<PAGE> 1
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 June 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 July 28, 1994, Georgia-Pacific Corporation had
90,363,880 shares of Common Stock outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF INCOME (Unaudited) Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
-------------------- ------------------
(Millions, except per share amounts) 1994 1993 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $3,202 $3,205 $6,157 $6,149
- ---------------------------------------------------------------------------------------------------
Costs and expenses
Cost of sales 2,598 2,588 4,944 4,856
Selling, general and administrative 274 278 535 559
Depreciation and depletion 185 191 370 379
Interest 113 133 234 262
Other (income) expense - - (57) 36
- ---------------------------------------------------------------------------------------------------
Total costs and expenses 3,170 3,190 6,026 6,092
- ---------------------------------------------------------------------------------------------------
Income before income taxes,
extraordinary item and
accounting change 32 15 131 57
Provision for income taxes 18 10 61 11
- ---------------------------------------------------------------------------------------------------
Income before extraordinary item
and accounting change 14 5 70 46
Extraordinary item - loss from
early retirement of debt,
net of taxes - (8) (11) (8)
Cumulative effect of accounting change,
net of taxes - - (5) -
- ---------------------------------------------------------------------------------------------------
Net income (loss) $ 14 $ (3) $ 54 $ 38
- -----------------------------------------------------==============================================
Per share:
Income before extraordinary item
and accounting change $ .16 $ .06 $ .79 $ .53
Extraordinary item - loss from early
retirement of debt, net of taxes - (.09) (.12) (.09)
Cumulative effect of accounting
change, net of taxes - - (.06) -
- ---------------------------------------------------------------------------------------------------
Net income (loss) $ .16 $ (.03) $ .61 $ .44
- -----------------------------------------------------==============================================
Average number of shares outstanding 88.9 87.3 88.8 86.9
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
STATEMENTS OF CASH FLOWS Georgia Pacific Corporation and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
Six months
ended June 30,
-------------------------
(Millions) 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used for) operations
Net income $ 54 $ 38
Adjustments to reconcile net income to cash
provided by (used for) operations:
Depreciation 349 357
Depletion 21 22
Amortization of goodwill 29 29
Stock compensation programs (19) (3)
(Gain) on sales of assets (7) (20)
Other (income) loss (57) 36
Cumulative effect of accounting change 5 -
(Increase) in receivables (211) (102)
(Increase) in inventories (20) (118)
Change in other working capital (65) 6
Change in deferred income tax liabilities (65) (62)
(Decrease) in taxes payable (20) (166)
Change in other assets and other long-term liabilities 3 (12)
- --------------------------------------------------------------------------------------------------
Cash provided by (used for) operations (3) 5
- -------------------------------------------------------------------------------------------------
Cash provided by (used for) investment activities
Capital expenditures
Property, plant and equipment (313) (164)
Timber and timberlands (29) (49)
- --------------------------------------------------------------------------------------------------
Total capital expenditures (342) (213)
Proceeds from sales of assets 212 30
Other - 13
- -------------------------------------------------------------------------------------------------
Cash (used for) investment activities (130) (170)
- -------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities
Repayments of long-term debt (258) (201)
Additions to long-term debt 7 497
Fees paid to issue debt - (4)
Increase in bank overdrafts 27 49
Increase (decrease) in commercial paper and
other short-term notes 407 (98)
Cash dividends paid (73) (71)
- --------------------------------------------------------------------------------------------------
Cash provided by financing activities 110 172
- -------------------------------------------------------------------------------------------------
(Decrease) increase in cash (23) 7
Balance at beginning of period 41 55
- -------------------------------------------------------------------------------------------------
Balance at end of period $18 $62
- --------------------------------------------------------------------------=======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
BALANCE SHEETS Georgia Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
June 30, December 31,
(Millions, except shares and per share amounts) 1994 1993
- ---------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash $ 18 $ 41
Receivables, less allowances of $33 and $32 561 377
Inventories 1,184 1,202
Other current assets 39 26
- -------------------------------------------------------------------------------------------------
Total current assets 1,802 1,646
- -------------------------------------------------------------------------------------------------
Timber and timberlands, net 1,384 1,381
- -------------------------------------------------------------------------------------------------
Property, plant and equipment
Land, buildings, machinery and equipment, at cost 11,089 10,986
Accumulated depreciation (5,769) (5,538)
- -------------------------------------------------------------------------------------------------
Property, plant and equipment, net 5,320 5,448
- -------------------------------------------------------------------------------------------------
Goodwill 1,803 1,832
- -------------------------------------------------------------------------------------------------
Other assets 232 238
- -------------------------------------------------------------------------------------------------
Total assets $10,541 $10,545
- ----------------------------------------------------------------------===========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank overdrafts, net $ 200 $ 173
Commercial paper and other short-term notes 1,057 650
Current portion of long-term debt 34 57
Taxes payable 12 35
Accounts payable 533 582
Accrued compensation 162 184
Accrued interest 91 114
Other current liabilities 279 269
- -------------------------------------------------------------------------------------------------
Total current liabilities 2,368 2,064
- -------------------------------------------------------------------------------------------------
Long-term debt, excluding current portion 3,934 4,157
- -------------------------------------------------------------------------------------------------
Other long-term liabilities 815 827
- -------------------------------------------------------------------------------------------------
Deferred income tax liabilities 1,030 1,095
- -------------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Common stock, par value $.80; 150,000,000 shares
authorized; 90,362,000 and 90,269,000 shares issued 72 71
Additional paid-in capital 1,195 1,202
Retained earnings 1,198 1,217
Long-term incentive plan deferred compensation (38) (56)
Other (33) (32)
- -------------------------------------------------------------------------------------------------
Total shareholders' equity 2,394 2,402
- -------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $10,541 $10,545
- ----------------------------------------------------------------------===========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
GEORGIA-PACIFIC CORPORATION
JUNE 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. 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). The Corporation
received after-tax cash proceeds of approximately $156 million from
these transactions.
During the 1993 first quarter, the Corporation recorded an after-tax
loss of $3 million ($36 million before taxes) on the sale of its
paper distribution business. The large tax benefit resulted from the
loss on the sale as well as the fact that the tax basis of capital
stock included in the assets sold in the transaction was
significantly greater than its financial reporting basis.
5. 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.
Six months
ended June 30,
----------------------
(Millions) 1994 1993
-------------------------------------------------------------------
Total interest costs $ 237 $ 263
Interest capitalized (3) (1)
-------------------------------------------------------------------
Interest expense $ 234 $ 262
---------------------------------------------======================
Interest paid $ 257 $ 262
---------------------------------------------======================
Income taxes paid, net of refunds $ 148 $ 268
---------------------------------------------======================
<PAGE> 6
6. INVENTORY VALUATION. Inventories include costs of materials,
labor and plant overhead. The major components of inventories
(at average cost) were as follows at June 30, 1994 and December 31,
1993: $321 million and $367 million for raw materials, $816 million
and $786 million for finished goods and $265 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 $218 million and $213 million at
June 30, 1994 and December 31, 1993, respectively.
7. PROVISION FOR INCOME TAXES. For the 1994 second quarter, the
Corporation reported pretax income of $32 million and an income
tax provision of $18 million. For the 1993 second quarter,
the Corporation reported pretax income before extraordinary item
of $15 million with an income tax provision of $10 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.
8. 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 clean-ups, the evolving nature of cleanup
technologies and government regulations and the inability to
determine the Corporation's share of multi-party clean-ups 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 clean-up 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 $75 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
<PAGE> 7
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 (Ferguson
and Simmons) with respect to certain claims. The jury found in
favor of the Corporation with respect to a fourth plaintiff. The
Corporation has 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.
On November 9, 1993, the circuit court judge to whom almost all the
remaining Mississippi dioxin cases have been assigned issued an
Order staying trials and other material proceedings in these
cases until the Mississippi Supreme Court has decided the Ferguson
and Simmons appeals. The Mississippi Supreme Court heard oral
arguments in Ferguson and Simmons on March 21, 1994. No decision has
been issued to date.
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. In the second dioxin case pending in federal
court, the plaintiffs filed a Notice of Voluntary Dismissal in
February 1994.
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 Ferguson and Simmons 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 18,500 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
<PAGE> 8
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. 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. The Corporation has
established reserves for liabilities, and for certain legal defense
costs, in amounts it believes are probable and reasonably
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.
<PAGE> 9
<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>
1994
NET SALES
Building products $1,767 60% $1,982 62% $3,749 61%
Pulp and paper 1,180 40 1,211 38 2,391 39
Other operations 8 - 9 - 17 -
- ----------------------------------------------------------------------------------------------------------------------------------
Total net sales $2,955 100% $3,202 100% $6,157 100%
==================================================================================================================================
OPERATING PROFITS
Building products $ 247 97% $ 218 118% $ 465 106%
Pulp and paper (53) (20) (40) (21) (93) (21)
Other operations 3 1 6 3 9 2
Other income 57 22 - - 57 13
- ----------------------------------------------------------------------------------------------------------------------------------
Total operating
profits 254 100% 184 100% 438 100%
==== ==== ====
General corporate (28) (31) (59)
Interest expense (121) (113) (234)
Cost of accounts
receivable sale
program (6) (8) (14)
Provision for
income taxes (43) (18) (61)
- ----------------------------------------------------------------------------------------------------------------------------------
Income before
extraordinary item and
accounting change 56 14 70
Extraordinary item, net
of taxes (11) - (11)
Accounting change,
net of taxes (5) - (5)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 40 $ 14 $ 54
==================================================================================================================================
Per common share:
Income before
extraordinary item
and accounting
change $ .63 $ .16 $ .79
Extraordinary item,
net of taxes (.12) - (.12)
Accounting change,
net of taxes (.06) - (.06)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ .45 $ .16 $ .61
==================================================================================================================================
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (unaudited) Georgia-Pacific Corporation and Subsidiaries
Second Quarter Third Quarter
(Dollar amounts, except First ----------------------------- --------------------------
per share, in millions) Quarter Quarter Year-to-date Quarter Year-to-date
- --------------------------------------------------------------------------------------------------------
<S> <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%
Pulp and paper 1,340 46 1,416 44 2,756 45 1,191 40 3,947 43
Other operations 8 - 7 - 15 - 10 - 25 -
- ----------------------------------------------------------------------------------------------------------
Total net sales $2,944 100% $3,205 100% $6,149 100% $2,982 100% $9,131 100%
==========================================================================================================
OPERATING PROFITS
Building products $ 309 148% $ 202 107% $ 511 129% $ 210 98% $ 721 118%
Pulp and paper (67) (32) (14) (7) (82) (20) (10) (5) (92) (15)
Other operations 2 1 - - 3 - 4 2 7 1
Other income (expense) (36) (17) - - (36) (9) 10 5 (26) (4)
- ----------------------------------------------------------------------------------------------------------
Total operating
profits 208 100% 188 100% 396 100% 214 100% 610 100%
==== ==== ==== ==== ====
General corporate (29) (33) (62) (67) (129)
Interest expense (129) (133) (262) (128) (390)
Cost of accounts
receivable sale
program (8) (7) (15) (7) (22)
(Provision) benefit for
income taxes (1) (10) (11) (40) (51)
- ----------------------------------------------------------------------------------------------------------
Income (loss) before
extraordinary item 41 5 46 (28) 18
Extraordinary item, net
of taxes - (8) (8) (8) (16)
- ----------------------------------------------------------------------------------------------------------
Net income (loss) $ 41 $ (3) $ 38 $ (36) $ 2
==========================================================================================================
Per common share:
Income (loss) before
extraordinary item $ .47 $ .06 $ .53 $ (.33) $ .20
Extraordinary item - (.09) (.09) (.09) (.18)
- ----------------------------------------------------------------------------------------------------------
Net income (loss) $ .47 $ (.03) $ .44 $ (.42) $ .02
==========================================================================================================
<CAPTION>
Fourth Quarter
------------------------------------
Quarter Year-to-date
------------------------------------
<S> <C> <C> <C> <C>
1993
NET SALES
Building products $1,908 60% $ 7,067 58%
Pulp and paper 1,284 40 5,231 42
Other operations 7 - 32 -
- -----------------------------------------------------------------
Total net sales $3,199 100% $12,330 100%
=================================================================
OPERATING PROFITS
Building products $ 252 157% $ 973 126%
Pulp and paper (95) (59) (187) (24)
Other operations 3 2 10 1
Other income (expense) - - (26) (3)
- -----------------------------------------------------------------
Total operating
profits 160 100% 770 100%
==== ===
General corporate (76) (205)
Interest expense (123) (513)
Cost of accounts
receivable sale
program (7) (29)
(Provision) benefit for
income taxes 10 (41)
- -----------------------------------------------------------------
Income (loss) before
extraordinary item (36) (18)
Extraordinary item, net
of taxes - (16)
- -----------------------------------------------------------------
Net income (loss) $ (36) $ (34)
=================================================================
Per common share:
Income (loss) before
extraordinary item $ (.41) $ (.21)
Extraordinary item - (.18)
- -----------------------------------------------------------------
Net income (loss) $ (.41) $ (.39)
=================================================================
</TABLE>
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1994 COMPARED WITH 1993
Georgia-Pacific reported consolidated net sales of $3.2 billion and
net income of $14 million (16 cents per share) for the three months ended
June 30, 1994. This compares with consolidated net sales of $3.2 billion and
a net loss of $3 million (3 cents per share) for the three months ended June
30, 1993. Included in the 1993 second quarter results is an after-tax
extraordinary loss of $8 million (9 cents per share) related to 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 an 11.2 percent increase in
net sales and a 7.9 percent increase in operating profits for the 1994
second quarter compared with the same 1993 period. Included in the 1994
operating profits of $218 million is an $8 million pretax charge related to
the closure of the Corporation's Cedar Springs, Georgia plywood facility.
Excluding this charge, return on sales was 11.4 percent in the 1994 second
quarter compared with 11.3 percent in the 1993 second quarter.
Average prices for plywood and softwood lumber were slightly higher
than average prices a year ago. Higher wood costs, however, in the 1994
second quarter compared with the 1993 second quarter reduced average profit
margins for these businesses. As a result, operating results for both plywood
and softwood lumber were slightly lower this quarter compared with the same
period in 1993.
This quarter's results were positively impacted by higher average
prices in the Corporation's particleboard and gypsum products compared with
average prices a year ago. In addition, profits for the Corporation's
distribution business have increased this quarter compared with last year's
second quarter. Prices for the lumber and structural panels sold by this
business rose slightly in the 1994 second quarter whereas prices were
declining in the 1993 second quarter.
The pulp and paper segment reported net sales of $1.2 billion for
the three months ended June 30, 1994 compared with $1.4 billion for the
same 1993 period, a decrease of 14.5 percent primarily as a result of
the sale of the Corporation's paper distribution business during the 1993
third quarter and its envelope business during the 1994 first quarter. An
operating loss of $40 million was reported by this segment for the three
months ended June 30, 1994 compared with a loss of $14 million a year ago.
Average prices for the Corporation's market pulp and containerboard businesses
were higher in the 1994 second quarter compared with 1993 second quarter
averages, while average tissue and corrugated packaging prices remained
relatively flat. Second quarter 1994 average prices for communication papers,
however, were lower than year ago levels.
The Corporation's interest expense and cost of accounts receivable
sale program for the three months ended June 30, 1994 were a combined $121
million, a decrease of 13.6 percent compared with $140 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 second quarter, the Corporation reported pretax
income of $32 million and an income tax provision of $18 million. For the
1993 second quarter, the Corporation reported pretax income before
extraordinary item of $15 million and an income tax provision of $10 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.
SIX MONTHS ENDED JUNE 30, 1994 COMPARED WITH 1993
Georgia-Pacific's consolidated net sales of $6.2 billion for the
first half of 1994 were slightly higher than the 1993 first half. Net
income was $54 million (61 cents per share), compared with net income of $38
million (44 cents per share) in the 1993 comparable period. The 1994
six-month results include a net, after-tax gain of $34 million (38 cents
per share) primarily related to the sale of the Corporation's envelope and
roofing
<PAGE> 12
manufacturing businesses. In addition, net income includes an $11 million
(12 cents per share) 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 six-month results include a $3 million (3 cents per share)
after-tax charge for the sale of the Corporation's paper distribution business
and an $8 million (9 cents per share) after-tax 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 sales of $3.7 billion in the
first half of 1994, an increase of 11.0 percent from $3.4 billion in the
1993 first half. Operating profits of $465 million for the six months
ended June 30, 1994 were 9.0 percent lower than operating profits of $511
million for the 1993 comparable period. Excluding the $8 million charge for
the Cedar Springs plywood plant closure in 1994, return on sales decreased to
12.6 percent for the six-month period ended June 30, 1994 from 15.1 percent
in the 1993 comparable period. The 1994 results were adversely impacted by
lower distribution margins and higher wood costs compared with a year ago,
mainly in the 1994 first quarter.
Sales in the pulp and paper segment were $2.4 billion in the 1994
first half, 13.2 percent lower than the same period in 1993, primarily
attributable to the sale of the Corporation's paper distribution business
during the 1993 third quarter and its envelope business during the 1994
first quarter. An operating loss of $93 million was recorded for the 1994
first half compared with a loss of $82 million a year ago. Although
average prices for the Corporation's market pulp and containerboard were
higher than during the first half of 1993, the results were offset by lower
average prices for communication papers.
Improvements in certain of the Corporation's pulp and paper
businesses have been realized in 1994. Prices declined throughout the
1993 six-month period for most of the Corporation's pulp and paper products.
In contrast, many of these products have experienced an upward trend in
pricing since year-end 1993. Specifically, market pulp, containerboard and
corrugated packaging average prices have increased since year-end. Lower
inventories than year ago levels and improved demand in the containerboard and
corrugated packaging industry have had a favorable impact on prices. In
addition, the 1994 six-month results were positively impacted by a volume
increase in the tissue business even though 1994 average prices remained
relatively flat compared with the 1993 first half. Some recent price
improvements for communication papers have also been noted toward the end of
the 1994 second quarter. The Corporation expects further improvement in the
1994 third quarter for its pulp and paper segment.
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 first quarter, the Corporation recorded an after-tax
loss of $3 million ($36 million before taxes) on the sale of its paper
distribution business. The large tax benefit resulted from the loss on the
sale as well as the fact that the tax basis of capital stock included in the
assets sold in the transaction was significantly greater than its financial
reporting basis.
The Corporation's interest expense and cost of accounts receivable
sale program were a combined $248 million for the six-month period ended June
30, 1994, a decrease of 10.5 percent compared with $277 million for the same
period in 1993. Lower expense during the first six 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 $74 million and an income tax
provision of $38 million for the six months ended June 30, 1994. Excluding the
asset sales, the Corporation reported pretax income before extraordinary item
of $93 million and an income tax provision of $44 million for the six months
ended June 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.
<PAGE> 13
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 of $3 million was used for operations during the 1994 first half
compared with cash provided by operations of $5 million during the 1993 second
quarter. Included in these results are tax payments to the Internal Revenue
Service (IRS) of $37 million and $205 million for the six months ended June 30,
1994 and 1993, respectively. The 1994 tax payment was to settle the 1989
through 1990 tax years for Georgia-Pacific Corporation. 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 $34 million in 1994 compared with $210 million in 1993. This
decrease is primarily attributable to increased working capital requirements in
the Corporation's pulp and paper segment during the 1994 first half.
The Corporation reached a settlement with the IRS to resolve
substantially all pending income tax issues related to Great Northern Nekoosa
Corporation for the years 1985 through March 1990. As a result of this
settlement, approximately $47 million in additional taxes and interest will be
paid in the 1994 third quarter.
Investment Activities
Capital expenditures were $342 million for the six months ended June
30, 1994, including $169 million in the pulp and paper segment, $130 million in
the building products segment, $29 million for timber and timberlands and $14
million of other expenditures. Capital expenditures of approximately $850
million are currently projected for 1994.
Financing Activities
As of June 30, 1994, total debt for the Corporation, including the
$700 million accounts receivable sale program, was $5.93 billion, compared with
$5.74 billion at December 31, 1993. This increase includes an increase in bank
overdrafts of $27 million and an increase in commercial paper and short-term
notes of $407 million, partially offset by a decrease in long-term debt of $246
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 June 30, 1994, $443 million of committed credit was available
in excess of all short-term borrowings outstanding under or supported by the
facility.
At June 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 $1.2 billion of floating rate obligations with a weighted
average interest rate of approximately 4.0% 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 $1.2 billion at June
30, 1994.
As previously reported in the Corporation's Quarterly Report on Form
10-Q for the three months ended March 31, 1994, $800 million of the interest
rate exchange agreements outstanding at December 31, 1993 are due to expire in
1994. As of June 30, 1994, $500 million of these agreements had expired and
another $100 million expired in July 1994.
The Corporation's weighted average interest rate on total debt,
including the accounts receivable sale program and floating rate debt, at June
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
exchange agreements during
<PAGE> 14
the twelve-month period ended June 30, 1994 which had effectively fixed the
rates on a portion of the Corporation's variable rate debt.
As previously reported in the Corporation's Quarterly Report on Form
10-Q for the three months ended March 31, 1994, the Corporation was negotiating
a renewal of its accounts receivable sale program agreement which was due to
expire in June 1994. The term of this program has been extended until May 27,
1995.
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 58.3% at June 30, 1994 compared with 57.0% at
December 31, 1993.
At June 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 to 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 8 of the Notes to Financial Statements for a discussion
of commitments and contingencies.
<PAGE> 15
PART II - OTHER INFORMATION
GEORGIA-PACIFIC CORPORATION
June 30, 1994
ITEM 1. LEGAL PROCEEDINGS
The information contained in Note 8 "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 March 31, 1994, the Corporation has received and
responded to two comprehensive information requests from the Environmental
Protection Agency concerning about 30 of the Corporation's facilities which
manufacture oriented strand board, medium density fiberboard, plywood and
particleboard. The Corporation has discussed with the EPA and state regulatory
authorities a number of issues regarding alleged non-compliance with the Clean
Air Act at these facilities. Although the EPA has taken no action, the
Corporation understands that the EPA is preparing to issue a Notice of
Violation with respect to this matter. The Corporation anticipates being able
to negotiate settlements of these issues with the EPA and state environmental
agencies, which may entail the payment of fines and the agreement by the
Corporation to install air emission control equipment at certain of its plants.
No negotiations with the EPA have yet been held.
As previously reported in the Corporation's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1994, the Western Environmental Law Center, on
behalf of the Oregon Natural Resources Council (ONRC), filed a citizen's suit
against the Corporation (ONRC v. Georgia-Pacific Corporation) in the U.S.
District Court in Oregon on February 16, 1994, alleging violations of
wastewater discharge permit limits at the Corporation's Toledo, Oregon plant.
The Corporation believes it is in compliance with all the requirements of the
permit. However, the Corporation is negotiating to resolve the plaintiff's
concerns, and has agreed to pay the fees and expenses of an expert to conduct a
pollution prevention survey at the mill. Once that survey is completed, the
Corporation will have further negotiations with the plaintiff in an attempt to
resolve this matter.
In May, 1994, the Corporation's Olympia, Washington facility received a notice
of intent to sue from the Atlantic States Legal Foundation (ASLF), an
environmental group, and a Notice of Violation from the Washington Department
of Ecology, each making substantially the same allegations of more than 100
violations of the Corporation's permit to discharge waste water into the City
of Olympia Publicly Owned Treatment Works. On July 13, 1994, the Corporation
and ASLF reached an agreement in principle pursuant to which ASLF has agreed
not to bring suit, and the Corporation has agreed to make a donation of $99,900
for an environmental project to be mutually agreed upon by the Corporation and
ASLF. Among other conditions outlined in the agreement, the Corporation also
agreed to pay $12,500 in attorneys' fees and costs. The Washington Department
of Ecology has not yet assessed the Corporation any fine or penalty with
respect to its Notice of Violation.
<PAGE> 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of shareholders of the Corporation was held on May 3, 1994.
At the annual meeting, five directors were elected, the Corporation's 1994
Management Incentive Plan was approved, and a shareholder proposal relating to
establishment of a Nominating Committee composed solely of directors who meet
the definition of independence set forth in such proposal was rejected.
Proxies for the meeting were solicited pursuant to Regulation 14 under the
Securities Exchange Act of 1934. There was no solicitation in opposition to
management's nominees for election to the Board of Directors as listed in the
related proxy statement, and all of such nominees were elected. The results of
shareholder voting on matters considered at the annual meeting are as follows:
Election of Directors:
For Withheld
Mr. Correll 76,303,137 773,200
Ms. Evans 76,292,299 784,038
Mr. Giordano 76,468,234 608,103
Mr. Ivester 76,303,512 772,825
Dr. Sullivan 76,272,517 803,820
Approval of 1994 Management Incentive Plan:
For Against Abstain
73,221,415 2,919,316 935,606
Shareholder Proposal - Nominating Committee:
For Against Abstain Non-Votes
14,968,126 49,981,783 3,483,838 8,642,590
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.3(vi). Amendment No. 3 to the Corporation's
Key Salaried Employees Group
Insurance Plan (Post-1986 Group)
(Effective August 1,1994).
Exhibit 11. Statements of Computation of Per
Share Earnings.
(b) No Current Reports on Form 8-K were filed by the
Corporation during the quarter ended June 30, 1994.
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registration has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 2, 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)
<PAGE> 18
GEORGIA-PACIFIC CORPORATION
INDEX TO EXHIBITS
FILED WITH THE QUARTERLY REPORT
ON FORM 10-Q FOR THE
QUARTER ENDED JUNE 30, 1994
Number Description
- ------ -----------
10.3(vi). Amendment No. 3 to the Corporation's Key Salaried Employees
Group Insurance Plan (Post-1986 Group) (Effective August 1,
1994).(1)
11. Statements of Computation of Per Share Earnings. (1)
- ----------------------------------
(1) Filed by EDGAR
<PAGE> 1
Exhibit 10.3(vi)
AMENDMENT NUMBER THREE
TO THE
GEORGIA-PACIFIC CORPORATION
KEY SALARIED EMPLOYEES GROUP INSURANCE PLAN
POST-1986 GROUP
(Effective January 1, 1987)
Pursuant to the authority granted to Georgia-Pacific Corporation (the
"Company") to amend the Georgia-Pacific Corporation Key Salaried Employees
Group Insurance Plan/Post-1986 Group (the "Plan") under Section 6.2 of the
Plan, the Plan has been amended effective as indicated as follows:
1) Section 2.1 of the Plan is amended and restated effective
August 1, 1994 as follows:
"2.1 Participation
All salaried employees who are actively at work and either
whose annual base salary equals or exceeds $150,000 or who are
officers (other than assistant officers such as an Assistant
Secretary or an Assistant Treasurer) of Georgia-Pacific
Corporation shall become participants in the Plan, provided
that salaried employees who are eligible to participate in the
Georgia-Pacific Key Salaried Employees Group Insurance
Plan/Pre-1987 Group will not be eligible to participate in
this Plan. Participation shall commence on the January 1 as
of which the compensation or officer status standard is met;
provided, however, that if a salaried employee's base salary
is increased to a level at or above $150,000 on a retroactive
basis to a date on or before the January 1 next preceding the
official authorization date of the salary action, that
employee shall become eligible to participate in this Plan
effective as of the authorization date of the salary action.
In the event an employee is otherwise eligible but is not
actively at work, such employee shall commence participation
upon return to active employment. Once an employee has become
a Participant in the Plan, the employee shall continue to
participate notwithstanding the future failure of employee to
meet the minimum annual salary requirements for new
Participants."
<PAGE> 2
2) Except as hereinabove and heretofore amended and modified, the
Plan as effective as of January 1, 1987 shall remain in full
force and effect.
IN WITNESS WHEREOF, the Company has duly executed this Amendment this
3rd day of August, 1994.
GEORGIA-PACIFIC CORPORATION
BY: /s/ A.D. CORRELL
---------------------------------------
A.D. Correll
Chairman and Chief Executive Officer
<PAGE> 1
EXHIBIT 11
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
STATEMENTS OF COMPUTATION OF PER SHARE EARNINGS (Unaudited)
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------- ---------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income (Loss)
- -------------
Income before extraordinary item
and accounting change $14,000 $ 5,000 $ 70,000 $46,000
Extraordinary item, net of tax - (8,000) (11,000) (8,000)
Cumulative effect of accounting
change, net of tax - - (5,000) -
------- ------- -------- -------
Net income (loss) $14,000 $(3,000) $ 54,000 $38,000
------- ------- -------- -------
Weighted Average Shares
- -----------------------
Common shares outstanding, net of
restricted stock 88,850 87,332 88,776 86,949
Add - shares assumed to be issued
under long-term incentive
(restricted stock), stock
option and stock purchase
plans at the average market
price 641 - 781 1,554
------- ------- ------- -------
Primary shares 89,491 87,332 89,557 88,503
------- ------- ------- -------
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) - 1,441 - -
------- ------- ------- -------
Fully diluted shares 89,491 88,773 89,557 88,503
------- ------- ------- -------
Income (Loss) Per Share
- -----------------------
Income before extraordinary item
and accounting change $ .16 $ .06 $ .79 $ .53
Extraordinary item, net of tax - (.09) (.12) (.09)
Cumulative effect of accounting
change, net of tax - - (.06) -
------- ------- ------- -------
Net income (loss) $ .16 $ (.03) $ .61 $ .44
------- ------- ------- -------
Income (Loss) Per Share - Primary and
Fully Diluted
- -------------------------------------
Income before extraordinary item
and accounting change $ .16 $ .06 $ .78 $ .52
Extraordinary item, net of tax - (.09) (.12) (.09)
Cumulative effect of accounting change,
net of tax - - (.06) -
------- ------- ------- -------
Net income (loss) $ .16 $ (.03) $ .60 $ .43
------- ------- ------- -------
</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.
