EXHIBIT 13.2
HIGHLIGHTS
Georgia-Pacific Corporation -The Timber Company
Year Ended
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January 1, December 31,
(In millions, except shares and per share amounts) 2000 1998
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Net sales $ 526 $ 534
Income before extraordinary items 400 178
Basic income per share before extraordinary items 4.75 1.97
Cash provided by operations 159 201
Timber and timberland investments 78 59
Cash dividends paid 84 91
Total assets at year end 1,521 1,174
Total debt at year end 970 983
Total debt to capital at year end, book basis 65.6% 85.6%
Total debt to capital at year end, market basis 32.2% 32.2%
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Cash dividends paid per share of common stock $ 1.00 $ 1.00
Market price per share of common stock at year end $ 24.63 $ 23.81
Shares of common stock outstanding at year end 82.9 87.1
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GEORGIA-PACIFIC CORPORATION-THE TIMBER COMPANY
LETTER TO SHAREHOLDERS
The Timber Company had an excellent year in 1999 as we continued to realize the
benefits of focusing on a single business - growing and selling timber. During
the year, we generated $203 million in free cash flow not including proceeds
from the California land sale. We returned $215 million to shareholders by
paying an annual dividend of $1 per share and by repurchasing about 6 percent of
our outstanding stock.
While the Georgia-Pacific Group remained our largest customer in 1999, we
significantly increased our customer base, selling more than 38 percent of our
harvest volume to outside customers. Our performance benefited from continued
strong demand for our products, as well as our emphasis on selling our timber at
the highest possible price, at the right time, to the right customer.
Nevertheless, extremely dry conditions throughout the South made low-lying areas
harvestable, and this increase in supply helped keep prices below 1998 levels.
The Timber Company took key steps in 1999 that position us well for the future.
Most importantly, we strategically repositioned our timberland portfolio. During
the year, we sold approximately 830,000 acres in Maine and New Brunswick,
Canada, and approximately 194,000 acres in Northern California. While these
lands had been well managed and provided steady cash flows, we found they had
more strategic value for other landowners. These lands represented nearly 20
percent of our land base but only contributed a little more than 10 percent of
our historic EBITDA. The cash proceeds from these sales represent more than 20
percent of our January 1, 2000 market capitalization.
We now manage approximately 4.7 million acres of timberlands in key markets
across the country. These holdings are primarily concentrated in 11 Southern
states, but also include productive timberlands in the Pacific Northwest, the
upper Midwest and the Appalachians. This portfolio provides a strong platform
for both our ongoing operations and our future growth. We estimate our
merchantable inventory now stands at approximately 185 million tons. Our current
timber portfolio allows us to increase our harvest at an average annual rate of
about 2.5 percent over the next 15 years while maintaining our standing
inventory levels. Focusing our business on certain strategic markets enables us
to make the best decisions about how and when to bring our timber to market, in
order to realize the most value for our shareholders.
Throughout our two full years of operation, The Timber Company has done
everything we expected...and more. We have provided strong, stable cash flows
and a good dividend. We have strategically focused our timber holdings, and we
have continued to increase forest productivity while following the principles of
sustainable forestry.
In the coming year, we will continue to look for ways to fully realize the value
of our forests and your investment. We pledge to continue our effort to ensure
that the strength of our operating results and potential are fully realized and
that this value accrues to our shareholders. We appreciate your support and are
committed to the success of your investment in our company.
A.D. "Pete" Correll
Chairman, Chief Executive Officer and President
Georgia-Pacific Corporation
February 4, 2000
Donald L. Glass
President and Chief Executive Officer
The Timber Company
February 4, 2000
GEORGIA-PACIFIC CORPORATION -THE TIMBER COMPANY
OPERATING & FINANCIAL STRATEGY
The Timber Company believes maximizing long-term free cash flow is the key to
wealth creation for our shareholders. We believe timber is a unique asset class
that generates substantial cash flow, providing investors with handsome
historical returns while limiting downside risk. Over the past two years we've
created an enterprise focused on ensuring that every acre and every tree
delivers its full potential.
TIMBER IS A UNIQUE ASSET
Investing in timberland is truly a unique proposition. Timber grows in volume
and is renewable - unlike oil, gas, minerals and other natural resources. While
investments in industrial assets depreciate and require maintenance
reinvestment, timber appreciates without significant reinvestment. Within the
forest products industry, timber stands out as the only product to enjoy real
price appreciation over the past decade. This unique combination of traits
historically has enabled timber investments to outperform the broad equity
markets, with lower risk.
TIMBER MARKETS ARE LOCAL MARKETS
Because about half of a log's weight is water, timber can only be shipped
economically over a short distance - normally about 150 miles. So local supply
and demand conditions dominate short-term pricing dynamics.
Because timber takes years to grow, harvestable inventory is essentially fixed
at any particular time. However, accessible inventory fluctuates. Best
management practices restrict the ability to harvest during periods of wet
weather. This can quickly impact the local supply of logs for sale. Periods of
drought usually expand accessible inventory, as low-lying areas become
harvestable and prices retreat. When prices are depressed, there is little
motivation to exercise the option to sell timber. In other words, the short-term
timber supply is price-elastic.
Local, professional management is essential if owners are to realize the full
value of their timberland investment. Timber assets demand management by
professional foresters who thoroughly understand
the science of silviculture and the short- and long-term supply/demand dynamics
of their local marketplace.
STRATEGY - FOCUS ON ONE BUSINESS
At The Timber Company, we focus on one business: the management and marketing of
timber and timberlands. We seek a portfolio of attractive timber assets that
provides investors with superior return potential for relatively low risk. With
holdings in numerous timber basins, we provide investors with risk-reducing
geographic and product diversity difficult to obtain through a direct timberland
investment. Qualities we seek in timberlands include:
- - High-quality land suited for highly productive timber management
- - Significant high-quality merchantable and premerchantable inventory
- - A concentration of healthy and diverse converting facilities within economic
reach
SHORTEN THE DISTANCE FROM THE FOREST TO THE SHAREHOLDER. The Timber Company
operates 13 profit centers that each manage between 200,000 and 600,000 acres of
productive forestland. Our 280 foresters combine their local market knowledge
with forestry expertise in the management of our lands. We structure the
compensation of these managers and other key employees to align the management
of our timber assets with our shareholders' financial interest.
DEPLOY TECHNOLOGY TO ENHANCE PRODUCTIVITY. The Timber Company is increasing
forest growth rates to allow higher, sustainable harvest volumes over time. We
expect growth rates on our timberlands to increase through the use of
genetically improved seedlings, intensive fertilization, vegetation control,
thinning and selective harvesting practices. We expect to increase seedling
survival rates, improve drought and pest resistance, and achieve higher growth
rates. Our forest technology group employs proprietary forest growth and
economic modeling technology on a site-by-site basis to prescribe optimal
investments and harvest timing.
OPERATING POLICIES
Management of The Timber Company is focused on creating superior shareholder
returns. Key to realizing this goal is our knowledge of local markets. Our
management recognizes the value of the timber harvest option and the flexibility
it creates to maximize returns. We also have several options in bringing timber
to market, including long-term contracts, various types of auctions and
delivered wood sales. This flexibility allows us to match each tree with its
best buyer.
While maximizing revenues, The Timber Company does not lose sight of cost
control. During our two-year history, the absolute level of our fixed costs has
not changed.
About 5 percent of revenues has come from nontimber income sources, primarily
high-margin lease rights on our lands. In the past, income from hunting leases,
the sale of minerals and mineral rights, and the sale of easements was used to
offset property taxes. We are currently managing this growing income stream with
an eye toward offsetting our G&A expense.
We have developed a program to identify small parcels of land that are either
marginally productive or more valuable to others. The majority of the proceeds
from these tactical land sales are tax-efficiently redeployed to acquire more
productive timberlands. In this way, we constantly upgrade the quality of our
timber portfolio.
FINANCIAL POLICIES
SEPARATION OF CASH FLOWS. The letter stock transaction, which created The Timber
Company (and our tracking stock that trades separately from the Georgia-Pacific
Group), underscores our commitment to providing shareholders of The Timber
Company with an appropriate rate of return. The Timber Company's cash flows must
be reinvested solely in The Timber Company, or returned to its shareholders in
the form of dividends and/or share repurchases, regardless of the cash needs of
the Georgia-Pacific Group.
CAPITAL STRUCTURE. We strive to balance our mix of debt and equity to best
benefit our shareholders by keeping our weighted average cost of capital low,
while retaining the flexibility needed to pay dividends and finance attractive
growth opportunities. Risk factors that contribute to the volatility of The
Timber Company and influence the capital structure decision include economic
cycles, changes in industry capacity and additional environmental regulations.
On the other hand, the size, diversity and liquidity of The Timber Company's
timberlands, and the Corporation's capital assets, reduce risk and increase
borrowing capacity. We consider our debt level to be both manageable and prudent
given our capability to generate cash flow.
The Timber Company's target debt level is currently $1.0 billion. On January 1,
2000, our debt was $970 million. The Timber Company held a $397 million
face-value note received as payment for 194,000 acres of California timberland.
We intend to monetize this note in 2000. On a market value basis, the
debt-to-capital ratio was 32.2 percent.
On January 1, 2000, Georgia-Pacific Corporation's total debt was $7.024 billion,
slightly above the target of $6.8 billion. The weighted average pretax cost of
debt was 7.2 percent. Considering the Corporation's ability to generate strong
cash flows even in cycle troughs, we believe the current debt structure is
appropriate and manageable.
INVESTMENT - TREES, TRUCKS AND NOT MUCH ELSE. Investment consists almost
exclusively of the acquisition of timberlands and investments in reforestation
and silviculture to improve growth and yield. Of the $80 million invested in
1999, $36 million was used to acquire timber and timberlands, and $42 million
was invested in reforestation and silvicultural treatments. The remaining $2
million was invested primarily in information systems and pickup trucks. We
expect average annual capital spending in the $50 million range, exclusive of
timberland acquisitions.
DIVESTITURES - STRATEGIC LAND SALES. In 1998, we began a comprehensive review of
assets to ascertain their strategic fit with our overall business portfolio and
our overall financial return criteria. We established two programs to monetize
lands that do not fit these objectives. The tactical land sales program has been
discussed on page 8.
The strategic land sales program began in 1998 with the sale of 61,000 acres in
West Virginia. In 1999, we concluded the program with the sale of our Maine,
California and New Brunswick properties. The combined $489 million sales price
valued the properties at 13.5 times 1998 EBITDA. These transactions were
tax-efficiently structured, deferring taxes on the gains for several years. A
portion of the proceeds was used to execute open market share repurchases in
1999, with the balance expected to be used to repurchase stock in 2000.
ACQUISITIONS - AGGRESSIVE SHOPPER / DISCIPLINED BUYER. From time to time,
sizable timberland acreage becomes available for purchase. We evaluate such
potential acquisitions for both strategic fit and estimated returns. Strategic
fit involves an evaluation of the property including, but not limited to, the
number, size and long-term viability of customers within economic shipping
distance of the forest; the quality of the land; and the quality of the standing
inventory. Traditional valuation techniques are used to triangulate values for
these timberlands with an emphasis on discounted cash flow. Strategic
acquisitions must provide returns to our investors that exceed the cost of
capital.
In 1999, we performed analyses on more than 1 million acres of strategic
timberland acquisitions. However, no major acquisitions could be consummated at
a price that would allow us to meet our financial return requirements.
DIVIDENDS AND SHARE REPURCHASES - EXCESS CASH RETURNED TO SHAREHOLDERS. We
believe a portion of our cash flows should be paid to shareholders as
sustainable quarterly dividends. Currently, we pay a $0.25 quarterly dividend.
Our dividend policy is dictated by our cash flow generation, long-term capital
requirements, capital structure and investor preferences.
As in 1999, there are periods when The Timber Company generates cash in excess
of our requirements for dividends and our opportunities for reinvestment at
attractive rates of return. In such cases, we distribute that excess cash to our
shareholders so they can make their own investment choices. The only
requirements we must meet in order to execute repurchases are that total
corporate debt be below $6.8 billion and total debt of The Timber Company be
below $1.0 billion. This year we repurchased more than 5.3 million shares, a
distribution of $131 million in cash to our shareholders and a reduction of
about 6 percent of shares in 1999. Since share repurchases were initiated in
June of 1998, The Timber Company has repurchased nearly 12 percent of
outstanding shares. It is our intention to continue this program as long as cash
flows exceed available attractive investment opportunities.
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE TIMBER COMPANY
The Timber Company's assets consist of approximately 4.7 million acres of
timberlands owned or leased by Georgia-Pacific Corporation (the Corporation),
together with related facilities and equipment. The accompanying financial
statements present the historical results of operations and financial condition
of the timberlands and operations that compose The Timber Company.
Historically, The Timber Company grew and sold timber, substantially all of
which was sold to manufacturing facilities that now constitute the
Georgia-Pacific Group. Currently, The Timber Company and the Georgia-Pacific
Group operate under a policy governing sales of timber through the year 2000,
which is more fully described in Note 12 of the Notes to Combined Financial
Statements. In 2000, the Georgia-Pacific Group is expected to purchase
approximately 60% of The Timber Company's harvest volumes. This will allow The
Timber Company to continue to provide a comparable amount of timber available
for sale on the open market as in 1999.
The Timber Company's harvest volumes in 1999 were comparable to 1998. As a
result of the land sales in the Northeast, hardwood pulpwood harvest volumes
were slightly lower in 1999. Total harvest volumes for 2000 are expected to be
between 12 million and 13 million tons. The decrease is a result of strategic
timberland sales in 1999 and regular harvest planning for 2000. Sawtimber demand
is expected to remain strong in the South and West. In addition, pulpwood demand
is expected to improve as the demand for pulp and paper products increases.
Selected sales data for The Timber Company are shown in the following table:
SELECTED SALES DATA
Georgia-Pacific Corporation-The Timber Company
Year ended
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January 1, December 31,
2000 1998 1997
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Volume (in thousand tons)
Southern softwood sawtimber 6,449 6,007 5,986
Western softwood sawtimber 1,343 1,608 1,539
Softwood pulpwood 4,323 4,289 5,118
Hardwood sawtimber 547 436 397
Hardwood pulpwood 2,231 2,256 2,572
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Total volume 14,893 14,596 15,612
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Selling prices (per ton)
Southern softwood sawtimber $ 47 $ 50 $ 47
Western softwood sawtimber 83 70 77
Softwood pulpwood 12 14 15
Hardwood sawtimber 35 36 50
Hardwood pulpwood 7 10 11
Weighted average price $ 34 $ 35 $ 34
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The Timber Company also is engaged in certain businesses related to the
ownership and management of timberlands, including managing the sale of hunting
leases, the sale of minerals and mineral rights, and the sale of easements. In
prior years, The Timber Company was engaged in certain businesses related to
real estate development, but is no longer engaged in these activities. Revenues
from these related activities are presented in the table below.
Georgia-Pacific Corporation-The Timber Company
Year ended
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January 1, December 31,
(In millions) 2000 1998 1997
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Other net sales
Hunting leases $ 12 $ 12 $ 11
Minerals 5 4 6
Easements 6 - -
Real estate development - 3 8
Other 2 1 1
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Total $ 25 $ 20 $ 26
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1999 COMPARED WITH 1998
The Timber Company reported net sales of $526 million and net income of $400
million, or $4.73 diluted earnings per share, in 1999, compared with net sales
of $534 million and net income of $176 million, or $1.94 diluted earnings per
share, in 1998. The 1999 results included a $355 million pretax gain ($215
million after taxes, or $2.54 diluted earnings per share) from the sale of
1,024,000 acres of timberlands located in California, Maine and New Brunswick,
Canada. The 1998 results included a $24 million pretax gain ($14 million after
taxes, or $0.16 diluted earnings per share) from the sale of certain timberlands
in West Virginia and an extraordinary, after-tax loss of $2 million, or $0.02
diluted loss per share, for the early retirement of debt.
Timber sales decreased $13 million to $501 million in 1999 compared to $514
million in 1998, primarily as a result of a 21% decline in pulpwood prices.
Total harvest volumes remained relatively flat, with a 2% overall increase.
Timber sales to third parties grew 66% over 1998 as The Timber Company increased
its total sales revenue to third parties from 20% in 1998 to 35% in 1999.
Southern softwood sawtimber prices decreased 6% from record levels in 1998 due
in part to the dry ground conditions in the South. This decline in price was
offset by a 7% increase in harvest volumes due in part to strong demand in the
building products business. However, Western sawtimber volumes decreased 16%
compared to 1998 due in part to weather conditions which restricted harvesting
in the
Northwest during the first nine months of 1999. Softwood pulpwood prices were
down 14% compared to 1998 due to a combination of dry weather and pulp mill
curtailments and/or shutdowns in the first half of 1999. Hardwood pulpwood
prices also continued to drop, as anticipated. Hardwood sawtimber harvest
volumes increased 25% over 1998, while pricing remained relatively flat. Western
sawtimber prices increased 19% year over year, primarily due to recovering
Western markets. Also contributing was the increased demand in the building
products business that was experienced during 1999. Prices for most products are
anticipated to hold at or near current levels in 2000.
Excluding the pretax gain on the sale of timberlands in California, Maine and
New Brunswick of $355 million in 1999, and the pretax gain on the sale of
certain timberlands in West Virginia of $24 million in 1998, earnings before
interest and taxes increased $31 million to $371 million in 1999 compared with
$340 million in 1998. The 9% increase resulted primarily from a $34 million
increase in gains on miscellaneous land sales as compared to 1998. Overall, 2%
higher total harvest volumes partially offset the year over year 3% decline in
average sales price. Cost of sales, excluding depreciation and cost of timber
harvested and gains on asset sales, decreased by $10 million to $121 million in
1999, compared to $131 million in 1998. Much of the decline in cost of sales was
attributable to lower silvicultural expenses and lower cut and haul expenses.
General and administrative expense (G&A) was $43 million in 1999 compared with
$36 million in 1998. The increase is due to higher incentive compensation
accruals, higher legal fees and $2 million of one-time, nonrecurring charges in
the third quarter of 1999, primarily related to charitable contributions. G&A
expense is expected to decline in 2000 by approximately 10%, consistent with the
reduced size of The Timber Company's timberland holdings.
Interest expense decreased by $2 million to $69 million in 1999 compared to $71
million in 1998 due primarily to a decrease in the weighted average interest
rate.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Timber Company generated cash from operations of $159
million during 1999. The Timber Company's cash provided by operations in 1998
was $201 million. The decrease is due in part to the cash received from the sale
of a timber deed sold to the Georgia-Pacific Group in the second quarter of 1998
for approximately $23 million and to taxes paid of approximately $14 million on
the gain from the 1999 sale of timberlands in New Brunswick, Canada.
INVESTING ACTIVITIES. Expenditures in 1999 were $80 million, which included $42
million for silvicultural investments, $36 million for timberland purchases and
$2 million for equipment purchases. Expenditures in 1998 totaled $65 million.
Expenditures for both 1999 and 1998 excluded tax-free exchange transactions. The
Timber Company expects to invest approximately $50 million in 2000, without
considering the cost of any acquisitions, primarily for silvicultural
investments.
Excluding tax-free exchange transactions, The Timber Company received $124
million in proceeds from the sale of assets in 1999, including $92 million from
the sale of approximately 390,000 acres of timberlands in New Brunswick, Canada,
and approximately 440,000 acres of timberlands in Maine.
In December 1999, The Timber Company 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 Timber Company expects
to use the proceeds of the monetization of the notes to fund its share
repurchase program if attractive timberland investment opportunities are not
available. The estimated annual operating profits and capital expenditures for
1999 related to these timberlands were $30 million and $1 million, respectively.
The Timber Company expects to continue to optimize its timber portfolio in 2000,
selling selected properties that are nonstrategic or have a greater value as
conservation, commercial or recreational
sites. There are currently more than 100,000 acres of scattered parcels that
have been identified for such sales. Excluding tax-free exchange transactions,
The Timber Company received $64 million in proceeds from the sale of assets in
1998, principally real estate development properties located in South Carolina
and Florida and certain timberlands in West Virginia.
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,
$970 million and $983 million, respectively, of such total debt was allocated to
The Timber Company and $6,054 million and $4,568 million, respectively, was
allocated to the Georgia-Pacific Group. The debt of The Timber Company 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. The Timber Company's debt increases or decreases by the amount of
any cash provided by or used for its operating activities, investing activities,
dividend payments, share repurchases or issuances and other nondebt-related
financing activities. See Note 1 of the Notes to Combined Financial Statements
for further discussion of financial activities.
In conjunction with the sale of 440,000 acres of The Timber Company'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 in a private placement. These
proceeds were used to reduce The Timber Company's debt. The Corporation will use
proceeds from the notes receivable to fund payments required for the notes
payable.
In conjunction with the sale of 194,000 acres of The Timber Company's California
timberlands in December 1999, The Timber Company 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. The Timber Company expects to use proceeds from the monetization of the
notes to fund its share repurchase program if attractive timberland investment
opportunities are not available. The Corporation will use proceeds from the
notes receivable 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 Worldwide, Inc. (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 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
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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%
Average interest rate received (variable) 5.9% -- 6.0% 5.9%
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Fair value
January 1,
(In millions) 2004 Thereafter Total 2000
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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 -- --
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 31,
(In millions) 2003 Thereafter Total 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
financial position of The Timber Company at January 1, 2000.
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.
The Timber Company expects to buy and sell timberlands as part of a continuing
effort to improve its competitive position. Proceeds from sales of timberlands
will be used by it either to fund the purchase of other timberlands that, due to
location or species mix, are more desirable, or to reduce debt or return cash to
holders of The Timber Company stock, in the form of either dividends or stock
repurchases. The cost of timberland purchases or the proceeds from timberland
sales could be material to the results of operations and financial condition
reported for The Timber Company in a particular quarter or year.
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 and of The Timber Company may from time to time be above or
below these thresholds.
During 1999, The Timber Company 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 were held as treasury stock and 6,000 shares were purchased during 1999
and settled after January 1, 2000. During 1998, The Timber Company 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 Timber Company
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). The Timber Company
expects to repurchase shares of its stock throughout 2000 as long as debt levels
are below the established thresholds.
During 1999 and 1998, The Timber Company paid dividends totaling $84 million and
$91 million, respectively.
In 2000, The Timber Company 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 Timber Company employs approximately 400 people of which there are
not a significant number of union employees.
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 the
balance sheets and measure those instruments at fair value. The Timber Company
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 Timber Company's financial
position.
The Timber Company has resolved the effects of the Year 2000 problem on its key
information 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 Timber Company
developed a Year 2000 plan, under which all of its key information systems were
tested and noncompliant software or technology was modified or replaced. The
work needed to resolve the Year 2000 problem with regard to its operations was
performed as part of normal systems maintenance and replacement practices. The
Timber Company did not accelerate its internal maintenance schedule or incur any
incremental cost for such work. The Timber Company did not incur
any significant cost or problems in its key information systems related to Year
2000. The Timber Company will continue to monitor the effect of Year 2000 on its
systems during the first few months of 2000.
For a discussion of commitments and contingencies, see Note 11 of the Notes to
Combined Financial Statements.
1998 COMPARED WITH 1997.
The Timber Company reported net sales of $534 million and net income of $176
million, or $1.94 diluted earnings per share, in 1998, compared with net sales
of $551 million and net income of $215 million, or $2.33 diluted earnings per
share, in 1997. The 1998 results included a $24 million pretax gain ($14 million
after taxes, or $0.16 diluted earnings per share) from the sale of certain West
Virginia timberlands and an extraordinary, after-tax loss of $2 million, or
$0.02 diluted loss per share, for the early retirement of debt. The 1997 results
included a $114 million pretax gain ($71 million after taxes, or $0.78 diluted
earnings per share) from the sale of 127,000 acres of timberlands located near
Martell, California. There were no sales from the Martell timberlands in 1997,
and the operating profits from those timberlands were not significant for any of
the years presented on the financial statements.
Timber sales decreased $11 million to $514 million in 1998 compared to $525
million in 1997. This decline was due in large part to the fact that one million
fewer tons (7%) were harvested in 1998 compared to 1997. This overall decline in
volume was offset somewhat by an increase in Southern sawtimber prices of 6%.
After reaching record levels in the first half of 1998 due to extremely wet
weather, prices for Southern sawtimber were closer to 1997 prices by year-end
1998. Southern sawtimber harvest levels were relatively unchanged in 1998 as
compared with 1997. Softwood pulpwood harvest volumes declined 16% in 1998 in
part due to a different harvest plan for softwood pulpwood in 1998 versus 1997
and in part due to downtime taken by pulp and paper mills. While causing a
decline in total sales revenue, this also resulted in a higher-margin product
mix for 1998. In addition to lower volumes, softwood pulpwood prices were 7%
lower in 1998 than in 1997 partially due to downtime declared by pulp and paper
mills. Western softwood sawtimber prices decreased 9% compared to 1997 due to
weak demand associated with the Asian economic problems. Hardwood sawtimber
prices decreased in large part due to the mix of hardwood sawtimber harvested
(i.e., a higher proportion of less-expensive, lower-grade sawtimber being
harvested).
Sales from real estate development activities decreased $5 million to $3 million
in 1998, compared to $8 million in 1997, due to the sale of the real estate
development properties located in South Carolina and Florida in the first
quarter of 1998. The Timber Company is no longer engaged in real estate
development activities.
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, earnings before interest and taxes
increased $17 million to $340 million in 1998, compared with $323 million in
1997. This increase was the result of a higher-margin product mix coupled with
efforts to reduce costs by optimizing productivity and operating with a
workforce focused on cost control. Cost of sales, excluding depreciation and
cost of timber harvested and gains on asset sales, decreased by $21 million to
$131 million in 1998, compared to $152 million in 1997. Much of the decline in
cost of sales was attributable to lower silvicultural expenses and lower cut and
haul expenses.
G&A was $36 million in 1998, compared with $43 million in 1997. Excluding a
one-time charge of $3 million related to information systems write-offs in 1997,
G&A decreased $4 million as a result of the implementation of strategies that
focus continually on controlling costs.
Interest expense declined 15% to $71 million in 1998, compared with $84 million
in 1997. The primary reason for this decline was a lower level of debt, which
resulted from applying the $270 million proceeds from the sale of the
timberlands near Martell, California. Also contributing to the decline were
lower average interest rates.
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, including statements regarding pricing trends and expected
harvest rotations, 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 effect on The Timber Company of governmental,
legislative and environmental restrictions; catastrophic losses from fires,
floods, windstorms, earthquakes, volcanic eruptions, insect infestations or
diseases; material variations in regional market demand for timber products;
fluctuations in interest rates; 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
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 this 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 this 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.
/s/ James E. Terrell
- ---------------------
James E. Terrell
Vice President and Controller
/s/ Danny W. Huff
- ---------------------
Danny W. Huff
Executive Vice President - Finance
and Chief Financial Officer
/s/ A. D. Correll
- ------------------
A. D. Correll
Chairman, Chief Executive Officer and President
February 4, 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Georgia-Pacific Corporation:
We have audited the accompanying combined balance sheets of Georgia-Pacific
Corporation - The Timber Company (as described in Note 1) as of January 1, 2000
and December 31, 1998 and the related combined statements of income,
shareholders' equity, 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Georgia-Pacific
Corporation -The Timber Company 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.
/s/ Arthur Andersen LLP
- ------------------------
Arthur Andersen LLP
Atlanta, Georgia
February 4, 2000
COMBINED STATEMENTS OF INCOME
Georgia-Pacific Corporation - The Timber Company
Year ended
------------------------------------------------
January 1, December 31,
(In millions, except per share amounts) 2000 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
---------------
Net sales
Timber--Georgia-Pacific Group $ 327 $ 409 $ 425
Timber--third parties
Delivered 43 53 87
Stumpage 131 52 13
Other 25 20 26
- ---------------------------------------------------------------------------------------------------------------------
---------------
Total net sales 526 534 551
- ---------------------------------------------------------------------------------------------------------------------
---------------
Costs and expenses
Cost of sales, excluding depreciation and cost of timber
harvested shown below 70 114 137
Depreciation and cost of timber harvested 42 44 48
General and administrative 43 36 43
Interest 69 71 84
Other income (355) (24) (114)
- ---------------------------------------------------------------------------------------------------------------------
---------------
Total costs and expenses (131) 241 198
- ---------------------------------------------------------------------------------------------------------------------
---------------
Income before income taxes and extraordinary items 657 293 353
Provision for income taxes 257 115 138
- ---------------------------------------------------------------------------------------------------------------------
---------------
Income before extraordinary items 400 178 215
Extraordinary items-loss from early retirement of debt, 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 $ 4.75 $ 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 combined financial
statements.
COMBINED STATEMENTS OF CASH FLOWS
Georgia-Pacific Corporation-The Timber Company
Year ended
------------------------------------------------
January 1, December 31,
(In millions) 2000 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
---------------
Cash flows from operating activities
Net income $ 400 $ 176 $ 215
Adjustments to reconcile net income to cash provided by
operations:
Depreciation 6 5 4
Cost of timber harvested 36 39 44
Other Income (355) (24) (114)
Deferred income taxes 132 4 66
Gain on sales of assets, net (51) (17) (15)
Other (9) 18 12
- ---------------------------------------------------------------------------------------------------------------------
---------------
Cash provided by operations 159 201 212
- ---------------------------------------------------------------------------------------------------------------------
---------------
Cash flows from investing activities
Property, plant and equipment investments (2) (6) (2)
Timber and timberland investments (78) (59) (44)
Proceeds from sales of assets 124 64 271
- ---------------------------------------------------------------------------------------------------------------------
---------------
Cash provided by (used for) investing activities 44 (1) 225
- ---------------------------------------------------------------------------------------------------------------------
---------------
Cash flows from financing activities
Share repurchases (131) (121) -
Proceeds from employee stock purchase plan 16 - -
Proceeds from stock option plan exercises 9 - -
Additions to (repayments of) debt (13) 12 (345)
Cash dividends paid (84) (91) (92)
- ---------------------------------------------------------------------------------------------------------------------
---------------
Cash used for financing activities (203) (200) (437)
- ---------------------------------------------------------------------------------------------------------------------
---------------
Increase (decrease) in cash - - -
Balance at beginning of year - - -
- ---------------------------------------------------------------------------------------------------------------------
---------------
Balance at end of year $ - $ - $ -
=====================================================================================================================
===============
The accompanying notes are an integral part of these combined financial
statements.
COMBINED BALANCE SHEETS
Georgia-Pacific Corporation-The Timber Company
January 1, December 31,
(In millions) 2000 1998
- ---------------------------------------------------------------------------------------------------
---------------
Assets
Timber and timberlands
Timberlands $ 318 $ 303
Fee timber 523 580
Reforestation 259 227
Other 27 34
- ---------------------------------------------------------------------------------------------------
---------------
Total timber and timberlands 1,127 1,144
- ---------------------------------------------------------------------------------------------------
---------------
Property, plant and equipment
Land and improvements 22 25
Buildings 5 5
Machinery and equipment 36 36
- ---------------------------------------------------------------------------------------------------
---------------
Property, plant and equipment, at cost 63 66
Accumulated depreciation (44) (42)
- ---------------------------------------------------------------------------------------------------
---------------
Total property, plant and equipment, net 19 24
Note receivable 350 -
Other assets 25 6
- ---------------------------------------------------------------------------------------------------
---------------
Total assets $ 1,521 $ 1,174
=================================================================================================
===============
January 1, December 31,
2000 1998
- ---------------------------------------------------------------------------------------------------
---------------
Liabilities and shareholders' equity
Debt $ 970 $ 983
Other liabilities 50 32
Deferred income tax liabilities 376 244
- ---------------------------------------------------------------------------------------------------
---------------
Total liabilities 1,396 1,259
- ---------------------------------------------------------------------------------------------------
---------------
Commitments and contingencies
Shareholders' equity 125 (85)
- ---------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,521 $ 1,174
===================================================================================================
===============
The accompanying notes are an integral part of these combined financial
statements.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
Georgia-Pacific Corporation-The Timber Company
Year ended
---------------------------------------------
January 1, December 31,
(In millions) 2000 1998 1997
- ------------------------------------------------------------------------------------------------------------------
---------------
Shareholders' equity balance, beginning of year $ (85) $ (49) $ (172)
Net income 400 176 215
Common stock repurchases (131) (121) -
Cash dividends paid (84) (91) (92)
Stock option plans and directors plan 9 - -
Employee stock purchase plan 16 - -
- ------------------------------------------------------------------------------------------------------------------
---------------
Shareholders' equity balance, end of year $ 125 $ (85) $ (49)
=================================================================================================================
===============
The accompanying notes are an integral part of these combined financial
statements.
GEORGIA-PACIFIC CORPORATION-THE TIMBER COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 of the Georgia-Pacific Group's
manufacturing facilities. The Timber Company is engaged primarily in the growing
and selling of timber.
The Corporation has 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
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 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
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 Timber Company's combined financial statements reflect the application of
the management and allocation policies adopted by the Board to various corporate
activities, as described below. The Timber Company's combined financial
statements should be read in conjunction with the Corporation's consolidated
financial statements and the Georgia-Pacific Group's combined 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 5 of the Notes to Combined
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
excludes 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 The Timber Company based upon identification of such services specifically
used by The Timber Company. 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 The Timber Company. 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 $3 million, $4 million and $7 million
in 1999, 1998 and 1997, respectively.
It is not practicable to provide a detailed estimate of the expenses that would
be recognized if The Timber Company 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 The Timber Company. The Timber Company's pension
cost related to its participation in the Corporation's noncontributory defined
benefit pension plan, and other employee benefit costs related to its
participation in the Corporation's postretirement health care and life insurance
benefit plans, are actuarially determined based on the number of its 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 The Timber Company.
Since plan assets are not segregated into separate accounts or restricted to
providing benefits to employees of The Timber Company, 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 Timber Company based on the percentage of its
projected benefit obligation to the plans' total projected benefit obligations.
The discussion of The Timber Company's retirement plans (see Note 8 of the Notes
to Combined Financial Statements) should be read in conjunction with the
Corporation's consolidated financial statements and notes thereto.
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.
The discussion of The Timber Company's income taxes (see Note 7 of the Notes to
Combined Financial Statements) should be read in conjunction with the
Corporation's consolidated financial statements and the notes thereto.
DIVIDENDS. For purposes of the historical financial statements of The Timber
Company and the Georgia-Pacific Group, 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 the
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 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.
REVENUE RECOGNITION. Timber sales are recognized when legal ownership or the
risk of loss passes to the purchaser and the quantity sold is determinable. This
occurs when a purchaser acquires stumpage or standing timber, or when a
purchaser receives logs on a delivered sale agreement. There are two types of
stumpage agreements. A timber deed agreement is one in which the purchaser takes
title to all timber on a tract of land. When title passes, revenue is recognized
for the full value of all timber on the tract, except in the case when The
Timber Company sells a deed to the Georgia-Pacific Group. Such sales are treated
as if they were a cutting contract (see Note 12 of the Notes to Combined
Financial Statements). A cutting contract agreement is one in which the
purchaser acquires the right to harvest all stumpage on a tract at an agreed-to
price per unit for all products on the tract. The sale, and any related
advances, is recognized as the purchaser harvests the timber on the tract. For
delivered sales, the risk of loss passes when the timber is delivered to the
customer. Revenues are determined by multiplying actual harvest volumes by
contractually agreed-upon prices negotiated with the purchasers, including the
Georgia-Pacific Group. Other sales are recognized when earned.
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. 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.
Georgia-Pacific Corporation-The Timber Company
Year ended
----------------------------------------------------------
January 1, December 31,
(In millions, except shares and per share amounts) 2000 1998 1997
- ----------------------------------------------------------------------------------------------------------
--------------
Basic and diluted income (loss) available to
shareholders
(numerator):
Income before extraordinary items $ 400 $ 178 $ 215
Extraordinary items, net of taxes - (2) -
- ---------------------------------------------------------------------------------------------------------
--------------
Net income $ 400 $ 176 $ 215
=========================================================================================================
==============
Shares (denominator):
Average shares outstanding 84,138,673 90,313,022 91,444,588
Dilutive securities:
Options 426,423* 492,549** 677,784***
Employee stock purchase plans 40,508 7,575 4,047
- ---------------------------------------------------------------------------------------------------------
--------------
Total assuming conversion 84,605,604 90,813,146 92,126,419
=========================================================================================================
==============
Per share amounts:
Basic
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
Income before extraordinary items $ 4.75 $ 1.96 $ 2.33
Extraordinary items, net of taxes - (0.02) -
- ---------------------------------------------------------------------------------------------------------
--------------
Net income $ 4.75 $ 1.94 $ 2.33
=========================================================================================================
==============
* 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 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 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.
TIMBER AND TIMBERLANDS. The Timber Company 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 accompanying statements of income, with the exception of major
divestitures, which are reflected as "Other income."
The Timber Company enters into tax-free exchange transactions to acquire and
sell assets, principally timberlands. During 1999, 1998 and 1997, The Timber
Company acquired assets totaling $34 million, $5 million and $7 million,
respectively, under tax-free exchange transactions. Also during 1999, 1998 and
1997, The Timber Company disposed of assets for consideration of $32 million,
zero and $10 million, respectively, under tax-free exchange transactions. These
transactions are treated as noncash exchanges for purposes of preparing the
accompanying statements of cash flows.
PROPERTY, PLANT AND EQUIPMENT. Forestry-related property, plant and equipment
are recorded at cost. Lease obligations for which The Timber Company 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.
INVESTMENT IN REAL ESTATE HELD FOR DEVELOPMENT AND SALE. The Timber Company
divested its real estate development properties located in South Carolina and
Florida in the first quarter of 1998. As a result, The Timber Company 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 Timber Company 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
Timber Company 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 Timber
Company's financial position.
CHANGE IN FISCAL YEAR. On or about April 22, 1999, The Timber Company determined
to change its fiscal year from December 31 to end on the Saturday closest to
December 31. Additionally, The Timber Company 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 no transition period on
which to report.
RECLASSIFICATIONS. Certain 1998 and 1997 amounts have been reclassified to
conform with the 1999 presentation.
NOTE 2. FACTORS AFFECTING THE TIMBER COMPANY'S BUSINESS
FACTORS AFFECTING SUPPLY AND DEMAND. The results of operations of The Timber
Company are and will continue to be affected by cyclical supply and demand
factors related to the forest products industry. The supply of timber is
significantly affected by land use management policies of the U.S. government,
which in recent years have limited, and are likely to continue to limit, the
amount of timber offered for sale by certain U.S. government agencies. Such
government agencies historically have been major suppliers of timber to the U.S.
forest products industry, but timber sales by such government agencies currently
are at historically low levels. Any reversal of government land use management
policies that substantially increases sales of timber by U.S. government
agencies could significantly reduce prices for logs, lumber and other forest
products. The demand for logs and manufactured wood products also has been, and
in the future can be expected to be, subject to cyclical fluctuations. Such
demand is primarily affected by the level of housing starts, repair and
remodeling activity, industrial wood product use, competition from nonwood
products, and the demand for pulp and paper products. These factors are subject
to fluctuations due to changes in economic conditions, interest rates,
population growth, weather conditions, competitive pressures and other factors.
Any decrease in the level of industry demand for logs and wood products
generally can be expected to result in lower net sales, operating income and
cash flow of The Timber Company.
HARVESTING LIMITATIONS. Net sales, operating income and cash flow of The Timber
Company are dependent, to a significant extent, on the continued ability of
purchasers of standing timber and, to a lesser extent, of The Timber Company to
harvest timber at adequate levels. Weather conditions, timber growth cycles,
access limitations and regulatory requirements associated with the protection of
wildlife and water resources may restrict harvesting of The Timber Company's
timberlands. From time to time, proposals have been made in state legislatures
that would regulate the level of timber harvesting. Timber harvests also may be
affected by various natural factors, including damage by fire, insect
infestation, disease, prolonged drought, severe weather conditions and other
causes. The effects of such natural disasters may be particularly damaging to
young timber. Although damage from such natural causes usually is localized and
affects only a limited percentage of the timber, there can be no assurance that
any damage affecting The Timber Company's timberlands will in fact be so
limited. Consistent with industry practice, The Timber Company does not maintain
insurance coverage with respect to damage to its timberlands. Any of the above
factors that materially limits the ability of purchasers or The Timber Company
to harvest timber could have a significant adverse impact on the net sales,
operating income and cash flow of The Timber Company.
COMMITTED PRODUCT PURCHASES BY THE GEORGIA-PACIFIC GROUP; POSSIBLE INABILITY TO
DEVELOP NEW MARKETS. During 1999, The Timber Company derived approximately 62%
of its net sales from sales of timber directly to the Georgia-Pacific Group. For
a description of the terms of sales of timber by The Timber Company to the
Georgia-Pacific Group, see Note 12 of the Notes to Combined Financial
Statements. While management of The Timber Company believes that there is
significant demand for The Timber Company's timber products from users other
than the Georgia-Pacific Group, no assurance can be given that such demand will
be equivalent to The Timber Company's planned annual harvests. Any excess supply
of timber that results from the inability of The Timber Company to sell its
products to users other than the Georgia-Pacific Group could result in lower
prices for The Timber Company's products, which could have a material adverse
effect on the net sales, operating income and cash flow of The Timber Company.
ENVIRONMENTAL REGULATION. The Timber Company is subject to extensive and
changing federal, state and local environmental laws and regulations, the
provisions and enforcement of which are expected to become more stringent in the
future. The Timber Company's operations generate air emissions, discharge
wastewater and stormwater, and generate and dispose of both hazardous and
nonhazardous wastes. The Timber Company is subject to regulation under the
Endangered Species Act (the ESA), the Clean Water Act, the Clean Air Act, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, and the Federal Insecticide,
Fungicide and Rodenticide Act, as well as similar state laws and regulations.
Violations of various statutory and regulatory programs that apply to The Timber
Company's operations can result in civil penalties, remediation expenses,
natural resource damages, potential injunctions, cease and desist orders, and
criminal penalties. Some environmental statutes impose strict liability,
rendering a person liable for environmental damage without regard to negligence
or fault on the part of such person. There can be no assurance that such laws or
future legislation or administrative or judicial action with respect to
protection of the environment will not adversely affect The Timber Company.
The ESA and counterpart state legislation protect species threatened with
possible extinction. A number of species indigenous to The Timber Company's
timberlands have been and in the future may be protected under these laws,
including the northern spotted owl, marbled murrelet, gray wolf, grizzly bear,
bald eagle, red-cockaded woodpecker, coho salmon and various other species.
Protection of endangered and threatened species may include restrictions on
timber harvesting, road building and other silvicultural activities on private,
federal and state land containing the affected species.
The U.S. Environmental Protection Agency has proposed regulations under its
Total Maximum Daily Load (TMDL) and National Pollutant Discharge Elimination
System (NPDES) programs under the Clean Water Act that could redefine certain
silvicultural activities as point sources of pollution. These proposals, if
enacted as currently written, have the potential to negatively impact forest
management activities in certain areas.
POTENTIAL ACQUISITION RISKS. The Timber Company intends to pursue acquisitions
as part of its strategy in order to increase cash flow and returns to its
shareholders. There can be no guarantee, however, that The Timber Company will
be able to identify any timberlands for acquisition on terms that are
economically feasible. Additionally, any acquisition strategy involves numerous
risks, including difficulties inherent in the integration of systems, operations
and personnel; diversion of management attention away from other business
concerns; and the need to potentially secure additional financing to consummate
such acquisitions.
NOTE 3. DIVESTITURES
During the second quarter of 1999, The Timber Company 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. These
proceeds were used to reduce The Timber Company's debt. 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
Corporation's January 1, 2000 balance sheets.
In December 1999, The Timber Company 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 Timber Company 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 "Note receivable"
on the accompanying balance sheets at January 1, 2000.
In March 1998, The Timber Company 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 Timber Company 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 Timber Company sold 127,000 acres of timberlands located near
Martell, California, for $270 million. In conjunction with the sale of its
Martell timberlands, 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 proceeds of this transaction were credited to The Timber
Company through the intergroup account. The notes receivable are classified as
"Other assets" and the notes payable are classified as "Other long-term
liabilities" on the Corporation's balance sheets. The Timber Company recognized
a pretax gain of $114 million on the sale of the timberlands ($71 million after
taxes), which is included in "Other income" on the accompanying statements of
income.
NOTE 4. INDEBTEDNESS
The Corporation's indebtedness includes the following:
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 rage, 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
==========================================================================================================
==============
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
==========================================================================================================
==============
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
==========================================================================================================
==============
Weighted average interest rate on Corporation debt at year end 7.2% 7.2%
==========================================================================================================
==============
For additional information regarding financial instruments, see Note 5 and 6.
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 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 $2 million was allocated to The Timber Company based on
the ratio of The Timber Company'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 Corporation's 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 by the
Corporation throughout the term of the credit agreement. As of January 1, 2000,
the Corporation's leverage ratio was 2.7 to 1.0.
COMMERCIAL PAPER AND OTHER SHORT-TERM NOTES. These borrowings are classified by
the Corporation 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.
ACCOUNTS RECEIVABLE SECURED BORROWING PROGRAMS. 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 Corporation's 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 Corporation's 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.
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 of the Georgia-Pacific Group
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 transaction was accounted for as a financing arrangement. At the
inception of the agreement, the Georgia-Pacific Group 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 Corporation's 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
Corporation's 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 5 of the Notes to Combined 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.
INTEREST PAID. The Corporation paid interest of $473 million, $468 million and
$475 million in 1999, 1998 and 1997, respectively, of which $57 million, $71
million and $84 million, respectively, was charged to The Timber Company.
NOTE 5. 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 Corporation's 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.
NOTE 6. 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) $ 2,067 $ 2,067 $ 1,209 $ 1,209
Notes and debentures (Note 4) 3,989 3,952 3,500 3,783
Revenue bonds (Note 4) 653 564 637 587
Other loans (Note 4) 28 27 29 29
Senior deferrable notes (Note 5) 863 866 - -
Interest rate exchange agreements * (1) * 14
Notes receivable (Note 3) 350 350 - -
- ------------------------------------------------------------------------------------------------------
--------------
* The Corporation's balance sheets at January 1, 2000 and December 31, 1998
included accrued interest of $1 million and $1 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.
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 7. INCOME TAXES
The provision for income taxes includes The Timber Company's allocated portion
of income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities. The Timber Company's provision for income taxes consists of the
following:
Georgia-Pacific Corporation-The Timber Company
Year ended
---------------------------------------
January 1, December 31,
(In millions) 2000 1998 1997
- ------------------------------------------------------------------------
---------------
Federal income taxes:
Current $ 105 $ 95 $ 61
Deferred 112 4 56
State income taxes:
Current 20 16 11
Deferred 20 - 10
- ------------------------------------------------------------------------
---------------
Provision for income taxes $ 257 $ 115 $ 138
========================================================================
===============
Year ended
----------------------------------------------------
-------
January 1, December 31,
(In millions) 2000 1998 1997
===================================================================================================
===============
Income taxes paid by the corporation, net of refunds $ 620 $ 21 $ 51
===================================================================================================
===============
Portion of income taxes paid allocated to The Timber
Company $ 125 $ 111 $ 72
===================================================================================================
===============
Income taxes paid by the Corporation during 1999 are net of approximately $8
million in state income tax refunds and $8 million in federal income tax
refunds. Income taxes paid by the Corporation 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 Timber Company's provision
for income taxes is reconciled to the federal statutory rate as follows:
Georgia-Pacific Corporation-The Timber Company
Year ended
------------------------------------------
January 1, December 31,
(In millions) 2000 1998 1997
- --------------------------------------------------------------------------------------------------
---------------
Provision for income taxes computed at the federal
statutory tax
rate $ 230 $ 103 $ 124
State income taxes, net of federal benefit 27 12 14
- --------------------------------------------------------------------------------------------------
---------------
Provision for income taxes $ 257 $ 115 $ 138
==================================================================================================
===============
The components of The Timber Company's net deferred income tax liabilities are
as follows:
Georgia-Pacific Corporation-The Timber Company
January 1, December 31,
(In millions) 2000 1998
- -----------------------------------------------------------------------------
---------------
Deferred income tax assets:
Other accruals and reserves $ 1 $ 1
- -----------------------------------------------------------------------------
---------------
1 1
Valuation allowance - -
- -----------------------------------------------------------------------------
---------------
1 1
- -----------------------------------------------------------------------------
---------------
Deferred income tax liabilities:
Machinery and equipment (5) (9)
Timber and timberlands (372) (236)
Other - -
- -----------------------------------------------------------------------------
---------------
(377) (245)
- -----------------------------------------------------------------------------
Deferred income tax liabilities, net $ (376) $ (244)
=============================================================================
===============
NOTE 8. RETIREMENT PLANS
DEFINED BENEFIT PENSION PLANS Most of The Timber Company's employees participate
in noncontributory defined benefit pension plans. These include plans that are
administered solely by the Corporation. The Corporation's funding policy for
solely administered plans is based on actuarial calculations and the applicable
requirements of federal law.
Benefits under the majority of plans for hourly employees 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 is not funded and is 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.
The following table sets forth the change in projected benefit obligation and
the change in plan assets for the solely administered plans allocated as
described in Note 1 of the Notes to Combined Financial Statements under
"Allocation of Employee Benefits":
January 1, December 31,
(In millions) 2000 1998
- --------------------------------------------------------------------------------
--------------
Change in projected benefit obligation
Projected benefit obligation at beginning of year $ 16 $ 15
Service cost 1 1
Interest cost 1 1
Actuarial gains (losses) (1) -
Benefits paid (1) (1)
- --------------------------------------------------------------------------------
--------------
Projected benefit obligation at end of year $ 16 $ 16
================================================================================
==============
Change in plan assets
Fair value of assets at beginning of year $ 21 $ 20
Actual return on plan assets 5 2
Employer contributions - -
Benefits paid (1) (1)
- --------------------------------------------------------------------------------
--------------
Fair value of assets at end of year $ 25 $ 21
================================================================================
==============
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 $ 8 $ 6
Unrecognized actuarial gain (8) (6)
Unrecognized prior service cost - -
Unrecognized net (asset) obligation - -
- --------------------------------------------------------------------------------
--------------
Net (accrued) prepaid benefit cost $ - $ -
===============================================================================
==============
Amounts recognized on the balance sheets consist of:
Prepaid pension cost $ - $ -
Accrued pension liability - -
- --------------------------------------------------------------------------------
--------------
Net amount recognized $ - $ -
===============================================================================
==============
The Timber Company's share of the net periodic pension cost for solely
administered pension plans included the following:
Year ended
----------------------------------
January 1, December 31,
(In millions) 2000 1998 1997
- --------------------------------------------------------------------------------
--------------
Service cost of benefits earned $ 1 $ 1 $ 1
Interest cost on projected benefit obligation 1 1 1
Expected return on plan assets (2) (2) (2)
- --------------------------------------------------------------------------------
--------------
Net periodic pension cost $ - $ - $ -
===============================================================================
==============
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 allocated
portion of the Corporation's contributions related to The Timber Company totaled
$1 million each in 1999, 1998 and 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 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.
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 $ 1 $ 1
Actuarial gains (losses) - -
- --------------------------------------------------------------------------------------------
-----------------
Projected benefit obligation at end of year $ 1 $ 1
============================================================================================
=================
January 1, December 31,
(In millions) 2000 1998
- --------------------------------------------------------------------------------------------
-----------------
Funded status $ (1) $ (1)
Unrecognized actuarial (gain) losses - -
Unrecognized prior service cost - -
Unrecognized net (asset) obligation - -
- --------------------------------------------------------------------------------------------
-----------------
Net accrued benefit cost $ (1) $ (1)
============================================================================================
=================
Amounts recognized on the balance sheets consist of:
Prepaid benefit cost $ - $ -
Accrued benefit liability (1) (1)
- --------------------------------------------------------------------------------------------
-----------------
Net amount recognized $ (1) $ (1)
============================================================================================
=================
The Timber Company's net periodic postretirement benefit cost consists of
service cost of benefits earned, interest cost on accumulated postretirement
benefit obligation and amortization of gains and
losses. Total net periodic postretirement benefit costs were $74,123 at January
1, 2000, $91,849 at December 31, 1998 and $95,031 at December 31, 1997.
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 13% as of January 1,
2000 and 10% as of both December 31, 1998 and 1997. The effect of this change on
the aggregate of service and interest costs would be an increase of 13% for
1999, 10% for 1998 and 13% for 1997.
If the annual health care cost trend rate were decreased by 1%, the accumulated
postretirement benefit obligation would have decreased by 11% as of January 1,
2000 and 9% as of both December 31, 1998 and 1997. The effect of this change on
the aggregate of service and interest costs would be a decrease of 12% for 1999,
9% for 1998 and 12% for 1997.
NOTE 9. 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
============================================================================
=================
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 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 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 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
Corporation's consolidated 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.
Compensation expense allocated to The Timber Company was zero in 1999, $0.1
million in 1998 and $0.4 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 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, 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.
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
Corporation's consolidated 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, 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 Group The Timber 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 canceled (461,974) 28.25 (164,100) 19.69
- -----------------------------------------------------------------------------------------------------------------------------
----------------
Options outstanding at January 1, 2000 10,829,691* $ 30.01 4,964,550* $ 22.33
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:
Granted/converted $32 - $92 $23
Exercised/surrendered $26 - $37 $21 - $23
Canceled $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 Group The Timber Company
- -----------------------------------------------------------------------------------------------------------------------------
----------------
Weighted Weighted
average average
exercise exercise
Shares price Shares 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
Canceled $21 - $29 $17 - $25
Outstanding $26 - $31 $21 - $25
=============================================================================================================================
================
Year ended December 31
1997* 1997
- -----------------------------------------------------------------------------------------------------------------------------
----------------
Georgia-Pacific Group The Timber Company
- -----------------------------------------------------------------------------------------------------------------------------
----------------
Weighted Weighted
average average
exercise exercise
Shares price Shares 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 canceled (3,600) 26.93 (1,900) 21.83
- -----------------------------------------------------------------------------------------------------------------------------
----------------
Options outstanding at December 31, 1997 10,038,200 $ 26.66 6,029,600 $ 22.20
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 $21 - $29 $17 - $25
=======================================================================================
================
* All shares and prices reflect the two-for-one stock split of the
Georgia-Pacific Group's 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 at January 1, 1997 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
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 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 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 Timber Company
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).
The resolution of the Board authorizing such repurchases allows purchases of The
Timber Company stock 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 Timber Company 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 per share amounts) 2000 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
----------------
Income
Income Income Net (loss)
Net per Net per income per
income share* income share* (loss) 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 3.99 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.
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 to 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 and $6.52 for the Georgia-Pacific Group and The
Timber Company, respectively. 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.
NOTE 10. OTHER COMPREHENSIVE INCOME
In 1998, The Timber Company adopted SFAS No. 130, which establishes standards
for reporting and display of comprehensive income and its components. For the
years ended January 1, 2000 and December 31, 1998 and 1997, The Timber Company's
total comprehensive income was $400 million, $176 million and $215 million,
respectively. Other comprehensive income was insignificant for The Timber
Company during 1999, 1998 and 1997.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Total rental expense was approximately $5.5 million, $4.0 million and $3.7
million in 1999, 1998 and 1997, respectively.
The Corporation is a party to various legal proceedings incidental to the
businesses of the Georgia-Pacific Group and The Timber Company 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 very limited coverage
for environmental matters. The management of The Timber Company believes that
the Corporation has established adequate reserves for probable losses with
respect to such environmental matters and legal proceedings. However, holders of
The Timber Company stock are shareholders of the Corporation and are subject to
all of the risks associated with an investment in the Corporation, including the
environmental matters and legal proceedings involving the Georgia-Pacific Group
discussed below.
COMMITMENTS AND CONTINGENCIES WITH RESPECT TO THE TIMBER COMPANY. The Timber
Company is subject to various legal proceedings and claims that arise in the
ordinary course of its business. Although the ultimate outcome of these matters
and legal proceedings cannot be determined with certainty, based on presently
available information, management of the Corporation believes that the final
outcome of such matters and legal proceedings will not have a material adverse
effect on the results of operations, liquidity or financial position of The
Timber Company.
Commitments and Contingencies with Respect to Georgia-Pacific Group. The
following sets forth legal proceedings to which the Corporation is a party and
claims related to the operations of the Georgia-Pacific Group.
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 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 government 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 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, 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 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 12. 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 1999 and 1998, The Timber Company sold timber deeds to the
Georgia-Pacific Group. The Timber Company recognizes revenues and earnings from
these related-party timber deeds as the timber is cut by the Georgia-Pacific
Group. Had The Timber Company recognized revenues and earnings on these
related-party timber deeds at the time of the agreement (which is the applicable
accounting policy for timber deeds sold to third parties), pro forma net sales,
depreciation and cost of timber harvested, income before income taxes and
extraordinary items, net income, and basic and diluted earnings per share would
have been as follows:
Georgia-Pacific Corporation-The Timber Company
Year ended
-------------------------------------------------------------------
----------
January 1, December 31,
2000 1998
(In millions, except per share amounts) As reported Pro forma* As reported Pro forma*
- -----------------------------------------------------------------------------------------------------------------
--------------
Net sales $ 526 $ 522 $ 534 $ 541
Depreciation and cost of timber harvested 42 41 44 45
Income before income taxes and extraordinary
items 657 654 293 299
Net income 400 398 176 180
Basic earnings per share 4.75 4.73 1.95 1.99
Diluted earnings per share 4.73 4.70 1.94 1.98
=================================================================================================================
==============
* Reported on a pro forma basis as if The Timber Company had recognized
revenues and earnings on timber deeds sold to the Georgia-Pacific Group at
the time of the contract, which is the applicable accounting treatment
utilized in the case of timber deeds sold to third parties.
As of January 1, 2000 and December 31, 1998, The Timber Company had
approximately $4 million and $12 million, respectively, in unrecognized earnings
related to the uncut portion of timber on timber
contracts sold to the Georgia-Pacific Group. This amount is included in "Other
liabilities" on the accompanying balance sheets.
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.
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, which is included on the
Georgia-Pacific Group's financial statements.
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 Georgia-Pacific Group or The Timber Company with respect to
this guarantee is considered remote.
NOTE 13. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
Georgia-Pacific Corporation-The Timber Company
(In millions, except per share amounts) First Quarter Second Quarter
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
---------------
Net sales $ 141 $ 145 $ 138 $ 119
Gross profit (net sales minus cost of sales) 117 126 117 96
Income before extraordinary items 47 52 99 38
Net income 47 50 99 38
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:
High $ 24.06 $ 27.25 $ 27.13 $ 27.00
Low 19.88 21.25 22.00 19.69
- ------------------------------------------------------------------------------------------------------------------------
---------------
(In millions, except per share amounts) Third Quarter Fourth Quarter
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
---------------
Net sales $ 139 $ 143 $ 108 $ 127
Gross profit (net sales minus cost of sales) 119 103 103 95
Income before extraordinary items 49 41 205 47
Net income 49 41 205 47
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:
High $ 27.19 $ 23.19 $ 25.81 $ 24.56
Low 22.00 18.00 22.38 17.38
- ------------------------------------------------------------------------------------------------------------------------
---------------
The first quarter of 1998 included an after-tax extraordinary loss of
$2 million ($0.02 per share) on early extinguishment of debt.
SELECTED FINANCIAL DATA - OPERATIONS
Georgia-Pacific Corporation--The Timber Company
Year ended
---------------------------------------------------------
--------
(Dollar amounts, except per share, and shares January 1, December 31,
are in millions) 2000 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
------------------
Operations
Net sales $ 526 $ 534 $ 551 $ 547
- ------------------------------------------------------------------------------------------------------------
------------------
Costs and expenses
Cost of sales 70 114 137 132
Depreciation and cost of timber harvested 42 44 48 57
General and administrative 43 36 43 45
Interest 69 71 84 105
Other income (355) (24) (114) -
- ------------------------------------------------------------------------------------------------------------
------------------
Total costs and expenses (131) 241 198 339
- ------------------------------------------------------------------------------------------------------------
------------------
Income before income taxes and extraordinary
items 657 293 353 208
Provision for income taxes 257 115 138 81
- ------------------------------------------------------------------------------------------------------------
------------------
Income before extraordinary items 400 178 215 127
Extraordinary items, net of taxes - (2) - -
- ------------------------------------------------------------------------------------------------------------
------------------
Net income $ 400 $ 176 $ 215 $ 127
============================================================================================================
==================
Cash provided by operations $ 159 $ 201 $ 212 $ 164
============================================================================================================
==================
Other statistical data 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
Average number of shares outstanding, diluted 84.6 90.8 92.1
Earnings to fixed charges 10.3 5.1 5.2 3.0
Cash flow to interest 3.3 3.8 3.5 2.6
Effective income tax rate 39.1% 39.2% 39.1% 38.9%
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==================
Year ended
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-----
(Dollar amounts, except per share, and shares are December 31,
in millions) 1995
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---------------
Operations
Net sales $ 493
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---------------
Costs and expenses
Cost of sales 122
Depreciation and cost of
timber harvested 55
General and administrative 45
Interest 111
Other income -
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---------------
Total costs and expenses 333
- ---------------------------------------------------------------------
---------------
Income before income taxes and extraordinary
items 160
Provision for income taxes 63
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---------------
Income before extraordinary items 97
Extraordinary items, net of taxes -
- ---------------------------------------------------------------------
---------------
Net income $ 97
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==============
Cash provided by operations $ 132
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==============
Other statistical data Basic per share:
Income before extraordinary items
Extraordinary items, net of taxes
- ---------------------------------------------------------------------
---------------
Net income
- ---------------------------------------------------------------------
---------------
Diluted per share:
Income before extraordinary items
Extraordinary items, net of taxes
- ---------------------------------------------------------------------
---------------
Net income
=====================================================================
==============
Average number of shares outstanding, basic
Average number of shares outstanding, diluted
Earnings to fixed charges 2.4
Cash flow to interest 2.2
Effective income tax rate 39.4%
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==============
EARNINGS TO FIXED CHARGES
Income before income taxes and extraordinary items plus total interest cost
(interest expense plus capitalized interest) and one-third of rent expense,
divided by total interest cost plus 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 for income taxes divided by income before income taxes and
extraordinary items.
SELECTED FINANCIAL DATA - FINANCIAL POSITION, END OF YEAR
Georgia-Pacific Corporation-The Timber Company
Year ended
---------------------------------------------------------
-------
(Dollar amounts, except per share, and shares January 1, December 31,
are in millions) 2000 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
------------------
Financial position, end of year
Timber and timberlands $ 1,127 $ 1,144 $ 1,130 $ 1,284
Property, plant and equipment, net 19 24 20 25
Investment in real estate held for development
and sale - - 14 13
Note receivable 350 - - -
Other assets 25 6 7 4
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------------------
Total assets $ 1,521 $ 1,174 $ 1,171 $ 1,326
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------------------
Debt $ 970 $ 983 $ 971 $ 1,316
Other liabilities 50 32 9 8
Deferred income tax liabilities 376 244 240 174
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------------------
Total liabilities $ 1,396 $ 1,259 $ 1,220 $ 1,498
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------------------
Shareholders' equity $ 125 $ (85) $ (49) $ (172)
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------------------
Other statistical data
Property, plant and equipment
investments $ 2 $ 6 $ 2 $ 4
Timber and timberland investments 78 59 44 48
Per share*
Market price:
High $ 27.19 $ 27.25 $ 25.88
Low $ 19.88 $ 17.38 $ 22.50
Year-end $ 24.63 $ 23.81 $ 22.69
Book value $ 151 $ (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 $ -
Total debt to capital, book basis 65.6% 85.6% 83.4% 99.6%
Total debt to capital, market basis 32.2% 32.2% 31.6%
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==================
Year ended
------------------
------
(Dollar amounts, except per share, and shares are December 31,
in millions) 1995
- ---------------------------------------------------------------------
---------
Financial position, end of year
Timber and timberlands $ 1,293
Property, plant and equipment, net 27
Investment in real estate held for development
and sale 16
Note receivable -
Other assets 12
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---------
Total assets $ 1,348
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---------
Debt $ 1,365
Other liabilities 10
Deferred income tax liabilities 180
- ---------------------------------------------------------------------
---------
Total liabilities $ 1,555
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---------
Shareholders' equity $ (207)
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---------
Other statistical data
Property, plant and equipment investments $ 6
Timber and timberland investments 62
Per share* Market price:
High
Low
Year-end
Book value
Shares of stock outstanding at year end
Dividends declared per share
Total debt to capital, book basis 100.0%+
Total debt to capital, market basis
=====================================================================
=========
* 1997 amounts are for the period from December 17, 1997 through December 31,
1997.
BOOK VALUE PER SHARE
Shareholders' equity divided by shares of common stock outstanding as of the end
of the year.
TOTAL DEBT TO CAPITAL, BOOK BASIS
Debt divided by the sum of total debt, deferred income taxes, net, other
long-term liabilities and shareholders' equity as of the end of the year.
TOTAL DEBT TO CAPITAL, MARKET BASIS
Debt divided by the sum of total debt and the market value of shareholders'
equity as of the end of the year.
INVESTOR INFORMATION
Georgia-Pacific Corporation and Subsidiaries
CORPORATE HEADQUARTERS
The Timber Company
100 Peachtree Street, N.W.
Atlanta, Georgia 30303
(404) 586-0275
STOCK EXCHANGES AND SYMBOLS
The Timber Company common stock are listed on the New York Stock Exchange
(NYSE).
The NYSE symbol for The Timber Company common stock is "TGP."
The Timber Company options are traded on the Philadelphia Stock Exchange.
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company
a Division of Equiserve
Post Office Box 2500
Jersey City, New Jersey 07303-2500
(800) 519-3111
ENVIRONMENTAL AND SAFETY REPORT
Requests for Georgia-Pacific Corporation's most recent Environmental and Safety
Report should be addressed to: Corporate Communications, Georgia-Pacific
Corporation, Post Office Box 105605, Atlanta, Georgia 30348. The report can also
be viewed on-line at www.gp.com.
SHAREHOLDER INFORMATION
For shareholder information, contact the Transfer Agent and Registrar, First
Chicago Trust Company, a Division of Equiserve, at Post Office Box 2500, Jersey
City, New Jersey 07303-2500, or telephone (800) 519-3111.
Registered Timber Company shareholders are eligible to participate in the Timber
Group Dividend Reinvestment Plan. For information on the Plan, contact the
Plan's agent, First Chicago Trust Company, a Division of EquiServe, Dividend
Reinvestment Plan, Post Office Box 2598, Jersey City, New Jersey 07303-2598, or
by telephone at (800) 414-6280.
Web site: www. fctc.com.
Number of The Timber Company shareholders of record at January 1, 2000: 33,810.
FINANCIAL INFORMATION
A copy of the Georgia-Pacific Corporation 1999 Annual Report to the Securities
and Exchange Commission on Form 10-K and the Georgia-Pacific Corporation 1999
Consolidated Financial Statements will be supplied without charge. For current
quarterly financial updates telephone (800) 340-2384. Copies of corporate news
releases are available through fax-on-demand by telephoning (800) 758-5804,
extension 357498.
All other requests for financial information should be directed to: Investor
Relations, Georgia-Pacific Corporation, P.O. Box 105605, Atlanta, Georgia 30348,
or telephone (404) 652-5555. Information concerning The Timber Company can also
be found at our Web site at www.thetimbercompany.com.