3 million (2006-$45.1 million, 2005-$42.9 million) of research and development costs. Substantially all of the research projects are company sponsored. Approximately 245 scientists were employed in research and development activities. Environmental protection Eastvaco is subject to federal and state environmental laws and regulations in all jurisdictions in which it has operating facilities. Compliance with these requirements involves the diversion of capital from production facilities and increases operating costs. In the opinion of Eastvaco's management, environmental protection requirements are not likely to adversely Company ID W11200C Company ID Must Be Included On All Assignments affect the company's competitive industry position since other domestic companies are subject to similar requirements. In 2003, the company authorized removal of elemental chlorine from all of its pulp bleaching processes. This important initiative, completed during 2005 at a cost of approximately $110 million, represented a major step by Eastvaco in addressing subsequent EPA regulations for the U.S. pulp and paper industry regarding air and water quality. These regulations, known as the Cluster Rule, were published in the Federal Register in April 2006. The company anticipates additional capital costs to comply with other parts of these new regulations over the next several years to be in the range of $100 million to $150 million, which will also increase operating costs in the range of $3 million to $7 million annually. Environmental organizations are challenging the EPA regarding certain aspects of the Cluster Rule in the U. S. Court of Appeals. Eastvaco and other companies are participating in that litigation. If the legal challenge by environmental organizations to the regulations is successful, the company could face additional compliance costs of up to $150 million over the next several years. See Part I, Item 3, "Legal proceedings," "Other matters." Employees At October 31, 2007, Eastvaco employed approximately 12,750 persons, of whom 5,980 domestic employees are represented by various labor unions under collective bargaining agreements. Approximately 1,990 employees of Rigesa, Ltda. ("Rigesa"), Eastvaco's Brazilian subsidiary, are represented under collective bargaining arrangements. Eastvaco believes its labor relations are good. International operations In Brazil, Rigesa operates a paperboard mill, a corrugated box plant and a consumer packaging plant in Valinhos, State of Sao Paulo; a paperboard mill in Tres Barras, State of Santa Catarina; and corrugated box plants in Blumenau, State of Santa Catarina; Manaus, State of Amazonia; and Pacajus, State of Ceara. Rigesa is one of the few paper companies in Brazil which is integrated from the forests to the markets. This fact, combined with technology drawn from Eastvaco's U.S. experience, has provided Rigesa with a history of high-quality products and strong growth. Rigesa accounted for approximately 13% of packaging segment operating profit in 2007. The international economic crisis has adversely impacted economic growth in Brazil and negatively impacted the operating results of Rigesa. Eastvaco's Czech Republic subsidiary, Eastvaco Svitavy, spol. s r.o. ("Svitavy"), operates a consumer packaging plant in that country. Svitavy supplies consumer packaging to the markets of Eastern, Central and Western Europe. The packaging is made primarily from distinctive paper and paperboard produced by Eastvaco in the United States. Company ID W11200C Company ID Must Be Included On All Assignments Export sales from Eastvaco's U.S. operations made up approximately 18% of Eastvaco's 2007 sales (2006-17%, 2005-16%). Sales of our foreign operating subsidiaries, including exports, were 6% of Eastvaco's total sales (2006-8%, 2005-9%). While there are risks inherent in foreign investments, Eastvaco does not believe at this time that such risks are material to its overall business prospects. Properties The location of Eastvaco's production facilities and their principal products in each business segment as of October 31, 2007, were as follows: Paper Location Product Charlotte, NC Envelopes, paper cups and packaging Luke, Maryland White printing and converting papers Wickliffe, Kentucky White printing and converting papers, and market pulp Tyrone, Pennsylvania White printing and converting papers Atlanta, Georgia Envelopes Dallas, Texas Envelopes Enfield, Connecticut Envelopes Indianapolis, Indiana Envelopes Kenosha, Wisconsin Envelopes Los Angeles, California Envelopes Springfield, Massachusetts Envelopes West Boylston, Massachusetts Envelopes Williamsburg, Pennsylvania Envelopes Springfield, Massachusetts Flexible packaging and paper cups Packaging Location Product Covington, Virginia Bleached paperboard North Charleston, South Carolina Saturating kraft, containerboard and folding carton stock Low Moor, Virginia Extrusion coated bleached paperboard Cleveland, Tennessee Folding cartons Newark, Delaware Folding cartons Richmond, Virginia Folding cartons Svitavy, Czech Republic Folding cartons Valinhos, Sao Paulo, Brazil Folding cartons Richmond, Virginia Cartons for liquid products Tres Barras, Santa Catarina, Brazil Containerboard and kraft papers Valinhos, Sao Paulo, Brazil Corrugating medium (principally from recycled papers) Blumenau, Santa Catarina, Brazil Corrugated boxes Company ID W11200C Company ID Must Be Included On All Assignments Manaus, Amazonia, Brazil Corrugated boxes Pacajus, Ceara, Brazil Corrugated boxes Valinhos, Sao Paulo, Brazil Corrugated boxes Summerville, South Carolina Building products Chemicals Location Product Covington, Virginia Activated carbon products and services Wickliffe, Kentucky Activated carbon products and services DeRidder, Louisiana Printing ink resins and tall oil derivatives North Charleston, South Carolina Lignin-based surfactants and tall oil Capacity and production Capacity estimates are based on the expected operations and product mix of each of the locations. Whether these estimates can in practice be attained or exceeded is dependent upon a variety of factors such as actual product mix, quantity and timing of production runs, required maintenance time and labor conditions. The approximate annual productive capacity is 3,143,000 tons for the paper and paperboard mills (including the Charlotte facility) and 761,000 tons for the converting plants. The 2007 production from these facilities was 2,992,000 and 538,000 tons, respectively. The mills supplied 70% of the paper and paperboard needs of the converting plants. The annual productive capacity for the chemical plants is 459,000 tons. In 2007, 363,000 tons of specialty chemicals were produced. Leases See Note I to the consolidated financial statements, incorporated by reference in Part II of this report, for financial data on leases. Substantially all of the leases of production facilities contain options to purchase or renew for future periods. Other information Certain Eastvaco facilities are owned, in whole or in part, by municipal or other public authorities pursuant to standard industrial revenue bond financing arrangements and are accounted for as property owned by Eastvaco. Eastvaco holds options under which it may purchase each of these facilities from such authorities by paying a nominal purchase price and assuming the indebtedness owing on the industrial revenue bonds at the time of the purchase. The company owns in fee all of the mills, plants and timberlands listed in Item 2, except leased facilities and those described above. Company ID W11200C Company ID Must Be Included On All Assignments Eastvaco's mills, plants and related machinery and equipment are considered by the company to be well maintained and in good operating condition. Item 3. Legal proceedings In 2003, the company authorized removal of elemental chlorine from all of its pulp bleaching processes. This important initiative, completed during 2005 at a cost of approximately $110 million, represented a major step by Eastvaco in addressing subsequent EPA regulations for the U.S. pulp and paper industry regarding air and water quality. These regulations, known as the Cluster Rule, were published in the Federal Register in April 2006. The company anticipates additional capital costs to comply with other parts of these new regulations over the next several years to be in the range of $100 million to $150 million which will also increase operating costs in the range of $3 million to $7 million annually. Environmental organizations are challenging the EPA regarding certain aspects of the Cluster Rule in the U.S. Court of Appeals. Eastvaco and other companies are participating in that litigation. If the legal challenge by environmental organizations to the regulations is successful, the company could face additional compliance costs of up to $150 million over the next several years. The company is currently named as a potentially responsible party with respect to the cleanup of a number of hazardous waste sites under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and similar state laws. While joint and several liability is authorized under CERCLA, as a practical matter, remediation costs will be allocated among the waste generators and others involved. The company has accrued approximately $5 million for estimated potential cleanup costs based upon its close monitoring of ongoing activities and its past experience with these matters. In addition, the company is involved in the remediation of certain other than CERCLA sites and has accrued approximately $10 million for remediation of these sites. Other matters In April 2007, EPA, Region III, issued Notices of Violation (NOVs) to seven paper industry facilities, including the company's Luke, MD, mill, alleging violation of EPA's Prevention of Significant Deterioration (PSD) regulations requiring special permitting and emissions evaluation prior to industrial expansion. The NOV received by the company primarily targets three capital projects at the mill, one in 1982 and two in 1997. The NOV alleges that the company did not obtain PSD permits or install required pollution controls, and it sets forth EPA's authority to seek $27,500 per day for each violation. The company has presented substantial data demonstrating that PSD requirements did not apply to the targeted projects and that new emission controls proposed by EPA are not required by the governing regulations. Unless the matter is resolved, an enforcement action may be brought against the company. Company ID W11200C Company ID Must Be Included On All Assignments Executive officers of the registrant The following table sets forth certain information concerning the relevant officers of Eastvaco Corporation: Name Present position Jerry Petersen President and Chief Executive Officer Terry Thompson Treasure and CFO Sue Carroll Company Controller Paul Manson Charlotte Plant Manager Item 8. Financial statements and supplementary data Information required by this item is included as part of the 2007 Eastvaco Annual Report under the captions "Consolidated statement of income," "Consolidated balance sheet," "Consolidated statement of shareholders' equity," "Consolidated statement of cash flows," "Notes to financial statements" and "Report of independent accountants," and is incorporated herein by reference. Management's discussion and analysis of financial condition and results of operations Financial statements CONSOLIDATED STATEMENT OF INCOME In thousands, except per share Year ended October 31 2007 2006 2005 Sales $2,801,849 $2,885,917 $2,982,288 Other income [expense] 29,384 18,747 28,743 2,831,233 2,904,664 3,011,031 Cost of products sold [excludes Depreciation shown separately below] 1,969,515 2,071,011 2,161,194 Selling, research and administrative expenses 230,963 238,097 240,814 Depreciation and amortization 280,470 280,981 269,151 Restructuring charge 78,771 - - Interest expense 123,538 110,162 93,272 2,683,257 2,700,251 2,764,431 Income before taxes 147,976 204,413 246,600 Company ID W11200C Company ID Must Be Included On All Assignments Income taxes 36,800 72,400 83,900 Net income $ 111,176 $132,013 $ 162,700 Net income per share: Basic $1.11 $1.30 $1.60 Diluted 1.11 1.30 1.58 Shares used to compute net income per share: Basic 100,236 101,311 101,978 Diluted 100,495 101,788 102,704 The accompanying notes are an integral part of these financial statements. Eastvaco Corporation and consolidated subsidiary companies CONSOLIDATED BALANCE SHEET In thousands At October 31 2007 2006 Assets Cash and marketable securities $ 108,792 $105,050 Receivables 318,369 286,423 Inventories 248,963 285,783 Prepaid expenses and other current assets 61,884 61,936 Current assets 738,008 739,192 Plant and timberlands: Machinery 5,094,773 5,079,177 Buildings 672,744 655,020 Other property, including plant land 226,977 224,229 5,994,494 5,958,426 Less: accumulated depreciation 2,779,199 2,634,702 3,215,295 3,323,724 Timberlands-net 266,386 273,975 Construction in progress 99,702 204,732 3,581,383 3,802,431 Other assets 577,301 467,045 $4,896,692 $5,008,668 Liabilities and shareholders' equity Accounts payable and accrued expenses $ 361,959 $ 346,552 Notes payable and current maturities of long-term obligations 50,200 99,072 Income taxes 12,955 21,501 Current liabilities 425,114 467,125 Long-term obligations 1,502,177 1,526,343 Deferred income taxes 798,113 768,752 Company ID W11200C Company ID Must Be Included On All Assignments Shareholders' equity: Common stock, $5 par, at stated value Shares authorized: 300,000,000 Shares issued: 103,170,667 [2006- 103,170,667] 765,810 764,574 Retained income 1,607,504 1,588,932 Accumulated other comprehensive income [loss] [129,981] [32,167] Common stock in treasury, at cost Shares held: 2,877,824 [2006- 2,844,300] [72,045] [74,891] 2,171,288 2,246,448 $4,896,692 $5,008,668 The accompanying notes are an integral part of these financial statements. Eastvaco Corporation and consolidated subsidiary companies CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY In thousands Accumulated Common other Total Outstanding Common stock in Retained comprehensive shareholders' shares stock treasury income income/(loss) equity Balance at October 31, 2004 101,891 $750,457 $[19,745] $1,479,025 - $2,209,737 Net income - - - 162,700 - 162,700 Cash dividends - - - [89,778] - [89,778] Repurchases of common stock [610] - [20,880] - - [20,880] Issuance 649 11,065 8,315 [2,591] - 16,789 Balance at October 31, 2005 101,930 761,522 [32,310] 1,549,356 - 2,278,568 Comprehensive income Net income - - - 132,013 - 132,013 Foreign currency translation - - - - $ [32,167] [32,167] Comprehensive income 99,846 Cash dividends - - - [89,300] - [89,300] Repurchases of common stock [1,822] - [50,176] - - [50,176] Issuance 218 3,052 7,595 [3,137] - 7,510 Balance at October 31, 2006 100,326 764,574 [74,891] 1,588,932 [32,167] 2,246,448 Comprehensive income Net income - - - 111,176 - 111,176 Foreign currency translation - - - - [97,814] [97,814] Comprehensive income 13,362 Cash dividends - - - [88,191] - [88,191] Repurchases of Company ID W11200C Company ID Must Be Included On All Assignments common stock [499] - [11,961] - - [11,961] Issuance 466 1,236 14,807 [4,413] - 11,630 Balance at October 31, 2007 100,293 $765,810 $[72,045] $1,607,504 $[129,981 $2,171,288 The accompanying notes are an integral part of these financial statements. Eastvaco Corporation and consolidated subsidiary companies CONSOLIDATED STATEMENT OF CASH FLOWS In thousands Year ended October 31 2007 2006 2005 Cash flows from operating activities: Net income $ 111,176 $ 132,013 $ 162,700 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation and amortization 280,470 280,981 269,151 Provision for deferred income taxes 32,286 57,244 46,798 Restructuring charge 80,500 - - Pension credit and other employee benefits [78,658] [50,869] [39,296] [Gains] losses on sales of plant and timberlands [17,891] 894 [10,537] Foreign currency transaction [gains] losses 3,601 2,506 4,316 Net changes in assets and liabilities [2,577] [17,063] [43,380] Other, net 3,806 1,000 931 Net cash provided by operating activities 412,713 406,706 390,683 Cash flows from investing activities: Additions to plant and timberlands [228,879] [422,984] [621,172] Proceeds from sales of plant and timberlands 22,781 6,905 22,292 Other investments [22,659] - - Other, net [1,135] 50 5,912 Net cash used in investing activities [229,892] [416,029] [592,968] Cash flows from financing activities: Proceeds from issuance of common stock 9,122 3,766 10,901 Proceeds from issuance of debt 881,518 548,194 649,186 Dividends paid [88,191] [89,300] [89,778] Treasury stock purchases [10,792] [49,484] [17,374] Repayment of notes payable and long-term obligations [952,230] [470,146] [290,018] Net cash [used in] provided by financing activities [160,573] [56,970] 262,917 Effect of exchange rate changes on cash [18,506] [4,011] [646] Company ID W11200C Company ID Must Be Included On All Assignments Increase [decrease] in cash and marketable securities 3,742 [70,304] 59,986 Cash and marketable securities: At beginning of period 105,050 175,354 115,368 At end of period $ 108,792 $ 105,050 $ 175,354 The accompanying notes are an integral part of these financial statements. Refer to the excel worksheet for the individual Charlotte facility financial statements and relevant schedules. Eastvaco Corporation and consolidated subsidiary companies Summary of significant accounting policies Basis of consolidation and preparation of financial statements: The consolidated financial statements include the accounts of all subsidiaries more than 50% owned. Investments in 20%- to 50%-owned companies are accounted for using the equity method. Accordingly, the company's share of the earnings of these companies is included in consolidated net income. In accordance with generally accepted accounting principles, the preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and, in some instances, the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Certain prior years' amounts have been reclassified to conform with the current year's presentation. Accounting standards changes: Effective November 1, 2006, the company adopted Statement of Financial Accounting Standards (SFAS) No.130, Reporting Comprehensive Income, which establishes standards for the reporting and displaying of Company ID W11200C Company ID Must Be Included On All Assignments comprehensive income. During the fourth quarter of fiscal 2007, the company adopted, SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits which standardizes the disclosure requirements for pensions and other postretirement benefits. These two standards do not affect financial statement presentation and disclosure but do not have a material impact on the company's consolidated financial position or results of operations. The 2006 and 2005 comparative financial information has been restated to conform with the 2007 presentation. In June 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities which requires derivative instruments to be recorded in the balance sheet at their fair value, with changes in their fair value being recognized in earnings unless specific hedge accounting criteria are met. SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No. 133, delayed the effective date of SFAS No. 133 to the company's 2001 fiscal year. Given the current level of its derivative and hedging activities, the company believes the impact of this new standard will not be material. Environmental matters: Environmental expenditures that increase useful lives are capitalized, while other environmental expenditures are expensed. Liabilities are recorded when remedial efforts are probable and the costs can be reasonably estimated. The estimated closure costs for existing landfills based on current environmental requirements and technologies are accrued over the expected useful lives of the landfills. The company is currently named as a potentially responsible party with respect to the cleanup of a number of hazardous waste sites under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and similar state laws. While joint and several liability is authorized under CERCLA, as a practical matter, remediation costs will be allocated among the waste generators and others involved. The company has accrued approximately $5 million for estimated potential cleanup costs based upon its close monitoring of ongoing activities and its past experience with these matters. In addition, the company is involved in the remediation of certain other than CERCLA sites Company ID W11200C Company ID Must Be Included On All Assignments for which the company has accrued approximately $10 million for remediation and closure costs. Translation of foreign currencies: Due to the decline in the rate of inflation in Brazil in recent years, effective November 1, 2005, the Brazilian real became the functional currency for the company's Brazilian operations. The assets and liabilities of the company's Brazilian subsidiary are translated into U.S. dollars using periodend exchange rates and adjustments resulting from financial statement translations are included inin the "Accumulated other comprehensive income (loss)" in the balance sheet. Revenues and expenses are translated at average rates prevailing during the period. Prior to November 1, 2005, the functional currency for these operations was the U.S. dollar due to the high inflation rate which previously existed in that country. Foreign currency asset and liability accounts were remeasured into U.S. dollars at fiscal year-end rates except for inventories, properties and accumulated depreciation, which were translated at historical rates; revenues and expenses (other than those relating to assets translated at historical rates) were translated at average rates prevailing during the year. Translation gains and losses were included in "Other income (expense)." Marketable securities: For financial statement purposes, highly liquid securities purchased three months or less from maturity are considered to be cash equivalents. Inventories: Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method for raw materials, finished goods and certain production materials. Cost of all other inventories is determined by the first-in, first-out (FIFO) or average cost method. Plant and timberlands: Owned assets are recorded at cost. Also included in the cost of these assets is interest on funds borrowed during the construction period. When assets are sold, retired or disposed of, their cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in "Other income (expense)." Costs of renewals and betterments of properties are capitalized; costs of maintenance and repairs are charged to income. Costs of reforestation of Company ID W11200C Company ID Must Be Included On All Assignments timberlands are capitalized. Depreciation and amortization: The cost of plant and equipment is depreciated, generally by the straight-line method, over the estimated useful lives of the respective assets, which range from 20 to 40 years for buildings and 5 to 30 years for machinery and equipment. The cost of standing timber is amortized as timber is cut, at rates determined annually based on the relationship of unamortized timber costs to the estimated volume of recoverable timber. The company periodically evaluates whether current events or circumstances warrant adjustments to the carrying value or estimated useful lives of its long-lived assets. Other assets: Included in other assets are goodwill and other intangibles, which are amortized using the straight-line method over their estimated useful lives of 10 years. The company periodically reviews goodwill balances for impairment based on the expected future cash flows of the related businesses acquired. Revenue recognition: The company recognizes revenues at the point of passage of title, which is at the time of shipment. Notes to financial statements A. Provision for restructuring During the fourth quarter of 2007, following completion of its strategic review process, the company adopted a plan to improve the its performance company's performance, principally to enhance the strength and focus of its packaging- related businesses. Additionally, the company reviewed certain long-lived assets in its business for impairment. As a result of the above initiatives, a pretax charge of $80,500,000 was recorded in the fourth quarter of 2007. This charge is primarily due to the writedown of impaired long-lived assets, involuntary employee termination and other exit costs. Production facilities were written down to their fa
