SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 1, 2000
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
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(exact name of registrant as specified in its Charter)
Georgia 93-0432081
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(State or other jurisdiction of (I.R.S. Employer identification
Incorporation or Organization number)
133 Peachtree Street, N.E., Atlanta, Georgia 30303
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area (404) 652-4000
code ---------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
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Georgia-Pacific Corporation - Georgia-Pacific New York Stock Exchange
Group Common Stock ($.80 par value)
Georgia-Pacific Corporation - Timber New York Stock Exchange
Group Common Stock ($.80 par value)
Premium Equity Participating Security
Units---PEPS Units New York Stock Exchange
Georgia-Pacific Group Rights to Purchase New York Stock Exchange
Series B Junior Preferred Stock (no par value)
Timber Group Rights to Purchase New York Stock Exchange
Series C Junior Preferred Stock (no par value)
Securities registered pursuant to Section 12(g) of the Act: None
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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
As of the close of business on March 8, 2000, the registrant
had 172,205,444 shares of Georgia-Pacific Group Common Stock outstanding and
82,064,710 shares of Timber Group Common Stock outstanding.
The aggregate market value of the voting stock held by
non-affiliates of the registrant on March 8, 2000 (assuming, for the sole
purpose of this calculation that all executive officers and directors of the
registrant are "affiliates") was $5,806,552,314.87 for Georgia-Pacific Group
Common Stock and $1,743,875,087.50 for Timber Group Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Listed hereunder are the documents any portions of which are
incorporated by reference and the Parts of this Form 10-K into which such
portions are incorporated:
1. The Corporation's Annual Report to Shareholders for the fiscal year
ended January 1, 2000, portions of which are incorporated by reference
in Parts I, II and IV of this Form 10-K; and
2. The Corporation's definitive Proxy Statement dated March 24, 2000, for
use in connection with the Annual Meeting of Shareholders to be held
on May 2, 2000, portions of which are incorporated by reference into
Part III of this Form 10-K.
GEORGIA-PACIFIC CORPORATION
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended January 1, 2000
TABLE OF CONTENTS
PART I Page
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Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 11
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 87
PART III
Item 10. Directors and Executive Officers of the Registrant 88
Item 11. Executive Compensation 90
Item 12. Security Ownership of Certain Beneficial Owners and Management 90
Item 13. Certain Relationships and Related Transactions 90
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 90
PART I
ITEM 1. BUSINESS
Georgia-Pacific Corporation was organized in 1927 under the laws of the State of
Georgia.
On December 16, 1997, shareholders of Georgia-Pacific Corporation approved the
creation of two classes of common stock, Georgia-Pacific Group stock and Timber
Group stock, intended to reflect separately the performance of the Corporation's
two operating groups, Georgia-Pacific Group and The Timber Company.
In this document, the following terms and definitions are used:
"Corporation" refers to Georgia-Pacific Corporation and its subsidiaries, which
includes the businesses of both the Georgia-Pacific Group and The Timber
Company.
"Georgia-Pacific Group" refers to the Corporation's manufacturing and
distribution businesses.
"The Timber Company" refers to the Corporation's timber and timberlands
business.
"Georgia-Pacific Group stock" refers to the Corporation's Georgia-Pacific Group
common stock, par value $.80.
"Timber Group stock" refers to the Corporation's Timber Group common stock, par
value $.80.
Georgia-Pacific Corporation consists of two separate operating groups, the
Georgia-Pacific Group and The Timber Company. The performance of these distinct
businesses is reflected separately by two classes of common stock. The
Georgia-Pacific Group consists of all of the Corporation's manufacturing mills
and plants, its building products distribution business and its paper
distribution business. The facilities manufacture and sell a wide variety of
pulp and paper products (including pulp, communication papers, containerboard,
packaging and tissue) and manufactured building products (including plywood,
oriented strand board and industrial panels, lumber, gypsum products, chemicals
and other products). The Timber Company consists of approximately 4.7 million
acres of timberlands owned or leased by the Corporation, together with related
facilities and equipment. In 1999, these timberlands supplied approximately 19%
of the overall timber requirements of the Corporation's manufacturing
facilities.
Additional information pertaining to the Corporation's businesses, including
operating segments, is set forth under the captions "Georgia-Pacific Corporation
and Subsidiaries - Management's Discussion and Analysis" and "Georgia-Pacific
Corporation and Subsidiaries - Sales and Operating Profits by Operating Segment
(immediately following Note 14), and in Notes 1 and 2 of the Corporation's
Consolidated Financial Statements, and is presented under Item 8 of this Form
10-K.
GEORGIA-PACIFIC GROUP
The Georgia-Pacific Group has grown through expansion and acquisitions to become
one of the world's leading manufacturers and distributors of building products
and pulp and papers. Among North American producers, the Georgia-Pacific Group
(the "Group") ranks first in the production of industrial panels, wood bonding
resins and industrial thermosetting resins;
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second in the production of structural wood panels, communication papers
(uncoated free-sheet), gypsum wallboard, market pulp; third in lumber products
and tissue products, fourth in linerboard and medium; and fifth in corrugated
packaging. The Group's building products distribution segment leads in supplying
wholesale building products in the United States. The Group's paper
distribution, Unisource, is one of the largest distributors of paper and
supplies in North America. The Corporation's chemicals business also supplies
paper chemicals and tall oil based chemicals.
Since 1997, the Georgia-Pacific Group has made substantial progress toward its
goal of reducing capital expenditures. Management adopted a more disciplined
approach to investing in an effort to reduce expenditures for property, plant
and equipment from more than $1 billion in 1996 to a normalized level at or
below annual depreciation. After maintenance and environmental spending, the
Group limits investments in property, plant and equipment either to businesses
with higher return opportunities or to projects that lower costs or improve
efficiencies. Investments in property, plant and equipment in 1999 totaled $721
million, just below 1999's depreciation of $746 million. This follows 1998's
reinvestment of $632 million or of 85% of depreciation.
Georgia-Pacific Group operates its production facilities in five operating
business segments: Building Products, Building Products Distribution,
Containerboard and Packaging, Pulp and Paper, and Paper Distribution. Operating
segment descriptions follow.
BUILDING PRODUCTS
The Georgia-Pacific Group is a leading manufacturer of building products in the
United States. The building products segment includes wood panels (including
plywood, oriented strand board ("OSB") and industrial panels), lumber, gypsum
products, chemicals and other products. These products are manufactured at 148
facilities in the U.S., seven plants in Canada, and through joint ventures in
South Africa and South America. The building products business is affected by
the level of housing starts; the level of repairs, remodeling and additions;
commercial building activity; the availability and cost of financing; and
changes in industry capacity. Exports for the building products segment in 1999
were $144 million (about 2% of segment sales), primarily to the Caribbean and
Europe.
Wood Panels. A leading producer of structural wood panels in the United States,
the Georgia-Pacific Group accounts for about 20 percent of domestic capacity.
The segment's 16 softwood plywood plants and six OSB plants can produce in
excess of 7 billion square feet of panels annually. With most of these plants
located in the Southeast, the business benefits from an ample supply of timber,
favorable weather conditions, regional population growth, national economic
growth and other factors. OSB is a structural panel made from wood strands
arranged in layers and bonded with resin. OSB serves many of the same uses as
unsanded plywood including roof decking, sidewall sheathing and floor
underlayment.
Early in 1999 the Georgia-Pacific Group began construction of a new OSB plant in
Calhoun County Arkansas. The new facility will produce approximately 410 million
square feet (3/8") of OSB with start-up scheduled for late 2000. The plant will
ultimately replace older, less efficient structural panel capacity within the
segment.
The building products segment leads in production of manufactured board products
for industrial and construction applications. Nineteen mills manufacture
hardboard, particleboard, panelboard, softboard, hardwood plywood, decorative
panels and medium-density fiberboard. Applications include furniture, cabinets,
housing, retail fixtures, and other industrial products. In 1999 the segment
closed its Bemidji, Minnesota hardboard plant. In January 2000 the
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segment sold its Lebanon, Oregon hardboard plant. The combined capacity of these
facilities was 209 million square feet (1/8" basis).
Lumber. The third-largest lumber producer in North America, the Georgia-Pacific
Group annually manufactures about 2.7 billion board feet or approximately 5
percent of domestic lumber production. Most of the Group's 37 lumber mills are
located in the U.S. South. Lumber products are manufactured from Southern pine,
a variety of Appalachian and Southern hardwoods, cypress, redwood, cedar,
spruce, hemlock and Douglas fir.
In 1999 the segment acquired the operations of four lumber treating facilities
bringing our total to 12. These assets increase the Corporation's capacity to
pressure-treat lumber to more than one billion feet annually, ranking the
Corporation among the top producers of pressure treated lumber in the nation.
Pressure treated lumber is used primarily in construction of outdoor structures
such as decks, fences, bridges and playground equipment.
Demand for the building products segment's engineered lumber products has
increased in recent years as wood I-joists (made from veneer, OSB and sawn
lumber) appear to have become the product of choice for floor joist
applications. Laminated veneer lumber and wood I-joists are designed to meet the
precise structural performance requirements of roofing and flooring systems.
Gypsum Products. The Georgia-Pacific Group operates 20 gypsum board plants
throughout the U.S. and Canada and is the second-largest producer of gypsum
wallboard in North America, with an annual capacity of 6.55 billion square feet.
Gypsum products include wallboard, Dens specialty panels, fire-door cores,
industrial plaster and joint compound. In addition, the business is vertically
integrated in both paper and gypsum rock operating four recycled gypsum
paperboard mills and ten gypsum quarries/mines. Gypsum reserves are
approximately 309 million recoverable tons, an estimated 48-year supply at
current production rates.
In 1999 the Georgia-Pacific Group's new gypsum wallboard facility at Wheatfield,
Indiana began production. This low-cost facility has an annual capacity of a new
500 million square feet and uses synthetic gypsum, a waste by-product of a
nearby power generation plant, as its primary raw material. This arrangement
provides the business with a new low-cost source of raw material while more than
doubling the amount of this waste recycled in the State of Indiana. In January
2000 one of the business' older technology, higher-cost gypsum wallboard
facilities was closed in Grand Rapids, Michigan.
Chemicals. The building products segment's chemicals business is the forest
products industry's leading supplier of wood bonding resins, industrial
thermosetting resins, paper chemicals, and tall oil based chemicals. The
business ships more than four billion pounds of thermosetting resins,
formaldehyde, pulp chemicals, and paper chemicals annually from 20 plants to
most of the major buyers of these products. It also operates internationally
through joint ventures in South Africa, Argentina, and Chile. The segment also
produces chemicals and resins for use in a variety of specialty applications in
other industries, including roofing, thermal insulation, metalworking, coatings,
fertilizer, and transportation. In 1999 the segment acquired Actrachem, a
manufacturer of specialty chemical additives for a variety of industrial
markets. Also in 1999 the segment closed its chlor/alkali manufacturing
operations at Bellingham, Washington. This closure follows Georgia-Pacific's
decision to convert to pulp bleaching processes that does not use elemental
chlorine. There is an ongoing search for opportunities to leverage our chemicals
technology and other business strengths worldwide.
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BUILDING PRODUCTS DISTRIBUTION
The building products distribution division of the Georgia-Pacific Group is the
leading domestic wholesaler of building products. It sells building products to
independent dealers, industrial customers and large home improvement centers
from 63 locations throughout the U.S. and one in Canada. The building products
distribution business provides a nationwide outlet for a significant portion of
the Georgia-Pacific Group's building products. It also sells building products
purchased from third parties which make up a substantial portion of the
segment's sales. Building Products distribution's geographic coverage and
product breadth are unmatched in North America. The building products
distribution business is affected by the availability and cost of financing, the
pace of new-home construction, and the level of repair and remodel expenditures.
In 1995, the segment began reengineering its organizational, logistical and
information systems. Implementation of these initiatives, however, were far more
costly and difficult than anticipated. As part of an aggressive effort to return
these operations to profitability, management decided in late 1997 to sell or
close the division's millwork fabrication facilities and a number of
distribution centers in the Western U.S. These efforts were concluded in 1998
and since the last half of 1998, the segment was profitable. In 1999,
performance continued to improve as cost reduction efforts and strong demand for
building products combined to boost segment operating profits to $63 million.
CONTAINERBOARD AND PACKAGING
The containerboard and packaging segment produces containerboard, corrugated
containers and packaging, bleached paperboard and kraft paper. One of the
largest domestic producers of containerboard, the containerboard and packaging
segment is the second largest supplier of containerboard to independent
converters in the U.S. Annual capacity at the Group's five primary
containerboard mills and two smaller mills totals 4.1 million tons, representing
about 11 percent of total U.S. capacity. The segment's 50 corrugated packaging
plants consume approximately 70 percent of the segment's containerboard
production; the remainder is sold to independent box converters in the United
States, Latin America and Asia. Markets for containerboard and packaging
products are affected primarily by changes in industry capacity and the level of
industrial activity in the U.S. and export markets. Containerboard exports
totaled 460,000 tons during 1999 compared to 1998's level of 520,000 tons. In
1999, the segment further integrated its linerboard and medium production into
its own packaging plants with the acquisition of Connelly Containers, an
industry leader in the production of triple-wall corrugated packaging and
graphics. Also during the year, the segment closed a corrugated sheet
manufacturing facility in Devens, Massachusetts. In January 2000 the business
sold a packaging plant in Warren County, North Carolina.
In addition to standard corrugated containers, the segment's packaging plants
manufacture many specialty packaging products. These include double- and
triple-wall boxes, bulk bins, water-resistant packaging, and high-finish and
preprinted packaging for point-of-sale displays. The Technology and Development
Center in Norcross, Georgia, uses state-of-the-art technology to design and test
packaging for customers.
The containerboard and packaging segment also produces bleached paperboard for
use in frozen food containers, food service items and other products. Our
bleached paperboard products are sold primarily through our joint venture with
Gulf States Paper Company under the established CartonMate(TM) paperboard
trademark.
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PULP AND PAPER
The pulp and paper segment produces market pulp, communication papers, tissue
and other products at 22 facilities in North America. Combined production
capacity for pulp, paper and tissue is 5.4 million tons. The pulp and paper
segment's mills are among the industry's lowest cost producers. An initiative
over the past several years has motivated employees throughout the mill system
to find ways to continually reduce costs, increase quality, and reduce
maintenance spending. Markets for pulp and paper products are affected primarily
by changes in industry capacity, the level of economic growth in the U.S. and
export markets, and fluctuations in currency exchange rates. Exports from this
business segment consist chiefly of market pulp bound for Asia, Europe, and
Latin America. In 1999 exports for the pulp and paper segment were $535 million,
about 14% of segment sales.
Market Pulp. The Georgia-Pacific Group ranks second in the production of market
pulp. The pulp and paper segment includes five pulp mills with a combined annual
capacity of 2.0 million tons, approximately 21 percent of U.S. capacity. These
mills produce primarily Southern softwood, Northern hardwood, and sulfite pulps
for use in the manufacture of many paper grades. The segment also is a major
supplier of fluff pulp and other specialty pulps. Fluff pulp is used primarily
in the manufacture of disposable diapers and other sanitary items. Demand
continues to grow for these products, particularly in developing countries.
Communication Papers. The Georgia-Pacific Group is the nation's second-largest
domestic producer of communication papers. Also known as uncoated free-sheet,
communication papers are used in office copy machines and printers, commercial
printing, business forms, stationery, tablets, books, envelopes, labels and
checks. The pulp and paper segment's seven uncoated free-sheet paper mills have
a combined annual capacity of 2.3 million tons, approximately 15 percent of U.S.
capacity. These products are sold through our paper distribution segment, other
major paper distributors, office product distributors, printing equipment
manufacturers, retailers and converters. Products are sold under a variety of
names including: Microprint(TM), Quantum(TM), Spectrum(TM), Nekoosa
Solutions(TM), Valorem(TM), Geocycle(TM), HOTS(TM), St. Croix(TM), Re-Comm(TM)
and Westminster(TM).
In 1999, the communication papers business continued to focus on its strategy of
reducing costs and improving customer service levels. This business completed
the introduction of a major systems initiative that management believes will
enable the business to continue to optimize paper machine productivity, decrease
order fulfillment time, and reduce transportation and inventory costs.
Effective October 4, 1999, the Georgia-Pacific Group and Chesapeake Corp.
(Chesapeake) completed a previously announced agreement to create
Georgia-Pacific Tissue, a joint venture in which the two companies have combined
their away-from-home tissue businesses. The Georgia-Pacific Group contributed
substantially all the assets of its commercial tissue business to the joint
venture. The Georgia-Pacific Group controls and manages the joint venture and
owns 95% of its equity. Chesapeake contributed the assets of its Wisconsin
Tissue business to the joint venture for which it received a 5% equity interest
in the joint venture and an initial cash distribution of approximately $755
million. Wisconsin Tissue's results of operations were combined with the
Georgia-Pacific Group's commercial tissue business beginning on October 3, 1999,
when the Georgia-Pacific Tissue joint venture was formed. The combined business
ranks third among North American producers of tissue products, which include
bath tissue, paper towels and napkins made from virgin and recycled fibers.
These products are manufactured at 8 mills and 6 converting plants. Capacity
totals approximately 1.1 million tons annually, over 14 percent of North
American capacity. Approximately 50 percent is
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sold to customers through grocery, drug and mass merchandise retailers. Consumer
brand names include Angel Soft(TM), Sparkle(TM), Coronet(TM), MD(TM) and
Delta(TM). The other 50 percent of production is sold primarily to commercial
and industrial markets through our paper distribution segment, independent paper
distributors, food service and janitorial distributors, and directly to national
fast food accounts. The business' proprietary dispensing system for the
Cormatic(TM), Ultimatic(TM) and Guardian(TM) brands continued to expand in 1999.
The Wisconsin Tissue venture adds several new brand names to the business'
product offering including Park Avenue(TM), Main Street(TM), and Second
Nature(TM).
PAPER DISTRIBUTION
The paper distribution segment was formed with the acquisition of Unisource by
Georgia-Pacific Group in July of 1999. The segment is a leading distributor of
printing and imaging paper, packaging systems, and sanitary maintenance supplies
in North America. Unisource operates primarily in the United States, 26
locations in Canada, and 22 locations in Mexico and is a large distribution
customer for most major paper producers in North America, including the
Georgia-Pacific Group's paper and packaging businesses. The segment operates
from 11 customer service centers, 127 warehouses, and 57 Paper Plus retail store
locations in the United States. The paper distribution segment is affected by
the level of economic activity in the United States, Canada and Mexico and the
pricing environment of paper and paper products.
Unisource sells and distributes high-quality printing, writing and copying
papers to printers, publishers, business forms manufacturers and direct mail
firms, as well as to corporate and retail copy centers, in-plant print
facilities, government institutions and other paper intensive businesses.
Unisource also sells and distributes a broad range of packaging and maintenance
supplies, equipment and services (principally to manufacturers, food processors,
and retailers); maintenance supplies and equipment such as carton erectors,
baggers and filers as well as films, shrink-wrap and cushioning materials;
shipping room supplies such as corrugated boxes, cushioning materials, tapes and
labeling; and food service supplies such as films and food wraps, food
containers and disposable apparel for food service workers. Unisource was an
operating segment of the Georgia-Pacific Group, for the last half of 1999 with
revenues during the period of $3.33 billion. Roughly two thirds of the revenue
was derived from printing and imaging and one third derived from packaging and
supplies.
Additional information pertaining to Georgia-Pacific Group's businesses,
including operating segments, is set forth under the captions "Georgia-Pacific
Group - Management's Discussion and Analysis" and in Georgia-Pacific Group's
Notes 1-4 of the Notes to Combined Financial Statements contained in the
Corporation's 1999 Annual Report to Shareholders and set forth in Exhibit 13.1,
and is incorporated herein by reference.
THE TIMBER COMPANY
The Timber Company is engaged in the business of growing and marketing timber.
The Company is one of the largest timberland owners in the United States, owning
or controlling approximately 4.7 million acres. These timberlands are located in
three regions: 4.0 million acres of primarily pine forests in the South; 286,000
acres of primarily Douglas fir forests in Oregon; and 525,000 acres of mixed
hardwood forests in the Appalachian and north central regions of the United
States. These timberlands are within economic reach of over 1,000 customers and
grow various commercial species of trees for industrial wood users, including
the Georgia-Pacific Group. Principal products include softwood sawtimber,
softwood pulpwood, hardwood sawtimber and hardwood pulpwood.
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The Timber Company also operates six world-class nurseries, and plants more than
125 million conifer seedlings each year. It does not own or operate logging
equipment or converting facilities. Logging operations are performed by
independent contractors working for purchasers of the standing timber or, in
certain circumstances, for The Timber Company.
The Company also engages in certain businesses related to ownership and
management of its timberlands including, but not limited to, the management of
hunting leases and mineral rights and the continuous evaluation and sale of
selected properties that have greater value as conservation, commercial or
recreational sites.
The Timber Company attempts to maximize shareholder value through the
implementation of strategies that constantly focus on merchandising timber for
maximum return, maximizing timberland productivity, controlling costs, enhancing
the quality of its timberlands portfolio and ensuring environmentally
sustainable operations.
MAXIMIZE TIMBERLAND PRODUCTIVITY
Harvest plans and inventory projections reflect The Timber Company's objective
of increasing harvest volumes while maintaining the standing timber inventory.
Increased harvests will be effected through the use of intensive silvicultural
treatments in order to improve growth responses, and through the replanting of
harvested acres with faster-growing, higher-quality trees. Forest productivity
initiatives are based on proprietary forest growth systems and processes applied
on a site-by-site basis. The Integrated Forest Management System (IFMS)
electronically connects stand-level data collected in the field with
sophisticated forest growth models and discounted cash flow analysis to
"electronically grow and manage" the forests. This system allows forest
management on a site-by-site basis to maximize the present value of productive
lands. Growth rates are expected to continue to increase into the future through
the development and use of genetically enhanced seedlings, improvements in
responses to fertilization, vegetation control, thinning, and selective
harvesting.
FOCUS ON COST CONTROL
The Timber Company has one of the leanest, most productive workforces in the
industry generating revenue of approximately $1.2 million per salaried employee.
During 1999, The Timber Company continued to manage general and administrative
("G&A") costs. G&A levels in 1999 were similar to those experienced in 1997. G&A
expenses are expected to fall in 2000 consistent with the reduced size of
timberland holdings. While the potential for improvements in administrative
expenses are unlikely to be a significant value driver going forward, a
continuing focus on cost control is a core operating value embraced throughout
The Timber Company as part of our focus on maximizing cash flow and value for
our shareholders.
ENVIRONMENTAL STEWARDSHIP
The Timber Company is dedicated to environmental stewardship. The Timber
Company's 11-point environmental strategy adopts the provisions of the American
Forest and Paper Association's Sustainable Forestry InitiativeSM and
incorporates its own specific environmental goals. The Timber Company continues
to work closely with federal, state, and local authorities on issues concerning
endangered species, clean water, wildlife, flora and fauna diversity, and
conservation set asides.
Additional information pertaining to The Timber Company's business is set forth
under the captions "The Timber Company - Management's Discussion and Analysis"
and in The Timber Company's Notes 1-3 of the Notes to Combined Financial
Statements contained in the
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Corporation's 1999 Annual Report to Shareholders and set forth in Exhibit 13.2
hereto, and is incorporated herein by reference.
TIMBER RESOURCES
The principal raw material used by the Corporation is raw wood. During 1999, The
Timber Company supplied 19% of the overall timber requirements of
Georgia-Pacific Group's facilities. The prices and terms of the transactions
between The Timber Company and Georgia-Pacific Group were determined on an arms
length basis pursuant to supply contracts put in place in 1997 at the time of
the Corporation's recapitalization which created two separate classes of common
stock; The Timber Group and Georgia-Pacific Group.
Additional information pertaining to the Corporation's timber resources is set
forth under the caption "The Timber Company" in this item.
MINERAL RESOURCES
Information pertaining to the Corporation's gypsum resources is set forth under
the captions "Georgia-Pacific Group - Building Products - Gypsum Products" in
this item.
ENVIRONMENT
Information pertaining to environmental issues and the Corporation's
expenditures for pollution control facilities and equipment is set forth under
the captions "Georgia-Pacific Corporation and Subsidiaries - Management's
Discussion and Analysis - Liquidity and Capital Resources - Investing
Activities" and Note 12 of the Corporation's Consolidated Financial Statements,
and is presented under Item 8 of this Form 10-K.
Information pertaining to environmental issues and the Corporation's
expenditures for pollution control facilities and equipment is set forth under
the captions "Georgia-Pacific Group - Management's Discussion and Analysis -
Liquidity and Capital Resources - Investing Activities," Georgia-Pacific Group's
Note 13 and The Timber Company's Note 11 of the Notes to Combined Financial
Statements contained in the Corporation's 1999 Annual Report to Shareholders and
set forth in Exhibit 13.1 and 13.2, respectively, hereto, and is incorporated
herein by reference.
EMPLOYEES
Information pertaining to persons employed by the Corporation is set forth under
the captions "Georgia-Pacific Corporation and Subsidiaries - Management's
Discussion and Analysis - Liquidity and Capital Resources - Other", and is
presented under Item 8 of this Form 10-K.
Information pertaining to persons employed by the Corporation is set forth under
the captions "Georgia-Pacific Group - Management's Discussion and Analysis -
Liquidity and Capital Resources - Other" and "The Timber Company - Management's
Discussion and Analysis - Liquidity and Capital Resources - Other," contained in
the Corporation's 1999 Annual Report to Shareholders and set forth in Exhibit
13.1 and 13.2, respectively, hereto, and is incorporated herein by reference.
ITEM 2. PROPERTIES
The geographic location and capacity of the manufacturing facilities by segment
is set forth on Exhibit 99.1 hereto and is hereby incorporated herein by this
reference.
The Corporation's manufacturing and support facilities are designed according to
the requirements of the products to be manufactured. Therefore, the type of
construction varies
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from facility to facility. Management believes that its manufacturing
facilities, taken as a whole, are well maintained and generally adequate for
current operations.
Utilization of a particular facility varies based upon demand for the product.
While it is not possible to measure with any degree of certainty the productive
capacity of a facility we have estimated capacity in Exhibit 99.1.
The Corporation generally owns its manufacturing and other facilities, although
office facilities are often leased. The Corporation examines alternatives for
its higher cost facilities, including modernizing, replacing or closing such
facilities. Due to the Corporation's size, we continually review many business
opportunities and alternatives, including possible acquisitions or sales of
properties.
Information concerning the Corporation's timber and mineral resources is
presented under Item 1 of this Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
Information pertaining to the Corporation's Legal Proceedings is set forth in
Note 12 of the Corporation's Consolidated Financial Statements, and is presented
under Item 8 of this Form 10-K.
Additional information pertaining to the Corporation's Legal Proceedings is set
forth in Georgia-Pacific Group's Note 13 and The Timber Company's Note 11 of the
Notes to Combined Financial Statements contained in the Corporation's 1999
Annual Report to Shareholders and set forth in Exhibit 13.1 and 13.2,
respectively, hereto, and is incorporated herein by reference.
ENVIRONMENTAL PROCEEDINGS
Pursuant to the rules of the Securities and Exchange Commission, the Corporation
is required to describe environmental proceedings to which a governmental
authority is a party and which involve potential monetary sanctions, exclusive
of interest and costs, of at least $100,000. There are no legal proceedings that
meets this criteria for this reporting period, except the environmental
proceedings described in the information pertaining to the Corporation's legal
proceedings incorporated into preceding paragraph.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information with respect to the Market for the Corporation's Common Equity and
Related Stockholder Matters is set forth in a table following Note 14 of the
Corporation's Consolidated Financial Statements and under the captions "Selected
Financial Data - Financial Position, End of Year" (following Note 14 to the
Corporation's Consolidated Financial Statements), and is presented under Item 8
of this Form 10-K.
Information with respect to the Market for the Corporation's Common Equity and
Related Stockholder Matters is set forth in the Corporation's 1999 Annual Report
to Shareholders under
-9-
the captions "Selected Financial Data - Financial Position, End of Year"
(following Note 15 and Note 13, respectively, of Georgia-Pacific Group's and the
Timber Company's Combined Financial Statements), and set forth in Exhibit 13.1
and 13.2, respectively, hereto, and is incorporated herein by reference.
The Corporation expects to continue to pay quarterly dividends in the amounts
set forth in "Selected Financial Data - Financial Position, End of Year"
following Note 14 to the Corporation's Consolidated Financial Statements, which
Note was incorporated into this item from Item 8 hereof.
As of the close of business on March 24, 2000, the Georgia-Pacific Group stock
price was $38.94 and the Timber Group stock price was $23.81, and there were
approximately 170,968,856 record holders of Georgia-Pacific Group stock and
81,998,510 record holders of the Timber Group stock.
On June 30, 1998, the Corporation issued an aggregate of 1,640,400 shares of
Georgia-Pacific Group Common Stock ("G-P Group Stock") in a private placement to
Jack W. Schwarz, Schwarz Family Irrevocable Trust, Schwarz Partners LLP II and
Schwarz Partners LLP III (hereinafter collectively referred to as the
"Investors"), in consideration for a portion of all of the issued and
outstanding capital stock of CeCorr, Inc., an Indiana corporation ("CeCorr"),
all as contemplated by a Stock Purchase Agreement dated June 30, 1998. In
connection with the Stock Purchase Agreement, the Corporation also entered into
a Put Agreement with the Investors dated June 30, 1998. On July 6, 1998, the
Investors put an aggregate of 1,140,400 shares of G-P Group Stock back to the
Corporation and prior to June 30, 1999, the Investors retain the option to put
an aggregate of 500,000 shares of G-P Group Stock back to the Corporation. The
aggregate of 1,640,400 shares of G-P Group Stock issued in the acquisition of
CeCorr were issued in accordance with an exemption from the registration
requirements of the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to Selected Financial Data for the Corporation is set
forth under the captions "Selected Financial Data - Operations - Georgia-Pacific
Corporation and Subsidiaries" and "-Financial Position, End of Year," (following
Note 14) and is presented under Item 8 of this Form 10-K.
Information with respect to Selected Financial Data for Georgia-Pacific Group is
set forth under the captions "Georgia-Pacific Group - Selected Financial Data -
Operations" (following Note 15) and " - Selected Financial Data - Financial
Position, End of Year" (following Note 15) contained in the Corporation's 1999
Annual Report to Shareholders and set forth in Exhibit 13.1 hereto, and is
incorporated herein by reference.
Information with respect to Selected Financial Data for The Timber Company is
set forth under the captions "The Timber Company - Selected Financial Data -
Operations" (following Note 13) and "- Selected Financial Data - Financial
Position, End of Year" (following Note 13) contained in the Corporation's 1999
Annual Report to Shareholders and set forth in Exhibit 13.2 hereto, and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
-10-
Management's Discussion and Analysis and factors affecting future performance
for the Corporation are set forth under the caption "Management's Discussion and
Analysis - Georgia-Pacific Corporation and Subsidiaries," and are presented
under Item 8 of this Form 10-K.
Management's Discussion and Analysis and factors affecting future performance
for Georgia-Pacific Group are set forth under the caption "Georgia-Pacific Group
- - Management's Discussion and Analysis" and in Georgia-Pacific Group's Note 2 of
the Notes to Combined Financial Statements contained in the Corporation's 1999
Annual Report to Shareholders and set forth in Exhibit 13.1 hereto, and are
incorporated herein by reference.
Management's Discussion and Analysis and factors affecting future performance
for The Timber Company are set forth under the caption "The Timber Company -
Management's Discussion and Analysis" and in The Timber Company's Note 2 of the
Notes to Combined Financial Statements contained in the Corporation's 1999
Annual Report to Shareholders and set forth in Exhibit 13.2 hereto, and are
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosure about Market Risk for the Corporation is
set forth under the captions "Georgia-Pacific Corporation and Subsidiaries -
Management's Discussion and Analysis - Liquidity and Capital Resources -
Financing Activities," and is presented under Item 8 of this Form 10-K.
Quantitative and Qualitative Disclosure about Market Risk for the
Georgia-Pacific Group is set forth under the captions "Management's Discussion
and Analysis - Georgia-Pacific Group - Liquidity and Capital Resources -
Financing Activities" contained in the Corporation's 1999 Annual Report to
Shareholders and set forth in Exhibit 13.1 hereto, and is incorporated herein by
reference.
Quantitative and Qualitative Disclosure about Market Risk for The Timber Company
is set forth under the captions "The Timber Company - Management's Discussion
and Analysis - Liquidity and Capital Resources - Financing Activities" contained
in the Corporation's 1999 Annual Report to Shareholders and set forth in Exhibit
13.2 hereto, and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and Supplementary Data for the Corporation are set forth
under the captions "Consolidated Statements of Income - Georgia-Pacific
Corporation and Subsidiaries," "Consolidated Statements of Cash Flows -
Georgia-Pacific Corporation and Subsidiaries," "Consolidated Balance Sheets -
Georgia-Pacific Corporation and Subsidiaries," "Consolidated Statements of
Shareholders' Equity - Georgia-Pacific Corporation and Subsidiaries,"
"Consolidated Statements of Comprehensive Income - Georgia-Pacific Corporation
and Subsidiaries," "Report of Independent Public Accountants" and in the
Corporation's Notes to Consolidated Financial Statements, and is presented
below.
Financial Statements and Supplementary Data for Georgia-Pacific Group are set
forth under the captions "Georgia-Pacific Group - Combined Statements of
Income," "Georgia-Pacific Group - Combined Statements of Cash Flows,"
"Georgia-Pacific Group - Combined Balance Sheets," "Georgia-Pacific Group -
Combined Statements of Shareholders' Equity," "Georgia-Pacific Group - Combined
Statements of Comprehensive Income," "Report of Independent Public Accountants"
and in Georgia-Pacific Group's Notes to Combined Financial Statements
-11-
contained in the Corporation's 1999 Annual Report to Shareholders and set forth
in Exhibit 13.1 hereto, and is incorporated herein by reference.
Financial Statements and Supplementary Data for The Timber Company are set forth
under the captions "The Timber Company - Combined Statements of Income," "The
Timber Company - Combined Statements of Cash Flows," "The Timber Company -
Combined Balance Sheets," "The Timber Company - Combined Statements of
Shareholders' Equity," "Report of Independent Public Accountants" and in The
Timber Company's Notes to Combined Financial Statements contained in the
Corporation's 1999 Annual Report to Shareholders and set forth in Exhibit 13.2
hereto, and is incorporated herein by reference.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Georgia-Pacific Corporation and Subsidiaries
Georgia-Pacific Corporation consists of two separate operating groups, the
Georgia-Pacific Group and The Timber Company. The performance of these distinct
businesses is reflected separately by two classes of common stock:
Georgia-Pacific Group stock and The Timber Company stock. The Georgia-Pacific
Group consists of all the Corporation's manufacturing mills and plants, its
building products distribution business and its paper distribution business. The
facilities manufacture and sell a wide variety of pulp and paper products
(including pulp, communication papers, containerboard, packaging and tissue) and
manufactured building products (including plywood, oriented strand board and
industrial panels, lumber, gypsum products, chemicals and other products). The
Timber Company consists of approximately 4.7 million acres of timberlands owned
or leased by the Corporation, together with related facilities and equipment. In
1999, these timberlands supplied approximately 19% of the overall timber
requirements of the Corporation's manufacturing facilities.
1999 COMPARED WITH 1998
The Corporation reported consolidated net sales of $18.0 billion and net
income of $1,116 million for 1999, compared with net sales of $13.3 billion and
net income of $274 million in 1998. Included in 1999 are $3.4 billion and $104
million of net sales, respectively, from the recently acquired Unisource
Worldwide, Inc. (Unisource) and Wisconsin Tissue operations. In addition, the
1999 results included pretax gains of $355 million ($215 million after taxes)
from the sales of the Corporation's timberlands located in California, Maine and
New Brunswick, Canada. The 1998 results included an extraordinary, after-tax
loss of $15 million for the early retirement of debt.
Interest expense was $495 million in 1999, compared with $443 million in 1998.
The increase is the result of higher debt levels and the issuance of senior
deferrable notes, more fully described in Note 7 of the Notes to Consolidated
Financial Statements, slightly offset by a decrease in average interest rates.
The Corporation reported pretax income of $1,821 million and an income tax
provision of $705 million for the year ended January 1, 2000, compared with
pretax income of $491 million and an income tax provision of $202 million for
the year ended December 31, 1998. The effective tax rate used to calculate the
provision for income taxes was 38.7% in 1999 and 41.1% in 1998. The reduction in
the 1999 effective tax rate resulted principally from higher pretax income and
an increased utilization of foreign sales corporation tax benefits, which more
than offset nondeductible goodwill amortization expense associated with business
acquisitions.
-12-
The remaining discussion refers to the "Selected Operating Segment Data" table
below.
SELECTED OPERATING SEGMENT DATA
Georgia-Pacific Corporation and Subsidiaries
Year ended
------------------------------------
January 1, December 31,
In millions 2000 1998 1997
===========================================================================================
Net sales
Building products $ 6,164 $ 5,792 $ 5,545
Building products distribution 4,869 4,333 4,406
Timber 526 534 551
Containerboard and packaging 2,391 2,104 1,817
Pulp and paper 3,891 3,554 3,701
Paper distribution 3,336 -- --
Other* (3,200) (2,975) (2,926)
- -------------------------------------------------------------------------------------------
Total net sales $ 17,977 $ 13,342 $ 13,094
===========================================================================================
Operating profits
Building products $ 1,139 $ 603 $ 490
Building products distribution 63 1 (171)
Timber 726 364 437
Containerboard and packaging 344 106 (6)
Pulp and paper 266 133 201
Paper Distribution 78 -- --
Other* (300) (273) (251)
- -------------------------------------------------------------------------------------------
Operating profits
Total operating profits 2,316 934 700
Interest expense 495 443 465
Provision for income taxes 705 202 106
- -------------------------------------------------------------------------------------------
Income before extraordinary items and
accounting change 1,116 289 129
Extraordinary items,
net of taxes -- (15) --
Cumulative effect of accounting
change, net of taxes -- -- (60)
- -------------------------------------------------------------------------------------------
Net income $ 1,116 $ 274 $ 69
===========================================================================================
*Includes the elimination of intersegment sales
BUILDING PRODUCTS The Corporation's building products segment reported net sales
of $6.2 billion and operating profits of $1,139 million for the year ended
January 1, 2000, compared with net sales of $5.8 billion and operating profits
of $603 million in 1998. Return on sales was 18% in 1999 and 10% in 1998. The
primary components of the increase in 1999 sales
-13-
and operating profits were 26% higher average oriented strand board prices; 22%
higher average gypsum prices; 16% higher average plywood prices; and higher
average selling prices for lumber and particleboard. These increases were offset
slightly by lower chemical prices and slightly lower volume for plywood and
lumber. The Corporation expects softening building products markets and lower
levels of housing starts to reduce operating results for the building products
segment in 2000.
BUILDING PRODUCTS DISTRIBUTION The building products distribution segment
reported net sales of $4.9 billion and operating profits of $63 million for
1999, compared with net sales of $4.3 billion and operating profits of $1
million in 1998. The 1998 results included one-time gains, principally on sales
of assets related to the restructuring plan, of approximately $20 million. The
increase in profitability in 1999 is due primarily to higher margins in
commodity and specialty products and lower operating costs. The Corporation
expects a slight improvement in 2000 operating results for the building products
distribution segment related primarily to increased market share, despite an
expected softening of building products markets and lower levels of housing
starts.
TIMBER Net sales and operating profits for the timber segment were $526 million
and $726 million, respectively, in 1999 and $534 million and $364 million,
respectively, in 1998. Excluding the 1999 pretax gains of $355 million from the
sales of timberlands located in California, Maine and New Brunswick, Canada, and
the 1998 pretax gain of $24 million from the sale of certain timberlands located
in West Virginia, the timber segment's operating profits increased by $31
million to $371 million in 1999 compared with $340 million in 1998. This
increase resulted primarily from a $34 million increase in gains on
miscellaneous land sales. Overall, 2% higher total harvest volumes partially
offset the year over year 3% decline in average sales price. Prices for most
products are anticipated to hold at or near current levels in 2000.
CONTAINERBOARD AND PACKAGING The Corporation's containerboard and packaging
segment reported net sales of $2.4 billion and operating profits of $344 million
for the year ended January 1, 2000, compared with net sales of $2.1 billion and
operating profits of $106 million in 1998. Return on sales increased to 14% from
5% in 1998. Average selling prices increased steadily throughout 1999 and ended
the year above 1998 levels. Average selling prices for containerboard products
increased 8% while average selling prices for packaging increased 2%. Cost
decreases for wood fiber and energy as well as higher sales volume also
contributed to the increased profit margins. The Corporation expects continued
price improvement in the containerboard and packaging segment into 2000.
PULP AND PAPER The Corporation's pulp and paper segment reported net sales of
$3.9 billion and operating profits of $266 million for the year ended January 1,
2000, compared with net sales of $3.6 billion and operating profits of $133
million in 1998. Return on sales increased to 7% compared with 4% for the same
period a year ago. Operating profits in 1998 included a one-time, $12 million
charge primarily for the closure of a hardwood market pulp operation. The
increase in profitability in 1999 was due primarily to a 5% improvement in
average pulp selling prices, lower overall wood fiber costs and higher sales
volumes for the tissue business, despite a decrease in average selling prices
for most of the Corporation's paper products. Average selling prices in 1999 for
communication papers and tissue were approximately 2% and 5%, respectively,
below average selling prices in 1998.
In 1999, net sales and operating profits from the segment's tissue business were
$1.1 billion and $134 million, respectively, and included net sales and
operating profits of $104 million and $15 million, respectively, from the
Wisconsin Tissue operations. The Wisconsin Tissue operations
-14-
were combined with the Corporation's commercial tissue business beginning on
October 3, 1999, when the Georgia-Pacific Tissue joint venture was formed. In
1998, net sales and operating profits of the tissue business were $986 million
and $145 million, respectively. Excluding the results of the Wisconsin Tissue
operations in 1999, operating profits from the segment's tissue business
decreased by $26 million related primarily to lower selling prices, despite a 7%
increase in sales volume.
During 1999, the Corporation incurred market-related downtime at its pulp and
paper mills, resulting in a reduction in pulp production of 311,000 tons and
communication papers production of 17,000 tons. In 1998, the Corporation
incurred market-related downtime at its pulp and paper mills resulting in a
reduction in pulp and communication papers production of 300,000 tons and 74,000
tons, respectively. In the third quarter of 1998, the Corporation indefinitely
shut down the hardwood market pulp portion of its operations at Port Hudson,
Louisiana, resulting in closure of approximately 260,000 tons of annual
production capacity.
Selling prices for most of the Corporation's pulp and communication papers
products steadily increased during 1999 and ended the year at levels higher than
1998. The Corporation expects the improving selling price trend to continue
through 2000. Historically, selling prices for all of the Corporation's pulp and
paper products have been highly volatile.
PAPER DISTRIBUTION The Corporation's paper distribution segment, which
represents the operating results of Unisource since its acquisition by the
Corporation at the end of the second quarter of 1999, reported net sales of $3.3
billion and operating profits of $78 million for the year ended January 1, 2000.
Unisource sells and distributes high-quality printing, writing and copying
papers to printers, publishers, business forms manufacturers and direct mail
firms, as well as to corporate and retail copy centers, in-plant print
facilities, government institutions and other paper-intensive businesses.
Unisource also sells and distributes a broad range of packaging and maintenance
supplies, equipment and services (principally to manufacturers, food processors
and retailers); maintenance supplies and equipment such as towels, tissues, can
liners and sanitation chemicals; packaging supplies and equipment such as carton
erectors, baggers and filers as well as films, shrink-wrap and cushioning
materials; shipping room supplies such as corrugated boxes, cushioning
materials, tapes and labeling; and food service supplies such as films and food
wraps, food containers and disposable apparel for food service workers.
Operating results for the paper distribution segment have historically been
seasonal, with the strongest operating results occurring in the third quarter.
OTHER The operating loss for the "Other" nonreportable segment, which includes
some miscellaneous businesses, certain goodwill amortization, unallocated
corporate operating expenses and the elimination of profit on intersegment
sales, increased by $27 million to a loss of $300 million in 1999 from a loss of
$273 million in 1998. This increase was primarily a result of higher employee
benefit and incentive costs.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES The Corporation generated cash from operations of $1,427
million during 1999 and $1,554 million in 1998. The decrease in 1999 cash
provided by operations was primarily a result of higher working capital levels,
related principally to inventories and to accounts receivable associated with
the increase in revenues, offset somewhat by higher operating results.
INVESTING ACTIVITIES During 1999, capital expenditures for property, plant and
-15-
equipment, excluding acquisitions, were $723 million compared with $638 million
in 1998. Expenditures in 1999 included $265 million in the building products
segment, $16 million in the building products distribution segment, $2 million
in the timber segment, $92 million in the containerboard and packaging segment,
$262 million in the pulp and paper segment, $45 million in the paper
distribution segment, and $41 million of other and general corporate. In 2000,
the Corporation expects to make capital expenditures for property, plant and
equipment, excluding the cost of any acquisitions, that approximately equal
depreciation expense for the year.
During 1999, the Corporation invested $147 million for pollution control
and abatement. The Corporation's 2000 capital expenditure budget currently
includes approximately $260 million for environment-related projects. Certain
other capital projects that are being undertaken for the primary reason of
improving financial returns or safety will also include expenditures for
pollution control.
On April 15, 1998, the U.S. Environmental Protection Agency promulgated a
set of regulations known as the "Cluster Rule" that establishes new requirements
for air emissions and wastewater discharges from pulp and paper mills. The
Corporation estimates that it will make capital expenditures up to approximately
$550 million through April 2006 in order to comply with the Cluster Rule's
requirements. Of that total, approximately $160 million was spent through 1999
and about $350 million will be spent by the end of 2000. The Cluster Rule
requires that pulp and paper mills become elemental chlorine free (ECF) in the
pulp bleaching process. Approximately $110 million of the amount required to be
spent in 2000 will go toward ECF conversion at mills located in Ashdown,
Arkansas; Crossett, Arkansas; Bellingham, Washington; and Palatka, Florida. The
bulk of the remaining expenditures in 2000 will be for additional air emission
controls at the Corporation's other pulp and paper facilities.
Cash paid for timber and timberlands was $228 million in 1999 compared with
$201 million in 1998.
At the end of the second quarter of 1999, the Corporation, through its
wholly owned subsidiary Atlanta Acquisition Corp., completed a tender offer for
all the outstanding shares of common stock of Unisource, the largest independent
marketer and distributor of printing and imaging paper and supplies in North
America, and acquired 90.7% of the then outstanding shares of Unisource. On July
6, 1999, Atlanta Acquisition Corp. was merged with and into Unisource and, by
virtue of such merger, shares of Unisource that were not tendered to the
Corporation (other than shares held by Unisource and the Corporation and its
subsidiaries) were converted into the right to receive $12.00 per Unisource
share in cash, subject to dissenters' rights. The Corporation is paying for such
untendered shares as they are delivered to the exchange agent. Through January
1, 2000, the Corporation paid approximately $829 million for such shares.
Unisource's results of operations were consolidated with those of the
Corporation beginning July 4, 1999.
Effective October 3, 1999, the Corporation and Chesapeake Corp.
(Chesapeake) completed a previously announced agreement to create
Georgia-Pacific Tissue, a joint venture in which the two companies have combined
their away-from-home tissue businesses. The Corporation contributed
substantially all the assets of its commercial tissue business to the joint
venture. The Corporation controls and manages the joint venture and owns 95% of
its equity. Chesapeake contributed the assets of its Wisconsin Tissue business
to the joint venture, for which it received a 5% equity interest in the joint
venture and an initial cash distribution of approximately $755 million.
Wisconsin Tissue's results of operations were combined with the
-16-
Corporation's commercial tissue business beginning on October 3, 1999, when the
Georgia-Pacific Tissue joint venture was formed.
During 1999, the Corporation also completed the acquisition of a packaging
plant, four treated lumber facilities, a chemical business and lumber
transportation assets for a total consideration of approximately $74 million in
cash.
On June 30, 1998, the Corporation completed its acquisition of CeCorr Inc.
(CeCorr), a leading independent producer of corrugated sheets in the United
States. On June 30, 1998, the Corporation paid approximately $93 million in cash
(net of $2 million of cash acquired) and issued approximately 3.2 million shares
of Georgia-Pacific Group stock valued at approximately $28.94 per share for all
the outstanding shares of CeCorr. In addition, the Corporation assumed
approximately $92 million of CeCorr's debt, of which $34 million was owed to the
Corporation ($58 million net debt assumed). On July 2, 1998, a former owner of
CeCorr exercised his right to resell to the Corporation approximately 2.2
million shares of Georgia-Pacific Group stock issued in the transaction.
CeCorr's results of operations were consolidated with those of the Corporation
beginning July 1, 1998.
During 1999, the Corporation received $104 million from the sale of assets,
principally timberlands, located in New Brunswick, Canada and in Maine. During
1998, the Corporation received proceeds of $131 million from the sale of assets,
principally timberlands, real estate development properties located in South
Carolina and Florida, and various distribution facilities.
In December 1999, the Corporation sold approximately 194,000 acres of its
redwood and Douglas fir timberlands in Northern California for a purchase price
of approximately $397 million. In conjunction with the sale, the Corporation
received notes from the purchaser for the purchase price. These notes are fully
secured by a standby letter of credit with an unaffiliated third-party financial
institution. The Corporation expects to monetize these notes through the
issuance of notes payable in the first half of 2000. The estimated annual
operating profits and capital expenditures for 1999 related to these timberlands
were $30 million and $1 million, respectively. The Fort Bragg sawmill has a wood
supply agreement with The Timber Company through 2000 that was transferred as
part of the sale agreement.
FINANCING ACTIVITIES The Corporation's total debt, excluding senior deferrable
notes, increased by $1,473 million to $7,024 million at January 1, 2000 from
$5,551 million at December 31, 1998. At January 1, 2000 and December 31, 1998,
$6,054 million and $4,568 million, respectively, of such total debt was
allocated to the Georgia-Pacific Group and $970 million and $983 million,
respectively, was allocated to The Timber Company. The debt of each of the
groups bears interest at a rate equal to the weighted average interest rate of
the Corporation's total debt, calculated on a quarterly basis. At January 1,
2000, the weighted average interest rate on the Corporation's total debt,
excluding senior deferrable notes, was 7.2% including outstanding interest rate
exchange agreements. Each group's debt increases or decreases by the amount of
any cash provided by or used for that group's operating activities, investing
activities, dividend payments, share repurchases or issuances and other
nondebt-related financing activities. See Note 1 of the Notes to Consolidated
Financial Statements for further discussion of financial activities.
In conjunction with the sale of 440,000 acres of the Corporation's Maine
timberlands in June 1999, the Corporation received notes from the purchaser in
the amount of $51 million. In November 1999, the Corporation monetized these
notes through the issuance of notes payable
-17-
in a private placement. Proceeds from the notes received from the purchaser will
be used to fund payments required for the notes payable.
In conjunction with the sale of 194,000 acres of the Corporation's
California timberlands in December 1999, the Corporation received notes from the
purchaser with an estimated fair value of $350 million. The Corporation plans to
monetize these notes through the issuance of notes payable in the first half of
2000. Proceeds from the notes received from the purchaser will be used to fund
payments required for the notes payable.
In June 1999, the Corporation renegotiated its accounts receivable secured
borrowing program and increased the amount outstanding under the program from
$280 million to $750 million. The program expires in April 2000. In connection
with the acquisition of Unisource, the Corporation assumed former Unisource
programs to pledge up to $150 million of certain qualifying U.S. accounts
receivable and up to CN$70 million of certain eligible Canadian accounts
receivable. The U.S. program expires in April 2000 and the Canadian program
expires in May 2004. At January 1, 2000, approximately $948 million was
outstanding under the Corporation's and Unisource's programs in the aggregate.
The receivables outstanding under these programs and the corresponding debt are
included as "Receivables" and "Commercial paper and other short-term notes,"
respectively, on the Corporation's consolidated balance sheets. All programs are
accounted for as secured borrowings. As collections reduce previously pledged
interests, new receivables may be pledged.
Also, in connection with the acquisition of Unisource, the Corporation
assumed former Unisource industrial revenue bonds in the amount of $9 million
and capital leases in the amount of $12 million. Additionally, the Corporation
assumed other long-term debt in the amount of $447 million and bank overdrafts
in the amount of $120 million, and retained the previously described accounts
receivable secured borrowing programs in the amount of $197 million. These
amounts are included in the Corporation's total debt.
In November 1999, in connection with the formation of Georgia-Pacific
Tissue, the Corporation issued $500 million of 7.75% Debentures Due November 15,
2029.
During 1998, the Corporation issued $300 million of 7.25% Debentures Due
June 1, 2028 and a $14 million floating rate note due September 30, 2003. In
January 1998, the Corporation redeemed $200 million of 9 3/4% Sinking Fund
Debentures Due January 15, 2018. In February 1998, the Corporation redeemed $200
million of 9 1/2% Debentures Due February 15, 2018.
During 1999, the Corporation increased the amount of its unsecured
revolving credit facility from $1.5 billion to $2.0 billion. This unsecured
revolving credit facility is used for direct borrowings and as support for
commercial paper and other short-term borrowings. Under the agreement, $1
billion will terminate in July 2000 and $1 billion will terminate in 2004. As of
January 1, 2000, $1,145 million of committed credit was available in excess of
all short-term borrowings outstanding under or supported by the facility.
On July 7, 1999, the Corporation issued 17,250,000 of 7.5% Premium Equity
Participating Security Units (PEPS Units) for $862.5 million. Each PEPS Unit had
an issue price of $50 and consists of a contract to purchase shares of
Georgia-Pacific Group common stock on or prior to August 16, 2002 and a senior
deferrable note of the Georgia-Pacific Group due August 16, 2004. Each purchase
contract yields interest of 0.35% per year, paid quarterly, on the $50 stated
amount of the PEPS Unit. Each senior deferrable note yields interest of 7.15%
per year, paid quarterly, until August 16, 2002. On August 16, 2002, following a
remarketing of the senior
-18-
deferrable notes, the interest rate will be reset at a rate that will be equal
to or greater than 7.15%. The liability related to the PEPS Units is classified
as "Senior deferrable notes" on the Corporation's consolidated balance sheets
and is not included in the debt amount for purposes of determining the corporate
and Georgia-Pacific Group debt targets. The senior deferrable notes and related
interest expense are allocated specifically to the Georgia-Pacific Group.
In October 1999, the Corporation entered into a financing arrangement to
enhance the return on a deposit made in connection with a 1995 sale-leaseback
transaction by issuing $379 million of 5.74% Debentures Due April 5, 2005 that
were legally defeased with deposits of an equal amount. Accordingly, the
debentures and related deposits are not reflected on the Corporation's
consolidated balance sheets.
The Corporation's senior management establishes the parameters of the
Corporation's financial risk, which have been approved by the Board of Directors
(the Board). Hedging interest rate exposure through the use of swaps and options
and hedging foreign exchange exposure through the use of forward contracts are
specifically contemplated to manage risk in keeping with management policy.
Derivative instruments, such as swaps, forwards, options or futures, which are
based directly or indirectly upon interest rates, currencies, equities and
commodities, may be used by the Corporation to manage and reduce the risk
inherent in price, currency and interest rate fluctuations.
The Corporation does not utilize derivatives for speculative purposes.
Derivatives are transaction-specific so that a specific debt instrument,
contract or invoice determines the amount, maturity and other specifics of the
hedge. Counterparty risk is limited to institutions with long-term debt ratings
of A or better.
The following tables present principal (or notional) amounts and related
weighted average interest rates by year of expected maturity for the
Corporation's debt obligations as of January 1, 2000 and December 31, 1998. For
obligations with variable interest rates, the tables set forth payout amounts
based on current rates and do not attempt to project future interest rates.
In millions 2000 2001 2002 2003
================================================================================
Debt
Commercial paper and other short-
term notes -- -- -- --
Average interest rates -- -- -- --
Notes and debentures -- -- $ 300 $ 300
Average interest rates -- -- 10.0% 5.7%
Revenue bonds $ 24 $ 6 $ 73 --
Average interest rates 4.5% 5.5% 4.7% --
Capital leases $ 2 $ 3 $ 3 $ 2
Average interest rates 9.8% 9.9% 10.2% 10.4%
Other loans $ 13 -- -- $ 15
Average interest rates 8.0% -- -- 6.7%
Senior deferrable notes -- -- $ 863 $ --
Average interest rates -- -- 7.2% --
Notional principal amount of
interest rate exchange
Agreements $ 177 -- $ 131 $ 300
Average interest rate paid
(fixed) 7.7% -- 6.0% 5.9%
-19-
Average interest rate received
(variable) 5.9% -- 6.0% 5.9%
Fair value
January 1,
In millions 2004 Thereafter Total 2000
- --------------------------------------------------------------------------------
Debt
Commercial paper and other short-
term notes -- $ 2,067 $ 2,067 $ 2,067
Average interest rates -- 6.5% 6.5% 6.5%
Notes and debentures -- $ 3,389 $ 3,989 $ 3,952
Average interest rates -- 8.4% 8.3% 8.3%
Revenue bonds $ 33 $ 517 $ 653 $ 564
Average interest rates 5.4% 5.7% 5.5% 5.5%
Capital leases $ 2 $ 2 $ 14 $ 14
Average interest rates 10.5% 10.5% 10.1% 7.9%
Other loans -- -- $ 28 $ 27
Average interest rates -- -- 7.3% 6.9%
Senior deferrable notes -- -- $ 863 $ 866
Average interest rates 7.2% 7.4%
Notional principal amount of
interest rate exchange
Agreements -- -- $ (608) $ (1)
Average interest rate paid
(fixed) -- -- 6.4% 6.4%
Average interest rate received
(variable) -- -- 5.9% 5.9%
- --------------------------------------------------------------------------------
The Corporation has the intent and ability to refinance commercial paper and
other short-term notes as they mature. Therefore, maturities of these
obligations are reflected as cash flows expected to be made after 2004.
In millions 1999 2000 2001 2002
- --------------------------------------------------------------------------------
Debt
Commercial paper and other short-
term notes -- -- -- --
Average interest rates -- -- -- --
Notes and debentures -- -- -- $ 300
Average interest rates -- -- -- 10.0%
Revenue bonds $ 21 $ 21 $ 1 $ 75
Average interest rates 4.2% 4.4% 6.5% 5.1%
Other loans $ 2 $ 13 -- --
-20-
Average interest rates 7.7% 7.9% -- --
Notional principal amount of
interest rate exchange
Agreements $ 56 $ 100 -- --
Average interest rate paid
(fixed) 8.8% 8.4% -- --
Average interest rate received
(variable) 5.0% 5.8% -- --
- --------------------------------------------------------------------------------
Fair
value
December
In millions 2003 Thereafter Total 31, 1998
- --------------------------------------------------------------------------------
Debt
Commercial paper and other short-
term notes -- $ 1,209 $ 1,209 $ 1,209
Average interest rates -- 5.8% 5.8% 5.8%
Notes and debentures $ 300 $ 2,900 $ 3,500 $ 3,783
Average interest rates 5.5% 8.6% 8.4% 8.4%
Revenue bonds $ 1 $ 518 $ 637 $ 587
Average interest rates 6.5% 5.2% 5.2% 5.2%
Other loans $ 14 -- $ 29 $ 29
Average interest rates 5.8% -- 6.9% 6.9%
Notional principal amount of
interest rate exchange
Agreements $ 300 -- $ 456 $ 14
Average interest rate paid
(fixed) 5.9% -- 6.8% 6.8%
Average interest rate received
(variable) 5.7% -- 5.7% 5.7%
- --------------------------------------------------------------------------------
The Corporation has the intent and ability to refinance commercial paper
and other short-term notes as they mature. Therefore, maturities of these
obligations are reflected as cash flows expected to be made after 2003.
At January 1, 2000, the Corporation had interest rate exchange agreements
that effectively converted $608 million of floating rate obligations with a
weighted average interest rate of 5.9% to fixed rate obligations with an average
effective interest rate of approximately 6.4%. These agreements increased
interest expense by $7 million for the year ended January 1, 2000, and $11
million and $16 million for the years ended December 31, 1998 and 1997,
respectively. As of January 1, 2000, these agreements have a weighted average
maturity of approximately 2.6 years. As of January 1, 2000, the Corporation's
total floating rate debt exceeded related interest rate exchange agreements by
$1,957 million.
The Corporation also enters into foreign currency exchange agreements and
commodity futures and swaps, the amounts of which were not material to the
consolidated financial position of the Corporation at January 1, 2000.
-21-
As of January 1, 2000, the Corporation had registered for sale up to $2.975
billion of debt and equity securities under a shelf registration statement filed
with the Securities and Exchange Commission. The Corporation registered $1.725
billion under such registration statement related to the PEPS Units ($862.5
million of which was received on July 7, 1999 in exchange for senior deferrable
notes, and $862.5 million of Georgia-Pacific Group common stock will be issued
upon exercise of the purchase contracts). The $862.5 million of cash (less
expenses) raised in the sale of the PEPS Units was used to pay for the
acquisition of Unisource. In addition, the Corporation registered $500 million
of 7.75% Debentures Due November 15, 2029 under this shelf registration
statement. Proceeds from the issuance of securities under this shelf
registration statement will be used for general corporate purposes, including
the repayment of short-term debt, acquisitions, investments in, or extension of
credit to, the Corporation's subsidiaries and the acquisition of real property.
The Board has adopted a policy that earnings and cash flows generated from
the businesses of the Georgia-Pacific Group or The Timber Company will be used
only for reinvestment in the business of the group generating such earnings and
related cash flows, for repayment of its debt, or for payment of dividends on,
or the repurchase of shares of, the class of common stock reflecting such
group's performance. Funds of one group will not be loaned to or otherwise
invested in the business of the other group.
In June 1999, the Board increased the corporate target debt level under
which the Corporation can purchase shares of Georgia-Pacific Group and The
Timber Company common stock on the open market from $5.75 billion to $6.8
billion. In addition, the Board increased the Georgia-Pacific Group's target
debt level from $4.75 billion to $5.8 billion. The Timber Company's target debt
level remains at $1.0 billion. Depending on operating and financial
considerations, debt levels of the Corporation, the Georgia-Pacific Group and
The Timber Company may from time to time be above or below these thresholds.
During 1999, the Corporation purchased on the open market approximately 6.2
million shares of Georgia-Pacific Group stock at an aggregate price of $257
million ($41.45 average per share), all of which were held as treasury stock at
January 1, 2000. The Corporation also purchased on the open market approximately
5.3 million shares of The Timber Company stock at an aggregate price of $131
million ($24.72 average per share). Of these purchased shares, approximately
5,343,000 shares of The Timber Company stock were held as treasury stock and
6,000 shares were purchased during 1999 and settled after January 1, 2000.
During 1998, the Corporation purchased approximately 15.4 million shares of
Georgia-Pacific Group stock (including 2.2 million shares related to the CeCorr
acquisition) at an aggregate price of $427 million ($27.73 average per share).
Of these purchased shares, approximately 13.5 million shares were held as
treasury stock and approximately 1.9 million shares were retired. Cash paid in
1998 related to Georgia-Pacific Group stock repurchases totaled $436 million,
which included $9 million for shares purchased but not settled in 1997. The
Corporation also purchased on the open market approximately 5.7 million shares
of The Timber Company stock at an aggregate price of $121 million ($21.23
average per share), all of which were held as treasury stock at December 31,
1998.
Subsequent to year-end 1999 through February 4, 2000, the Corporation
purchased on the open market 418,700 shares of The Timber Company stock at an
aggregate price of $9.5 million ($22.66 average per share). Subsequent to
year-end 1999 through February 4, 2000, no Georgia-Pacific Group stock was
purchased by the Corporation. The Corporation expects to repurchase
Georgia-Pacific Group and The Timber Company stock throughout 2000 as long as
-22-
debt levels are below the established thresholds.
During 1999 and 1998, the Corporation paid dividends totaling $170 million
and $181 million, respectively.
In 2000, the Corporation expects its cash flow from operations, together
with proceeds from any sales of assets and available financing sources, to be
sufficient to fund planned capital investments, pay dividends and make scheduled
debt repayments.
OTHER The Corporation employs approximately 59,800 people, approximately 27,000
of whom are members of unions. The Corporation considers its relationship with
its employees to be good. Forty-nine union contracts are subject to negotiation
and renewal in 2000, including four at large paper facilities.
In July 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 137, providing for a
one-year delay of the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities on its balance sheet and measure those instruments at fair value.
The Corporation will be required to adopt SFAS No. 133 in 2001. Management is
evaluating the effect of this statement on the Corporation's derivative
instruments, which are primarily interest rate swaps, foreign currency forward
contracts, commodity futures and long-term purchase commitments. The impact of
such adjustments to fair value is not expected to be material to the
Corporation's consolidated financial position.
The Corporation has resolved the effects of the Year 2000 problem on its
key information systems, the operating systems used in its manufacturing
operations and its facilities systems. The Year 2000 problem, which is common to
most businesses, concerns the inability of such systems to properly recognize
and process dates and date-sensitive information on and beyond January 1, 2000.
The Corporation developed a Year 2000 plan, under which all key systems were
tested and noncompliant software or technology was modified or replaced. The
Corporation incurred only minor problems in its key systems related to Year 2000
that were immediately corrected at no incremental cost and with no effect on
operations.
The Corporation incurred approximately $30 million of incremental costs to
resolve the Year 2000 problem (including approximately $4 million of capital
costs). In addition, the Corporation incurred internal costs totaling
approximately $17 million related to the Year 2000 problem. These incremental
and internal costs were expensed as incurred, except for new systems purchased
that were capitalized in accordance with corporate policy. The Corporation will
continue to monitor and test for the effect of Year 2000 on its systems during
the first few months of 2000 and expects to incur related incremental and
internal costs totaling approximately $1 million during the first half of 2000.
For a discussion of commitments and contingencies, see Note 12 of the Notes
to Consolidated Financial Statements.
1998 COMPARED WITH 1997
The Corporation reported consolidated net sales of $13.3 billion and net income
of $274 million for 1998, compared with net sales of $13.1 billion and net
income of $69 million in 1997. The 1998 results included an extraordinary,
after-tax loss of $15 million for the early retirement of
-23-
debt. The 1997 results included a pretax gain of $128 million ($80 million after
taxes) from the sale of the Corporation's Martell, California, assets and a $60
million one-time, after-tax charge for an accounting change. Interest expense
was $443 million in 1998, compared with $465 million in 1997. The reduction was
the result of lower average debt levels and lower average interest rates.
The Corporation reported pretax income of $491 million and an income tax
provision of $202 million for the year ended December 31, 1998, compared with
pretax income of $235 million and an income tax provision of $106 million for
the year ended December 31, 1997. The effective tax rate used to calculate the
provision for income taxes for both years was higher than the statutory rates
used to calculate federal and state income taxes primarily because of
nondeductible goodwill amortization expense associated with business
acquisitions.
In 1997, the Corporation adopted FASB Emerging Issues Task Force Issue No.
97-13 (EITF 97-13), "Accounting for Costs Incurred in Connection with a
Consulting Contract or an Internal Project That Combines Business Process
Reengineering and Information Technology Transformation," which resulted in a
one-time, after-tax charge of $60 million.
BUILDING PRODUCTS The Corporation's building products segment reported net sales
of $5.8 billion and operating profits of $603 million for the year ended
December 31, 1998, compared with net sales of $5.5 billion and operating profits
of $490 million in 1997. Return on sales was 10% in 1998 and 9% in 1997. The
1997 results included unusual one-time charges of $32 million primarily related
to asset write-downs, including closure of certain building products facilities,
as well as information systems write-offs.
The primary components of the increase in 1998 sales and operating profits
were 45% higher oriented strand board prices and 6% higher gypsum prices. Demand
and volume were also higher in 1998 for both of these products than in the prior
year. These increases were offset slightly by 12% lower lumber prices and 9%
higher log costs.
BUILDING PRODUCTS DISTRIBUTION The Corporation's building products distribution
segment reported operating profits of $1 million in 1998 (including gains on
asset sales of $20 million) compared with a loss of $171 million in 1997
(including gains on asset sales of $26 million). The 1997 results included
restructuring charges of $80 million. The improvement in the building products
distribution segment's operating results reflected the implementation of the
division's restructuring plan, which began in the 1997 fourth quarter. This plan
included disposition of its millwork fabrication facilities nationwide and of a
number of distribution centers located in the Western United States. The
millwork fabrication facilities were divested and the targeted distribution
centers were sold or closed.
TIMBER Excluding the pretax gain on the sale of certain timberlands in West
Virginia of $24 million in 1998, and the pretax gain on the sale of timberlands
near Martell, California of $114 million in 1997, the timber segment's operating
profits increased by $17 million to $340 million in 1998 compared with $323
million in 1997. This increase was a result of efforts to reduce costs by
optimizing productivity and focusing on cost control. The result of these
productivity and cost control efforts was reflected in lower cost of sales and
general and administrative expenses in 1998.
CONTAINERBOARD AND PACKAGING The Corporation's containerboard and packaging
segment reported net sales of $2.1 billion and operating profits of $106 million
for the year ended December 31, 1998, compared with net sales of $1.8 billion
and an operating loss of $6
-24-
million in 1997. Return on sales increased to 5% in 1998 compared with (0.3)%
for 1997, principally due to a 19% increase in average prices for containerboard
and an average 6% price increase for packaging products. During 1998, the
Corporation took approximately 270,000 tons of downtime at its containerboard
mills to avoid building inventories.
PULP AND PAPER The Corporation's pulp and paper segment reported net sales of
$3.6 billion and operating profits of $133 million for the year ended December
31, 1998, compared with net sales of $3.7 billion and operating profits of $201
million in 1997. Return on sales decreased to 4% in 1998 compared with 5% for
1997, principally due to a slight decrease in average prices for almost all the
Corporation's pulp and paper products. Operating profits in 1998 included a
one-time, $12 million charge primarily for the closure of a hardwood market pulp
operation. Average pulp prices were approximately 9% below 1997 levels. Tissue
prices decreased approximately 3% due to lower fiber costs and new capacity.
Average prices of communication papers for 1998 were approximately 2% below 1997
levels.
During the second half of 1998, the Corporation took significant
market-related downtime due to continued weakness in demand and pricing for pulp
and paper, primarily stemming from market conditions in Asia. In the 1998 third
quarter, the Corporation indefinitely shut down the hardwood market pulp portion
of its operations at Port Hudson, Louisiana, resulting in closure of
approximately 260,000 tons of annual production capacity. Additionally, the
Corporation took approximately 300,000 tons of downtime in 1998 at its pulp
mills to avoid building inventories.
OTHER The operating loss for the "Other" nonreportable segment increased by $22
million to a loss of $273 million in 1998 from a loss of $251 million in 1997.
This increase was primarily a result of higher litigation and environmental
remediation costs.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements under "Management's Discussion and Analysis" and other statements
contained herein that are not historical facts are forward-looking statements
(as such term is defined under the Private Securities Litigation Reform Act of
1995) based on current expectations. The accuracy of such statements is subject
to a number of risks, uncertainties and assumptions. In addition to the risks,
uncertainties and assumptions discussed elsewhere herein, factors that could
cause or contribute to actual results differing materially from such
forward-looking statements include the following: the Corporation's production
capacity continuing to exceed demand for its pulp and paper products,
necessitating market-related downtime; changes in the productive capacity and
production levels of other building products and pulp and paper producers; the
effect on the Corporation of changes in environmental and pollution control laws
and regulations; the general level of economic activity in U.S. and export
markets; variations in the level of housing starts; fluctuations in interest
rates and currency exchange rates; the availability and cost of wood fiber; and
other risks, uncertainties and assumptions discussed in the Corporation's
filings with the Securities and Exchange Commission, including the Corporation's
Form 8-K dated October 17, 1996.
REPORT ON MANAGEMENT'S RESPONSIBILITIES
Georgia-Pacific Corporation and Subsidiaries
-25-
Management of Georgia-Pacific Corporation is responsible for the
preparation, integrity and fair presentation of the consolidated financial
statements and the estimates and judgments upon which certain amounts in the
financial statements are based. Management is also responsible for preparing the
other financial information included in the annual report. In our opinion, the
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, and the other financial information in
the annual report is consistent with the financial statements.
Management is also responsible for establishing and maintaining a system of
internal control over financial reporting, which encompasses policies,
procedures and controls directly related to, and designed to provide reasonable
assurance as to, the reliability of the published financial statements. An
independent assessment of the system is performed by the Corporation's internal
audit staff in order to confirm that the system is adequate and operating
effectively. The Corporation's independent public accountants also consider
certain elements of the internal control system in order to determine their
auditing procedures for the purpose of expressing an opinion on the financial
statements. Management has considered any significant recommendations regarding
the internal control system that have been brought to its attention by the
internal audit staff or independent public accountants and has taken steps it
deems appropriate to maintain a cost-effective internal control system. The
Audit Committee of the Board of Directors, consisting of independent directors,
provides oversight to the financial reporting process. The Corporation's
internal auditors and independent public accountants meet regularly with the
Audit Committee to discuss financial reporting and internal control issues and
have full and free access to the Audit Committee.
There are inherent limitations in the effectiveness of any system of
internal control, including the possibility of human error and the circumvention
or overriding of controls. Accordingly, even an effective internal control
system can provide only reasonable assurance with respect to financial statement
preparation. Furthermore, the effectiveness of an internal control system can
vary over time due to changes in conditions.
Management believes that as of January 1, 2000, the internal control system
over financial reporting is adequate and effective in all material
respects.
James E. Terrell
Vice President and Controller
Danny W. Huff
Executive Vice President-Finance
and Chief Financial Officer
A.D. Correll
Chairman, Chief Executive Officer
and President
February 4, 2000
-26-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Georgia-Pacific Corporation and Subsidiaries
TO GEORGIA-PACIFIC CORPORATION:
We have audited the accompanying consolidated balance sheets of Georgia-Pacific
Corporation (a Georgia corporation) and subsidiaries as of January 1, 2000 and
December 31, 1998 and the related consolidated statements of income,
shareholders' equity, comprehensive income, and cash flows for each of the
three years in the period ended January 1, 2000. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Georgia-Pacific Corporation and subsidiaries as of January 1, 2000 and December
31, 1998 and the results of their operations and their cash flows for each of
the three years in the period ended January 1, 2000 in conformity with generally
accepted accounting principles.
As explained in Note 1 of the Notes to Consolidated Financial Statements,
effective December 31, 1997, Georgia-Pacific Corporation changed its method of
accounting for business process reengineering costs incurred as part of a
project to acquire, develop, or implement internal-use software.
/S/ARTHUR ANDERSEN LLP
- ----------------------
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 4, 2000
CONSOLIDATED STATEMENTS OF INCOME
Georgia-Pacific Corporation and Subsidiaries
Year ended
---------------------------------
January 1, December 31,
In millions, except per share amounts 2000 1998 1997
=========================================================================================================
Net sales $ 17,977 $ 13,342 $ 13,094
- ---------------------------------------------------------------------------------------------------------
Costs and expenses
-27-
Cost of sales, excluding depreciation and cost of timber
harvested shown below 13,333 10,231 10,209
Selling and distribution 817 556 607
Depreciation, amortization and cost of timber harvested 1,013 997 1,017
General and administrative 853 648 689
Interest 495 443 465
Other income (355) (24) (128)
- ---------------------------------------------------------------------------------------------------------
Total costs and expenses 16,156 12,851 12,859
- ---------------------------------------------------------------------------------------------------------
Income before income taxes, extraordinary items and
accounting change 1,821 491 235
Provision for income taxes 705 202 106
- ---------------------------------------------------------------------------------------------------------
Income before extraordinary items and
accounting change 1,116 289 129
Extraordinary items - loss from early retirement of
debt, net of taxes -- (15) --
Cumulative effect of accounting change,
net of taxes -- -- (60)
- ---------------------------------------------------------------------------------------------------------
Net income $ 1,116 $ 274 $ 69
=========================================================================================================
Georgia-Pacific Group
Income (loss) before extraordinary items and
accounting change $ 716 $ 111 $ (86)
Extraordinary items, net of taxes -- (13) --
Cumulative effect of accounting
change, net of taxes -- -- (60)
- ---------------------------------------------------------------------------------------------------------
Net income (loss) $ 716 $ 98 $ (146)
=========================================================================================================
Basic per share:
Income (loss) before extraordinary items and
accounting change $ 4.17 $ 0.62 $ (0.47)
Extraordinary items, net of taxes -- (0.07) --
Cumulative effect of accounting change, net of taxes -- -- (0.33)
- ---------------------------------------------------------------------------------------------------------
Net income (loss) $ 4.17 $ 0.55 $ (0.80)
- ---------------------------------------------------------------------------------------------------------
Diluted per share:
Income (loss) before extraordinary items and
accounting change $ 4.07 $ 0.61 $ (0.47)
Extraordinary items, net of taxes -- (0.07) --
Cumulative effect of accounting change, net of taxes -- -- (0.33)
- ---------------------------------------------------------------------------------------------------------
Net income (loss) $ 4.07 $ 0.54 $ (0.80)
-28-
- ---------------------------------------------------------------------------------------------------------
Average number of shares outstanding:
Basic 171.8 179.8 182.9
Diluted 175.9 181.1 182.9
=========================================================================================================
The Timber Company
Income before extraordinary items $ 400 $ 178 $ 215
Extraordinary items, net of taxes -- (2) --
- ---------------------------------------------------------------------------------------------------------
Net income $ 400 $ 176 $ 215
=========================================================================================================
Basic per share:
Income before extraordinary items $ 4.75 $ 1.97 $ 2.35
Extraordinary items, net of taxes -- (0.02) --
- ---------------------------------------------------------------------------------------------------------
Net income $ 4.75 $ 1.95 $ 2.35
=========================================================================================================
Diluted per share:
Income before extraordinary items $ 4.73 $ 1.96 $ 2.33
Extraordinary items, net of taxes -- (0.02) --
- ---------------------------------------------------------------------------------------------------------
Net income $ 4.73 $ 1.94 $ 2.33
=========================================================================================================
Average number of shares outstanding:
Basic 84.1 90.3 91.4
Diluted 84.6 90.8 92.1
=========================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Georgia-Pacific Corporation and Subsidiaries
Year ended
-----------------------------
January 1, December 31,
In millions 2000 1998 1997
Cash flows from operating activities
Net income $ 1,116 $ 274 $ 69
Adjustments to reconcile net income
-29-
to cash provided by operations:
Depreciation 752 749 789
Cost of timber harvested 192 186 169
Deferred income taxes 73 38 100
Amortization of goodwill 69 62 59
Stock compensation programs 8 (3) --
Cumulative effect of accounting change, net of taxes -- -- 60
Other income (355) (24) (128)
Gain on disposal sales of assets, net (48) (16) (6)
Amortization of debt issue costs, discounts and premiums 9 13 5
(Increase) decrease in receivables (258) 146 (64)
(Increase) decrease in inventories (244) 92 101
Increase (decrease) in accounts payable 4 (47) (24)
Change in other working capital 32 (82) 51
Increase (decrease) in taxes payable 9 136 (45)
Change in other assets and other long-term liabilities 68 30 (20)
- --------------------------------------------------------------------------------------------------------------
Cash provided by operations 1,427 1,554 1,116
- --------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Property, plant and equipment investments (723) (638) (717)
Timber and timberland purchases (228) (201) (175)
Acquisition (1,658) (112) --
Proceeds from sales of assets 104 131 378
Other 29 21 (23)
- --------------------------------------------------------------------------------------------------------------
Cash used for investing activities (2,476) (799) (537)
- --------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Repayments of long-term debt (579) (874) (340)
Additions to long-term debt 624 575 48
Fees paid to issue debt (35) (5) (1)
Decrease in bank overdrafts (18) (33) (28)
Increase (decrease) in commercial
Paper and other short-term notes 656 308 (94)
Senior deferrable notes 863 -- --
Common stock repurchased (388) (557) (13)
Proceeds from option plan exercises 116 9 31
-30-
Cash dividends paid (170) (181) (184)
- --------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities 1,069 (758) (581)
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 20 (3) (2)
Balance at beginning of year 5 8 10
- --------------------------------------------------------------------------------------------------------------
Balance at end of year $ 25 $ 5 $ 8
==============================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
Georgia-Pacific Corporation and Subsidiaries
January 1, December 31
In millions, except shares and per share amounts 2000 1998
================================================================================================================================
Assets
Current assets
Cash $ 25 $ 5
- -----------------------------------------------------------------------------------------------------------------------------
Receivables, less allowances of $25 and $25, respectively 2,298 1,233
- -----------------------------------------------------------------------------------------------------------------------------
Inventories
Raw materials 453 418
Finished goods 1,367 760
Supplies 344 311
LIFO reserve (154) (209)
- -----------------------------------------------------------------------------------------------------------------------------
Total inventories 2,010 1,280
- -----------------------------------------------------------------------------------------------------------------------------
Deferred income tax assets 139 61
- -----------------------------------------------------------------------------------------------------------------------------
Other current assets 87 66
- -----------------------------------------------------------------------------------------------------------------------------
Total current assets 4,559 2,645
- -----------------------------------------------------------------------------------------------------------------------------
Timber and timberlands 1,189 1,210
- -----------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment
Land and improvements 498 428
Buildings 1,634 1,336
Machinery and equipment 13,343 12,374
Construction in progress 403 315
- -----------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost 15,878 14,453
Accumulated depreciation (8,799) (8,204)
-31-
- -----------------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment, net 7,079 6,249
- -----------------------------------------------------------------------------------------------------------------------------
Goodwill, net 2,697 1,677
- -----------------------------------------------------------------------------------------------------------------------------
Other assets 1,373 919
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $ 16,897 $ 12,700
================================================================================================================================
January 1, December 31,
In millions, except per shares and per share amounts 2000 1998
======================================================================================================================
Liabilities and shareholders' equity
Current liabilities
Bank overdrafts, net $ 297 $195
Commercial paper and other short-term notes 2,067 1,209
Current portion of long-term debt 39 22
Accounts payable 891 556
Accrued compensation 334 247
Other current liabilities 563 419
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 4,191 2,648
- -----------------------------------------------------------------------------------------------------------------------
Long-term debt, excluding current portion 4,621 4,125
- -----------------------------------------------------------------------------------------------------------------------
Senior deferrable notes 863 -
- -----------------------------------------------------------------------------------------------------------------------
Other long-term liabilities 1,811 1,572
- -----------------------------------------------------------------------------------------------------------------------
Deferred income tax liabilities 1,536 1,231
- -----------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Common stock 155 150
Georgia-Pacific Group, par value $0.80; 400,000,000 shares authorized;
191,983,000 and 186,564,000 shares issued
at January 1, 2000 and December 31, 1998, respectively
The Timber Company, par value $0.80; 250,000,000 shares authorized;
93,904,000 and 92,785,000 shares issued
at January 1,2000 and December 31, 1998, respectively
Treasury stock, at cost (880) (492)
19,776,000 shares of Georgia-Pacific Group common stock and
13,524,000 shares of The Timber Company common stock at
January 1, 2000 and December 31,1998, respectively
Additional paid-in capital 1,510 1,331
-32-
Retained earnings 3,124 2,178
Long-term incentive plan deferred compensation (2) -
Accumulated other comprehensive income (32) (43)
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 3,875 3,124
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $16,897 $12,700
=======================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Georgia-Pacific Corporation and Subsidiaries
Year Ended
----------------------------------
January 1, December 31,
In millions, except shares and per share amounts 2000 1998 1997
==============================================================================================================
Common stock
Beginning balance $ 150 $ 148 $ 1464
Common stock issued:
Stock option plans and directors plan 3 -- --
Employee stock purchase plans 2 -- 2
Common stock issued for acquisition -- 2 --
- --------------------------------------------------------------------------------------------------------------
Ending balance 155 150 148
- --------------------------------------------------------------------------------------------------------------
Treasury stock
Beginning balance (492) -- --
Common stock repurchased (388) (492) --
- --------------------------------------------------------------------------------------------------------------
Ending balance (880) (492) --
- --------------------------------------------------------------------------------------------------------------
Additional paid-in capital
Beginning balance 1,331 1,274 1,203
Common stock issued:
Stock option plans and directors plan 155 20 35
Employee stock purchase plans 53 -- 56
Long-term incentive plan -- (1) 3
Common stock repurchased -- (56) (22)
Common stock issued for acquisition -- 93 --
Stock issuance costs (29) -- --
- --------------------------------------------------------------------------------------------------------------
Ending balance 1,510 1,331 1,275
- --------------------------------------------------------------------------------------------------------------
Retained Earnings
Beginning balance 2,178 2,085 2,200
-33-
Net income 1,116 274 69
Cash dividends declared (Georgia- Pacific Group, $0.50,
per common share for each of the three years presented;
The Timber Company, $1.00 per common share
for each of the three years presented) (170) (181) (184)
- --------------------------------------------------------------------------------------------------------------
Ending balance 3,124 2,178 2,085
- --------------------------------------------------------------------------------------------------------------
Long-term incentive plan deferred compensation
Beginning balance -- (5) (11)
Common stock issued under long-term incentive plan (2) 5 6
- --------------------------------------------------------------------------------------------------------------
Ending balance (2) -- (5)
- --------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income
Beginning balance (43) (33) (28)
Activity, net of taxes 11 (10) (5)
- --------------------------------------------------------------------------------------------------------------
Ending balance (32) (43) (33)
- --------------------------------------------------------------------------------------------------------------
Total shareholders' equity $ 3,875 $ 3,124 $ 3,470
==============================================================================================================
Georgia-Pacific Corporation common stock
Shares issued and outstanding :
Beginning balance
Common stock issued: 91,396
Stock option plans and directors plan 473
Employee stock purchase plans 763
Long-term incentive plan (25)
Other --
Recapitalization (December 17, 1997) (92,607)
- --------------------------------------------------------------------------------------------------------------
Ending balance --
==============================================================================================================
Georgia-Pacific Group common stock shares Issued and outstanding:
Beginning balance, common stock issued 186,564 184,498 --
Recapitalization (December 17, 1997) -- -- 185,214
Common stock issued:
Stock option plans and directors plan 3,982 278 --
Employee stock purchase plans 1,397 18 --
Long-term incentive plan 40 338 --
Common stock issued for acquisition -- 3,280 --
Common stock repurchased and retired -- (1,848) (716)
- --------------------------------------------------------------------------------------------------------------
Balance, common stock issued 191,983 186,564 184,498
Common stock repurchased and held in treasury (19,776) (13,524) --
- --------------------------------------------------------------------------------------------------------------
Balance, common stock outstanding 172,207 173,040 184,498
==============================================================================================================
-34-
The Timber Company common stock shares
issued and outstanding :
Beginning balance, common stock issued 92,785 92,607 --
Recapitalization (December 17, 1997) -- -- 92,607
Common stock issued:
Stock option plans and directors plan 421 174 --
Employee stock purchase plans 698 8 --
Long-term incentive plan -- (4) --
- --------------------------------------------------------------------------------------------------------------
Balance, common stock issued 93,904 92,785 92,607
Common stock repurchased and held in treasury (11,053) (5,704) --
- --------------------------------------------------------------------------------------------------------------
Balance, common stock outstanding 82,851 87,081 92,607
==============================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Georgia-Pacific Corporation and Subsidiaries
Year Ended
-----------------------------------
January 1, December 31,
In millions 2000 1998 1997
==============================================================================================
Net income $ 1,116 274 $ 69
Other comprehensive income (loss), before taxes
Foreign currency translation adjustments 11 (14) (11)
Minimum pension liability adjustment 7 (3) 3
Income tax (expense) benefit related to
items of other comprehensive income (7) 7 3
- -----------------------------------------------------------------------------------------------
Comprehensive income $ 1,127 $ 264 $ 64
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTE. 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Georgia-Pacific
Corporation and subsidiaries. All significant intercompany balances and
transactions are eliminated in consolidation.
-35-
BASIS OF PRESENTATION The Corporation, a Georgia corporation, is broadly engaged
in six business operations: the manufacture of building products (including
plywood, oriented strand board, various industrial wood products, and softwood
and hardwood lumber as well as certain nonwood products including gypsum board,
chemicals and other products); the distribution of building products
manufactured by the Corporation or purchased from others; the manufacture of
containerboard and packaging (including linerboard, medium, kraft and corrugated
packaging); the manufacture of pulp and paper (including communication papers,
market pulp, bleached board and tissue); the distribution of paper products and
supplies manufactured by the Corporation or purchased from others; and the
growing of timber on the approximately 4.7 million acres of timberlands that the
Corporation owns or leases. In 1999, these timberlands supplied approximately
19% of the overall timber requirements of the Corporation's manufacturing
facilities.
On December 16, 1997, shareholders of the Corporation approved the creation
of two classes of common stock intended to reflect separately the performance of
the Corporation's manufacturing and timber businesses (the Letter Stock
Recapitalization). The Corporation's Articles of Incorporation were amended and
restated to (i) create a new class of stock designated as Georgia-Pacific
Corporation -Timber Group common stock, $0.80 par value per share (The Timber
Company stock), consisting of 250 million authorized shares; (ii) redesignate
each authorized share of the Corporation's common stock, $0.80 par value per
share (the Existing Common Stock) as, and convert each share into, one share of
Georgia-Pacific Corporation - Georgia-Pacific Group common stock (now two shares
of Georgia-Pacific Group common stock after giving effect to the May 14, 1999
two-for-one stock split), $0.80 par value per share (Georgia-Pacific Group
stock); (iii) increase the number of shares of Georgia-Pacific Group stock
authorized for issuance from 150 million shares to 400 million shares; and (iv)
authorize the distribution of one share of The Timber Company stock for each
outstanding share of Georgia-Pacific Group stock.
The Corporation's manufacturing and timber businesses are referred to
hereinafter as the "Georgia-Pacific Group" and "The Timber Company,"
respectively, or collectively as the "groups."
The Georgia-Pacific Group is a manufacturer and distributor of building
products as well as a producer and distributor of pulp and paper products. The
Georgia-Pacific Group includes a procurement function that is responsible for
purchasing timber and wood fiber for all the Georgia-Pacific Group's
manufacturing facilities. The Timber Company is engaged primarily in the growing
and selling of timber.
The Corporation has separately presented financial statements of the groups
at substantially the same level of detail as those of the Corporation to allow
investors to properly evaluate the financial condition and results of operations
of each business. It is the Corporation's expectation that investors will use
the groups' combined financial information in conjunction with the Corporation's
consolidated financial information to assist them in making informed financial
decisions relative to the acquisition or disposition of shares of each class of
stock.
The financial statements of the groups comprise all of the accounts
included in the corresponding consolidated financial statements of the
Corporation. The separate financial statements of the Georgia-Pacific Group and
The Timber Company have been prepared on a basis that management believes to be
reasonable and appropriate and include (i) the historical balance sheets,
results of operations and cash flows for each of the groups, with all
significant
-36-
intragroup transactions and balances eliminated; (ii) in the case of The Timber
Company's financial statements, assets and liabilities of the Corporation and
related transactions identified with The Timber Company, including allocated
portions of the Corporation's debt and general and administrative expense (G&A);
and (iii) in the case of the Georgia-Pacific Group's financial statements, all
other assets and liabilities and related transactions of the Corporation,
including allocated portions of the Corporation's debt and G&A. Intergroup
timber sales between the Georgia-Pacific Group and The Timber Company have not
been eliminated on either group's financial statements.
Notwithstanding the allocation of assets and liabilities (including
contingent liabilities) and shareholders' equity between the Georgia-Pacific
Group and The Timber Company for the purpose of preparing the respective
financial statements of each group, holders of Georgia-Pacific Group stock and
The Timber Company stock are shareholders of the Corporation and will continue
to be subject to all the risks associated with an investment in the Corporation
and all of its businesses, assets and liabilities. The allocation of assets and
liabilities and change in the equity structure of the Corporation resulting from
the Letter Stock Recapitalization did not result in a transfer or spin-off of
any assets or liabilities of the Corporation, or otherwise affect ownership of
any assets or responsibility for the liabilities of the Corporation or any of
its subsidiaries. As a result, the Letter Stock Recapitalization does not affect
the rights of holders of the Corporation's or any of its subsidiaries' debt.
Holders of Georgia-Pacific Group stock and The Timber Company stock have
only the rights customarily held by common shareholders of the Corporation and
do not have any rights related to their corresponding group except as set forth
in provisions relating to dividend and liquidation rights and requirements for a
mandatory dividend, redemption or conversion upon the disposition of assets of
their corresponding group, or have any right to vote on matters as a separate
voting group other than in limited circumstances as provided under Georgia law
or by stock exchange rules. The relative voting power of Georgia-Pacific Group
stock and The Timber Company stock will fluctuate from time to time, with each
share of Georgia-Pacific Group stock having one vote and each share of The
Timber Company stock having a number of votes based upon the ratio, over a
specified period prior to any shareholder vote, of the time-weighted average
market values of one share of The Timber Company stock and of one share of
Georgia-Pacific Group stock. This formula is intended to give each class of
common stock a number of votes proportionate to its aggregate market
capitalization at the time of any vote. Accordingly, changes in the market value
of Georgia-Pacific Group stock and The Timber Company stock will affect their
relative voting rights. As of January 1, 2000, the holders of Georgia-Pacific
Group stock had a substantial majority of the voting power of the Corporation.
Financial effects arising from either group that affect the Corporation's
results of operations or financial condition could, if significant, affect the
results of operations or financial condition of the other group and the market
price of the common stock relating to the other group. Any net losses of the
Georgia-Pacific Group or The Timber Company and dividends or distributions on,
or repurchases of, Georgia-Pacific Group stock or The Timber Company stock will
reduce the assets of the Corporation legally available for payment of dividends
on both Georgia-Pacific Group stock and The Timber Company stock.
The Board may, in its sole discretion, determine to convert shares of the
class of common stock related to one group into the class of common stock
related to the other group at any time at a 15% premium, or at a 10% premium in
the case of certain dispositions of all or substantially all of the properties
or assets of the group whose stock is being converted. Any conversion at any
premium would dilute the interests in the Corporation of the holders of the
class of common
-37-
stock being issued in the conversion. In addition, any such conversion of a
class of common stock into another class of common stock would preclude holders
of both classes of common stock from retaining their investment in a security
that is intended to reflect separately the performance of the relevant group.
The management and accounting policies applicable to the preparation of the
financial statements of the Georgia-Pacific Group and The Timber Company may be
modified or rescinded, or additional policies may be adopted, at the sole
discretion of the Board at any time without approval of the shareholders.
The groups' combined financial statements reflect the application of the
management and allocation policies adopted by the Board to various corporate
activities, as described below. The groups' combined financial statements should
be read in conjunction with the Corporation's consolidated financial statements.
FINANCIAL ACTIVITIES At June 30, 1997, $1.0 billion of the Corporation's total
debt was allocated to The Timber Company for financial statement purposes, and
the balance of the Corporation's total debt was allocated to the Georgia-Pacific
Group. The Corporation's debt was allocated between the groups based upon a
number of factors including expected future cash flows, volatility of earnings,
and the ability to pay debt service and dividends. In addition, the Corporation
considered certain measures of creditworthiness, such as coverage ratios and
various tests of liquidity, as a means of ensuring that each group could
continue to pay debt service during a business downcycle. Management believes
that such allocation is equitable and reasonable.
At January 1, 2000, $970 million of the Corporation's debt was allocated to
The Timber Company and $6,054 million was allocated to the Georgia-Pacific
Group. The senior deferrable notes and related interest expense are allocated
specifically to the Georgia-Pacific Group (see Note 6 of the Notes to the
Consolidated Financial Statements). The Corporation has not allocated any other
debt securities or instruments to either group. The debt of each group bears
interest at a rate equal to the weighted average interest rate of all the
Corporation's debt calculated on a quarterly basis. This weighted average
interest rate excluded the interest on the senior deferrable notes. Management
believes that this method of allocation of the cost of debt is equitable and
provides a reasonable estimate of the cost attributable to the groups.
Each group's debt increases or decreases by the amount of any net cash
generated by, or required to fund, the group's operating activities, investing
activities, dividend payments, share repurchases and other financing activities.
Interest is charged to each group in proportion to the respective amount of each
group's debt. Changes in the cost of the Corporation's debt are reflected in
adjustments to the weighted average interest cost of such debt. Dividend costs
with respect to any preferred stock issued by the Corporation are charged in a
similar manner.
ALLOCATION OF SHARED SERVICES A portion of the Corporation's shared G&A (such as
executive management, human resources, legal, accounting and auditing, tax,
treasury, strategic planning and information systems support) has been allocated
to each group based upon identification of such services specifically used by
each group. Where determinations based on specific usage alone have been
impracticable, other methods and criteria were used that management believes are
equitable and provide a reasonable estimate of the cost attributable to each
group. These methods consisted of allocating costs based on (i) number of
employees of each group, (ii) percentage of office space of each group and (iii)
estimated percentage of staff time allocable to each group. The total of these
allocations was $251 million, $282 million and
-38-
$346 million in 1999, 1998 and 1997, respectively. It is not practicable to
provide a detailed estimate of the expenses that would be recognized if either
group were a separate legal entity.
ALLOCATION OF EMPLOYEE BENEFITS A portion of the Corporation's employee benefit
costs, including pension and postretirement health care and life insurance
benefits, has been allocated to each group. The pension cost related to their
participation in the Corporation's noncontributory defined benefit pension plan,
and other employee benefit costs related to their participation in the
Corporation's postretirement health care and life insurance benefit plans, are
actuarially determined based on the number of their employees and an allocable
share of the plan assets and are calculated in accordance with SFAS No. 87,
"Employers' Accounting for Pensions," and SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," respectively. Management
believes such method of allocation is equitable and provides a reasonable
estimate of the costs attributable to each group.
Since plan assets are not segregated into separate accounts or restricted
to providing benefits to employees of either group, assets of the Corporation's
employee benefit plans may be used to provide benefits to employees of both the
Georgia-Pacific Group and The Timber Company. Plan assets have been allocated to
the groups based on the percentage of their projected benefit obligation to the
plans' total projected benefit obligations.
ALLOCATION OF FEDERAL AND STATE INCOME TAXES The federal income taxes of the
Corporation and the subsidiaries that own assets allocated between the groups
are determined on a consolidated basis. Consolidated federal income tax
provisions and related tax payments or refunds are allocated between the groups
based principally on the taxable income and tax credits directly attributable to
each group. Such allocations reflect each group's contribution (positive or
negative) to the Corporation's consolidated federal taxable income and the
consolidated federal tax liability and tax credit position. Tax benefits that
cannot be used by the group generating those benefits, but can be used on a
consolidated basis, are credited to the group that generated such benefits. Had
the groups filed separate tax returns, the provision for income taxes and net
income for each group would not have significantly differed from the amounts
reported on the groups' statements of income for the years ended January 1, 2000
and December 31, 1998 and 1997. However, the amounts of current and deferred
taxes and taxes payable or refundable allocated to each group on the historical
financial statements may differ from those that would have been allocated had
the groups filed separate income tax returns.
Depending on the tax laws of the respective jurisdictions, state and local
income taxes are calculated on either a consolidated or combined basis or on a
separate corporation basis. State income tax provisions and related tax payments
or refunds determined on a consolidated or combined basis are allocated between
the groups based on their respective contributions to such consolidated or
combined state taxable incomes. State and local income tax provisions and
related tax payments that are determined on a separate corporation basis are
allocated between the groups in a manner designed to reflect the respective
contributions of the groups to the Corporation's separate state or local taxable
income.
DIVIDENDS For purposes of the historical financial statements of the
Georgia-Pacific Group and The Timber Company, for periods prior to 1998, all
dividends declared and paid by the Corporation were evenly allocated between the
groups. Management believes that such method of allocation is equitable and
provides a reasonable estimate of the dividends that would have been declared
and paid in respect of each class of common stock. The amount of earnings
available for payment of dividends on Georgia-Pacific Group stock and on The
Timber Company stock (i.e., the available dividend amounts) on any date is the
amount in excess of the minimum
-39-
amount necessary for the particular group to be able to pay its debts as they
become due in the usual course of business. Future dividends will not bear a
direct relationship to earnings and retained earnings as expressed on each
group's combined financial statements in accordance with generally accepted
accounting principles. Accordingly, a mathematical calculation of the available
dividend amount for either group cannot be made.
STOCK SPLIT On May 4, 1999, the Board declared a two-for-one split of the
Georgia-Pacific Group's stock in the form of a special dividend to shareholders
of record on May 14, 1999. The special dividend was paid as one share of
Georgia-Pacific Group stock for each such share outstanding on June 3, 1999. A
total of 95,126,911 additional shares were issued in conjunction with the stock
split. The Georgia-Pacific Group's par value of $0.80 remained unchanged. As a
result, $76 million of shareholders' equity was reclassified from "Additional
paid-in capital" to "Common stock." All historical share and per share amounts
have been restated to reflect retroactively the stock split.
REVENUE RECOGNITION The Corporation recognizes revenue when title to the goods
sold passes to the buyer, which is generally at the time of shipment. Timber
sales are recognized when legal ownership or the risk of loss passes to the
purchaser and the quantity sold is determinable.
INCOME PER SHARE Basic earnings per share are 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, and pursuant to the terms of the PEPS
Units. 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. Income per share for each group is reflected on a pro forma basis for
1997 as if the Letter Stock Recapitalization had occurred on January 1, 1997.
Amounts are computed for each class of common stock based on the separate
earnings attributed to each of the respective businesses.
EARNINGS PER SHARE
Georgia-Pacific Corporation and Subsidiaries
Year ended
- ------------------------------------------------------------------------------------------------------------------------------------
In millions, except shares and per January 1, December 31,
share amounts 2000 2000 1998 1998
====================================================================================================================================
Georgia- The Georgia- The
Pacific Timber Pacific Timber
Group Company Group Company
- ------------------------------------------------------------------------------------------------------------------------------------
Basic and diluted income (loss) available
to shareholders (numerator):
Income (loss) before extraordinary
item and accounting change $ 716 $ 400 $ 111 $ 178
Extraordinary item, net of taxes -- -- (13) (2)
Accounting change, net of taxes -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
-40-
Net income (loss) $ 716 $ 400 $ 98 $ 176
- ------------------------------------------------------------------------------------------------------------------------------------
Shares (denominator):
Average shares outstanding 171,807,884 84,138,673 179,765,172 90,313,022
Dilutive securities:
Options 3,677,295* 426,423** 1,249,430*** 492,549****
Employee stock purchase plans 438,630 40,508 71,620 7,575
- ------------------------------------------------------------------------------------------------------------------------------------
Total assuming conversion 175,923,809 84,605,604 181,086,222 90,813,146
- ------------------------------------------------------------------------------------------------------------------------------------
Per share amounts:
Basic
Income (loss) before extraordinary
items and accounting change $ 4.17 $ 4.75 $ 0.62 $ 1.97
Extraordinary item, net of taxes -- -- (0.07) (0.02)
Accounting change, net of taxes -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 4.17 $ 4.75 $ 0.55 $ 1.95
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted
Income (loss) before extraordinary
Item and accounting change $ 4.07 $ 4.73 $ 0.61 $ 1.96
Extraordinary item, net of taxes -- -- (0.07) (0.02)
Accounting change, net of taxes -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 4.07 $ 4.73 $ 0.54 $ 1.94
====================================================================================================================================
Year ended
----------------------------------------
December 31,
In millions, except shares and per share amounts 1997 1997
Georgia- The
Pacific Timber
Group Company
Basic and diluted income (loss) available
To shareholders (numerator):
Income (loss) before extraordinary
Item and accounting change $ (86) $ 215
Extraordinary item, net of taxes -- --
Accounting change, net of taxes (60) --
- --------------------------------------------------------------------------------------------------------
Net income (loss) $ (146) $ 215
========================================================================================================
Shares (denominator):
Average shares outstanding 182,860,880 91,444,588
Dilutive securities:
Options -# 677,784*****
Employee stock purchase plans -# 4,047
- --------------------------------------------------------------------------------------------------------
Total assuming conversion 182,860,880 92,126,419
========================================================================================================
Per share amounts:
Basic
-41-
Income (loss) before extraordinary
items and accounting change $ (0.47) $ 2.35
Extraordinary items, net of taxes -- --
Accounting change, net of taxes (0.33) --
- --------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.80) $ 2.35
========================================================================================================
Income (loss) before extraordinary
Items and accounting change $ (0.47) $ 2.33
Extraordinary item, net of taxes -- --
Accounting change, net of taxes (0.33) --
- --------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.80) $ 2.33
========================================================================================================
* Options to purchase 176,490 shares of Georgia-Pacific Group stock at prices
ranging from $43.58 to $91.58 per share were outstanding during 1999, as were
PEPS Units to purchase Georgia-Pacific Group stock. However, these were not
included in the computation of diluted earnings per share because the options'
exercise price and the PEPS Unit purchase contract price were greater than the
average market price of the common shares.
** Options to purchase 1,004,000 shares of The Timber Company stock at $25.13
per share were outstanding during 1999 but were not included in the computation
of diluted earnings per share because the options' exercise price was greater
than the average market price of the common shares.
*** Options to purchase 23,856 shares of Georgia-Pacific Group stock at $30.25
per share were outstanding during 1998 but were not included in the computation
of diluted earnings per share because the options' exercise price was greater
than the average market price of the common shares.
**** Options to purchase 1,951,130 shares of The Timber Company stock at prices
ranging from $23.21 to $25.13 per share were outstanding during 1998 but were
not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the common
shares.
# Options to purchase 10,710,954 shares of Georgia-Pacific Group stock at prices
ranging from $21.00 to $28.65 per share were outstanding during 1997, as were
shares subscribed under the 1997 Employee Stock Purchase Plan. However, due to
operating losses, these shares are antidilutive and are not included in the
calculation of diluted earnings per share.
***** Options to purchase 1,010,600 shares of The Timber Company stock at $25.13
per share were issued on December 17, 1997 but were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares.
INVENTORY VALUATION Inventories are valued at the lower of year-to-date average
cost or market and include the costs of materials, labor and manufacturing
overhead. The last-in, first-out (LIFO) dollar value pool method was used to
determine the cost of approximately 65% and 59% of inventories at January 1,
2000 and December 31, 1998, respectively.
TIMBER AND TIMBERLANDS The Corporation capitalizes timber and timberland
purchases and reforestation costs. The cost of timber harvested is based on the
volume of timber harvested, the capitalized cost and the total timber volume
estimated to be available over the growth cycle. Timber carrying costs are
expensed as incurred.
Gains or losses on sales of timberlands are reflected as a reduction of
"Cost of sales" on the
-42-
accompanying statements of income, with the exception of major divestitures,
which are reflected as "Other income."
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at
cost. Lease obligations for which the Corporation assumes or retains
substantially all the property rights and risks of ownership are capitalized.
Replacements of major units of property are capitalized, and the replaced
properties are retired. Replacements of minor components of property, and repair
and maintenance costs, are charged to expense as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Useful lives are 25 years for land
improvements, 20 to 45 years for buildings, and 3 to 20 years for machinery and
equipment. Upon retirement or disposition of assets, cost and accumulated
depreciation are removed from the related accounts and any gain or loss is
included in income.
The Corporation capitalizes incremental costs that are directly associated
with the development of software for internal use. Amounts are amortized over
five years beginning when the assets are placed in service. Capitalized costs
were $66 million at January 1, 2000 and $31 million at December 31, 1998.
Amounts are included as property, plant and equipment on the accompanying
balance sheets.
In 1997, the Corporation adopted EITF 97-13, "Accounting for Costs Incurred
in Connection with a Consulting Contract or an Internal Project That Combines
Business Process Reengineering and Information Technology Transformation," which
resulted in a one-time, after-tax charge of $60 million.
The Corporation capitalizes interest on projects when construction takes
considerable time and entails major expenditures. Such interest is charged to
the property, plant and equipment accounts and amortized over the approximate
lives of the related assets. Interest capitalized, expensed and paid was as
follows:
Year ended
---------------------------------------------
January 1, December 31,
In millions 2000 1998 1997
====================================================================
Total interest costs $ 501 $ 452 $ 476
Interest capitalized (6) (9) (11)
- --------------------------------------------------------------------
Interest expense $ 495 $ 443 $ 465
====================================================================
Interest paid $ 473 $ 468 $ 475
====================================================================
LANDFILLS AND LAGOONS The Corporation accrues for landfill closure costs over
the periods that benefit from the use of the landfill and accrues for lagoon
clean-out costs over the useful period between clean-outs.
GOODWILL The Corporation amortizes costs in excess of fair value of net assets
of businesses acquired using the straight-line method over a period not to
exceed 40 years. The Corporation reviews the recorded value of its goodwill
annually, or sooner if events or changes in circumstances indicate that the
carrying amount may exceed fair value. Recoverability is then
-43-
determined by comparing the undiscounted net cash flows of the assets to which
the goodwill applies to the net book value, including goodwill, of those assets.
Amortization expense was $69 million, $62 million and $59 million in 1999,
1998 and 1997, respectively. Accumulated amortization at January 1, 2000 and
December 31, 1998 was $615 million and $546 million, respectively.
ENVIRONMENTAL MATTERS The Corporation recognizes a liability for environmental
remediation costs when it believes it is probable a liability has been incurred
and the amount can be reasonably estimated. The liabilities are developed based
on currently available information and reflect the participation of other
potentially responsible parties, depending on the parties' financial condition
and probable contribution. The accruals are recorded at undiscounted amounts and
are reflected as other liabilities on the accompanying balance sheets.
Environmental costs are generally capitalized when the costs improve the
condition of the property or the costs prevent or mitigate future contamination.
All other costs are expensed.
INVESTMENT IN REAL ESTATE HELD FOR DEVELOPMENT AND SALE The Corporation divested
its real estate development properties located in South Carolina and Florida in
the first quarter of 1998. As a result, the Corporation is no longer engaged in
real estate development activities. Real estate held for development and sale
was stated at the lower of cost or net realizable value, and included direct
costs of land and land development and indirect costs, including amenities, less
amounts charged to cost of sales. These costs were allocated to individual lots
or acreage sold based on relative sales value. Direct costs were allocated on a
specific neighborhood basis, while indirect costs were allocated over the
projects. The Corporation recognized sales of retail homesites developed when
all conditions, as set forth in SFAS No. 66, "Accounting for Sales of Real
Estate," had occurred.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements as well as reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
ACCOUNTING STANDARDS CHANGE In July 1999, the FASB issued SFAS No. 137,
providing for a one-year delay of the effective date of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities on its balance sheet and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation. The
Corporation will be required to adopt SFAS No. 133 in 2001. Management is
evaluating the effect of this statement on the Corporation's derivative
instruments, which are primarily interest rate swaps, foreign currency forward
contracts, commodity futures and long-term purchase commitments. The impact of
such adjustments to fair value is not expected to be material to the
Corporation's consolidated financial position.
CHANGE IN FISCAL YEAR On or about April 22, 1999, the Corporation determined to
change its fiscal year from December 31 to end on the Saturday closest to
December 31. Additionally, the Corporation reports its quarterly periods on a
13-week basis ending on a Saturday. The impact of one additional day on the year
ended January 1, 2000 was not material. There will be
-44-
no transition period on which to report.
RECLASSIFICATIONS Certain 1998 and 1997 amounts have been reclassified to
conform with the 1999 presentation. Beginning in 1999 and in connection with
the acquisition of Unisource (see Note 3 of the Notes to Consolidated Financial
Statements), certain selling and distribution expenses, which had previously
been included in "Net sales," "Cost of sales" and "General and administrative"
expenses, are now presented separately on the consolidated statements of income.
In addition, amortization of goodwill, which had previously been included in
"Cost of sales," is now presented in "Depreciation, amortization and cost of
timber harvested" on the consolidated statements of income.
NOTE 2. OPERATING SEGMENT INFORMATION
The Corporation has six reportable operating segments: building products,
building products distribution, timber, containerboard and packaging, pulp and
paper, and paper distribution.
Manufactured products in the building products segment consist primarily of
wood panels (plywood, oriented strand board, hardboard and particleboard),
lumber, gypsum products and chemicals. The building products distribution
segment sells a wide range of building products manufactured by the Corporation
or purchased from others. These segments of the business are primarily affected
by the level of housing starts; the level of repairs, remodeling and additions;
industrial markets; commercial building activity; the availability and cost of
financing; and changes in industry capacity.
The timber segment consists of The Timber Company and is engaged primarily
in the growing and selling of timber. In addition, the timber segment is engaged
in certain businesses related to ownership and management of timberlands,
including managing the sale of hunting leases, the sale of minerals and mineral
rights, and the sale of easements. The operations of the timber segment are
affected by a number of factors, including prices for timber generally, selling
prices for manufactured wood products, supplies of timber from other wood
sources in the United States and competition for these raw materials, as well as
seasonal factors such as weather.
The containerboard and packaging segment produces linerboard, medium, kraft
and corrugated packaging. The pulp and paper segment produces communication
papers, market pulp, bleached board and tissue. The paper distribution segment
sells and distributes high-quality printing, writing and copying papers and a
broad range of packaging and maintenance supplies, equipment and services.
Markets for these segments are affected primarily by changes in industry
capacity, the level of economic growth in U.S. and export markets, and
fluctuations in currency exchange rates.
The accounting policies of the segments are primarily the same as those
described in the summary of significant accounting policies. The Corporation
evaluates performance based on profit or loss from operations before interest
and income taxes (i.e., operating profit or loss).
The Corporation accounts for intersegment sales and transfers as if the
sales or transfers were to third parties, that is, at current market prices.
The Corporation's reportable segments are strategic business units that
offer different products and services. They are managed separately because each
business has different
-45-
customers and requires different production processes.
The "Other" nonreportable segment includes some miscellaneous businesses,
certain goodwill amortization, unallocated corporate operating expenses, and the
elimination of intersegment sales and related profits.
The Corporation has a large and diverse customer base, which includes some
customers located in foreign countries. No single unaffiliated customer
accounted for more than 10% of total sales in any year during the three years
ended January 1, 2000. Sales to foreign markets in 1999, 1998 and 1997 were 7%,
7% and 8%, respectively. These sales were primarily to customers in Canada,
Europe, Asia and Latin America. Information on operations in U.S. and foreign
markets is as follows:
REVENUES*
Year ended
--------------------------------------------------------------
January 1, December 31,
In millions 2000 1998 1997
====================================================================================================
United States $16,699 $12,411 $12,026
Foreign countries 1,278 931 1,068
- ----------------------------------------------------------------------------------------------------
*Revenues are attributed to countries based on location of customer.
Because a substantial portion of the Corporation's foreign revenues are derived
from the sale of U.S.-produced products abroad, assets located outside the
United States are not material.
Building Containerboard
Building products And
In millions Products distribution Timber Packaging
====================================================================================================================================
Net sales to unaffiliated customers $3,869 $ 4,858 $ 199 $ 2,327
Intersegment sales 2,295 11 327 64
- -----------------------------------------------------------------------------------------------------------------------------------
Total net sales $6,164 $ 4,869 $ 526 $ 2,391
Operating profit (loss) 1,139 63 726 344
Depreciation, amortization, cost of
timber harvested and
goodwill amortization 327 36 42 157
Property, plant and
equipment investments 265 16 2 92
Timber and timberland purchases 150 -- 78 --
Acquisitions 51 -- -- 23
Assets 2,593 1,006 1,521 1,955
-46-
===================================================================================================================================
1998
Net sales to unaffiliated $3,337 $ 4,325 $ 125 $ 2,044
Customers
Intersegment sales 2,455 8 409 60
- -----------------------------------------------------------------------------------------------------------------------------------
Total net sales $5,792 $ 4,333 $ 534 $ 2,104
Operating profit (loss) 603 1 364 106
Depreciation, amortization, cost of
timber harvested and
goodwill amortization 321 45 44 148
Property, plant and
equipment investments 186 12 6 84
Timber and timberland purchases 142 -- 59 --
Acquisitions 19 -- -- 93
Assets 2,505 990 1,174 1,871
===================================================================================================================================
1997
Net sales to unaffiliated customers $3,139 $ 4,398 $ 126 $ 1,765
Intersegment sales 2,406 8 425 52
- -----------------------------------------------------------------------------------------------------------------------------------
Total net sales $5,545 $ 4,406 $ 551 $ 1,817
Operating profit (loss) 490 (171) 437 (6)
Depreciation, amortization, cost of
timber harvested and
goodwill amortization 312 48 48 134
Property, plant and
equipment investments 169 44 2 132
Timber and timberland purchases 131 -- 44 --
Acquisitions -- -- -- --
Assets 2,452 1,179 1,171 1,735
===================================================================================================================================
Pulp and Paper All
In millions Paper distribution Other Consolidated
===================================================================================================================================
1999
Net sales to unaffiliated customers $3,407 $3,331 $ (14)* $17,977
Intersegment sales 484 5 (3,186)** --
- ------------------------------------------------------------------------------------------------------------------------------------
Total net sales $3,891 $3,336 $(3,200) $17,977
Operating profit (loss) 266 78 (300)*** 2,316
Depreciation, cost of
timber harvested and
goodwill amortization 351 26 74 1,013
Property, plant and
equipment investments 262 45 41 723
Timber and timberland purchases -- -- -- 228
Acquisitions 755 829 -- 1,658
-47-
Assets 4,772 2,369 2,731 16,897
====================================================================================================================================
1998
Net sales to unaffiliated customers $3,521 $ -- $ (10)* $13,342
Intersegment sales 33 -- (2,965)** --
- ------------------------------------------------------------------------------------------------------------------------------------
Total net sales $3,554 $ -- $(2,975)*** $13,342
Operating profit (loss) 133 -- (273) 934
Depreciation, cost of
timber harvested and
goodwill amortization 354 -- 85 997
Property, plant and
equipment investments 305 -- 45 638
Timber and timberland purchases -- -- -- 201
Acquisitions -- -- -- 112
Assets 3,808 -- 2,352 12,700
====================================================================================================================================
1997
Net sales to unaffiliated customers $3,675 $ -- $ (9)* $13,094
Intersegment sales 26 -- (2,917)** --
- ------------------------------------------------------------------------------------------------------------------------------------
Total net sales $3,701 $ -- $(2,926) $13,094
Operating profit (loss) 201 -- (251)*** 700
Depreciation, cost of
timber harvested and
goodwill amortization 386 -- 89 1,017
Property, plant and
equipment investments 306 -- 64 717
Timber and timberland purchases -- -- -- 175
Acquisitions -- -- -- --
Assets 3,951 -- 2,462 12,950
====================================================================================================================================
* Represents the elimination of hunting lease income reflected in net sales
for the timber segment and reflected as a reduction to cost of sales on a
consolidated basis. In addition, these amounts include net sales from
miscellaneous businesses.
** Elimination of intersegment sales.
*** Includes some miscellaneous businesses, certain goodwill amortization,
unallocated corporate operating expenses and the elimination of profit on
intersegment sales.
RECONCILIATION OF SEGMENT OPERATING PROFITS TO CONSOLIDATED NET INCOME
Georgia-Pacific Corporation and Subsidiaries
Year Ended
----------------------------------------------------------------
January 1, December 31,
-48-
In millions 2000 1998 1997
====================================================================================================================================
Total operating profits $2,316 $ 934 $ 700
Interest expense 495 443 465
Provision for income taxes 705 202 106
- ------------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary items
and accounting change 1,116 289 129
Extraordinary items, net of taxes -- (15) --
Accounting change, net of taxes -- -- (60)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $1,116 $ 274 $ 69
====================================================================================================================================
NOTE 3. ACQUISITIONS, DIVESTITURES AND UNUSUAL ITEMS
ACQUISISTIONS AND DIVESTITURES. The following acquisitions and divestitures were
completed during 1999, 1998 and 1997.
At the end of the second quarter of 1999, the Corporation, through its
wholly owned subsidiary Atlanta Acquisition Corp., completed a tender offer for
all the outstanding shares of common stock of Unisource, the largest independent
marketer and distributor of printing and imaging paper and supplies in North
America, and acquired 90.7% of the then outstanding shares of Unisource. On July
6, 1999, Atlanta Acquisition Corp. was merged with and into Unisource and, by
virtue of such merger, shares of Unisource that were not tendered to the
Corporation (other than shares held by Unisource and the Corporation and its
subsidiaries) were converted into the right to receive $12.00 per Unisource
share in cash, subject to dissenters' rights. The Corporation is paying for such
untendered shares as they are delivered to the exchange agent for cancellation.
Through January 1, 2000, the Corporation paid approximately $829 million for
such shares. In addition, the Corporation assumed $785 million of Unisource debt
in the acquisition.
Unisource's results of operations were consolidated with those of the
Corporation beginning July 4, 1999. The Corporation has accounted for this
transaction using the purchase method to record a new cost basis for assets
acquired and liabilities assumed. The allocation of the purchase price and
acquisition costs to the assets acquired and liabilities assumed is preliminary
as of January 1, 2000, and is subject to change pending finalization of studies
of fair value and the finalization of management's plans to consolidate or close
additional distribution centers. The difference between the purchase price and
the fair market value of the assets acquired and liabilities assumed was
recorded as goodwill and is being amortized over 40 years. The preliminary
allocation of the purchase price of the acquisition is summarized as follows:
In millions
======================================================
Current assets $ 1,228
Property, plant and equipment 230
Goodwill 27
Liabilities 762
Common stock issued (1,418)
- ------------------------------------------------------
Net cash paid for Unisource $ 829
======================================================
-49-
The following unaudited pro forma financial data has been prepared
assuming that the acquisition of Unisource and related financings were
consummated on January 1, 1998. This pro forma financial data is presented for
informational purposes and is not necessarily indicative of the operating
results that would have occurred had the acquisition been consummated on January
1, 1998, nor does it include adjustments for expected synergies or cost savings.
Accordingly, this pro forma data is not necessarily indicative of future
operations.
Year ended
--------------------------
January 1, December 31,
In millions, except per share amounts 2000 1998
================================================================================
Georgia-Pacific Corporation:
Net sales $ 20,993 $ 20,359
Income before extraordinary items 1,109 33
Net income 1,109 18
Georgia-Pacific Group data:
Income (loss) before extraordinary items 709 (145)
Net income (loss) 709 (158)
Basic income (loss) before
extraordinary items per share 4.12 (0.81)
Diluted income (loss) before
extraordinary items per share 4.03 (0.81)
Basic earnings (loss) per share 4.12 (0.88)
Diluted earnings (loss) per share 4.03 (0.88)
- --------------------------------------------------------------------------------
The Timber Company's results of operations are not impacted by the
Unisource transaction.
The 1998 pro forma financial data includes nonrecurring restructuring and
asset write-down charges of $225 million ($178 million after taxes) taken by
Unisource.
The Corporation has nearly finalized and is in various phases of
implementing plans to restructure existing Unisource activities, including the
consolidation or closure of certain distribution centers, closure of the
Unisource headquarters facility, termination of redundant headcount and the
relocation of certain administrative functions. In connection with the
acquisition of Unisource, the Corporation recorded liabilities totaling
approximately $71 million for employee termination (relating to approximately
1,680 hourly and salaried employees) and relocation costs, and $20 million for
closing costs of 48 facilities. As a result of this program, approximately 580
employees were terminated and 31 facilities were closed or consolidated in 1999.
Finalization of management's plans to consolidate or close additional
distribution centers and changes in implementation plans could result in
additional liabilities recorded as part of the purchase price or charges to
earnings. The following table provides a rollforward of the $91 million reserve
for restructuring from the date of acquisition through January 1, 2000:
Type of Cost
-50-
Balance Balance
July 4, January 1,
In millions 1999 Additions Usage 2000
======================================================================================================================
Employee separation $71 $ -- $(28) $43
Facility closing costs and asset impairments 20 -- (6) 14
- ----------------------------------------------------------------------------------------------------------------------
Total $91 $ -- $(34) $57
======================================================================================================================
In addition, during 1999, the Corporation completed the acquisition of a
packaging plant, four treated lumber facilities, a chemical business and lumber
transportation assets for a total consideration of approximately $74 million in
cash. The results of operations of the packaging plant and treated lumber
facilities were consolidated with those of the Corporation beginning in the
second quarter of 1999. The operating results of the chemical business and
lumber transportation assets were consolidated with those of the Corporation
beginning in the third and fourth quarters, respectively, of 1999. The
Corporation has accounted for these business combinations using the purchase
method to record a new cost basis for assets acquired and liabilities assumed.
Effective October 3, 1999, the Corporation and Chesapeake completed a
previously announced agreement to create Georgia-Pacific Tissue, a joint venture
in which the two companies have combined their away-from-home tissue businesses.
The Corporation contributed substantially all the assets of its commercial
tissue business to the joint venture. The Corporation controls and manages the
joint venture and owns 95% of its equity. Chesapeake contributed the assets of
its Wisconsin Tissue business to the joint venture, for which it received a 5%
equity interest in the joint venture and an initial cash distribution of
approximately $755 million.
The results of the Wisconsin Tissue operations were combined with the
Corporation's commercial tissue business beginning on October 3, 1999, when the
Georgia-Pacific Tissue joint venture was formed. The Corporation has accounted
for this transaction using the purchase method to record a new cost basis for
assets acquired and liabilities assumed. The allocation of the purchase price
and acquisition costs to the assets acquired and liabilities assumed is
preliminary as of January 1, 2000, and is subject to change pending the
finalization of management's plans for manufacturing and distribution
activities. The difference between the purchase price and the fair market value
of the assets acquired and liabilities assumed was recorded as goodwill and is
being amortized over 40 years. The preliminary allocation of the purchase price
of the acquisition is summarized as follows:
In millions
=============================================================
Current assets $ 97
Property, plant and equipment 632
Goodwill 290
Liabilities (264)
- -------------------------------------------------------------
Net cash paid for Wisconsin Tissue assets $ 755
=============================================================
-51-
The Corporation has completed an organizational restructuring of the sales,
marketing, administrative and manufacturing support activities for its
away-from-home tissue business, which resulted in the elimination of
approximately 300 salaried and hourly positions. The Corporation recorded
liabilities totaling approximately $7 million for termination and relocation
costs of Wisconsin Tissue employees. This $7 million liability was included as
part of the Wisconsin Tissue assets purchase price. In addition, the Corporation
recorded liabilities totaling approximately $2 million for the termination and
relocation of employees of the Corporation. This $2 million liability was
charged to earnings in 1999. As a result of these programs, approximately 100
employees were terminated and approximately $2 million of the termination and
relocation reserves was used in 1999. The Corporation has not yet finalized its
plans for manufacturing and distribution activities. Finalization of these plans
may result in additional liabilities recorded as part of the purchase price or
charges to earnings.
On June 30, 1998, the Corporation completed its acquisition of CeCorr, a
leading independent producer of corrugated sheets in the United States. On June
30, 1998, the Corporation paid approximately $93 million in cash (net of $2
million of cash acquired) and issued approximately 3.2 million shares of
Georgia-Pacific Group stock valued at approximately $28.94 per share for all the
outstanding shares of CeCorr. In addition, the Corporation assumed approximately
$92 million of CeCorr's debt, of which $34 million was owed to the Corporation
($58 million net debt assumed). On July 2, 1998, a former owner of CeCorr
exercised his right to resell to the Corporation approximately 2.2 million
shares of Georgia-Pacific Group stock issued in the transaction. CeCorr's
results of operations were consolidated with those of the Corporation beginning
July 1, 1998. The Corporation accounted for the CeCorr acquisition using the
purchase method to record a new cost basis for assets acquired and liabilities
assumed.
During the second quarter of 1999, the Corporation sold approximately
390,000 acres of timberlands in New Brunswick, Canada and approximately 440,000
acres of timberlands in Maine for approximately $92 million and recognized a
pretax gain of $84 million ($50 million after taxes). The amount is reflected in
"Other income" on the accompanying statements of income. In conjunction with the
sale of its Maine timberlands, the Corporation received notes from the purchaser
in the amount of $51 million. In November 1999, the Corporation monetized these
notes through the issuance of notes payable in a private placement. The
Corporation will use proceeds from the notes received from the purchaser to fund
payments required for the notes payable. The notes receivable are classified as
"Other assets" and the notes payable are classified as "Other long-term
liabilities" on the accompanying January 1, 2000 balance sheets.
In December 1999, the Corporation sold approximately 194,000 acres of
redwood and Douglas fir timberlands in Northern California for a purchase price
of approximately $397 million and recognized a pretax gain of $271 million ($165
million after taxes). The amount is reflected in "Other income" on the
accompanying statements of income. In conjunction with the sale of its
California timberlands, the Corporation received notes from the purchaser with
an estimated fair value of $350 million. These notes are fully secured by a
standby letter of credit with an unaffiliated third-party financial institution.
The Corporation plans to monetize these notes through the issuance of notes
payable in the first half of 2000. These notes are included in "Other assets" on
the accompanying balance sheets at January 1, 2000.
-52-
In March 1998, the Corporation sold its real estate development properties
located in South Carolina and Florida for $18 million in cash, resulting in a
pretax gain of approximately $1 million.
In December 1998, the Corporation completed the sale of approximately
61,000 acres of timberlands located in West Virginia. This sale resulted in a
pretax gain of $24 million ($14 million after taxes). The amount is reflected in
"Other income" on the accompanying statements of income.
In March 1997, the Corporation sold its Martell, California, operations for
$308 million. Assets included in this transaction were 127,000 acres of
timberlands allocated to The Timber Company, and a sawmill and a particleboard
plant allocated to the Georgia-Pacific Group. In conjunction with the sale of
its Martell operations, the Corporation received notes from the purchaser in the
amount of $270 million related to the timberlands. In April 1997, the
Corporation monetized the notes through the issuance of notes payable in a
private placement. The notes receivable are classified as "Other assets" and the
notes payable are classified as "Other long-term liabilities" on the
accompanying balance sheets. The Corporation recognized a pretax gain of
approximately $128 million on the sale ($80 million after taxes). The amount is
reflected in "Other income" on the accompanying statements of income.
BUILDING PRODUCTS DISTRIBUTION SEGMENT RESTRUCTURING In December 1997, the
Corporation began a restructuring plan that included disposing of its millwork
fabrication facilities nationwide as well as several building products
distribution centers located in the Western United States. A reserve of $70
million was recorded in the 1997 fourth quarter for anticipated liabilities and
write-down of assets associated with the plan. The execution of the plan
included termination of approximately 1,770 employees in 1998. The employees
included hourly and salaried personnel employed in the identified millwork
fabrication facilities and distribution centers, and associated sales and
administrative personnel. The Corporation also accrued related pension,
outplacement and retention expenses for these employees. The total amount of the
1997 charge related to employee severance was $15 million and is reflected in
"Cost of sales" and "General and administrative" expenses on the accompanying
statements of income. No termination benefits were paid in 1997 related to this
plan.
The following table provides a rollforward of the remaining reserve for
business restructurings from December 31, 1998 to January 1, 2000.
Balance Balance
December 31, January 1,
In millions 1998 Additions Usage 2000
- --------------------------------------------------------------------------------------------------------
Employee separation $- $ -- $-- $ --
Facility closing costs
and asset impairments 2 -- (2) --
- --------------------------------------------------------------------------------------------------------
Total $2 $ -- $(2) $ --
========================================================================================================
Prior to 1996, the Corporation implemented a program to change and improve
certain processes in the Corporation's building products distribution segment.
The Corporation expensed $10 million of termination benefit costs in 1997
related to this program. As a result of this program, approximately 720
employees were terminated in 1997.
-53-
NOTE 4 RECEIVABLES
The Corporation has a large, diversified customer base, which includes some
customers located in foreign countries. The Corporation closely monitors
extensions of credit and has not experienced significant losses related to its
receivables. In addition, a portion of the receivables from foreign sales is
covered by confirmed letters of credit to help ensure
collectibility.Supplemental information on the accounts receivable balances at
January 1, 2000 and December 31, 1998 is as follows:
January 1, December 31,
(In millions) 2000 1998
================================================================================
Receivables
Trade $2,183 $1,170
Other 140 88
- --------------------------------------------------------------------------------
2,323 1,258
Less allowances 25 25
- --------------------------------------------------------------------------------
Receivables, net $2,298 $1,233
================================================================================
In June 1999, the Corporation renegotiated its accounts receivable secured
borrowing program and increased the amount outstanding under the program from
$280 million to $750 million. The program expires in April 2000. In connection
with the acquisition of Unisource, the Corporation assumed former Unisource
programs to pledge up to $150 million of certain qualifying U.S. accounts
receivable and up to CN$70 million of certain eligible Canadian accounts
receivable. The U.S. program expires in April 2000 and the Canadian program
expires in May 2004. At January 1, 2000, approximately $948 million was
outstanding under the Corporation's and Unisource's programs in the aggregate.
All programs are accounted for as secured borrowings.
The $948 million and $280 million of receivables outstanding under these
programs at January 1, 2000 and December 31, 1998, respectively, and the
corresponding debt are included as both "Receivables" and "Commercial paper and
other short-term notes" on the accompanying balance sheets. A portion of the
cost of the accounts receivable secured borrowing programs is based on the
creditors' level of investment and borrowing costs. The Corporation pays fees
based on its senior debt ratings. The total cost of the programs, which was $36
million in 1999, $17 million in 1998 and $19 million in 1997, is included in
interest expense on the accompanying statements of income.
Under the accounts receivable secured borrowing programs, the maximum
amount of the creditors' investment is subject to change based on the level of
eligible receivables and restrictions on concentrations of receivables.
NOTE 5. INDEBTEDNESS
The Corporation's indebtedness includes the following:
-54-
January 1, December 31,
In millions 2000 1998
- -------------------------------------------------------------------------------------------------------
Debentures, 8.6% average rate,
payable through 2029 $ 3,589 $ 3,100
Notes, 6.1% average rate,
payable through 2006 400 400
Revenue bonds, 5.5% average rate,
payable through 2029 653 637
Other loans, 7.3% average rate,
payable through 2005 28 29
Capital leases, 10.1% average rate,
payable through 2010 14 --
Less: unamortized discount (24) (19)
- -------------------------------------------------------------------------------------------------------
4,660 4,147
Less: long-term portion of debt 4,621 4,125
- -------------------------------------------------------------------------------------------------------
Current portion of long-term debt 39 22
Commercial paper and other
short-term notes, 6.5% average rate 2,067 1,209
Bank overdrafts, net 297 195
- -------------------------------------------------------------------------------------------------------
Total short-term debt 2,403 1,426
- -------------------------------------------------------------------------------------------------------
Total debt $ 7,024 $ 5,551
=======================================================================================================
Georgia-Pacific Group's portion of Corporation debt:
Short-term debt $ 2,071 $ 1,173
Long-term debt, excluding
current portion 3,983 3,395
- -------------------------------------------------------------------------------------------------------
Georgia-Pacific Group's total debt $ 6,054 $ 4,568
=======================================================================================================
The Timber Company's portion of
Corporation debt:
Short-term debt $ 332 $ 253
Long-term debt, excluding
current portion 638 730
- -------------------------------------------------------------------------------------------------------
The Timber Company's total debt $ 970 $ 983
=======================================================================================================
Weighted average interest rate on
Corporation debt at year end 7.2% 7.2%
=======================================================================================================
For additional information regarding financial instruments, see Note 6 and 7.
The scheduled maturities of the Corporation's long-term debt for the next
five years are as follows: $39 million in 2000, $9 million in 2001, $376 million
in 2002, $317 million in 2003 and $35 million in 2004.
NOTES, DEBENTURES AND OTHER LOANS During 1999, in connection with the formation
of Georgia-Pacific Tissue, the Corporation issued $500 million of 7.75%
Debentures Due November 15, 2029.
During 1998, the Corporation issued $300 million of 7.25% Debentures Due
June 1, 2028
-55-
and a $14 million floating rate note due September 30, 2003. In January 1998,
the Corporation redeemed $200 million of 9 3/4% Sinking Fund Debentures Due
January 15, 2018. In February 1998, the Corporation redeemed $200 million of 9
1/2% Debentures Due February 15, 2018. The Corporation recorded an after-tax
extraordinary loss of approximately $14 million related to these redemptions, of
which $12 million was allocated to the Georgia-Pacific Group and $2 million was
allocated to The Timber Company based on the ratio of each group's debt to the
Corporation's total debt.
REVOLVING CREDIT FACILITY During 1999, the Corporation increased the amount of
its unsecured revolving credit facility from $1.5 billion to $2.0 billion. This
unsecured revolving credit facility is used for direct borrowings and as support
for commercial paper and other short-term borrowings. Under the agreement with
Bank of America National Trust and Savings Association and 14 other domestic and
international banks, $1 billion will terminate in July 2000 and $1 billion will
terminate in 2004. As of January 1, 2000, $1,145 million of committed credit was
available in excess of all short-term borrowings outstanding under or supported
by the facility.
Borrowings under the agreement bear interest, at the election of the
Corporation, at either (i) the higher of the Federal Funds Rate plus 1/2% or the
stipulated bank lending rate or (ii) LIBOR plus 0.2625% or (iii) fixed or
floating rates set by competitive bids. Fees associated with this revolving
credit facility include a facility fee of 0.125% and 0.150% per annum on the
aggregate commitments of the lenders under Tranche A and Tranche B,
respectively, and a utilization fee of 0.125%. Fees and margins may be adjusted
upward or downward according to a pricing grid based on the Corporation's
long-term debt ratings. At January 1, 2000, $855 million was borrowed under the
credit agreement at a weighted average interest rate of 6.5%. Amounts
outstanding under the revolving credit facility are included in "Commercial
paper and other short-term notes" on the accompanying balance sheets.
The revolving credit agreement contains certain restrictive covenants. The
covenants include a maximum leverage ratio (funded indebtedness, including
senior deferrable notes, to earnings before interest, taxes, depreciation and
amortization [EBITDA]) of 4.5 to 1.0, which is to be maintained throughout the
term of the credit agreement. As of January 1, 2000, the leverage ratio was 2.7
to 1.0.
COMMERCIAL PAPER AND OTHER SHORT-TERM NOTES These borrowings are classified as
current liabilities, although all or a portion of them may be refinanced on a
long-term basis in 2000.
REVENUE BONDS At January 1, 2000, the Corporation had outstanding borrowings of
approximately $653 million under certain industrial revenue bonds. During 1999,
approximately $75 million of floating rate bonds were replaced, of which $73
million were refunded by fixed rate instruments and $2 million were replaced by
floating rate instruments.
OTHER At January 1, 2000, the amount of long-term debt secured by property,
plant and equipment and by timber and timberlands was not material.
Prior to 1996, the Corporation sold certain assets for $354 million and
has agreed to lease the assets back from the purchaser over a period of 30
years. Under the agreement with the purchaser, the Corporation agreed to
maintain a deposit (initially in the amount of $322 million) that, together with
interest earned thereon, was expected to be sufficient to fund the Corporation's
lease obligation, including the repurchase of assets at the end of the term.
This
-56-
transaction was accounted for as a financing arrangement. At the inception
of the agreement, the Corporation recorded on its balance sheet an asset for the
deposit from the sale of $305 million and a liability for the lease obligation
of $302 million.
At January 1, 2000, the deposit and lease obligation balances were both
$357 million. Of these amounts, approximately $16 million was recorded as a
current asset and $19 million was recorded as a current liability. The long-term
portions of these amounts are recorded in "Other assets" and "Other long-term
liabilities" on the accompanying balance sheets.
In October 1999, the Corporation entered into a financing arrangement to
enhance the return on this deposit by issuing $379 million of 5.74% Debentures
Due April 5, 2005 that were legally defeased with deposits of an equal amount.
Accordingly, the debentures and related deposits are not reflected on the
accompanying balance sheets.
In connection with the acquisition of Unisource, the Corporation assumed
former Unisource industrial revenue bonds in the amount of $9 million and
capital leases in the amount of $12 million. Additionally, the Corporation
assumed other long-term debt in the amount of $447 million and bank overdrafts
in the amount of $120 million, and retained accounts receivable secured
borrowing programs in the amount of $197 million. These amounts are included in
the Corporation's total debt.
During 1999, the Board increased the corporate target debt level under
which the Corporation can purchase shares of Georgia-Pacific Group and The
Timber Company common stock on the open market from $5.75 billion to $6.8
billion. In addition, the Board increased the Georgia-Pacific Group's target
debt level from $4.75 billion to $5.8 billion. The Timber Company's target debt
level remains at $1.0 billion.
Also during 1999, the Corporation registered for sale up to $2.975 billion
of debt and equity securities under a shelf registration statement filed with
the Securities and Exchange Commission. The Corporation registered $1.725
billion under such registration statement related to the PEPS Units ($862.5
million of which was received on July 7, 1999 in exchange for senior deferrable
notes, and $862.5 million of Georgia-Pacific Group stock will be issued upon
exercise of the purchase contracts) (see Note 6 of the Notes to Consolidated
Financial Statements). The $862.5 million of cash (less expenses) raised in this
sale of the PEPS Units was used to pay for the acquisition of Unisource. In
addition, the Corporation registered the $500 million of 7.75% Debentures Due
November 15, 2029 under this registration statement.
NOTE 6. SENIOR DEFERRABLE NOTES
On July 7, 1999, the Corporation issued 17,250,000 of 7.5% PEPS Units for
$862.5 million. Each PEPS Unit had an issue price of $50 and consists of a
contract to purchase shares of Georgia-Pacific Group stock on or prior to August
16, 2002 and a senior deferrable note of the Georgia-Pacific Group due August
16, 2004. Each purchase contract yields interest of 0.35% per year, paid
quarterly, on the $50 stated amount of the PEPS Unit. Each senior deferrable
note yields interest of 7.15% per year, paid quarterly, until August 16, 2002.
On August 16, 2002, following a remarketing of the senior deferrable notes, the
interest rate will be reset at a rate that will be equal to or greater than
7.15%. The liability related to the PEPS Units is classified as "Senior
deferrable notes" on the accompanying balance sheets and is not included in the
debt amount for purposes of determining the corporate and Georgia-Pacific Group
debt targets. The
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senior deferrable notes and related interest expense are allocated specifically
to the Georgia-Pacific Group.
NOTE 7. FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of the Corporation's
financial instruments are as follows:
January 1, 2000 December 31, 1998
==================================================================
Carrying Fair Carrying Fair
In millions amount value amount Value
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Commercial paper and
Other short-term notes
(Note 4 and 5) $ 2,067 $ 2,067 $ 1,209 $ 1,209
Notes and debentures (Note 5) 3,989 3,952 3,500 3,783
Revenue bonds (Note 5) 653 564 637 587
Other loans (Note 5) 28 27 29 29
Senior deferrable notes (Note 6) 863 866 - -
Interest rate exchange
Agreements * (1) * 14
Note receivable 350 350 - -
- ---------------------------------------------------------------------------------------------------------------------------
* The Corporation's balance sheets at December 31, 1998 and 1997 included
accrued interest of $1 million and $5 million, respectively, related to these
agreements.
COMMERCIAL PAPER AND OTHER SHORT-TERM NOTES The carrying amounts approximate
fair value because of the short maturity of these instruments.
NOTES AND DEBENTURES The fair value of notes and debentures was estimated
primarily by obtaining quotes from brokers for these and similar issues. For
notes and debentures for which there are no quoted market prices, the fair value
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.
REVENUE BONDS, SENIOR DEFERRABLE NOTES, OTHER LOANS AND NOTES RECEIVABLE The
fair value of revenue bonds, senior deferrable notes, other loans and notes
receivable that have not been monetized 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.
INTEREST RATE AND FOREIGN CURRENCY EXCHANGE AGREEMENTS The Corporation has used
interest rate swap and foreign currency exchange agreements in the normal course
of business to manage and reduce the risk inherent in interest rate and foreign
currency fluctuations.
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The Corporation uses interest rate swap arrangements to manage its exposure
to interest rate changes. Such arrangements are considered hedges of specific
borrowings, and differences paid and received under the swap arrangements are
recognized as adjustments to interest expense. Under these agreements, the
Corporation makes payments to counterparties at fixed interest rates and in turn
receives payments at variable rates. The Corporation entered into interest rate
exchange agreements in prior years to protect against the increased cost
associated with a rise in interest rates. At January 1, 2000, the Corporation
had outstanding interest rate exchange agreements that effectively converted
$608 million of floating rate obligations with a weighted average interest rate
of 5.9% to fixed rate obligations with an average effective interest rate of
approximately 6.4%. These agreements increased interest expense by $7 million,
$11 million and $16 million for the years ending January 1, 2000 and December
31, 1998 and 1997, respectively. As of January 1, 2000, these agreements had a
weighted average maturity of approximately 2.6 years. As of January 1, 2000, the
Corporation's total floating rate debt, including the accounts receivable
secured borrowing programs, exceeded related interest rate exchange agreements
by $1,957 million.
The estimated fair value of the Corporation's (asset) liability under
interest rate exchange agreements at January 1, 2000 and December 31, 1998 was
$(1) million and $14 million, respectively, and represents the estimated amount
the Corporation could have paid (received) to terminate the agreements. The fair
value at January 1, 2000 and December 31, 1998 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.
The Corporation also enters into foreign currency exchange agreements and
commodity futures and swaps, the amounts of which were not material to the
consolidated financial position of the Corporation at January 1, 2000 and
December 31, 1998.
The Corporation may be exposed to losses in the event of nonperformance of
counterparties but does not anticipate such nonperformance.
NOTE 8. INCOME TAXES
The provision for income taxes includes income taxes currently payable and those
deferred because of temporary differences between the financial statement and
tax bases of assets and liabilities. The provision for income taxes consists of
the following:
Year ended
-------------------------------------------------
January 1, December 31,
In millions 2000 1998 1997
====================================================================================================
Federal income taxes:
Current $ 536 $ 139 $ 11
Deferred 62 37 80
State income taxes:
Current 96 25 (5)
Deferred 11 1 20
- ---------------------------------------------------------------------------------------------------
Provision for income taxes $ 705 $ 202 $ 106
====================================================================================================
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Income taxes paid, net of refunds $ 620 $ 21 $ 51
====================================================================================================
Income taxes paid during 1999 are net of approximately $8 million in state
income tax refunds and $8 million in federal income tax refunds. Income taxes
paid during 1998 were net of refunds of approximately $81 million, primarily
related to a 1997 federal tax overpayment.
The federal statutory income tax rate was 35%. The provision for income
taxes is reconciled to the federal statutory rate as follows:
Year ended
-----------------------------------------------
January 1, December 31,
In millions 2000 1998 1997
=========================================================================================================
Provision for income taxes
computed at the federal
statutory tax rate $ 637 $ 172 $ 82
State income taxes, net
of federal benefit 73 16 9
Goodwill amortization 25 24 23
Foreign sales corporation (25) (6) (8)
Other (5) (4) -
- ---------------------------------------------------------------------------------------------------------
Provision for income taxes $ 705 $ 202 $ 106
=========================================================================================================
The components of the net deferred income tax liabilities are as follows:
Year ended
--------------------------------------
January 1, December 31,
In millions 2000 1998
====================================================================================================
Deferred income tax assets:
Compensation related accruals $ 342 $ 275
Other accruals and reserves 121 59
Other - 1
- ----------------------------------------------------------------------------------------------------
463 335
- ----------------------------------------------------------------------------------------------------
Valuation allowance - -
- ----------------------------------------------------------------------------------------------------
463 335
- ----------------------------------------------------------------------------------------------------
Deferred income tax liabilities:
Property, plant and equipment (1,413) (1,181)
Timber and timberlands (372) (236)
Other (75) (88)
- ----------------------------------------------------------------------------------------------------
(1,860) (1,505)
- ----------------------------------------------------------------------------------------------------
Deferred income tax liabilities, net $ (1,397) $ (1,170)
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====================================================================================================
Included on the balance sheets:
Deferred income tax assets* $ 139 $ 61
Deferred income tax liabilities** (1,536) (1,231)
- ----------------------------------------------------------------------------------------------------
Deferred income tax liabilities, net $ (1,397) $ (1,170)
====================================================================================================
* Net of current liabilities of $9 million at both January 1, 2000 and
December 31, 1998.
** Net of long-term assets of $317 million and $236 million at January 1, 2000
and December 31, 1998, respectively.
NOTE 9. RETIREMENT PLANS DEFINED BENEFIT PENSION PLANS
Most of the Corporation's employees participate in noncontributory defined
benefit pension plans. These include plans that are administered solely by the
Corporation and union-administered multiemployer plans. The Corporation's
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.
Benefits under the majority of plans for hourly employees (including
multiemployer plans) are primarily related to years of service. The Corporation
has separate plans for salaried employees and officers under which benefits are
primarily related to compensation and years of service. The officers' plan and
certain Unisource salaried employee plans are not funded and are nonqualified
for federal income tax purposes.
Plan assets consist principally of common stocks, bonds, mortgage
securities, interests in limited partnerships, cash equivalents and real estate.
At January 1, 2000 and December 31, 1998, $114 million and $101 million,
respectively, of noncurrent prepaid pension cost was included in "Other assets"
on the accompanying balance sheets. Accrued pension liability of $136 million
and $78 million at January 1, 2000 and December 31, 1998, respectively, was
included in "Other long-term liabilities" on the accompanying balance sheets.
Pursuant to the provisions of SFAS No. 87, intangible assets of $3 million
and $5 million were recorded as of January 1, 2000 and December 31, 1998,
respectively, in order to recognize the required minimum liability.
In connection with the acquisition of Unisource and the formation of
Georgia-Pacific Tissue, projected benefit obligations of $264 million and plan
assets of $216 million related to solely administered plans are reflected as a
"Transfer in" on the following tables. The following table sets forth the change
in projected benefit obligation and the change in plan assets for the solely
administered plans:
January 1, December 31,
In millions 2000 1998
===============================================================================================
Change in projected benefit obligation
Projected benefit obligation at beginning
of year $ 1,799 $ 1,629
Service cost 97 83
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Interest cost 126 114
Transfer in 264 -
Plan amendments 13 12
Actuarial gains (losses) (171) 72
Foreign currency exchange rate changes 2 (2)
Benefits paid (116) (109)
- -----------------------------------------------------------------------------------------------
Projected benefit obligation at end
of year $ 2,014 $ 1,799
===============================================================================================
Change in plan assets
Fair value of assets at beginning of year $ 2,082 $ 1,939
Actual return on plan assets 422 231
Transfer in 216 -
Employer contributions 7 23
Foreign currency exchange rate changes 2 (2)
Benefits paid (116) (109)
- -----------------------------------------------------------------------------------------------
Fair value of assets at end of year $ 2,613 $ 2,082
===============================================================================================
The funded status and the amounts recognized on the accompanying balance
sheets for the solely administered plans are set forth in the following table:
January 1, December 31,
In millions 2000 1998
- ---------------------------------------------------------------------------------------------
Funded status $ 599 $ 286
Unrecognized actuarial gain (691) (319)
Unrecognized prior service cost 73 68
Unrecognized net (asset) obligation - -
- ---------------------------------------------------------------------------------------------
Net prepaid benefit cost $ (19) $ 35
=============================================================================================
Amounts recognized on the balance sheets consist of:
Prepaid pension cost $ 114 $ 101
Accrued pension liability (136) (78)
Intangible asset 3 5
Deferred tax liability (3) -
Accumulated other comprehensive income 3 7
- ---------------------------------------------------------------------------------------------
Net amount recognized $ (19) $ 35
=============================================================================================
Net periodic pension cost for solely administered and union-administered
pension plans included the following:
Year ended
-----------------------------------------------------
January 1, December 31,
In millions 2000 1998 1997
- ----------------------------------------------------------------------------------------------------------------
Service cost of benefits earned $ 97 $ 83 $ 84
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Interest cost on projected benefit
Obligation 126 114 108
Expected return on plan assets (208) (184) (165)
Amortization of gains (11) (13) (7)
Amortization of prior service cost 9 8 6
Amortization of net transition
Obligation - - (9)
Contributions to multiemployer
pension plans 4 4 4
- ----------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 17 $ 12 $ 21
================================================================================================================
The following assumptions were used:
Year ended
------------------------------------------------
January 1, December 31,
2000 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Discount rate used to determine the projected benefit
Obligation 7.5% 6.5% 7.0%
Rate of increase in future
compensation levels used to
determine the projected benefit
Obligation 5.7% 5.6% 5.5%
Expected long-term rate of return
on plan assets used to determine
net periodic pension cost 9.5% 9.5% 9.5%
- -------------------------------------------------------------------------------------------------------------------
DEFINED CONTRIBUTION PLANS The Corporation sponsors several defined contribution
plans to provide eligible employees with additional income upon retirement. The
Corporation's contributions to the plans are based on employee contributions and
compensation. The Corporation's contributions totaled $62 million in 1999, $52
million in 1998 and $48 million in 1997.
HEALTH CARE AND LIFE INSURANCE BENEFITS The Corporation provides certain health
care and life insurance benefits to eligible retired employees. Salaried
participants generally become eligible for retiree health care benefits after
reaching age 55 with 10 years of service or after reaching age 65. Benefits,
eligibility and cost-sharing provisions for hourly employees vary by location
and/or bargaining unit. Generally, the medical plans pay a stated percentage of
most medical expenses, reduced for any deductible and payments made by
government programs and other group coverage. The plans are funded through a
trust established for the payment of active and retiree benefits. The
Corporation contributes to the trust in the amounts necessary to fund current
obligations of the plans.
In 1991, the Corporation began transferring its share of the cost of
post-age 65 health care benefits to future salaried retirees. It is currently
anticipated that the Corporation will continue to reduce the percentage of the
cost of post-age 65 benefits that it will pay on behalf of salaried employees
who retire in each of the years 1995 through 1999 and that the Corporation will
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continue to share the pre-age 65 cost with future salaried retirees but will no
longer pay any of the post-age 65 cost for salaried employees who retire after
1999.
In connection with the acquisition of Unisource and the formation of
Georgia-Pacific Tissue, projected benefit obligations of $15 million are
reflected as a "Transfer in" on the change in projected benefit obligation table
below.
The following tables set forth the change in projected benefit obligation
and the amounts recognized on the accompanying balance sheets:
January 1, December 31,
In millions 2000 1998
- ----------------------------------------------------------------------------------------------------
Change in projected benefit obligation
Projected benefit obligation at
beginning of year $ 432 $ 414
Service cost 8 7
Interest cost 26 26
Transfer in 15 -
Actuarial gains (losses) (16) 6
Benefits paid (28) (21)
- ----------------------------------------------------------------------------------------------------
Projected benefit obligation at
end of year $ 437 $ 432
====================================================================================================
Funded status $ (437) $ (432)
Unrecognized actuarial gain (82) (67)
Unrecognized prior service cost 11 11
Unrecognized net (asset) obligation - -
- ----------------------------------------------------------------------------------------------------
Net accrued benefit cost $ (508) $ (488)
====================================================================================================
Amounts recognized on the balance sheets consist of:
Prepaid benefit cost $ - $ -
Accrued benefit liability (508) (488)
- ----------------------------------------------------------------------------------------------------
Net amount recognized $ (508) $ (488)
====================================================================================================
Net periodic postretirement benefit cost included the following components:
Year ended
-------------------------------------------------------------
January 1, December 31,
In millions 2000 1998 1997
- --------------------------------------------------------------------------------------------------------------
Service cost of benefits earned $ 8 $ 7 $ 7
Interest cost on accumulated
postretirement benefit obligation 26 26 26
Amortization of prior service cost 1 1 1
Amortization of gains (2) (2) (3)
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- --------------------------------------------------------------------------------------------------------------
Net periodic postretirement
benefit cost $ 33 $ 32 $ 31
===============================================================================================================
For measuring the expected postretirement benefit obligation, a 7%, 8% and
9% annual rate of increase in the per capita claims cost was assumed for 1999,
1998 and 1997, respectively. The rate was assumed to decrease 1% per year to
5.5% in 2001 and remain at that level thereafter. The weighted average discount
rate used in determining the accumulated postretirement benefit obligation was
7.0% at January 1, 2000, 6.0% at December 31, 1998 and 6.5% at December 31,
1997.
If the annual health care cost trend rate were increased by 1%, the
accumulated postretirement benefit obligation would have increased by 10% as of
January 1, 2000, 10% as of December 31, 1998 and 9% as of December 31, 1997. The
effect of this change on the aggregate of service and interest costs would be an
increase of 12% for 1999, 11% for 1998 and 14% for 1997.
If the annual health care cost trend rate were decreased by 1%, the
accumulated postretirement benefit obligation would have decreased by 9% as of
January 1, 2000, 9% as of December 31, 1998 and 9% as of December 31, 1997. The
effect of this change on the aggregate of service and interest costs would be a
decrease of 11% for 1999, 10% for 1998 and 13% for 1997.
NOTE 10. COMMON AND PREFERRED STOCK
The Corporation's authorized capital stock consists of (i) 10 million
shares of Preferred Stock and 25 million shares of Junior Preferred Stock, of
which no shares were issued at January 1, 2000, and (ii) 400 million shares of
Georgia-Pacific Group stock and 250 million shares of The Timber Company stock.
The Georgia-Pacific Group stock has a par value of $0.80 per share, and
191,983,000 and 186,564,000 shares were issued as of January 1, 2000 and
December 31, 1998, respectively. The Timber Company stock has a par value of
$0.80 per share, and 93,904,000 and 92,785,000 shares were issued as of January
1, 2000 and December 31, 1998, respectively.
At January 1, 2000, the following authorized shares of common stock were
reserved for issue:
Georgia-Pacific Group
=====================================================================
1999 Unisource conversions 628,290
1999 Wisconsin Tissue conversions 92,960
1997 Long-Term Incentive Plan 8,090,826
1995 Outside Directors Stock Plan 332,193
1995 Shareholder Value Incentive Plan 5,138,103
- ---------------------------------------------------------------------
Common stock reserved 14,282,372
=====================================================================
-65-
The Timber Company
=====================================================================
1997 Long-Term Incentive Plan 2,293,400
1995 Outside Directors Stock Plan 166,097
1995 Shareholder Value Incentive Plan 3,959,600
- ---------------------------------------------------------------------
Common stock reserved 6,419,097
=====================================================================
1997 LONG-TERM INCENTIVE PLANS The Corporation reserved 9,000,000 shares of
Georgia-Pacific Group stock for issuance under the Georgia-Pacific Group 1997
Long-Term Incentive Plan (the Georgia-Pacific Group Plan). Options covering
2,938,500; 34,000; 27,600; and 2,839,260 shares were granted under the
Georgia-Pacific Group Plan on January 29, March 2 and July 29, 1998 and January
28, 1999, respectively. These grants have a 10-year term and vest ratably over a
three-year period.
The Corporation reserved 2,300,000 shares of The Timber Company stock for
issuance under The Timber Company 1997 Long-Term Incentive Plan (The Timber
Company Plan). Options covering 1,010,600 and 950 shares were granted under The
Timber Company Plan on December 17, 1997 and January 28, 1999, respectively.
These grants have a 10-year term and vest ratably over a four-year period and
three-year period, respectively.
The Georgia-Pacific Group Plan authorizes grants of stock options,
restricted stock and performance awards with respect to Georgia-Pacific Group
stock. The Timber Company Plan authorizes grants of stock options, restricted
stock and performance awards with respect to The Timber Company stock. The
Corporation does not currently intend to grant awards under the Georgia-Pacific
Group Plan to employees of The Timber Company. However, certain officers and
employees of the Corporation with responsibilities involving both the
Georgia-Pacific Group and The Timber Company may be granted options, restricted
stock or performance awards under both the Georgia-Pacific Group Plan and The
Timber Company Plan in a manner that reflects their responsibilities.
1990 LONG-TERM INCENTIVE PLAN The Corporation reserved 8,000,000 and 4,000,000
shares of Georgia-Pacific Group stock and The Timber Company stock,
respectively, for issuance under the 1990 Long-Term Incentive Plan (the 1990
Incentive Plan), which expired March 9, 1995. Shares were awarded to employees
at no cost, based on increases in average market value of the Existing Common
Stock. At the time shares were awarded, the market value of the stock was added
to common stock and additional paid-in capital and was deducted from
shareholders' equity (long-term incentive plan deferred compensation) on the
accompanying financial statements. Shares were restricted until they vested
under the terms of the 1990 Incentive Plan. The long-term incentive plan
deferred compensation was amortized over the vesting (restriction) period,
generally five years, with adjustments made monthly for market price
fluctuations. At the time awarded shares became vested, the Corporation paid on
behalf of each participant a cash bonus in the amount of the estimated income
tax liability to be incurred by the participant as a result of the award and
cash bonus. Under the 1990 Incentive Plan, the Corporation issued 2,037,480
shares of Georgia-Pacific Group stock and 1,018,740 shares of The Timber Company
stock. All such shares were vested as of October 1999.
-66-
The Corporation recognized compensation expense of $2 million in 1999, $7
million in 1998 and $15 million in 1997 related to the 1990 Incentive Plan.
As a result of the Letter Stock Recapitalization, each share of restricted
Existing Common Stock held in the 1990 Incentive Plan was redesignated as
Georgia-Pacific Group stock, and an equal number of restricted shares of The
Timber Company stock were distributed. The tax gross-up provided in the 1990
Incentive Plan was calculated based on the aggregate market value of the two
classes of shares distributed to an individual at such time.
EMPLOYEE STOCK PURCHASE PLAN The Corporation reserved 1,582,800 shares of
Georgia-Pacific Group stock and 791,400 shares of The Timber Company stock for
issuance under the 1997 Employee Stock Purchase Plan (the 1997 Purchase Plan),
which offered employees the right to subscribe for shares of the Georgia-Pacific
Group and The Timber Company at a subscription price of $27.785 and $22.52 per
share, respectively, representing 85% of the mean of the high and low prices of
the Corporation's Existing Common Stock on September 2, 1997. The subscription
period expired on November 14, 1997. A subscriber purchased and paid for shares
no later than November 30, 1999, but prior to the time of the subscriber's last
contribution he/she could obtain a refund of his/her payments plus interest at a
rate of 6% per annum in lieu of stock.
In conjunction with the Letter Stock Recapitalization, the terms of the
subscription agreements were adjusted to allow subscribers, pursuant to the
terms of the 1997 Purchase Plan, to purchase at the same subscription price a
package consisting of one share of Georgia-Pacific Group stock and one share of
The Timber Company stock in lieu of each share of Existing Common Stock for
which he/she had originally subscribed.
Under the 1997 Purchase Plan, the Corporation issued 1,397,000 and 698,500
shares of Georgia-Pacific Group stock and The Timber Company stock,
respectively, in 1999.
1995 OUTSIDE DIRECTORS STOCK PLAN The Corporation reserved 400,000 shares of
Georgia-Pacific Group stock and 200,000 shares of The Timber Company stock for
issuance under the 1995 Outside Directors Stock Plan (the Directors Plan), which
provides for the issuance of shares of common stock to nonemployee directors of
the Corporation on a restricted basis. Each nonemployee director was issued 692
and 784 restricted shares of Georgia-Pacific Group stock in 1999 and 1998,
respectively, and 346 and 392 restricted shares of The Timber Company stock in
1999 and 1998, respectively.
As a result of the Letter Stock Recapitalization, each share of restricted
stock held in the Directors Plan was redesignated as Georgia-Pacific Group
stock, and an equal number of shares of The Timber Company stock (subject to the
same restrictions as the original restricted shares) were distributed. Each
director's annual grant consists of a number of shares of Georgia-Pacific Group
stock and of The Timber Company stock determined so that (i) a substantially
equal number of shares of Georgia-Pacific Group stock and The Timber Company
stock will be granted in each year and (ii) the total market value of the shares
granted in each year (based on the mean of the high and low prices of each stock
on the date of grant) is $40,000 (subject to immaterial rounding differentials).
The restrictions on the shares lapse at the time of death, retirement from the
Board or disability.
Effective May 6, 1997, accrual of additional retirement benefits under the
Corporation's retirement program for directors ceased, and the accrued benefits
of each of the current nonemployee directors (the present value of which totaled
$1,303,889 as of May 6, 1997) were
-67-
converted into a grant of an equivalent number of shares of restricted stock
under the Directors Plan. The total number of shares issued related to this
conversion was 15,702.
EMPLOYEE STOCK OPTION PLANS The 1995 Shareholder Value Incentive Plan (the SVIP)
provides for the granting of stock options having a term of either 5 1/2 or 10
years to officers and key employees. Under the amended and restated SVIP, no
further grants may be made under that plan. Options having a term of 10 years
become exercisable in 9 1/2 years unless certain performance targets tied to the
Corporation's common stock performance are met, in which case the holder could
exercise such options after 3, 4 or 5 years from the grant date. Options having
a term of 5 1/2 years may be exercised only if such performance targets are met
in the third, fourth or fifth year after such grant date. At the time options
are exercised, the exercise price is payable in cash or by surrender of shares
of common stock already owned by the optionee.
The 1994 Employee Stock Option Plan (the 1994 Option Plan) provided for the
granting of stock options to certain nonofficer key employees. Under the 1994
Option Plan, the Corporation issued 253,000 and 230,900 shares of
Georgia-Pacific Group stock in 1999 and 1998, respectively, and 146,350 and
75,550 shares of The Timber Company stock in 1999 and 1998, respectively. All
remaining options were exercised in February 1999.
Following the Letter Stock Recapitalization, each outstanding stock option
under the SVIP and the 1994 Option Plan was converted into separately
exercisable options to acquire a number of shares of Georgia-Pacific Group stock
and The Timber Company stock, each of which equaled the number of shares of
Existing Common Stock specified in the original option. The exercise prices for
the resulting Georgia-Pacific Group stock options and The Timber Company stock
options were calculated by multiplying the exercise price under the original
option from which they were converted by a fraction, the numerator of which was
the average of the high and low price of Georgia-Pacific Group stock or The
Timber Company stock, as the case may be, on December 17, 1997 and the
denominator of which was the sum of such Georgia-Pacific Group and The Timber
Company stock prices. This was intended to ensure that the aggregate intrinsic
value of the options was preserved and the ratio of the exercise price per
option to the market value per share was not reduced. In addition, the vesting
provisions and option periods of the original grants remained the same following
such conversion.
UNISOURCE CONVERSIONS In connection with the acquisition of Unisource as
described in Note 3 of the Notes to Consolidated Financial Statements, the
Corporation converted certain stock options awarded under a former Unisource
stock option plan (Unisource stock options) into Georgia-Pacific Group stock
options. The conversion was intended to ensure that the aggregate intrinsic
value of the Unisource stock options was preserved and the ratio of the exercise
price per Unisource stock option to the market value per share of
Georgia-Pacific Group stock was not reduced. Unisource stock options to purchase
2,633,459 shares had original grant dates ranging from November 10, 1994 through
May 19, 1999 with a 10-year term, and vest ratably over three-year and five-year
periods. These Unisource stock options were converted into options to purchase
629,648 shares of Georgia-Pacific Group stock at prices ranging from $31.88 to
$91.58 per share. The vesting provisions and option periods of the original
grants remained the same following such conversion. The value of these options
at the acquisition date was $9.4 million and was included as part of the
purchase price paid for Unisource. No options to purchase The Timber Company
stock were issued as part of the conversion.
-68-
The Corporation also issued 40,152 restricted shares of Georgia-Pacific
Group stock under the 1997 Long-Term Incentive Plan to two former Unisource
officers who became officers of the Corporation. Each officer was issued 20,076
restricted shares of Georgia-Pacific Group stock. At the time restricted shares
were awarded, the average of the high and low market value of the stock was
added to common stock and additional paid-in capital and was deducted from
shareholders' equity (long-term incentive plan deferred compensation) on the
accompanying financial statements. The long-term incentive plan deferred
compensation of $2 million is being amortized over the vesting (restriction)
period, which is three years.
WISCONSIN TISSUE CONVERSIONS In connection with the formation of Georgia-Pacific
Tissue as described in Note 3 of the Notes to Consolidated Financial Statements,
the Corporation converted certain outstanding stock options awarded under a
Chesapeake stock option plan (Chesapeake stock options) into Georgia-Pacific
Group stock options. The conversion was intended to ensure that the aggregate
intrinsic value of the Chesapeake stock options was preserved and the ratio of
the exercise price per Chesapeake stock option to the market value per share of
Georgia-Pacific Group stock was not reduced. Chesapeake stock options to
purchase 172,250 shares had original grant dates ranging from August 11, 1997
through April 16, 1999, with a vesting period of three years and a 10-year term.
These Chesapeake stock options were converted into options to purchase
92,960 shares of Georgia-Pacific Group stock at prices ranging from $36.20 to
$50.36 per share. The vesting provisions and option periods of the original
grants remained the same following such conversion. The stock options' total
value of $1.3 million was included in the asset purchase price on the date the
Corporation formed Georgia-Pacific Tissue. No options to purchase The Timber
Company stock were issued as part of the conversion.
Additional information relating to the Corporation's existing employee
stock options is as follows:
Year ended January 1,
2000 2000
- --------------------------------------------------------------------------------------------------------------------------
Georgia-Pacific The Timber
Group Company
- --------------------------------------------------------------------------------------------------------------------------
Weighted Weighted
average Average
exercise Exercise
Shares price Shares Price
- --------------------------------------------------------------------------------------------------------------------------
Options outstanding at January 1, 1999 11,704,600 $27.03 5,544,850 $22.26
Options granted/converted 3,561,868 36.10 950 22.56
Options exercised/surrendered 3,974,803) 26.89 (417,150) 17.66
Options cancelled (461,974) 28.25 (164,100) 19.69
- --------------------------------------------------------------------------------------------------------------------------
Options outstanding at January 1, 2000 0,829,691* $30.01 4,964,550* $22.32
Options available for grant at January 1, 2000 3,160,640 1,288,450
- --------------------------------------------------------------------------------------------------------------------------
Total reserved shares 13,990,331 6,253,000
==========================================================================================================================
Options exercisable at January 1, 2000 2,936,311 $30.17 2,972,400 $22.32
Option prices per share:
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Granted/converted $32-$92 $23
Exercised/surrendered $26-$37 $21-$23
Cancelled $26-$32 $21-$23
* Options outstanding by exercise price:
$20.95 - $25.13 4,964,550 $22.33
Average remaining life 7.0 years
$25.84 - $31.88 7,451,500 $27.15
Average remaining life 7.3 years
$32.17 - $44.07 3,018,453 $32.68
Average remaining life 8.1 years
$45.77 - $61.63 56,631 $52.80
Average remaining life 7.0 years
$63.73 - $91.58 303,107 $69.46
Average remaining life 6.9 years
- --------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
1998 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Georgia-Pacific The Timber
Group Company
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted
average Average
exercise Exercise
Shares price Share Price
- -----------------------------------------------------------------------------------------------------------------------------------
Options outstanding at January 1, 1998 10,038,200 $26.66 6,029,600 $ 22.20
Options granted 3,000,100 28.23 - -
Options exercised/surrendered (637,200) 27.22 (180,400) 21.52
Options canceled (696,500) 26.71 (304,350) 21.54
- -----------------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1998 11,704,600 $27.03 5,544,850 $ 22.26
Options available for grant at December 31,1998 5,999,900 1,289,400
- -----------------------------------------------------------------------------------------------------------------------------------
Total reserved shares 17,704,500 6,834,250
===================================================================================================================================
Options exercisable at December 31, 1998 2,220,633 $28.43 1,448,975 $ 23.28
Average remaining life of options outstanding 7.1 years 6.3 years
Option prices per share:
Granted $28-$30 $-
Exercised/surrendered $21-$29 $17-$23
Cancelled $21-$29 $17-$25
Outstanding $26-$31 $21-$25
===================================================================================================================================
Year ended December 31,
1997* 1997
- -----------------------------------------------------------------------------------------------------------------------------------
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- ------------------------------------------------------------------------------------------------------------------------------------
Georgia-Pacific The Timber
Group Company
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted
average Average
exercise Exercise
Shares price Share Price
- ------------------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 17, 1997 10,042,400 $19.47 5,021,200 $ 15.78
Options granted - - 1,010,600 25.13
Options exercised/surrendered (600) 21.00 (300) 17.01
Options cancelled (3,600) 26.93 (1,900) 21.83
- ------------------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1997 10,038,200 $26.66 6,029,600 $ 21.20
Options available for grant at December 31,1997 9,000,000 1,289,400
- ------------------------------------------------------------------------------------------------------------------------------------
Total reserved shares 19,038,200 7,319,000
====================================================================================================================================
Options exercisable at December 31, 1997 789,332 $26.41 391,100 $21.39
Average remaining life of options outstanding 5.7 years 6.3 years
Option prices per share (December 17 through December 31, 1997):
Granted $- $25
Exercised/surrendered $21 $17
Canceled $26-$29 $21-$23
Outstanding $26-$29 $17-$25
====================================================================================================================================
*All shares and prices reflect the two-for-one stock split of the
Georgia-Pacific Group's common stock on May 14, 1999.
Period ended December 16,
1997*
============================================================================================================================
Georgia-Pacific Corporation
- ----------------------------------------------------------------------------------------------------------------------------
Weighted
Average
Exercise
Shares Price
- ----------------------------------------------------------------------------------------------------------------------------
Options outstanding at January 1, 1997 4,092,300 $ 57.48
Options granted 1,746,700 52.84
Options exercised/surrendered (514,950) 69.94
Options canceled (302,850) 55.04
- ----------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 16, 1997 5,021,200 $ 54.73
Options available for grant at December 16,1997 2,966,100
- ----------------------------------------------------------------------------------------------------------------------------
Total reserved shares 7,987,300
============================================================================================================================
Options exercisable at December 16, 1997 396,766 $ 70.69
Average remaining life of options outstanding 5.7 years
Option prices per share:
Granted $53
Exercised/surrendered $59-$75
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Canceled $52-$75
- ----------------------------------------------------------------------------------------------------------------------------
*All shares and prices reflect the Corporation's Existing Common Stock through
December 16, 1997.
SHAREHOLDER RIGHTS PLAN On December 16, 1997, shareholders approved an amended
and restated Shareholder Rights Plan (the Rights Agreement) pursuant to which
preferred stock purchase rights (the Rights) are issued on each outstanding
share of Georgia-Pacific Group stock (a Georgia-Pacific Group Right), which will
entitle the holders thereof to purchase shares of Series B Junior Preferred
Stock under the conditions specified in the Rights Agreement, and on each
outstanding share of The Timber Company stock (a Timber Company Right), which
will entitle the holders thereof to purchase shares of Series C Junior Preferred
Stock under the conditions specified in the Rights Agreement.
The Rights will expire on December 31, 2007, unless earlier redeemed by the
Corporation or extended. The Rights would be exercisable only if a person or
group acquires 15% or more of the total voting rights of all then outstanding
shares of common stock of the Corporation or commences a tender offer that would
result in such person or group beneficially owning 15% or more of the total
voting rights of all then outstanding shares of common stock of the Corporation.
In such event, each Right would entitle the holder to purchase from the
Corporation (i) in the case of a Georgia-Pacific Group Right, one one-hundredth
of a share of Series B Junior Preferred Stock (a Series B Unit) at a purchase
price of $175 (the Series B Unit Purchase Price), subject to adjustment, and
(ii) in the case of a Timber Company Right, one one-hundredth of a share of
Series C Junior Preferred Stock (a Series C Unit) at a purchase price of $100
(the Series C Unit Purchase Price), subject to adjustment.
Thereafter, in the event one of several specified events (generally
involving transactions by an acquirer in the Corporation's common stock or a
business combination involving the Corporation) occurs, each Georgia-Pacific
Group Right and each Timber Company Right will entitle its holder to purchase,
for the Series B Unit Purchase Price and the Series C Unit Purchase Price,
respectively, a number of shares of common stock of such entity or purchaser
with a market value equal to twice the applicable purchase price. Because of the
nature of the dividend, liquidation and voting rights of each class of Junior
Preferred Stock related to the Rights, the economic value of one Series B Unit
and one Series C Unit should approximate the economic value of one share of
Georgia-Pacific Group stock and one share of The Timber Company stock,
respectively.
CAPITAL STOCK During 1999, the Corporation purchased on the open market
approximately 6.2 million shares of Georgia-Pacific Group stock at an aggregate
price of $257 million ($41.45 average per share), all of which were held as
treasury stock at January 1, 2000. During 1998, the Corporation purchased
approximately 15.4 million shares of Georgia-Pacific Group stock (including 2.2
million shares related to the CeCorr acquisition) at an aggregate price of $427
million ($27.73 average per share). Of these purchased shares, approximately
13.5 million shares were held as treasury stock and approximately 1.9 million
shares were retired. Cash paid in 1998 for Georgia-Pacific Group stock
repurchases totaled $436 million, which included $9 million for shares purchased
but not settled in 1997.
During 1999, the Corporation also purchased on the open market
approximately 5.3 million shares of The Timber Company stock at an aggregate
price of $131 million ($24.72 average per
-72-
share). Of these purchased shares, approximately 5,343,000 shares of The Timber
Company stock were held as treasury stock and 6,000 shares were purchased during
1999 and settled after January 1, 2000. During 1998, the Corporation purchased
on the open market 5.7 million shares of The Timber Company stock at an
aggregate price of $121 million ($21.23 average per share), all of which were
held as treasury stock at December 31, 1998.
Subsequent to year-end 1999 through February 4, 2000, the Corporation
purchased on the open market 418,700 shares of The Timber Company stock at an
aggregate price of $9.5 million ($22.66 average per share). Subsequent to
year-end 1999 through February 4, 2000, there was no Georgia-Pacific Group stock
purchased by the Corporation.
The resolution of the Board authorizing such repurchases allows purchases
of Georgia-Pacific Group stock so long as the Georgia-Pacific Group's total debt
remains below $5.8 billion and the Corporation's total debt remains below $6.8
billion. Repurchases of The Timber Company stock may be made so long as The
Timber Company's debt remains below $1.0 billion and the Corporation's debt
remains below $6.8 billion.
OTHER The Corporation has elected to continue to account for its stock-based
compensation plans under APB Opinion No. 25 and disclose pro forma effects of
the plans on net income and earnings per share as provided by SFAS No. 123.
Accordingly, no compensation cost has been recognized for the Unisource stock
options, Chesapeake stock options, the SVIP, the Georgia-Pacific Group Plan, The
Timber Company Plan or the 1997 Purchase Plan. Had compensation cost for these
plans been determined based on the fair value at the grant dates in 1999, 1998
or 1997 under the plan consistent with the method of SFAS No. 123, the pro forma
net income and earnings per share would have been as follows:
Year ended
-------------------------------------------------------------------------------------------
January 1, December 31,
In millions, except 2000 1998 1997
per share amounts
=================================================================================================================================
Income Income Net Income
Net per Net per Income (loss)
Income share* income share* (loss) Per share*
- ---------------------------------------------------------------------------------------------------------------------------------
Georgia-Pacific Corporation
As reported 1,116 $ 274 $ 69
Pro forma 1,084 252 62
Georgia-Pacific Group
As reported 716 $ 4.17 98 $ 0.55 (146) $ (0.80)
Pro forma 685 3.97 77 0.43 (153) (0.84)
The Timber Company
As reported 400 4.75 176 1.95 215 2.35
Pro forma 399 4.74 175 1.94 215 2.35
- ---------------------------------------------------------------------------------------------------------------------------------
*Represents basic earnings per share. Pro forma diluted income (loss) per share
was $3.89 and $4.72 in 1999, $0.42 and $1.93 in 1998, and $(0.84) and $2.33 in
1997 for the Georgia-Pacific Group and The Timber Company, respectively.
-73-
The fair-value-based method of accounting for stock-based compensation
plans under SFAS No. 123 recognizes the value of options granted as compensation
cost over the option's vesting period and has not been applied to options
granted prior to January 1, 1995. Accordingly, the resulting pro forma
compensation cost is not representative of what compensation cost will be in
future years.
Following are the weighted average assumptions used in connection with the
Black-Scholes option pricing model tso estimate the fair value of options
granted in 1999, 1998 and 1997:
Year ended
------------------------------------------------------------------
January 1, December 31,
2000 1998 1997
======================================================================================================================
Options Options Options ESPP*
- ----------------------------------------------------------------------------------------------------------------------
Georgia-Pacific Group
Risk-free interest rate 4.9% 5.8% 6.6% 5.8%
Expected dividend yield 1.0% 1.8% 2.7% 2.3%
Expected life 7 years 10 years 10 years 2 years
Expected volatility 0.46 0.39 0.30 0.37
Option forfeiture rate 3% 3% 3% 28%
- ----------------------------------------------------------------------------------------------------------------------
The Timber Company
Risk-free interest rate 4.9% 5.9% 6.4% 5.8%
Expected dividend yield 4.4% 3.9% 3.2% 2.3%
Expected life 9 years 10 years 10 years 2 years
Expected volatility 0.32 0.37 0.27 0.29
Option forfeiture rate 3% 3% 3% 28%
- ----------------------------------------------------------------------------------------------------------------------
*1997 Purchase Plan.
The weighted average grant date fair value per share, including
modifications, of Georgia-Pacific Group options and The Timber Company options
granted during the year using the Black-Scholes option pricing model was $29.38
and $5.80, $13.44 and $8.55, and $11.87 and $7.54 for 1999, 1998, and 1997,
respectively. The weighted average grant date fair value per share of shares
subscribed under the 1997 Purchase Plan was $8.85 for the Georgia-Pacific Group
and $6.52 for The Timber Company. The total pro forma compensation cost
calculated under SFAS No. 123 was allocated between the Georgia-Pacific Group
and The Timber Company based on the number of employees in each group for
periods prior to December 17, 1997. Management believes that this method of
allocation is equitable and provides a reasonable estimate of the costs
attributable to each group.
STOCK SPLIT On May 4, 1999, the Board declared a two-for-one split of the
Georgia-Pacific Group's stock in the form of a special dividend to shareholders
of record on May 14, 1999. The special dividend was paid as one share of
Georgia-Pacific Group stock for each such share outstanding on June 3, 1999. A
total of 95,126,911 additional shares were issued in conjunction with the stock
split. The Georgia-Pacific Group's par value of $0.80 remained unchanged. As a
result, $76 million of shareholders' equity was reclassified from "Additional
paid-in capital" to "Common stock." All historical share and per share amounts
have been restated to reflect retroactively the stock split.
-74-
NOTE 11. OTHER COMPREHENSIVE INCOME The Corporation's accumulated other
comprehensive income includes the following:
Minimum Accumulated
Foreign pension other
Currency liability comprehensive
In millions Items adjustment income
============================================================================
December 31, 1997 $ (28) $ (5) $ (33)
Activity, net of taxes (8) (2) (10)
- ----------------------------------------------------------------------------
December 31, 1998 (36) (7) (43)
Activity, net of taxes 7 4 11
- ----------------------------------------------------------------------------
January 1, 2000 $ (29) $ (3) $ (32)
============================================================================
NOTE 12. COMMITMENTS AND CONTINGENCIES
Total rental expense was approximately $117.4 million, $75.8 million and $74.1
million in 1999, 1998 and 1997, respectively.
At January 1, 2000, total commitments of the Corporation under long-term,
noncancelable contracts, including operating leases, were as follows:
In millions
=========================
2000 $ 76
2001 73
2002 67
2003 61
2004 54
After 2004 184
- -------------------------
$ 515
=========================
The Corporation is a party to various legal proceedings incidental to its
business and is subject to a variety of environmental and pollution control laws
and regulations in all jurisdictions in which it operates. As is the case with
other companies in similar industries, the Corporation faces exposure from
actual or potential claims and legal proceedings involving environmental
matters. Liability insurance in effect during the last several years provides
only very limited coverage for environmental matters.
The Corporation is involved in environmental remediation activities at
approximately 173 sites, both owned by the Corporation and owned by others,
where it has been notified that it is
-75-
or may be a potentially responsible party under the Comprehensive Environmental
Response, Compensation and Liability Act or similar state "superfund" laws. Of
the known sites in which it is involved, the Corporation estimates that
approximately 46% are being investigated, approximately 30% are being remediated
and approximately 24% are being monitored (an activity that occurs after either
site investigation or remediation has been completed). The ultimate costs to the
Corporation for the investigation, remediation and monitoring of many of these
sites cannot be predicted with certainty, due to the often unknown magnitude of
the pollution or the necessary cleanup, the varying costs of alternative cleanup
methods, the amount of time necessary to accomplish such cleanups, the evolving
nature of cleanup technologies and governmental regulations, and the inability
to determine the Corporation's share of multiparty cleanups or the extent to
which contribution will be available from other parties. The Corporation has
established reserves for environmental remediation costs for these sites in
amounts that it believes are probable and reasonably estimable. Based on
analysis of currently available information and previous experience with respect
to the cleanup of hazardous substances, the Corporation believes it is
reasonably possible that costs associated with these sites may exceed current
reserves by amounts that may prove insignificant or that could range, in the
aggregate, up to approximately $56 million. This estimate of the range of
reasonably possible additional costs is less certain than the estimates upon
which reserves are based, and in order to establish the upper limit of such
range, assumptions least favorable to the Corporation among the range of
reasonably possible outcomes were used. In estimating both its current reserve
for environmental remediation and the possible range of additional costs, the
Corporation has not assumed it will bear the entire cost of remediation of every
site to the exclusion of other known potentially responsible parties who may be
jointly and severally liable. The ability of other potentially responsible
parties to participate has been taken into account, based generally on the
parties' financial condition and probable contribution on a per site basis.
The Corporation and many other companies are defendants in suits brought in
various courts around the nation by plaintiffs who allege that they have
suffered personal injury as a result of exposure to asbestos-containing
products. These suits allege a variety of lung and other diseases based on
alleged exposure to products previously manufactured by the Corporation. In many
cases, the plaintiffs are unable to demonstrate that they have suffered any
compensable loss as a result of such exposure, or that any injuries they have
incurred in fact resulted from exposure to the Corporation's products.
The Corporation generally settles asbestos cases for amounts it considers
reasonable given the facts and circumstances of each case. The amounts it has
paid to date to defend and settle these cases have been substantially covered by
product liability insurance. The Corporation is currently defending claims of
approximately 44,800 such plaintiffs as of January 31, 2000 and anticipates that
additional suits will be filed against it over the next several years. The
Corporation has insurance available in amounts that it believes are adequate to
cover substantially all of the reasonably foreseeable damages and settlement
amounts arising out of claims and suits currently pending. The Corporation has
further insurance coverage available for the disposition of suits that may be
filed against it in the future, but there can be no assurance that the amounts
of such insurance will be adequate to cover all future claims. The Corporation
has established reserves for liabilities and legal defense costs it believes are
probable and reasonably estimable with respect to pending suits and claims, and
has also established a receivable for expected insurance recoveries.
On May 6, 1998, a lawsuit was filed in state court in Columbus, Ohio,
against the Corporation and Georgia-Pacific Resins, Inc. (GPR), a wholly owned
subsidiary of the Corporation. The lawsuit was filed by eight plaintiffs who
seek to represent a class of individuals who at any time
-76-
from 1985 to the present lived, worked, resided, owned, frequented or otherwise
occupied property located within a three-mile radius of the GPR's resins
manufacturing operations in Columbus, Ohio. The lawsuit alleges that the
individual plaintiffs and putative class members have suffered personal injuries
and/or property damage because of (i) alleged "continuing and long-term releases
and threats of releases of noxious fumes, odors and harmful chemicals, including
hazardous substances" from GPR's operations and/or (ii) a September 10, 1997
explosion at the Columbus facility and alleged release of hazardous material
resulting from that explosion. Virtually all activity in this case has been
stayed pending a decision on a motion by plaintiffs for reconsideration of a
case management order issued by the court. The Corporation has denied the
material allegations of this lawsuit. While it is premature to evaluate the
claims asserted in this lawsuit, the Corporation believes it has meritorious
defenses. Prior to the filing of the lawsuit, the Corporation had received a
number of explosion-related claims from nearby residents and businesses. These
claims were for property damage, personal injury and business interruption and
were being reviewed and resolved on a case-by-case basis. On January 12, 2000,
five plaintiffs, including one of the class representatives in the state class
action, filed a lawsuit against the Corporation and GPR pursuant to the citizen
suit provisions of the federal Clean Air Act and the Community Right-to-Know
law. This suit alleges violations of these federal laws and certain state laws
regarding the form and substance of the defendants reporting of emissions and
alleged violations of permitting requirements under certain regulations issued
under the Clean Air Act. This suit seeks civil penalties of $25,000 per day, per
violation, an injunction to force the defendants to comply with these laws and
regulations and other relief. The defendants have denied the material
allegations of the complaint and have sought a ruling from a federal appeals
court to the effect that the regulations under which the alleged violations of
the Clean Air Act are premised are not applicable to the defendants. While it is
premature to completely evaluate these claims, the Corporation believes it has
meritorious defenses.
In May 1997, the Corporation and nine other companies were named as
defendants in a lawsuit brought by the Attorney General of the State of Florida
alleging that the defendants engaged in a conspiracy to fix the prices of
sanitary commercial paper products, such as towels and napkins, in violation of
various federal and state laws. Shortly after the filing of this suit,
approximately 55 similar suits were filed by private plaintiffs in federal
courts in California, Florida, Georgia and Wisconsin, and in the state courts of
California, Wisconsin, Minnesota and Tennessee. On July 28, 1999, the
Corporation and the Attorney General of the State of Florida entered into a
Settlement Agreement pursuant to which the State will dismiss its claims against
the Corporation. The Settlement Agreement states that the Attorney General is
dismissing its claims in the public interest and consistent with its
responsibilities. The Agreement also provides that the Corporation continues to
deny that there is any evidence that it engaged in the alleged price-fixing
conspiracy. In addition, the Corporation agreed to donate an immaterial amount
of real property to the State of Florida, Board of Trustees of the Internal
Improvement Trust. In addition, as part of the formation of the joint venture
with Chesapeake described in Note 3 of the Notes to Consolidated Financial
Statements, the Corporation and Wisconsin Tissue assigned, and Georgia-Pacific
Tissue agreed to assume, the liabilities of both companies in connection with
these antitrust cases. The Corporation and Wisconsin Tissue have denied that
they have engaged in any of the illegal conduct alleged in these cases and
intend to defend themselves vigorously.
Although the ultimate outcome of these environmental matters and legal
proceedings cannot be determined with certainty, based on presently available
information, management believes that adequate reserves have been established
for probable losses with respect thereto. Management further believes that the
ultimate outcome of such environmental matters and
-77-
legal proceedings could be material to operating results in any given quarter or
year but will not have a material adverse effect on the long-term results of
operations, liquidity or consolidated financial position of the Corporation.
NOTE 13. RELATED-PARTY TRANSACTIONS
For all periods in which the separate accompanying combined statements of income
of the groups are presented, timber has been transferred from the Corporation's
timberlands at prices intended to reflect fair market prices based on prices
paid by independent purchasers and sellers for similar kinds of timber.
During the second quarter of 1998, the Georgia-Pacific Group and The Timber
Company revised the operating policy, which they had entered into in 1997, with
respect to sales of timber by The Timber Company to the Georgia-Pacific Group.
These revisions arose from sharp changes in the prices of timber from the first
quarter to the second quarter of 1998, a significant decrease in the volume of
timber purchased by the Georgia-Pacific Group in the second quarter, and other
issues in the policy. At the time these revisions were negotiated, The Timber
Company sold a timber deed to the Georgia-Pacific Group in the amount of
approximately $23 million, and the Georgia-Pacific Group made a one-time $3
million payment to The Timber Company for 1998 second quarter adjustments due
under the revised policy. The Timber Company recognized revenues and earnings
from this timber deed, and other contracts to sell timber to the Georgia-Pacific
Group, as the timber was cut.
Under the revised policy, beginning July 1, 1998, the prices for Southern
timber sold by The Timber Company are adjusted monthly, rather than quarterly,
and represent the average of prices paid by the Georgia-Pacific Group for timber
purchased from third parties in a particular forest over the most recent
three-month period. In most of The Timber Company's Southern forests, it must
offer 80% of its projected annual harvest from those forests to the
Georgia-Pacific Group, and the Georgia-Pacific Group must purchase not less than
60% nor more than 80% of that projected annual harvest. In addition, premiums
charged by The Timber Company for the right to harvest a significant percentage
of wood from its Southern forests have been reduced.
In two key Southern forests, the price paid by the Georgia-Pacific Group
for timber purchased from The Timber Company will be based on the average prices
paid over the most recent three months by the Georgia-Pacific Group for timber
purchased from third parties, and prices received by The Timber Company for
timber sold to third parties, in each forest. In those same forests, the
Georgia-Pacific Group has agreed to purchase, each quarter, 20% of the annual
volume of timber it has committed to purchase from The Timber Company during
that year. The revised policy reduces the volume of timber that the
Georgia-Pacific Group can purchase in these same two forests from 80% to 70% of
The Timber Company's annual harvest in those forests, and also reduces the
Georgia-Pacific Group's minimum annual purchase obligation in those forests from
60% to 50% of the annual harvest in 1999 and 2000.
These changes are intended to cause prices paid by the Georgia-Pacific
Group for timber sold by The Timber Company to more quickly reflect market
prices in particular forests, to allow the Georgia-Pacific Group more
flexibility in purchasing wood from third parties, and to allow The Timber
Company greater flexibility in the timing of sales of its annual harvest on the
open market. The revised policy also contains additional provisions that resolve
issues related to certain operating practices of The Timber Company and the
Georgia-Pacific Group. This policy will remain in effect through 2000.
-78-
The Georgia-Pacific Group and The Timber Company are negotiating the terms
of a new long-term agreement to govern the purchases and sales of timber
beginning in 2001. If such negotiations are unsuccessful, neither the
Georgia-Pacific Group nor The Timber Company will have any obligation to buy
timber from or sell timber to the other.
The Corporation is a 50% partner in a joint venture (GA-MET) with
Metropolitan Life Insurance Company (Metropolitan). GA-MET owns and operates the
Corporation's main office building in Atlanta, Georgia. The Corporation accounts
for its investment in GA-MET under the equity method.
At January 1, 2000, GA-MET had an outstanding mortgage loan payable to
Metropolitan in the amount of $144 million. The note bears interest at 9 1/2%,
requires monthly payments of principal and interest through 2011, and is secured
by the land and building owned by the joint venture. In the event of
foreclosure, each partner has severally guaranteed payment of one-half of any
shortfall of collateral value to the outstanding secured indebtedness. Based on
the present market conditions and building occupancy, the likelihood of any
obligation to the Corporation with respect to this guarantee is considered
remote.
NOTE 14. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
First quarter Second quarter
In millions, except per share amounts 1999 1998 1999 1998
================================================================================================
Net sales $ 3,409 $ 3,223 $ 3,850 $ 3,307
Gross profit (net sales minus cost of sales) 900 758 1,094 762
Income before extraordinary
items and accounting change 146 68 311 68
Net income 146 54 311 67
================================================================================================
Georgia-Pacific Group
Dividends declared per share $ 0.125 $ 0.125 $ 0.125 $ 0.125
Basic per share:
Income before extraordinary items 0.57 0.09 1.23 0.17
Net income 0.57 0.02 1.23 0.16
Diluted per share:
Income before extraordinary items 0.56 0.09 1.20 0.17
Net income 0.56 0.02 1.20 0.16
The Timber Company
Dividends declared per share 0.25 0.25 0.25 0.25
Basic per share:
Income before extraordinary items 0.54 0.56 1.17 0.41
Net income 0.54 0.54 1.17 0.41
Diluted per share:
Income before extraordinary items 0.54 0.56 1.16 0.41
Net income 0.54 0.54 1.16 0.41
- ------------------------------------------------------------------------------------------------
Price range of common stock
Georgia-Pacific Group
High $ 41.00 $ 35.00 $ 54.13 $ 40.50
Low 29.34 26.00 38.75 27.34
The Timber Company
High 24.06 27.25 27.13 27.00
Low 19.88 21.25 22.00 19.69
-79-
- ------------------------------------------------------------------------------------------------
Third quarter Fourth quarter
In millions, except per share amount 1999 1998 1999 1998
=================================================================================================
Net sales $ 5,526 $ 3,398 $ 5,192 $ 3,414
Gross profit (net sales minus cost of sales) 1,334 814 1,316 777
Income before extraordinary items and
accounting change 279 80 380 73
Net income 279 80 380 73
=================================================================================================
Georgia-Pacific Group
Dividends declared per share $ .125 $ 0.125 $ 0.125 $ 0.125
Basic per share:
Income before extraordinary items 1.34 0.22 1.02 0.15
Net income 1.34 0.22 1.02 0.15
Diluted per share:
Income before extraordinary items 1.31 0.22 1.00 0.15
Net income 1.31 0.22 1.00 0.15
The Timber Company
Dividends declared per share 0.25 0.25 0.25 0.25
Basic per share:
Income before extraordinary items 0.59 0.46 2.48 0.54
Net income 0.59 0.46 2.48 0.54
Diluted per share:
Income before extraordinary items 0.59 0.46 2.47 0.54
Net income 0.59 0.46 2.47 0.54
=================================================================================================
Price range of common stock
Georgia-Pacific Group
High $ 52.88 $ 30.25 $ 50.88 $ 30.00
Low 37.50 18.69 35.75 22.00
The Timber Company
High 27.19 23.19 25.81 24.56
Low 22.00 18.00 22.38 17.38
=================================================================================================
The first and second quarters of 1998 included an after-tax extraordinary loss
of $14 million and $1 million, respectively, on early extinguishment of debt.
SELECTED FINANCIAL DATA - OPERATIONS
Georgia-Pacific Corporation and Subsidiaries
EARNINGS TO FIXED CHARGES Income before income taxes, extraordinary items and
accounting change plus total interest cost (interest expense plus capitalized
interest) and one-third of rent expense, divided by total interest cost plus one
one-third of rent expense.
CASH FLOW TO INTEREST Cash provided by operations plus interest expense, divided
by total interest cost (interest expense plus capitalized interest).
EFFECTIVE INCOME TAX RATE Provision (benefit) for income taxes divided by income
(loss) before income taxes, extraordinary items and accounting change.
-80-
Year ended
-------------------------------------------------------
Dollar amounts, except per January 1, December 31,
share, and shares are in millions 2000 1998 1997 1996 1995
============================================================================================
Operations
Net sales $ 17,977 $ 13,342 $ 13,094 $ 13,024 $ 14,313
- --------------------------------------------------------------------------------------------
Cost and expenses
Cost of sales 13,333 10,231 10,209 9,798 9,794
Selling and distribution 817 556 607 642 575
Depreciation, amortization
and cost of timber harvested 1,013 997 1,017 996 984
General and administrative 853 648 689 833 831
Interest 495 443 465 459 432
Other income (355) (24) (128) - -
- --------------------------------------------------------------------------------------------
Total costs and expenses 16,156 12,851 12,859 12,728 12,616
- --------------------------------------------------------------------------------------------
Income before income
taxes, extraordinary
items and accounting change 1,821 491 235 296 1,697
Provision for income taxes 705 202 106 135 679
- --------------------------------------------------------------------------------------------
Income before
extraordinary items
and accounting change 1,116 289 129 161 1,018
Extraordinary items and
accounting change, net of taxes - (15) (60) (5) -
- --------------------------------------------------------------------------------------------
Net income $ 1,116 $ 274 $ 69 $ 156 $ 1,018
============================================================================================
Cash provided by operations $ 1,427 $ 1,554 $ 1,116 $ 1,225 $ 1,820*
============================================================================================
Other statistical data Georgia-Pacific Corporation Basic per share:
Income before extraordinary items
and accounting change $ 1.78 $ 11.29
Extraordinary items and
accounting change, net of taxes (0.06) -
- --------------------------------------------------------------------------------------------
Net income $ 1.72 $ 11.29
============================================================================================
Diluted per share:
-81-
Income before extraordinary items
and accounting change $ 1.77 $ 11.18
Extraordinary items and
accounting change, net of taxes (0.06) -
- --------------------------------------------------------------------------------------------
Net income $ 1.71 $ 11.18
============================================================================================
Georgia-Pacific Group
Income (loss) before extraordinary
accounting change $ 716 $ 111 $ (86)
Extraordinary items and accounting
change, net of taxes - (13) (60)
- --------------------------------------------------------------------------------------------
Net income (loss)
============================================================================================
Basic per share:
Income (loss) before extraordinary
items and accounting change $ 4.17 $ 0.62 $ (0.47)
Extraordinary items and
accounting change, net of taxes - (0.07) (0.33)
- --------------------------------------------------------------------------------------------
Net income (loss) $ 4.17 $ 0.55 $ (0.80)
============================================================================================
Diluted per share:
Income before extraordinary items
and accounting change $ 4.07 $ 0.61 $ (0.47)
Extraordinary items and
accounting change, net of taxes - (0.07) (0.33)
- --------------------------------------------------------------------------------------------
Net income (loss) $ 4.07 $ 0.54 $ (0.80)
============================================================================================
The Timber Company
Income before extraordinary items $ 400 $ 178 $ 215
Extraordinary items, net of taxes - (2) -
- --------------------------------------------------------------------------------------------
Net income $ 400 $ 176 $ 215
============================================================================================
Basic per share:
Income before extraordinary items $ 4.75 $ 1.97 $ 2.35
Extraordinary items, net of taxes - (0.02) -
- --------------------------------------------------------------------------------------------
Net income $ 4.75 $ 1.95 $ 2.35
============================================================================================
Diluted per share
-82-
Income before extraordinary items $ 4.73 $ 1.96 $ 2.33
Extraordinary items, net of taxes - (0.02) -
- --------------------------------------------------------------------------------------------
Net income $ 4.73 $ 1.94 $ 2.33
============================================================================================
Average number shares outstanding
Georgia-Pacific Corporation, basic 90.6 90.2
Georgia-Pacific Corporation, diluted 91.2 91.1
Georgia-Pacific Group, basic 171.8 179.8 182.9
Georgia-Pacific Group, diluted 175.9 181.1 182.9
The Timber Company, basic 84.1 90.3 91.4
The Timber Company, diluted 84.6 90.8 92.1
Earnings to fixed charges 4.4 2.1 1.5 1.7 4.8
Cash flow to interest 3.8 4.4 3.3 3.4 4.8
Effective income tax rate 38.7% 41.1% 45.1% 45.6% 40.0%
============================================================================================
* Excludes the accounts receivable secured borrowing program.
SELECTED FINANCIAL DATA - FINANCIAL POSITION, END OF YEAR
Georgia-Pacific Corporation and Subsidiaries
BOOK VALUE PER COMMON SHARE Shareholders' equity divided by shares of common
stock outstanding as of the end of the year.
TOTAL DEBT TO CAPITAL, BOOK BASIS Total debt divided by the sum of total debt,
senior deferrable notes, deferred income taxes, net, other long-term liabilities
and shareholders' equity as of the end of the year. Total debt includes bank
overdrafts, commercial paper and short-term notes, current portion of long-term
debt, (all of which are included "Current liabilities"), long-term debt and
accounts receivable pledged.
TOTAL DEBT TO CAPITAL, MARKET BASIS Total debt
divided by the sum of total debt and the market value of shareholders' equity as
of the end of the year. Total debt includes bank overdrafts, commercial paper
and short-term notes, current portion of long-term debt, (all of which are
included in "Current liabilities),long-term debt and accounts receivable
pledged. The market value of shareholders' equity is the market price of common
stock multiplied by the number of common stock shares outstanding.
CURRENT RATIO Current assets divided by current liabilities as of the end of the
year.
Year ended
Dollar amounts, except per -----------------------------------------------------
share, and shares January 1, December 31,
are in millions 2000 1998 1997 1996 1995
==============================================================================================
Financial position, end of year
Current assets $ 4,559 $ 2,645 $ 2,916 $ 2,615 $ 2,595
-83-
Timber and timberlands 1,189 1,210 1,201 1,342 1,374
Property, plant and
equipment, net 7,079 6,249 6,297 6,560 6,013
Goodwill, net 2,697 1,677 1,599 1,658 1,714
Other assets 1,373 919 937 643 639
- ----------------------------------------------------------------------------------------------
Total assets $ 16,897 $12,700 $ 12,950 $12,818 $12,335
- ----------------------------------------------------------------------------------------------
Current liabilities $ 4,191 $2,648 $3,020 $ 2,490 $ 1,764
Long-term debt 4,621 4,125 3,713 4,371 4,704
Senior deferrable notes 863 - - - -
Other long-term liabilities 1,811 1,572 1,544 1.285 1,201
Deferred income taxes 1,536 1,231 1,199 1,161 1,147
- ----------------------------------------------------------------------------------------------
Total liabilities $ 13,022 $ 9,576 $9,480 $9,307 $8,816
- ----------------------------------------------------------------------------------------------
Shareholders' equity $ 3,875 $ 3,124 $ 3,470 $ 3,511 $ 3,519
==============================================================================================
Other statistical data
Property, plant and equipment
investments $ 723 $ 638 $ 717 $ 1,059 $ 1,259
Timber & timberland purchases 228 201 175 142 244
Cash paid for acquisitions 1,658 112 - 363 -
==============================================================================================
Total debt to capital, book basis 46.9% 48.6% 47.2% 50.4% 49.3%
Total debt to capital, market basis - - - 47.4% 47.2%
Current ratio 1.1 1.0 1.0 1.1 1.5
==============================================================================================
Georgia-Pacific Corporation
Per share (through December 16, 1997)
Market price:
High $ 108.56 $ 81.00 $95.75
Low $ 70.50 $ 63.00 $ 65.75
Period-end $ 85.13 $ 72.00 $ 68.63
Book value $ 38.52 $ 38.54
Shares of stock outstanding at
year-end 91.4 91.3
Dividends declared per share $ 2.00 $ 2.00 $ 1.90
==============================================================================================
Georgia-Pacific Group*
Per share
Market price:
High $ 54.13 $ 40.50 $ 32.00
Low $ 29.34 $ 18.69 $ 29.50
Year-end $ 50.75 $ 29.28 $ 30.38
Book value $ 21.78 $ 18.55 $ 19.10
Shares of stock outstanding at year-end 172.2 173.0 184.5
Dividends declared per share $ 0.50 $ 0.50
==============================================================================================
The Timber Company*
Per share
Market price:
High $ 27.19 $ 27.25 $ 25.88
-84-
Low $ 19.88 $ 17.38 $ 22.50
Year-end $ 24.63 $ 23.81 $ 22.69
Book value $ 1.51 $ (0.98) $ (0.53)
Shares of stock outstanding at
year-end 82.9 87.1 92.6
Dividends declared per share $ 1.00 $ 1.00
* 1997 amounts are for the period from December 17, 1997 through December 31,
1997.
SALES AND OPERATING PROFITS BY OPERATING SEGMENT
Georgia-Pacific Corporation and Subsidiaries
(In millions) 1999 1998 1997 1996
=================================================================================================================================
Net sales (1)
Building products
Wood panels $ 1,193 7% $ 1,055 8% $ 946 7% $ 948 7%
Lumber 1,079 6 844 6 876 7 779 6
Gypsum products 1,083 6 891 7 794 6 647 5
Chemicals 414 2 427 3 455 3 416 3
Other 100 1 120 1 68 1 51 1
- ---------------------------------------------------------------------------------------------------------------------------------
3,869 22 3,337 25 3,139 24 2,841 22
- ---------------------------------------------------------------------------------------------------------------------------------
Building products
Distribution
Wood panels 2,503 14 2,117 16 1,904 15 1,997 15
Lumber 1,659 9 1,467 11 1,634 12 1,619 13
Other 696 4 741 5 860 7 937 7
- ---------------------------------------------------------------------------------------------------------------------------------
4,858 27 4,325 32 4,398 34 4,553 35
- ---------------------------------------------------------------------------------------------------------------------------------
Timber 199 1 125 1 126 1 123 1
- ---------------------------------------------------------------------------------------------------------------------------------
Containerboard and
Packaging
Containerboard 505 3 488 4 505 4 499 4
Packaging 1,822 10 1,556 12 1,260 9 1,422 11
- ---------------------------------------------------------------------------------------------------------------------------------
2,327 13 2,044 16 1,765 13 1,921 15
- ---------------------------------------------------------------------------------------------------------------------------------
Pulp and paper
Communication papers 1,234 7 1,492 11 1,506 11 1,521 12
Tissue 1,096 6 987 8 940 7 939 7
Market pulp 745 4 709 5 863 7 738 5
Bleached board 193 1 176 1 207 2 228 2
Other 139 1 157 1 159 1 167 1
- ---------------------------------------------------------------------------------------------------------------------------------
3,407 19 3,521 26 3,675 28 3,593 27
- ---------------------------------------------------------------------------------------------------------------------------------
-85-
Paper distribution
Fine paper 1,980 11 - - - - - -
Supply systems 1,329 7 - - - - - -
Other 22 - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
3,331 18 - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Corporate and all other (14) - (10) - (9) - (7) -
- ---------------------------------------------------------------------------------------------------------------------------------
Total net sales $17,977 100% $13,342 100% $13,094 100% $13,024 100%
=================================================================================================================================
Operating profits
Building products $ 1,139 49% $ 603 65% $ 490 70% $ 567 75%
Building products
Distribution 63 3 1 - (171) (24) (220) (29)
Timber 726 31 364 39 437 62 313 41
Containerboard and packaging 344 15 106 11 (6) (1) 127 17
Pulp and paper 266 12 133 14 201 29 250 33
Paper distribution 78 3 - - - - - -
Corporate and all other (3) (300) (13) (273) (29) (251) (36) (282) (37)
- ---------------------------------------------------------------------------------------------------------------------------------
Total operating profits $ 2,316 100% $ 934 100% $ 700 100% $ 755 100%
=================================================================================================================================
(In millions) 1995
===================================================================
Net sales*
Building products
Wood panels $ 923 6%
Lumber 668 5
Gypsum products 371 3
Chemicals 427 3
Other 72 -
- ------------------------------------------------------------------
2,461 17
- ------------------------------------------------------------------
Building products
Distribution
Wood panels 2,301 16
Lumber 1,577 11
Other 978 7
- ------------------------------------------------------------------
4,856 34
- ------------------------------------------------------------------
Timber 118 1
- ------------------------------------------------------------------
Containerboard and
Packaging
Containerboard 702 5
Packaging 1,681 12
-86-
- ------------------------------------------------------------------
2,383 17
- ------------------------------------------------------------------
Pulp and paper
Communication
Papers 1,961 14
Tissue 878 6
Market pulp 1,220 8
Bleached board 269 2
Other 173 1
4,501 31
- ------------------------------------------------------------------
Paper distribution
Fine paper - -
Supply systems - -
Other - -
- ------------------------------------------------------------------
- -
- ------------------------------------------------------------------
Corporate and all other (2) (6) -
- ------------------------------------------------------------------
Total net sales $ 14,313 100%
==================================================================
Operating profits
Building products $ 419 20%
Building products distribution (83) (4)
Timber 277 13
Containerboard and packaging 547 26
Pulp and paper 1,125 53
Paper distribution - -
Corporate and all other (3) (156) (8)
- ------------------------------------------------------------------
Total operating profits $ 2,129 100%
==================================================================
(1) Represents net sales to unaffiliated customers.
(2) Represents the elimination of hunting lease income reflected in net sales
for the timber segment and reflected as a reduction to cost of sales on a
consolidated basis. In addition, includes net sales from miscellaneous
businesses.
(3) Includes some miscellaneous businesses, certain goodwill
amortization, unallocated corporate operating expenses and the elimination of
profit on intersegment sales.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on accounting
and financial disclosure within the twenty-four months prior to the date of the
most recent financial statements filed as part of the 1999 Annual Report on Form
10-K.
-87-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to directors required by this Item is set forth on
pages 3 through 6 and on page 32 of the Corporation's Notice of 2000 Annual
Meeting of Shareholders and Proxy Statement dated March 24, 2000, in the
sections entitled "Nominees and Directors" and "Other Matters" are incorporated
herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Corporation are as follows:
Date first
elected as
Name Age an officer Position or office
- ---- --- ---------- ------------------
A. D. Correll 58 1988 Chairman, Chief Executive Officer,
President and a Director
Donald L. Glass 51 1982 Executive Vice President - Timber,
President and Chief Executive Officer,
The Timber Company
Danny W. Huff 49 1993 Executive Vice President - Finance and
Chief Financial Officer
Clint M. Kennedy 50 1988 Executive Vice President - Pulp and
Paperboard
Ronald L. Paul 56 1997 Executive Vice President - Wood
Products and Distribution
John F. Rasor 56 1983 Executive Vice President - Wood
Procurement, Gypsum and Industrial Wood
Products
Lee M. Thomas 55 1993 Executive Vice President - Paper and
Chemicals
James E. Bostic, Jr. 52 1991 Senior Vice President - Environmental,
Government Affairs and Communications
James F. Kelley 58 1993 Senior Vice President - Law and General
Counsel
James E. Terrell 50 1989 Vice President and Controller
-88-
Alston D. Correll has been Chief Executive Officer of Georgia-Pacific since May
1993, Chairman since December 1993 and President since May 1996. He served as
Chief Operating Officer of the Corporation from August 1991 until May 1993, and
President and Chief Executive Officer from May 1993 until December 1993. Mr.
Correll was elected as a Director of the Corporation on May 5, 1992.
Donald L. Glass has been Executive Vice President - Timber and President and
Chief Executive Officer of The Timber Company since December 16, 1997. Mr. Glass
served as Executive Vice President - Building Products from January 1997 to
December 1997 and Senior Vice President - Building Products Manufacturing and
Sales from 1991 until December 1996.
Danny W. Huff has been Executive Vice President - Finance and Chief Financial
Officer since November 1, 1999. Prior to that time, he served as Vice President
and Treasurer from February, 1996 to November, 1999 and Treasurer from October
23, 1993 to February 1, 1996.
Clint M. Kennedy has been Executive Vice President - Pulp and Paperboard since
January 1, 1997. Prior to that time, he served as Senior Vice President - Pulp,
Bleached Board and Logistics from February 1995 until December 1996, Group Vice
President - Pulp and Bleached Board from July 1992 through January 1995 and Vice
President - Sales and Marketing, Pulp and Bleached Board from May 1990 to July
1992.
Ronald L. Paul has been Executive Vice President - Wood Products and
Distribution since December 30, 1997. Prior to that time, he served as Executive
Vice President - Wood Products from September 1997 until December 1997, Vice
President - Structural Panels and Building Products Engineering from May 1996
until September 1997 and Vice President - Engineering and Technology - Building
Products from May 1995 until May 1996.
John F. Rasor has been Executive Vice President - Wood Procurement, Gypsum and
Industrial Wood Products since December 16, 1997. Prior to that time, he served
as Executive Vice President - Forest Resources from January 1997 to December
1997, Senior Vice President - Forest Resources from February 1995 until December
1996, Group Vice President - Forest Resources from May 1992 through January
1995, Group Vice President - Timber from January 1992 to May 1992 and Vice
President - Forest Resources from 1991 to January 1992.
Lee M. Thomas has been Executive Vice President - Paper and Chemicals since
December 16, 1997. Prior to that time, he served as Executive Vice President -
Paper from January 1997 to December 1997, Senior Vice President - Paper from
February 1995 until December 1996, Senior Vice President - Environmental,
Government Affairs and Communications from February 1994 through January 1995,
and Senior Vice President - Environmental and Government Affairs from March 1993
through January 1994.
James E. Bostic, Jr. has been Senior Vice President - Environmental, Government
Affairs and Communications since February 1995. Prior to that time, he served as
Group Vice President - Communication Papers from April 1992 through January
1995, Group Vice President - Butler Paper and Mail-Well from January 1992 to
April 1992, and Vice President - Butler Paper and Mail-Well from January 1991 to
January 1992.
James F. Kelley has been Senior Vice President - Law and General Counsel since
December 1993.
-89-
James E. Terrell was elected Vice President of the Corporation in January 1991
and has served as Controller since 1989.
The Corporation's Board of Directors elects officers of the Corporation. The
Chief Executive Officer has the authority to appoint one or more Vice Presidents
to hold such office until the next annual organizational meeting of the Board.
The Chief Executive Officer also has the authority to approve the compensation
of officers at the Vice President level. The Compensation Committee of the Board
of Directors determines the compensation of all other officers of the
Corporation, including officers who are also directors of the Corporation. There
are no other arrangements or understandings between the respective officers and
any other person pursuant to which such officers are elected.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth on pages 10 through 18 of the Corporation's Notice of
2000 Annual Meeting of Shareholders and Proxy Statement dated March 24, 2000, in
the sections entitled "Compensation Committee Report," "Summary Compensation
Table," "Option and Performance Rights Grants in 1999" and "Agreements with
Officers" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth on pages 19 through 21 of the
Corporation's Notice of 2000 Annual Meeting and Proxy Statement dated March 24,
2000, in the section entitled "Ownership of Common Stock of G-P" and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Annual Report for the Corporation:
(1) The Consolidated Financial Statements, Notes to Consolidated Financial
Statements and the Report of Independent Public Accountants for
Georgia-Pacific Corporation and subsidiaries dated February 4, 2000 are
presented under Item 8 of this Form 10-K.
The Combined Financial Statements, Notes to Combined Financial Statements and
the Reports of Independent Public Accountants for Georgia-Pacific Group and
The Timber Company dated February 4, 2000 are set forth in Exhibit 13.1 and
13.2 hereto, respectively, and are incorporated herein by reference to the
Corporation's 1999 Annual Report to Shareholders.
(2) Financial Statement Schedules:
-90-
Reports of Independent Public Accountants as to Schedules
II Valuation and Qualifying Accounts of Georgia-Pacific Corporation and
subsidiaries and Georgia-Pacific Group for the years ended January 1, 2000,
and December 31, 1998 and 1997.
Schedules other than that listed above are omitted because they are not
required, are inapplicable or the information is otherwise shown in the
financial statements or notes thereto.
(3) Exhibits
The exhibits required to be filed as part of this Annual Report on Form 10-K
are as follows:
NUMBER DESCRIPTION
3.1(i) Articles of Incorporation, restated as of December 16, 1997 (Filed as
Exhibit 4.1 to the Corporation's Registration Statement on Form S-8 as
filed with the Commission on December 18, 1997, and incorporated herein
by this reference thereto).
3.1(ii) Articles of Amendment to Restated Articles of Incorporation (Filed as
Exhibit 3.1 to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, and incorporated herein by this reference
thereto).
3.2 Bylaws, as amended to date.
4.1 Credit Agreement, dated as of December 23, 1996, among Georgia-Pacific
Corporation, as borrower, the lenders named therein, and Bank of America
National Trust and Savings Association, as agent (Filed as Exhibit
4.1(i) to the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1996, and incorporated herein by this reference
thereto).
-91-
4.2 In reliance upon Item 601(b)(4)(iii) of Regulation S-K, various
instruments defining the rights of holders of long-term debt of the
Corporation are not being filed herewith because the total of securities
authorized under each such instrument does not exceed 10% of the total
assets of the Corporation. The Corporation hereby agrees to furnish a
copy of any such instrument to the Commission upon request.
4.3(i) Restated Rights Agreement, dated as of December 16, 1997, between
Georgia-Pacific Corporation and First Chicago Trust Company of New York,
with form of Georgia-Pacific Group Rights Certificate attached as
Exhibit A-1, form of Timber Group Rights Certificate attached as Exhibit
A-2, Series B Preferred Stock Designation attached as Exhibit B-1 and
Series C Preferred Stock Designation attached as Exhibit B-2 (Filed as
Exhibit 8 to the Corporation's Registration Statement on Form 8-A as
filed with the Commission on November 26, 1997, and incorporated herein
by this reference thereto).
4.3(ii) Amendment No. 1, dated as of November 8, 1999, to Amended and Restated
Rights Agreement dated as of December 16, 1997 between Georgia-Pacific
Corporation and First Chicago Trust Company of New York, as Rights Agent.
4.4(i) Indenture, dated as of March 1, 1983, between Georgia-Pacific
Corporation and The Chase Manhattan Bank (National Association), Trustee
(Filed as Exhibit 4.4(i) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1996, and incorporated herein by this
reference thereto).
4.4(ii) First Supplemental Indenture, dated as of July 27, 1988, among
Georgia-Pacific Corporation, The Chase Manhattan Bank (National
Association), Trustee, and Morgan Guaranty Trust Company of New York
(Filed as Exhibit 4.4(ii) to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1996, and incorporated herein by
this reference thereto).
4.4(iii) Agreement of Resignation, Appointment and Acceptance, dated as of
January 31, 1992 by and among Georgia-Pacific Corporation, Morgan
Guaranty Trust Company of New York and The Bank of New York, as
Successor Trustee (Filed as Exhibit 4.4(iii) to the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1996, and
incorporated herein by this reference thereto).
-92-
4.5 Form of Purchase Contract Agreement relating to Stock Purchase Contracts
and Stock Purchase Units (filed as Exhibit 4(p) to the Corporation's
Registration Statement on Form S-3, as filed with the Commission on June
30, 1999, and incorporated herein by this reference thereto).
4.6 Form of Pledge Agreement for Stock Purchase Contracts and Stock Purchase
Units (filed as Exhibit 4(q) to the Corporation's Registration Statement
on Form 8-A relating to File No.333-80757 as filed with the Commission
on June 25, 1999, and incorporated herein by this reference thereto).
4.7 Form of Remarketing Agreement between Georgia-Pacific Corporation and
Morgan Stanley & Co. Incorporated (filed as Exhibit 4(u) to the
Corporation's Registration Statement on Form S-3, as filed with the
Commission on June 30, 1999, and incorporated herein by this reference
thereto).
4.8 Form of Stock Purchase Units (included as Exhibits A and B of Exhibit
4.3) (filed as Exhibit 4(v) to the Corporation's Registration Statement
on Form S-3, as filed with the Commission on June 30, 1999, and
incorporated herein by this reference thereto).
10.1 Directors Group Life Insurance Program. (Filed as Exhibit 10.1 to the
Corporation's Annual Report on Form 10-K for the year ended December 31,
1998, and incorporated herein by this reference thereto).
10.2 Officer Retirement Agreement (Officers Retirement Plan). (Filed as
Exhibit 10.2 to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1998, and incorporated herein by this reference
thereto).
10.3(i) Key Salaried Employees Group Insurance Plan - Pre-1987 Group (As Amended
and Restated Effective January 1, 1987) (Filed as Exhibit 10.3(i) to the
Corporation's Annual Report on Form 10-K for the year ended December 31,
1996, and incorporated herein by this reference thereto).
10.3(ii) Amendment No. 1 (Effective January 1, 1991) to the Key Salaried
Employees Group Insurance Plan - Pre-1987 Group (As Amended and Restated
Effective January 1, 1987) (Filed as Exhibit 10.3(ii) to the
Corporation's Annual Report on Form 10-K for the year ended December 31,
1996, and incorporated herein by this reference thereto).
-93-
10.3(iii) Key Salaried Employees Group Insurance Plan - Post-1986 Group (Effective
January 1, 1987) (Filed as Exhibit 10.3(iii) to the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1996, and
incorporated herein by this reference thereto).
10.3(iv) Amendment No. 1 (Effective January 1, 1991) to the Key Salaried
Employees Group Insurance Plan - Post-1986 Group (Effective January 1,
1987) (Filed as Exhibit 10.3(iv) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1996, and incorporated herein
by this reference thereto).
10.3(v) Amendment No. 2 to the Key Salaried Employees Group Insurance Plan -
Post-1986 Group (effective January 1, 1987). (Filed as Exhibit 10.3(v)
to the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by this reference thereto).
10.3(vi) Amendment No. 3 to the Key Salaried Employees Group Insurance Plan -
Post-1986 Group (effective August 1, 1994). (Filed as Exhibit 10.3(vi)
to the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by this reference thereto).
10.3(vii) Amendment No. 4 to the Key Salaried Employees Group Insurance Plan -
Post-1986 Group (effective January 1, 1998). (Filed as Exhibit 10.3(vii)
to the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by this reference thereto).
10.4(i) 1990 Long-Term Incentive Plan (Filed as Exhibit 10.5(i) to the
Corporation's Annual Report on Form 10-K for the year ended December 31,
1996, and incorporated herein by this reference thereto).
10.4(ii) Amendment No. 1 to 1990 Long-Term Incentive Plan (Filed as Exhibit
10.5(ii) to the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1996, and incorporated herein by this reference
thereto).
10.4(iii) Amendment No. 2 to the 1990 Long-Term Incentive Plan (Filed as Exhibit
10.8(iii) to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, and incorporated herein by this reference
thereto).
-94-
10.6 Retirement Letter Agreement between John F. McGovern and Georgia-Pacific
Corporation dated September 22, 1999.
10.7 Economic Value Incentive Plan, as Amended and Restated effective January
21, 2000.
10.8(i) 1995 Shareholder Value Incentive Plan, as Amended and Restated effective
December 16, 1997 (Filed as Exhibit 10.8(iv) to the Corporation's
Amendment No. 2 to Registration Statement on Form S-4 as filed with the
Commission on November 7, 1997, and incorporated herein by this
reference thereto).
10.8(ii) Amendment No. 1 to the Amended and Restated 1995 Shareholder Value
Incentive Plan, effective May 5, 1998.
10.8(iii) Amendment No. 2 to the Amended and Restated 1995 Shareholder Value
Incentive Plan, effective September 29, 1999.
10.8(iv) Amendment No. 3 to the Amended and Restated 1995 Shareholder Value
Incentive Plan, effective March 24, 2000.
10.8(v) Form of Replacement Option Under the 1995 Shareholder Value Incentive
Plan (Georgia-Pacific Group stock) (1995 Grant) (Filed as Exhibit 99.11
to the Corporation's Registration Statement on Form S-8 as filed with
the Commission on December 18, 1997, and incorporated herein by this
reference thereto).
10.8(vi) Form of Replacement Option Under the 1995 Shareholder Value Incentive
Plan (Timber Group stock) (1995 Grant) (Filed as Exhibit 99.12 to the
Corporation's Registration Statement on Form S-8 as filed with the
Commission on December 18, 1997, and incorporated herein by this
reference thereto).
10.8(vii) Form of Replacement Option Under the 1995 Shareholder Value Incentive
Plan (Georgia-Pacific Group stock) (1996 Grant) (Filed as Exhibit 99.13
to the Corporation's Registration Statement on Form S-8 as filed with
the Commission on December 18, 1997, and incorporated herein by this
reference thereto).
-95-
10.8(viii) Form of Replacement Option Under the 1995 Shareholder Value Incentive
Plan (Timber Group stock) (1996 Grant) (Filed as Exhibit 99.14 to the
Corporation's Registration Statement on Form S-8 as filed with the
Commission on December 18, 1997, and incorporated herein by this
reference thereto).
10.8(ix) Form of Replacement Option Under the 1995 Shareholder Value Incentive
Plan (Georgia-Pacific Group stock) (1997 Grant) (Filed as Exhibit 99.15
to the Corporation's Registration Statement on Form S-8 as filed with
the Commission on December 18, 1997, and incorporated herein by this
reference thereto).
10.8(x) Form of Replacement Option Under the 1995 Shareholder Value Incentive
Plan (Timber Group stock) (1997 Grant) (Filed as Exhibit 99.16 to the
Corporation's Registration Statement on Form S-8 as filed with the
Commission on December 18, 1997, and incorporated herein by this
reference thereto).
10.8(xi) Form of Special Replacement Option Under the 1995 Shareholder Value
Incentive Plan (Georgia-Pacific Group stock) (1997 Grant) (Filed as
Exhibit 99.17 to the Corporation's Registration Statement on Form S-8 as
filed with the Commission on December 18, 1997, and incorporated herein
by this reference thereto).
10.8(xii) Form of Special Replacement Option Under the 1995 Shareholder Value
Incentive Plan (Timber Group stock) (1997 Grant) (Filed as Exhibit 99.18
to the Corporation's Registration Statement on Form S-8 as filed with
the Commission on December 18, 1997, and incorporated herein by this
reference thereto).
10.9(i) Outside Directors Stock Plan, adopted March 17, 1995.
10.9(ii) Amendment No. 1 to the Outside Directors Stock Plan, effective May 6,
1997 (Filed as Exhibit 10.11 to the Corporation's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 1997, and incorporated herein
by this reference thereto).
10.9(iii) Amendment No. 2 to the Outside Directors Stock Plan, effective September
23, 1998 (Filed as Exhibit 10.9 to the Corporation's Quarterly Report on
Form 10-Q for the Quarter ended September 30, 1998, and incorporated
herein by this reference thereto).
-96-
10.10(i) Directors Deferred Compensation Plan, effective September 22, 1998
(Filed as Exhibit 10.10(ii) to the Corporation's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, and incorporated
herein by this reference thereto).
10.10(ii) Form of Deferral Agreement. (Filed as Exhibit 10.10(i) to the
Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, and incorporated herein by this reference thereto).
10.11(i) Amended and Restated Receivables Purchase Agreement dated as of October
13, 1999, among G-P Receivables, Inc., as the Seller, and
Georgia-Pacific Corporation, as the Collection Agent, and Canadian
Imperial Bank of Commerce, Citibank, N.A., and Bank One, NA (Chicago
Office), as the Secondary Purchasers, and Canadian Imperial Bank of
Commerce, as the Administrative Agent.
10.11(ii) Amended and Restated Receivables Purchase Agreement dated as of October
13, 1999, among G-P Receivables, Inc., as the Seller, and
Georgia-Pacific Corporation, as the Collection Agent, and Asset
Securitization Cooperative Corporation, Corporate Asset Funding Company,
Inc., and Falcon Asset Securitization Corporation, as the Purchasers,
and Canadian Imperial Bank of Commerce, as the
Administrative Agent.
10.12(i) Georgia-Pacific Corporation/Georgia-Pacific Group 1997 Long-Term
Incentive Plan (Filed as Exhibit 10.10(i) to the Corporation's
Amendment No. 2 to Registration Statement on Form S-4 as filed with
the Commission on November 7, 1997, and incorporated herein by this
reference thereto).
10.12(ii) Amendment No. 1 to the Georgia-Pacific Group 1997 Long-Term Incentive
Plan.
10.12(iii) Amendment No. 2 to the Georgia-Pacific Group 1997 Long-Term Incentive
Plan.
10.12(iv) Form of Revised Georgia-Pacific Group 1997 Long-Term Incentive Plan
Option (Filed as Exhibit 10.1 to the Corporation's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, and incorporated
herein by this reference thereto).
-97-
10.12(v) Form of Revised Special Georgia-Pacific Group 1997 Long-Term Incentive
Plan Option (Filed as Exhibit 10.2 to the Corporation's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998, and incorporated
herein by this reference thereto).
10.12(vi) Form of Georgia-Pacific Group 1997 Long-Term Incentive Plan Performance
Share Grant Agreement for the January 1, 1999 through December 31, 1999
Performance Period (January 28, 1999 Grant). (Filed as Exhibit 10.12(iv)
to the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by this reference thereto).
10.12(vii) Form of Georgia-Pacific Group 1997 Long-Term Incentive Plan Performance
Share Grant Agreement for the January 1, 1999 through December 31, 2000
Performance Period (January 28, 1999 Grant). (Filed as Exhibit 10.12(v)
to the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by this reference thereto).
10.12(viii) Form of Georgia-Pacific Group 1997 Long-Term Incentive Plan Performance
Share Grant Agreement for the January 1, 1999 through December 31, 2001
Performance Period (January 28, 1999 Grant). (Filed as Exhibit 10.12(vi)
to the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by this reference thereto).
10.12(ix) Form of Georgia-Pacific Group 1997 Long-Term Incentive Plan Option
(January 28, 1999 Grant). (Filed as Exhibit 10.12(vii) to the
Corporation's Annual Report on Form 10-K for the year ended December 31,
1998, and incorporated herein by this reference thereto).
10.12(x) Form of Georgia-Pacific Group 1997 Long-Term Incentive Plan Option
(January 21, 2000 Grant).
10.12(xi) Form of Georgia-Pacific Group 1997 Long-Term Incentive Plan Performance
Share Grant Agreement for the January 1, 2000 through December 31, 2002
Performance Period (January 21, 2000 Grant).
10.13(i) Georgia-Pacific Corporation/Timber Group 1997 Long-Term Incentive Plan
(Filed as Exhibit 10.10(ii) to the Corporation's Amendment No. 2 to
Registration Statement on Form S-4 as filed with the Commission on
November 7, 1997, and incorporated herein by this reference thereto).
-98-
10.13(ii) Amendment No. 1 to the Timber Group 1997 Long-Term Incentive Plan.
10.13(iii) Form of Revised Timber Group 1997 Long-Term Incentive Plan Option (Filed
as Exhibit 10.3 to the Corporation's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998, and incorporated herein by this
reference thereto).
10.13(iv) Form of Timber Group 1997 Long-Term Incentive Plan Option (January 21,
2000 Grant).
10.14 Agreement and Plan of Merger dated as of May 25, 1999, among Unisource
Worldwide, Inc., Georgia-Pacific Corporation and Atlanta Acquisition
Corp. (filed as Exhibit 99(c)(1) to the Schedule 14D-1 of Atlanta
Acquisition Corp. and Georgia-Pacific Corporation, and incorporated
herein by this reference thereto).
10.15 Joint Venture Agreement among Georgia- Pacific Corporation, Chesapeake
Corporation, Wisconsin Tissue Mills Inc. and Georgia-Pacific Tissue,
LLC, dated as of October 4, 1999.
10.16 Operating Agreement of Georgia-Pacific Tissue, LLC, dated as of October
4, 1999, among Wisconsin Tissue Mills Inc. and Georgia-Pacific
Corporation.
10.17 Credit Agreement, dated as of July 22, 1999, among Georgia-Pacific
Corporation, the Lenders Named therein, Bank of America National Trust
and Savings Association, as Administrative Agent, Commerzbank AG, New
York Branch, as Documentation Agent, and The Chase Manhattan Bank and
Citibank, N.A. as Co-Syndication Agents, Banc of America Securities LLC
as Sole Book Manager and Sole Lead Arranger
10.18 Credit Agreement, dated as of July 22, 1999, among North American Timber
Corp., the Lenders Named therein, Bank of America National Trust and
Savings Association, as Administrative Agent, Commerzbank AG, New York
Branch, as Documentation Agent, and The Chase Manhattan Bank and
Citibank, N.A. as Co-Syndication Agents, Banc of America Securities LLC
as Sole Book Manager and Sole Lead Arranger.
10.19 Form of Parent (Georgia-Pacific Corporation) Guaranty (included as
7.01(c) to Exhibit 10.18).
-99-
10.20 Form of Subsidiary Guaranty (North American Timber Corp., Unisource
Worldwide, Inc., Brunswick Pulp & Paper Company, G-P Gypsum Corporation,
Georgia-Pacific West, Inc., Great Northern Nekoosa Corporation, Leaf
River Forest Products, Inc., Nekoosa Packaging Corporation and Nekoosa
Papers Inc. ).
10.21 Georgia-Pacific Group 2000 Employee Stock Purchase Plan.
10.22 The Timber Company 2000 Employee Stock Purchase Plan
10.23 Georgia-Pacific Tissue, LLC 2000 Employee Stock Purchase Plan.
12 Statements of Computation of Ratio of Earnings to Fixed Charges.
13.1 Portions of Georgia-Pacific Corporation's 1999 Annual Report to
Shareholders relating to Georgia-Pacific Group. Such Report is not
deemed to be filed with the Commission as part of this Annual Report on
Form 10-K, except for the portions thereof expressly incorporated by
reference.
13.2 Portions of Georgia-Pacific Corporation's 1999 Annual Report to
Shareholders relating to The Timber Company. Such Report is not deemed
to be filed with the Commission as part of this Annual Report on Form
10-K, except for the portions thereof expressly incorporated by
reference.
21 Subsidiaries.
23 Consent of Independent Public Accountants.
27.1 Financial Data Schedule. (1)
27.2 Financial Data Schedule. (1)
27.3 Financial Data Schedule. (1)
27.4 Financial Data Schedule. (1)
27.5 Financial Data Schedule. (1)
27.6 Financial Data Schedule. (1)
27.7 Financial Data Schedule. (1)
27.8 Financial Data Schedule. (1)
27.9 Financial Data Schedule. (1)
99.1 Properties
(b) Reports on Form 8-K The Corporation filed Current Reports on Form 8-K
dated March 18, 1999, June 22, 1999, June 28, 1999, July 15, 1999,
October 4, 1999 and November 10, 1999 and Current Report on Form 8-K/A
dated July 15, 1999, in which it reported under Item 5 - "Other Events."
-100-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
GEORGIA-PACIFIC CORPORATION
(Registrant)
By: /s/ A.D. Correll
----------------
(A. D. Correll,
Chairman, Chief Executive
Officer and President)
Date: March 24, 2000
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
As Officers or Directors of GEORGIA-PACIFIC CORPORATION
Signature Title Date
--------- ----- ----
As Officers or Directors of GEORGIA-PACIFIC CORPORATION
/s/ A.D. CORRELL Director, Chairman, Chief Executive March 24, 2000
- ---------------- Officer and President (Principal
(A. D. Correll) Executive Officer)
/s/ DANNY W. HUFF Executive Vice President-Finance and March 24, 2000
- -------------------------- Chief Financial Officer (Principal
(Danny W. Huff) Financial Officer)
/s/ JAMES E. TERRELL Vice President and Controller March 24, 2000
- -------------------------- (Principal Accounting Officer)
(James E. Terrell)
/s/ JAMES S. BALLOUN Director March 24, 2000
- --------------------------
(James S. Balloun)
/s/ ROBERT CARSWELL Director March 24, 2000
- --------------------------
Robert Carswell)
/s/ JANE EVANS Director March 24, 2000
- --------------------------
(Jane Evans)
-101-
/s/ DONALD V. FITES Director March 24, 2000
- --------------------------
(Donald V. Fites)
/s/ HARVEY C. FRUEHAUF, JR. Director March 24, 2000
- --------------------------
(Harvey C. Fruehauf, Jr.)
/s/ RICHARD V. GIORDANO Director March 24, 2000
- --------------------------
(Richard V. Giordano)
/s/ DAVID R. GOODE Director March 24, 2000
- --------------------------
(David R. Goode)
/s/ M. DOUGLAS IVESTER Director March 24, 2000
- --------------------------
(M. Douglas Ivester)
/s/ JAMES P. KELLY Director March 24, 2000
- --------------------------
(James P. Kelly)
/s/ LOUIS W. SULLIVAN Director March 24, 2000
- --------------------------
(Louis W. Sullivan)
/s/JAMES B. WILLIAMS Director March 24, 2000
- --------------------------
(James B. Williams)
-102-
Report of Independent Public Accountants as to Schedule
To Georgia-Pacific Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Georgia-Pacific Corporation and
subsidiaries incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 4, 2000. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. Schedule
II is the responsibility of the Corporation's management and is presented for
the purpose of complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. This schedule has been subjected
to the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/S/ARTHUR ANDERSEN LLP
----------------------
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 4, 2000
-103-
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 1, 2000 AND DECEMBER 31, 1998 AND 1997
(Millions)
Balance at
beginning
at end of Charged to Charged to
of period costs and other
Description period expenses accounts Deductions Balance
- ------------ --------- -------- -------- ---------- --------
Year ended
January 1,
2000
- -------------
Allowance for
doubtful
accounts $ 25 $ 5 $ - $ (5) ** $ 25
------------- ------------ --------------------------------------
Restructuring
reserves 2 2 98*** (38) 64
------------- ------------ --------------------------------------
Year ended
December 31,
1998
- -------------
Allowance for
doubtful
accounts $ 19 $ 17 $ 1* $ (12) ** $ 25
------------- ------------ --------------------------------------
Restructuring
reserves 70 - - (68) 2
------------- ------------ --------------------------------------
Year ended
December 31,
1997
- -------------
Allowance for
doubtful
accounts $ 10 $ 23 $ 1* $ (15) ** $ 19
------------- ------------ --------------------------------------
Restructuring
reserves 17 80 - (27) 70
------------- ------------ --------------------------------------
*Recoveries of accounts previously written off.
**Accounts written off.
***Reserves acquired
-104-
Report of Independent Public Accountants as to Schedule
To Georgia-Pacific Corporation:
We have audited in accordance with generally accepted auditing standards, the
combined financial statements of Georgia-Pacific Corporation - Georgia-Pacific
Group incorporated by reference in this Form 10-K, and have issued our report
thereon dated February 4, 2000. Our audits were made for the purpose of forming
an opinion on the basic financial statements taken as a whole. Schedule II is
the responsibility of the Corporation's management and is presented for the
purpose of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/S/ARTHUR ANDERSEN LLP
----------------------
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 4, 2000
-105-
GEORGIA-PACIFIC CORPORATION - GEORGIA-PACIFIC GROUP
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 1, 2000 AND DECEMBER 31, 1998 AND 1997
(Millions)
Balance at
beginning
at end of Charged to Charged to
of period costs and other
Description period expenses accounts Deductions Balance
- ----------- --------- -------- -------- ---------- --------
Year ended
January 1,
2000
- -------------
Allowance for
doubtful
accounts $ 25 $ 5 $ - $ (5) ** $ 25
------------- ------------ --------------------------------------
Restructuring
reserves 2 2 98*** (38) 64
------------- ------------ --------------------------------------
Year ended
December 31,
1998
- -------------
Allowance for
doubtful
accounts $ 19 $ 17 $ 1* $ (12) ** $ 25
------------- ------------ --------------------------------------
Restructuring
reserves 70 - - (68) 2
------------- ------------ --------------------------------------
Year ended
December 31,
1997
- -------------
Allowance for
doubtful
accounts $ 10 $ 23 $ 1* $ (15) ** $ 19
------------- ------------ --------------------------------------
- --------
Restructuring
reserves 17 80 - (27) 70
------------- ------------ --------------------------------------
*Recoveries of accounts previously written off.
**Accounts written off.
***Reserves acquired
-106-
GEORGIA-PACIFIC CORPORATION
INDEX TO EXHIBITS
FILED WITH THE ANNUAL REPORT
ON FORM 10-K FOR THE
YEAR ENDED JANUARY 1, 2000
NUMBER DESCRIPTION
3.2 Bylaws, as amended to date. (1)
4.3(ii) Amendment No. 1, dated as of November 8, 1999, to Amended and Restated Rights Agreement dated
as of December 16, 1997 between Georgia-Pacific Corporation and First Chicago Trust Company
of New York, as Rights Agent.
10.6 Retirement Letter Agreement between John F. McGovern and Georgia-Pacific Corporation dated
September 22, 1999. (1)
10.7 Economic Value Incentive Plan, as Amended and Restated effective January 21, 2000. (1)
10.8(ii) Amendment No. 1 to the Amended and Restated 1995 Shareholder Value Incentive Plan, effective May
5, 1998. (1)
10.8(iii) Amendment No. 2 to the Amended and Restated 1995 Shareholder Value Incentive Plan, effective
September 29, 1999. (1)
10.8(iv) Amendment No. 3 to the Amended and Restated 1995 Shareholder Value Incentive Plan, effective
March 24, 2000. (1)
10.9(i) Outside Directors Stock Plan, adopted March 17, 1995. (1)
10.11(i) Amended and Restated Receivables Purchase Agreement dated as of October 13, 1999, among G-P
Receivables, Inc., as the Seller, and Georgia-Pacific Corporation, as the Collection Agent, and
Canadian Imperial Bank of Commerce, Citibank, N.A., and Bank One, NA (Chicago Office), as the
Secondary Purchasers, and Canadian Imperial Bank of Commerce, as the Administrative Agent.
10.11(ii) Amended and Restated Receivables Purchase Agreement dated as of October 13, 1999, among G-P
Receivables, Inc., as the Seller, and Georgia-Pacific Corporation, as the Collection Agent, and
Asset Securitization Cooperative Corporation, Corporate Asset Funding Company, Inc., and Falcon
Asset Securitization Corporation, as the Purchasers, and Canadian Imperial Bank of Commerce, as
the Administrative Agent.
10.12(ii) Amendment No. 1 to the Georgia-Pacific Group 1997 Long-Term Incentive Plan. (1)
10.12(iii) Amendment No. 2 to the Georgia-Pacific Group 1997 Long-Term Incentive Plan. (1)
10.12(x) Form of Georgia-Pacific Group 1997 Long-Term Incentive Plan Option (January 21, 2000 Grant). (1)
-107-
10.12(xi) Form of Georgia-Pacific Group 1997 Long-Term Incentive Plan Performance Share Grant Agreement
for the January 1, 2000 through December 31, 2002 Performance Period (January 21, 2000 Grant).
(1)
10.13(ii) Amendment No. 1 to the Timber Group 1997 Long-Term Incentive Plan. (1)
10.13(iv) Form of Timber Group 1997 Long-Term Incentive Plan Option (January 21, 2000 Grant). (1)
10.15 Joint Venture Agreement among Georgia-Pacific Corporation, Chesapeake Corporation, Wisconsin
Tissue Mills Inc. and Georgia-Pacific Tissue, LLC, dated as of October 4, 1999. (1)
10.16 Operating Agreement of Georgia-Pacific Tissue, LLC, dated as of October 4, 1999, among Wisconsin
Tissue Mills Inc. and Georgia-Pacific Corporation. (1)
10.17 Credit Agreement, dated as of July 22, 1999, among Georgia-Pacific Corporation, the Lenders
Named therein, Bank of America National Trust and Savings Association, as Administrative Agent,
Commerzbank AG, New York Branch, as Documentation Agent, and The Chase Manhattan Bank and
Citibank, N.A. as Co-Syndication Agents, Banc of America Securities LLC as Sole Book Manager and
Sole Lead Arranger. (1)
10.18 Credit Agreement, dated as of July 22, 1999, among North American Timber Corp., the Lenders
Named therein, Bank of America National Trust and Savings Association, as Administrative Agent,
Commerzbank AG, New York Branch, as Documentation Agent, and The Chase Manhattan Bank and
Citibank, N.A. as Co-Syndication Agents, Banc of America Securities LLC as Sole Book Manager and
Sole Lead Arranger. (1)
10.19 Form of Parent (Georgia-Pacific Corporation) Guaranty (included as 7.01(c) to Exhibit 10.18). (1)
10.20 Form of Subsidiary Guaranty (North American Timber Corp., Unisource Worldwide, Inc., Brunswick
Pulp & Paper Company, G-P Gypsum Corporation, Georgia-Pacific West, Inc., Great Northern Nekoosa
Corporation, Leaf River Forest Products, Inc., Nekoosa Packaging Corporation and Nekoosa Papers
Inc.) (1)
10.21 Georgia-Pacific Group 2000 Employee Stock Purchase Plan. (1)
10.22 The Timber Company 2000 Employee Stock Purchase Plan. (1)
10.23 Georgia-Pacific Tissue, LLC 2000 Employee Stock Purchase Plan. (1)
12 Statements of Computation of Ratio of Earnings to Fixed Charges. (1)
13.1 Portions of Georgia-Pacific Corporation's 1999 Annual Report to Shareholders pertaining to
Georgia-Pacific Group. Such Report is not deemed to be filed with the Commission as part of
this Annual Report on Form 10-K, except for the portions thereof expressly incorporated by
reference. (1)
-108-
13.2 Portions of Georgia-Pacific Corporation's 1999 Annual Report to Shareholders pertaining to The
Timber Company. Such Report is not deemed to be filed with the Commission as part of this
Annual Report on Form 10-K, except for the portions thereof expressly incorporated by reference.
(1)
21 Subsidiaries. (1)
23 Consent of Independent Public Accountants. (1)
27.1 Financial Data Schedule. (1)
27.2 Financial Data Schedule. (1)
27.3 Financial Data Schedule. (1)
27.4 Financial Data Schedule. (1)
27.5 Financial Data Schedule. (1)
27.6 Financial Data Schedule. (1)
27.7 Financial Data Schedule. (1)
27.8 Financial Data Schedule. (1)
27.9 Financial Data Schedule. (1)
99.1 Properties (1)
(1) Filed via EDGAR