SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 1 - 3506
-------------------
GEORGIA-PACIFIC CORPORATION
(Exact Name of Registrant as Specified in its Charter)
GEORGIA 93-0432081
(State of Incorporation) (IRS Employer Id. Number)
133 PEACHTREE STREET, N.E., ATLANTA, GEORGIA 30303
(Address of Principal Executive Offices)
(404) 652 - 4000
(Telephone Number of Registrant)
-------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
------ ------
As of the close of business on November 8, 1994, Georgia-Pacific Corporation
had 90,457,820 shares of Common Stock outstanding.
PART I - FINANCIAL INFORMATION
-------------------------------------------
Item 1. Financial Statements
STATEMENTS OF INCOME (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
-------------- --------------
(Millions, except per share amounts) 1994 1993 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $3,283 $2,982 $9,440 $9,131
- ------------------------------------------------------------------------------
Costs and expenses
Cost of sales 2,539 2,363 7,483 7,219
Selling, general and
administrative 297 295 832 854
Depreciation and depletion 186 194 556 573
Interest 110 128 344 390
Other (income) expense - (10) (57) 26
- ------------------------------------------------------------------------------
Total costs and expenses 3,132 2,970 9,158 9,062
- ------------------------------------------------------------------------------
Income before income taxes,
extraordinary item and
accounting change 151 12 282 69
Provision for income taxes 64 40 125 51
- ------------------------------------------------------------------------------
Income (loss) before extraordinary
item and accounting change 87 (28) 157 18
Extraordinary item - loss from
early retirement of debt,
net of taxes - (8) (11) (16)
Cumulative effect of accounting
change, net of taxes - - (5) -
- ------------------------------------------------------------------------------
Net income (loss) $ 87 $ (36) $ 141 $ 2
==============================================================================
Per share:
Income (loss) before extraordinary
item and accounting change $ .98 $ (.33) $ 1.77 $ .20
Extraordinary item - loss from early
retirement of debt, net of taxes - (.09) (.12) (.18)
Cumulative effect of accounting
change, net of taxes - - (.06) -
- ------------------------------------------------------------------------------
Net income (loss) $ .98 $ (.42) $ 1.59 $ .02
==============================================================================
Average number of shares outstanding 89.2 88.4 88.9 87.4
==============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CASH FLOWS
Georgia-Pacific Corporation and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
Nine months
ended September 30,
--------------------
(Millions) 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used for) operations
Net income $ 141 $ 2
Adjustments to reconcile net income to cash
provided by operations:
Depreciation 518 535
Depletion 38 38
Amortization of goodwill 44 43
Stock compensation programs 14 30
(Gain) on sales of assets (3) (29)
Other (income) expense (57) 26
Cumulative effect of accounting change 5 -
(Increase) in receivables (244) (136)
(Increase) in inventories (11) (75)
Change in other working capital 9 59
Change in deferred income tax liabilities (65) (57)
(Decrease) in taxes payable (10) (184)
Change in other assets and other
long-term liabilities 10 23
- ------------------------------------------------------------------------------
Cash provided by operations 389 275
- ------------------------------------------------------------------------------
Cash provided by (used for) investment activities
Capital expenditures
Property, plant and equipment (568) (257)
Timber and timberlands (30) (39)
- ------------------------------------------------------------------------------
Total capital expenditures (598) (296)
Proceeds from sales of assets 225 248
Other 1 12
- ------------------------------------------------------------------------------
Cash (used for) investment activities (372) (36)
- ------------------------------------------------------------------------------
Cash provided by (used for) financing activities
Repayments of long-term debt (261) (357)
Additions to long-term debt 12 508
Fees paid to issue debt - (5)
Increase in bank overdrafts 13 32
Increase (decrease) in commercial paper and
other short-term notes 307 (296)
Cash dividends paid (109) (106)
- ------------------------------------------------------------------------------
Cash (used for) financing activities (38) (224)
- ------------------------------------------------------------------------------
(Decrease) increase in cash (21) 15
Balance at beginning of period 41 55
- ------------------------------------------------------------------------------
Balance at end of period $ 20 $ 70
==============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
BALANCE SHEETS
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
September 30, December 31,
(Millions, except shares and per share amounts) 1994 1993
- ------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash $ 20 $ 41
Receivables, less allowances of $31 and $32 594 377
Inventories 1,175 1,202
Other current assets 33 26
- ------------------------------------------------------------------------------
Total current assets 1,822 1,646
- ------------------------------------------------------------------------------
Timber and timberlands, net 1,366 1,381
- ------------------------------------------------------------------------------
Property, plant and equipment
Land, buildings, machinery and equipment,
at cost 11,307 10,986
Accumulated depreciation (5,915) (5,538)
- ------------------------------------------------------------------------------
Property, plant and equipment, net 5,392 5,448
- ------------------------------------------------------------------------------
Goodwill 1,788 1,832
- ------------------------------------------------------------------------------
Other assets 241 238
- ------------------------------------------------------------------------------
Total assets $10,609 $10,545
==============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank overdrafts, net $ 186 $ 173
Commercial paper and other short-term notes 957 650
Current portion of long-term debt 61 57
Taxes payable 22 35
Accounts payable 555 582
Accrued compensation 170 184
Accrued interest 102 114
Other current liabilities 324 269
- ------------------------------------------------------------------------------
Total current liabilities 2,377 2,064
- ------------------------------------------------------------------------------
Long-term debt, excluding current portion 3,910 4,157
- ------------------------------------------------------------------------------
Other long-term liabilities 829 827
- ------------------------------------------------------------------------------
Deferred income tax liabilities 1,030 1,095
- ------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Common stock, par value $.80; 150,000,000
shares authorized; 90,407,000 and 90,269,000
shares issued 72 71
Additional paid-in capital 1,219 1,202
Retained earnings 1,249 1,217
Long-term incentive plan deferred compensation (45) (56)
Other (32) (32)
- ------------------------------------------------------------------------------
Total shareholders' equity 2,463 2,402
- ------------------------------------------------------------------------------
Total liabilities and shareholders' equity $10,609 $10,545
==============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements (Unaudited)
Georgia-Pacific Corporation
September 30, 1994
1. Principles of Presentation. The interim financial information
included herein is unaudited; however, such information reflects all
adjustments which are, in the opinion of management, necessary for a
fair presentation of the financial position, results of operations
and cash flows for the interim periods. All such adjustments are of
a normal, recurring nature. Certain 1993 amounts have been
reclassified to conform with the 1994 presentation.
2. Income (Loss) Per Share. Income (loss) per share is computed based
on net income (loss) and the weighted average number of common
shares outstanding, net of restricted shares. The effects of
assuming issuance of common shares under long-term incentive, stock
option and stock purchase plans were either insignificant or
antidilutive.
3. Accounting Change. Effective January 1, 1994, the Corporation
adopted Financial Accounting Standard Number 112 (FAS 112),
"Employers' Accounting for Postemployment Benefits." FAS 112
requires accrual-basis recognition of benefits provided by an
employer to former or inactive employees after employment but before
retirement. The adoption of FAS 112 resulted in a one-time, after-
tax charge of $5 million (6 cents per share) in the 1994 first
quarter.
4. Other (Income) Expense. In the 1994 first quarter, the Corporation
recorded other pretax income of $57 million ($34 million after
taxes), primarily resulting from the sales of its roofing
manufacturing and envelope businesses.
During the 1993 third quarter, the Corporation recorded an after-tax
gain of $10 million (11 cents per share) on the final settlement of
the sale of its paper distribution business. The Corporation
originally recorded an after-tax loss of $3 million (3 cents per
share) on this sale during the 1993 first quarter.
5. Extraordinary Item. The Corporation called for redemption
approximately $204 million of its outstanding debt during the 1994
first quarter. As a result, an after-tax extraordinary loss of $11
million (12 cents per share) was recognized.
During the 1993 second and third quarters, the Corporation prepaid
approximately $146 million and $155 million, respectively, in
principal of its outstanding debt. The Corporation reflected an
after-tax extraordinary loss of $8 million (9 cents per share) in
each of these quarters.
6. Supplemental Disclosures - Statements of Cash Flows. The cash
impact of interest and income taxes is reflected in the table below.
The effect of foreign currency exchange rate changes on cash was not
material in either period.
Nine months
ended Sept. 30,
-----------------
(Millions) 1994 1993
----------------------------------------------------
Total interest costs $ 349 $ 392
Interest capitalized (5) (2)
----------------------------------------------------
Interest expense $ 344 $ 390
-----------------------------------=================
Interest paid $ 358 $ 399
-----------------------------------=================
Income taxes paid, net of refunds $ 202 $ 282
-----------------------------------=================
7. Inventory Valuation. Inventories include costs of materials, labor
and plant overhead. The major components of inventories (at average
cost) were as follows at September 30, 1994 and December 31, 1993:
$370 million and $367 million for raw materials, $770 million and
$786 million for finished goods and $266 million and $262 million
for supplies. The Corporation uses the dollar value pool method for
computing LIFO inventories. The excess of average cost over LIFO
amounted to $231 million and $213 million at September 30, 1994 and
December 31, 1993, respectively.
8. Provision for Income Taxes. For the 1994 third quarter, the
Corporation reported pretax income of $151 million and an income tax
provision of $64 million. For the 1993 third quarter, the
Corporation reported pretax income before extraordinary item of $12
million with an income tax provision of $40 million. The actual
effective tax rate for both periods was higher than the federal
statutory tax rate primarily because of nondeductible goodwill
amortization expense associated with past business acquisitions.
9. Commitments and Contingencies. The Corporation is a party to
various legal proceedings incidental to its business and is subject
to a variety of environmental and pollution control laws and
regulations in all jurisdictions in which it operates. As is the
case with other companies in similar industries, the Corporation
faces exposure from actual or potential claims and legal proceedings
involving environmental matters. The Corporation is self-insured
for general liability claims up to $5 million per occurrence.
Liability insurance in effect during the last several years provides
coverage for environmental matters only in certain circumstances.
The Corporation is involved in environmental remediation activities
at numerous sites 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 and at certain of its own properties. Of the known
sites in which it is involved, the Corporation estimates that
slightly over 50 percent are being investigated. Of the remaining
sites, approximately one-half are being remediated and the other one-
half are being monitored, an activity which occurs after either site
investigation or remediation has been completed. The ultimate costs
to the Corporation for the remediation 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 multi-party 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 which 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 that 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 $77 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 reserves 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. No amounts have been recorded for potential recoveries from
insurance carriers.
In the fourth quarter of 1992, the Corporation filed suit in the
State of Washington against numerous insurance carriers for coverage
under comprehensive general liability insurance policies issued by
those carriers. The Corporation is seeking a declaratory judgment
to the effect that past and future environmental remediation and
other related costs with respect to certain of the sites are covered
by such policies.
Approximately 220 suits involving 9,160 plaintiffs are currently
pending in several State Courts in Mississippi. The suits allege a
variety of torts including nuisance, trespass and infliction of
emotional distress primarily related to the discharge of dioxin into
the Leaf River from a pulp mill owned by a subsidiary of the
Corporation. Three of these cases have been tried. A total of
$241,000 in compensatory damages and $4 million in punitive damages
were awarded to three plaintiffs in the first two cases (Simmons and
Ferguson) with respect to certain claims. The jury found in favor
of the Corporation with respect to a fourth plaintiff. The
Corporation appealed both judgments. On July 8, 1993, in the third
Mississippi dioxin case tried, the jury returned a verdict in favor
of the Corporation on all counts. The plaintiffs have filed a notice
of appeal.
The Mississippi Supreme Court heard oral arguments in Simmons and
Ferguson on March 21, 1994. No decision has been issued to date.
On September 1, 1994, the circuit court judge to whom almost all the
remaining Mississippi dioxin cases have been assigned lifted a stay
which he had entered pending the Supreme Court's decision in Simmons
and Ferguson. None of such cases have yet been set for trial.
In January 1994, one of the two dioxin cases pending in federal
court in Mississippi, which was scheduled for trial in June 1994,
was voluntarily dismissed with prejudice by the plaintiffs after
testing indicated that no dioxin from the pulp mill was present on
the plaintiffs' property. The second dioxin case pending in federal
court also was voluntarily dismissed by the plaintiffs.
Although there can be no assurances as to the ultimate outcome of
the approximately 220 suits pending against the Corporation for
alleged discharges of dioxin, based on the opinions of counsel the
Corporation believes that substantial grounds exist for reversal of
the judgments in Simmons and Ferguson and that it has meritorious
defenses to the remaining lawsuits.
On January 23, 1992, the mill's primary insurance carrier took the
position that these claims are not within its coverage. Suit has
been filed against the mill's carriers seeking a declaratory
judgment to the effect that such claims are within the policy
provisions.
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. The Corporation currently is
defending claims of approximately 23,000 such plaintiffs and
anticipates that additional suits or claims will be filed against it
over the next several years. 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 been exposed to any products of
the Corporation, or to demonstrate that they have suffered any
compensable loss as a result of such exposure.
In the past the Corporation generally has resolved asbestos cases by
voluntary dismissal or settlement for amounts it considers
reasonable given the facts and circumstances of each case. The
amounts it has paid in settlement have been substantially covered by
product liability insurance, and the Corporation believes that it
has insurance available in amounts adequate to cover substantially
all of the reasonably foreseeable damages and settlement amounts
arising out of claims and suits currently pending. Although the
Corporation anticipates that equivalent amounts of insurance will
be available with respect to the disposition of suits and claims
that may be filed against the Corporation in the future, there
can be no assurance in this regard. The Corporation has
established reserves for liabilities, and for certain legal defense
costs, in amounts it believes are probable and reasonable estimable.
It also has recorded a receivable for expected insurance recoveries
with respect to pending claims.
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 and that such ultimate outcome, after taking such reserves
into account, will not have a material adverse effect on the
consolidated financial position of the Corporation.
<TABLE>
<CAPTION>
SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (unaudited)
Georgia-Pacific Corporation and Subsidiaries
Second Quarter Third Quarter Fourth Quarter
(Dollar amounts, except First ------------------------ ------------------------ ------------------------
per share, in millions) Quarter Quarter Year-to-date Quarter Year-to-date Quarter Year-to-date
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994
NET SALES
Building products $1,767 60% $1,982 62% $3,749 61% $1,941 59% $5,690 60%
Pulp and paper 1,180 40 1,211 38 2,391 39 1,331 41 3,722 40
Other operations 8 - 9 - 17 - 11 - 28 -
- -----------------------------------------------------------------------------------------------------------------------
Total net sales $2,955 100% $3,202 100% $6,157 100% $3,283 100% $9,440 100%
=======================================================================================================================
OPERATING PROFITS
Building products $ 247 97% $ 218 118% $ 465 106% $ 262 75% $ 727 93%
Pulp and paper (53) (20) (40) (21) (93) (21) 83 24 (10) (1)
Other operations 3 1 6 3 9 2 3 1 12 1
Other income 57 22 - - 57 13 - - 57 7
- -----------------------------------------------------------------------------------------------------------------------
Total operating
profits 254 100% 184 100% 438 100% 348 100% 786 100%
=== === === === ===
General corporate
expense (28) (31) (59) (78) (137)
Interest expense (121) (113) (234) (110) (344)
Cost of accounts
receivable sale
program (6) (8) (14) (9) (23)
Provision for
income taxes (43) (18) (61) (64) (125)
- -----------------------------------------------------------------------------------------------------------------------
Income before
extraordinary item
and accounting change 56 14 70 87 157
Extraordinary item, net
of taxes (11) - (11) - (11)
Cumulative effect of
accounting change,
net of taxes (5) - (5) - (5)
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 40 $ 14 $ 54 $ 87 $ 141
=======================================================================================================================
Per common share:
Income before
extraordinary item
and accounting
change $ .63 $ .16 $ .79 $ .98 $ 1.77
Extraordinary item,
net of taxes (.12) - (.12) - (.12)
Accounting change,
net of taxes (.06) - (.06) - (.06)
- -----------------------------------------------------------------------------------------------------------------------
Net income $ .45 $ .16 $ .61 $ .98 $ 1.59
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (unaudited)
Georgia-Pacific Corporation and Subsidiaries
Second Quarter Third Quarter Fourth Quarter
(Dollar amounts, except First ------------------------ ------------------------ --------------------------
per share, in millions) Quarter Quarter Year-to-date Quarter Year-to-date Quarter Year-to-date
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993
NET SALES
Building products $1,596 54% $1,782 56% $3,378 55% $1,781 60% $5,159 57% $1,908 60% $ 7,067 58%
Pulp and paper 1,340 46 1,416 44 2,756 45 1,191 40 3,947 43 1,284 40 5,231 42
Other operations 8 - 7 - 15 - 10 - 25 - 7 - 32 -
- ------------------------------------------------------------------------------------------------------------------------
Total net sales $2,944 100% $3,205 100% $6,149 100% $2,982 100% $9,131 100% $3,199 100% $12,330 100%
========================================================================================================================
OPERATING PROFITS
Building products $ 309 148% $ 202 107% $ 511 129% $ 210 98% $ 721 118% $ 252 157% $ 973 126%
Pulp and paper (68) (32) (14) (7) (82) (20) (10) (5) (92) (15) (95) (59) (187) (24)
Other operations 3 1 - - 3 - 4 2 7 1 3 2 10 1
Other income (expense) (36) (17) - - (36) (9) 10 5 (26) (4) - - (26) (3)
- ------------------------------------------------------------------------------------------------------------------------
Total operating
profits 208 100% 188 100% 396 100% 214 100% 610 100% 160 100% 770 100%
=== === === === === === ===
General corporate
expense (29) (33) (62) (67) (129) (76) (205)
Interest expense (129) (133) (262) (128) (390) (123) (513)
Cost of accounts
receivable sale
program (8) (7) (15) (7) (22) (7) (29)
(Provision) benefit
for income taxes (1) (10) (11) (40) (51) 10 (41)
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before
extraordinary item 41 5 46 (28) 18 (36) (18)
Extraordinary item,
net of taxes - (8) (8) (8) (16) - (16)
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 41 $ (3) $ 38 $ (36) $ 2 $ (36) $ (34)
========================================================================================================================
Per common share:
Income (loss) before
extraordinary
item $ .47 $ .06 $ .53 $ (.33) $ .20 $ (.41) $ (.21)
Extraordinary item,
net of taxes - (.09) (.09) (.09) (.18) - (.18)
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ .47 $ (.03) $ .44 $ (.42) $ .02 $ (.41) $ (.39)
========================================================================================================================
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED WITH 1993
Georgia-Pacific reported consolidated net sales of $3.3 billion for the
three months ended September 30, 1994, an increase of 10.1 percent compared with
$3.0 billion for the same 1993 period. In addition, the Corporation reported
net income of $87 million (98 cents per share) for the three months ended
September 30, 1994. This compares with a net loss of $36 million (42 cents per
share) a year ago. The 1993 third quarter results include an after-tax gain of
$10 million (11 cents per share) on the final settlement of the sale of the
Corporation's paper distribution business and an after-tax extraordinary loss of
$8 million (9 cents per share) for the early retirement of debt.
The remaining discussion refers to the "Sales and Operating Profits by
Industry Segment" table (included in Part I - Item 1. hereto).
The building products segment reported net sales of $1.9 billion and
operating profits of $262 million for the three months ended September 30, 1994
compared with net sales of $1.8 billion and operating profits of $210 million
for the same 1993 period. Return on sales for the 1994 third quarter increased
to 13.5 percent from 11.8 percent in the 1993 third quarter. The 9.0 percent
increase in net sales and 24.8 percent increase in operating profits were
primarily due to higher average prices which resulted in improved operating
margins during the third quarter compared with year ago levels for many of the
Corporation's building products. Specifically, prices for the plywood, oriented
strand board and gypsum products sold by this business were higher than year ago
levels. Although average softwood lumber prices were up over a year ago, prices
finished the quarter lower than average prices during the 1994 second quarter.
The pulp and paper segment reported net sales of $1.3 billion for the three
months ended September 30, 1994 compared with $1.2 billion for the same 1993
period. Excluding net sales from the Corporation's paper distribution business
which was sold July 1, 1993, net sales increased 17.3 percent. An operating
profit of $83 million was reported by this segment during the 1994 third quarter
compared with a loss of $10 million a year ago. Average prices for the
Corporation's market pulp and containerboard businesses were significantly
higher in the 1994 third quarter compared with the same 1993 period. In
addition, average prices for corrugated packaging and commercial tissue products
were higher than year ago levels. Although average prices in the Corporation's
communication papers business were below 1993 third quarter levels, prices
climbed during the 1994 third quarter and ended the quarter at levels higher
than last year.
General corporate expense increased to $78 million in the 1994 third
quarter from $67 million in the 1993 comparable period. The increase was
primarily attributable to compensation programs tied to the Corporation's common
stock price.
The Corporation's interest expense and cost of accounts receivable sale
program for the three months ended September 30, 1994 were a combined $119
million, a decrease of 11.9 percent compared with $135 million a year ago.
Lower expense in 1994 is primarily the result of the expiration of certain
interest rate exchange agreements which had effectively fixed the rates on a
portion of the Corporation's variable rate debt.
For the 1994 third quarter, the Corporation reported pretax income of $151
million and an income tax provision of $64 million. For the 1993 third quarter,
the Corporation reported pretax income before extraordinary item of $12 million
and an income tax provision of $40 million. The actual effective tax rate in
both periods was higher than the federal statutory tax rate primarily because of
nondeductible goodwill amortization expense associated with past business
acquisitions.
NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED WITH 1993
Georgia-Pacific's consolidated net sales increased 3.4 percent to $9.4
billion from $9.1 billion for the nine-month periods ended September 30, 1994
and 1993, respectively. The Corporation reported net income of $141 million
($1.59 per share) for the nine months ended September 30, 1994, compared with
net income of $2 million (2 cents per share) for the same 1993 period. The 1994
results include a $34 million (38 cents per share) net after-tax gain primarily
from asset sales, an $11 million (12 cents per share) extraordinary after-tax
loss on the early retirement of debt and a $5 million (6 cents per share) one-
time, after-tax charge for an accounting change. The 1993 results include a
net, after-tax gain of $7 million (8 cents per share) on the sale of the
Corporation's paper distribution business and a $16 million (18 cents per share)
after-tax extraordinary loss on the early retirement of debt.
The remaining discussion refers to the "Sales and Operating Profits by
Industry Segment" table (included in Part I - Item 1. hereto).
The building products segment reported net sales of $5.7 billion for the
1994 nine-month period, an increase of 10.3 percent from the $5.2 billion
reported in the same 1993 period. Operating profits were $727 million for the
nine months ended September 30, 1994, up slightly from $721 million a year ago.
Return on sales decreased to 12.8 percent from 14.0 percent for the 1994 and
1993 nine-month periods, respectively. Although profits were up slightly, the
decrease in return on sales in 1994 reflected higher wood costs compared with
1993, mainly in the 1994 first quarter. Average plywood prices for the nine-
month period ended September 30, 1994 were only slightly above 1993 levels.
Although plywood prices increased during the 1994 third quarter, first quarter
prices were below 1993 first quarter levels and second quarter prices were only
slightly above 1993 second quarter levels. Average prices for softwood lumber
were also higher than 1993 levels; however, prices declined during the 1994
third quarter and are currently below 1993 year-end levels.
Year-to-date sales in the pulp and paper segment were down 5.7 percent to
$3.7 billion for the nine months ended September 30, 1994 compared with $3.9
billion for the same period in 1993. Excluding net sales from the Corporation's
paper distribution business, which was sold July 1, 1993, net sales increased
13.0 percent for the September 30, 1994 year-to-date period compared with 1993.
For the nine-month period ended September 30, 1994, this segment reported a net
loss of $10 million compared with a net loss of $92 million a year ago.
Significant improvements in most of the Corporation's pulp and paper businesses
have been realized in 1994, primarily in the third quarter. Specifically,
market pulp, containerboard, corrugated packaging and commercial tissue product
prices have increased significantly since year-end. Industry-wide inventories,
lower than year ago levels, continued to favorably impact corrugated packaging
and containerboard prices. In addition, the 1994 nine-month results were
favorably impacted by a sales volume increase in both the corrugated packaging
and commercial tissue businesses compared with 1993 year-to-date levels. While
1994 nine-month average prices for the Corporation's communication papers
business were below 1993 levels, prices have steadily increased over the past
six months. Currently, average prices for most of the Corporation's pulp and
paper businesses are higher than the 1993 fourth quarter.
During the 1994 first quarter, the Corporation completed the sales of
its roofing manufacturing and envelope businesses. The sale of the roofing
manufacturing business resulted in an after-tax gain of $14 million ($24
million before taxes). The sale of the envelope business resulted in an after-
tax gain of $24 million ($39 million before taxes).
During the 1993 third quarter, the Corporation recorded an after-tax gain
of $10 million (11 cents per share) on the final settlement of the sale of its
paper distribution business. The Corporation originally recorded an after-tax
loss of $3 million (3 cents per share) on this sale during the 1993 first
quarter.
General corporate expense increased to $137 million in the 1994 third
quarter from $129 million in the 1993 comparable period. The increase was
primarily attributable to compensation programs tied to the Corporation's common
stock price.
The Corporation's interest expense and the cost of its accounts receivable
sale program were a combined $367 million for the nine-month period ended
September 30, 1994, a decrease of 10.9 percent compared with $412 million for
the same period in 1993. Lower expense during the first nine months of 1994 is
primarily the result of the expiration of certain interest rate exchange
agreements which had effectively fixed the rates on a portion of the
Corporation's variable rate debt.
Excluding asset sales, the Corporation reported pretax income before the
extraordinary item and accounting change of $225 million and an income tax
provision of $102 million for the nine months ended September 30, 1994.
Excluding asset sales, the Corporation reported pretax income before
extraordinary item of $95 million and an income tax provision of $84 million for
the nine months ended September 30, 1993. The effective tax rate for both
periods is higher than the federal statutory tax rate primarily because of
nondeductible goodwill amortization expense associated with past business
acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
In 1994, cash flow from operations, together with the Corporation's
available financing sources, is expected to be sufficient to make planned
capital investments, dividend payments and scheduled debt service.
Operating Activities
- ------------------------
Cash provided by operations for the nine months ended September 30, 1994,
was $389 million compared with $275 million for the same 1993 period. Included
in these results are tax payments to the Internal Revenue Service of $84 million
and $205 million for the nine months ended September 30, 1994 and 1993,
respectively. The 1994 tax payments were to settle the 1989 through 1990 tax
years for Georgia-Pacific Corporation and to resolve substantially all pending
income tax issues related to Great Northern Nekoosa Corporation for the years
1985 through March 1990. The 1993 tax payment was to settle the 1984 through
1988 tax years for Georgia-Pacific Corporation and to substantially settle the
1982 through 1984 tax years for Great Northern Nekoosa Corporation. Excluding
the effects of these items, cash provided by operations was $473 million in 1994
compared with $480 million in 1993.
Investment Activities
- -------------------------
Capital expenditures were $598 million for the nine months ended September
30, 1994, including $306 million in the pulp and paper segment, $235 million in
the building products segment, $30 million for timber and timberlands and $27
million of other expenditures. Capital expenditures of approximately $900
million are currently projected for 1994.
Financing Activities
- ------------------------
As of September 30, 1994, total debt for the Corporation, including the
$700 million accounts receivable sale program, was $5.8 billion compared with
$5.7 billion at December 31, 1993, an increase of $77 million. This increase
includes an increase in bank overdrafts of $13 million and an increase in
commercial paper and short-term notes of $307 million, partially offset by a
decrease in long-term debt of $243 million. The increase is primarily due to
the financing of a normal, seasonal increase in working capital requirements,
particularly in the 1994 first quarter.
The Corporation has a $1.5 billion unsecured revolving credit facility
which is used for direct borrowings and as support for commercial paper and
other short-term borrowings, including bid borrowings made under this agreement.
As of September 30, 1994, $543 million of committed credit was available in
excess of all short-term borrowings outstanding under or supported by the
facility.
At September 30, 1994, the Corporation had outstanding interest rate
exchange agreements (most of which were entered into to hedge floating rate debt
acquired in the purchase of Great Northern Nekoosa Corporation) which
effectively converted $1.1 billion of floating rate obligations with a weighted
average interest rate of approximately 5.1% to fixed rate obligations with an
average effective interest rate of approximately 9.1%. The Corporation's total
floating rate debt, including the accounts receivable sale program, exceeded
related interest rate exchange agreements by approximately $1.3 billion at
September 30, 1994.
As previously reported by the Corporation, $800 million of the interest
rate exchange agreements outstanding at December 31, 1993 are due to expire in
1994. As of September 30, 1994, $700 million of these agreements had expired
and another $100 million expired in October 1994.
The Corporation's weighted average interest rate on total debt, including
the accounts receivable sale program and floating rate debt, at September 30,
1994 and 1993 was 8.0% and 8.9%, respectively. The lower interest rate in 1994
is primarily the result of the expiration of approximately $700 million of
interest rate exchange agreements during the twelve-month period ended September
30, 1994 which had effectively fixed the rates on a portion of the Corporation's
variable rate debt.
Georgia-Pacific's ratio of total debt to capital, assuming the proceeds
from the accounts receivable sale program will be replaced by debt at the end of
the program, was 57.4% at September 30, 1994 compared with 57.0% at December 31,
1993.
At September 30, 1994, the Corporation had registered for sale up to $500
million of debt securities under shelf registration statements filed with the
Securities and Exchange Commission.
Other
- -------
In July 1994, the Corporation announced that it will begin restructuring
its building products distribution business to improve customer service and
reduce costs. Expenses associated with the restructuring are primarily related
to severance and relocation and will be incurred over the next few years. These
expenses may be significant but are not expected to be material to the
Corporation's consolidated financial position.
Refer to Note 9 of the Notes to Financial Statements for a discussion of
commitments and contingencies.
PART II - OTHER INFORMATION
----------------------------------
GEORGIA-PACIFIC CORPORATION
September 30, 1994
Item 1. Legal Proceedings
The information contained in Note 9 "Commitments and Contingencies" of the Notes
to Financial Statements filed as part of this Quarterly Report on Form 10-Q is
incorporated herein by reference.
ENVIRONMENTAL PROCEEDINGS
As most recently reported in the Corporation's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994, the Corporation has received and responded to
two comprehensive information requests from the Environmental Protection Agency
concerning air emissions at approximately 30 of the Corporation's facilities
which manufacture oriented strand board, medium density fiberboard, plywood and
particleboard. On August 5, 1994, the EPA issued a Notice of Violation ("NOV")
with respect to alleged violations of certain requirements of the Clean Air Act
at these facilities relating to, among other things, alleged emissions of
volatile organic compounds from sources constructed or modified since 1978. The
Corporation presented its defenses to the alleged violations in a conference
with EPA and Department of Justice representatives held on October 13, and
14, 1994, and intends to submit a written response to the NOV early in November.
The Corporation intends to negotiate settlements of the allegations contained in
the NOV with the EPA and the state environmental agencies involved on terms
which the Corporation considers reasonable. The Corporation expects these
settlements will entail the payments of fines and the agreement by the
Corporation to install air emission control equipment at certain of its plants.
On September 30, 1994, the EPA filed a Complaint and Compliance Order against
the Corporation for alleged violations of the Resource Conservation and Recovery
Act at its Brunswick, Georgia pulp and paper mill. The Order alleges disposal
of black liquor without a permit, treatment of wastewater from accumulated lime
mud without a permit and failure to respond to a spill of sulfuric acid in a
manner adequate to minimize the flow of hazardous waste. EPA has proposed a
penalty of $160,256. The Corporation currently is preparing a response to the
allegations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11. Statements of Computation of Per Share Earnings.
Exhibit 27. Financial Data Schedule.
(b) No Current Reports on Form 8-K were filed by the Corporation
during the quarter ended September 30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 11, 1994 GEORGIA-PACIFIC CORPORATION
(Registrant)
by /s/ John F. McGovern
-------------------------------
John F. McGovern,
Senior Vice President -
Finance and Chief
Financial Officer
by /s/ James E. Terrell
-------------------------------
James E. Terrell,
Vice President and
Controller (Chief Accounting
Officer)
GEORGIA-PACIFIC CORPORATION
---------------------------------
INDEX TO EXHIBITS
FILED WITH THE QUARTERLY REPORT
ON FORM 10-Q FOR THE
QUARTER ENDED SEPTEMBER 30, 1994
Number Description
- ------ -----------
11. Statements of Computation of Per Share Earnings. (1)
27. Financial Data Schedule. (1)
- --------------------------------
(1) Filed by EDGAR
EXHIBIT 11
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
STATEMENTS OF COMPUTATION OF PER SHARE EARNINGS (Unaudited)
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------ ------------------
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Income (Loss)
- ------------
Income (loss) before extraordinary
item and accounting change $87,000 $(28,000) $157,000 $ 18,000
Extraordinary item, net of tax - (8,000) (11,000) (16,000)
Cumulative effect of accounting
change, net of tax - - (5,000) -
------ ------- ------- -------
Net income (loss) $87,000 $(36,000) $141,000 $ 2,000
====== ======= ======= =======
Weighted Average Shares
- -------------
Common shares outstanding, net of
restricted stock 89,179 88,418 88,912 87,444
Add - shares assumed to be issued
under long-term incentive
(restricted stock), stock
option and stock purchase
plans at the average market
price 609 - 703 1,298
------ ------ ------ ------
Primary shares 89,788 88,418 89,615 88,742
------ ------ ------ ------
Add - additional shares assumed to be
issued under long-term incentive
(restricted stock), stock option
and stock purchase plans at
quarter end market price (if
higher than average market price) 248 802 345 -
------ ------ ------ ------
Fully diluted shares 90,036 89,220 89,960 88,742
====== ====== ====== ======
Income (Loss) Per Share
- ------------------
Income (loss) before extraordinary item
and accounting change $ .98 $ (.33) $ 1.77 $ .20
Extraordinary item, net of tax - (.09) (.12) (.18)
Cumulative effect of accounting
change, net of tax - - (.06) -
------ ------- ------- ------
Net income (loss) $ .98 $ (.42) $ 1.59 $ .02
====== ======= ======= ======
Income (Loss) Per Share - Primary and
Fully Diluted
- -------------------
Income (loss) before extraordinary item
and accounting change $ .97 $ (.31) $ 1.75 $ .20
Extraordinary item, net of tax - (.09) (.12) (.18)
Cumulative effect of accounting
change, net of tax - - (.06) -
------ ------ ------ ------
Net income (loss) $ .97 $ (.40) $ 1.57 $ .02
====== ====== ====== ======
</TABLE>
A single presentation of income (loss) per share is made on the Statements of
Income because the effects of assuming issuance of common shares under long-term
incentive, stock option and stock purchase plans are either antidilutive or
insignificant.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Georgia-Pacific Corporation's financial statements as of and for the quarter
ended September 30, 1994, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000041077
<NAME> GEORGIA-PACIFIC CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 20
<SECURITIES> 0
<RECEIVABLES> 625
<ALLOWANCES> 31
<INVENTORY> 1,175
<CURRENT-ASSETS> 1,822
<PP&E> 11,307
<DEPRECIATION> 5,915
<TOTAL-ASSETS> 10,609
<CURRENT-LIABILITIES> 2,377
<BONDS> 3,910
<COMMON> 72
0
0
<OTHER-SE> 2,391
<TOTAL-LIABILITY-AND-EQUITY> 10,609
<SALES> 9,440
<TOTAL-REVENUES> 9,440
<CGS> 7,483
<TOTAL-COSTS> 7,483
<OTHER-EXPENSES> 556
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 344
<INCOME-PRETAX> 282
<INCOME-TAX> 125
<INCOME-CONTINUING> 157
<DISCONTINUED> 0
<EXTRAORDINARY> (11)
<CHANGES> (5)
<NET-INCOME> 141
<EPS-PRIMARY> 1.57
<EPS-DILUTED> 1.57
</TABLE>
