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, 1996
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 August 8, 1996, Georgia-Pacific Corporation had
91,342,948 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) 1996 1995 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $3,319 $3,700 $6,368 $7,177
- --------------------------------------------------------------------------------
Costs and expenses
Cost of sales 2,505 2,573 4,783 4,973
Selling, general and
administrative 359 363 720 713
Depreciation and cost of timber
harvested 247 227 460 457
Interest 109 100 216 205
Other expense 74 - 74 -
- --------------------------------------------------------------------------------
Total costs and expenses 3,294 3,263 6,253 6,348
- --------------------------------------------------------------------------------
Income before income taxes
and extraordinary item 25 437 115 829
Provision for income taxes 15 172 55 332
- --------------------------------------------------------------------------------
Income before extraordinary item 10 265 60 497
Extraordinary item - loss from early
retirement of debt, net of taxes (5) - (5) -
- --------------------------------------------------------------------------------
Net income $ 5 $ 265 $ 55 $ 497
================================================================================
Per share:
Income before extraordinary item $ .11 $ 2.95 $ .66 $ 5.54
Extraordinary item - loss from early
retirement of debt, net of taxes (.05) - (.05) -
- --------------------------------------------------------------------------------
Net income $ .06 $ 2.95 $ .61 $ 5.54
================================================================================
Average number of shares outstanding 90.5 89.8 90.5 89.7
================================================================================
</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) 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used for) operations
Net income $ 55 $ 497
Adjustments to reconcile net income to cash
provided by operations:
Depreciation & cost of timber harvested 460 457
Deferred income tax (benefit) provision 13 (16)
Amortization of goodwill 29 30
Stock compensation programs 13 34
Gain on sales of assets (15) (4)
(Increase) in receivables (14) (253)
(Decrease) in accounts receivable sale program - (200)
(Increase) decrease in inventories 48 (53)
Change in other working capital 59 15
(Decrease) in taxes payable (87) (5)
Change in other assets and other
long-term liabilities 11 29
- -----------------------------------------------------------------------
Cash provided by operations 572 531
- -----------------------------------------------------------------------
Cash provided by (used for) investment activities
Capital expenditures
Property, plant and equipment (652) (501)
Timber and timberlands (40) (136)
- -----------------------------------------------------------------------
Total capital expenditures (692) (637)
Acquisition (350) -
Increase in cash restricted for capital expenditures 62 2
Proceeds from sales of assets 35 18
Other (5) (1)
- -----------------------------------------------------------------------
Cash (used for) investment activities (950) (618)
- -----------------------------------------------------------------------
Cash provided by (used for) financing activities
Proceeds from option plan exercises 1 11
Repayments of long-term debt (159) (221)
Additions to long-term debt 2 516
Fees paid to issue debt (1) (5)
Increase in bank overdrafts 1 5
Increase (decrease) in commercial paper and
other short-term notes 625 (168)
Cash dividends paid (91) (82)
- -----------------------------------------------------------------------
Cash provided by financing activities 378 56
- -----------------------------------------------------------------------
Increase (decrease) in cash - (31)
Balance at beginning of period 11 53
- -----------------------------------------------------------------------
Balance at end of period $ 11 $ 22
=======================================================================
</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) 1996 1995
- ----------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash $ 11 $ 11
Receivables, less allowances of $27 and $25 1,005 949
Inventories 1,420 1,446
Deferred income taxes 123 123
Other current assets 99 66
- ----------------------------------------------------------------------------
Total current assets 2,658 2,595
- ----------------------------------------------------------------------------
Timber and timberlands, net 1,326 1,374
- ----------------------------------------------------------------------------
Property, plant and equipment
Land, buildings, machinery and equipment, at cost 13,695 12,576
Accumulated depreciation (7,084) (6,563)
- ----------------------------------------------------------------------------
Property, plant and equipment, net 6,611 6,013
- ----------------------------------------------------------------------------
Goodwill 1,685 1,714
- ----------------------------------------------------------------------------
Other assets 612 639
- ----------------------------------------------------------------------------
Total assets $ 12,892 $12,335
============================================================================
</TABLE>
<PAGE> 5
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Bank overdrafts, net $ 208 $ 201
Commercial paper and other short-term notes 946 321
Current portion of long-term debt 310 15
Accounts payable 646 644
Accrued compensation 184 218
Accrued interest 83 87
Other current liabilities 362 276
- ----------------------------------------------------------------------------
Total current liabilities 2,739 1,762
- ----------------------------------------------------------------------------
Long-term debt, excluding current portion 4,253 4,704
- ----------------------------------------------------------------------------
Other long-term liabilities 1,249 1,203
- ----------------------------------------------------------------------------
Deferred income tax liabilities 1,163 1,147
- ----------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Common stock, par value $.80; 150,000,000
shares authorized; 91,338,000 and 91,308,000
shares issued 73 73
Additional paid-in capital 1,272 1,267
Retained earnings 2,190 2,227
Long-term incentive plan deferred compensation (18) (24)
Other (29) (24)
- ----------------------------------------------------------------------------
Total shareholders' equity 3,488 3,519
- ----------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 12,892 $12,335
============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS (Unaudited)
GEORGIA-PACIFIC CORPORATION
JUNE 30, 1996
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 Corporation's financial position, results of
operations and cash flows for the interim periods. All such adjustments
are of a normal, recurring nature. Certain 1995 amounts have been
reclassified to conform with the 1996 presentation. During the 1996
first quarter, the Corporation reclassified stumpage costs from cost of
sales to depreciation and cost of timber harvested in its statements of
income. In addition, these amounts were reclassified from investing
activities to operating activities in the Corporation's statements of
cash flows. The impact of this reclassification was $26 million in the
1996 second quarter and $41 million in the 1995 second quarter.
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. EXTRAORDINARY ITEM. The Corporation called for redemption approximately
$150 million of its outstanding debt during the 1996 second quarter. As
a result, an after-tax extraordinary loss of $5 million (5 cents per
share) was recognized.
4. 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.
<TABLE>
<CAPTION>
Six months
ended June 30
--------------
(Millions) 1996 1995
--------------------------------------------------------
<S> <C> <C>
Total interest costs $ 234 $ 216
Interest capitalized (18) (11)
--------------------------------------------------------
Interest expense $ 216 $ 205
========================================================
Interest paid $ 236 $ 218
========================================================
Income taxes paid, net of refunds $ 124 $ 350
========================================================
</TABLE>
<PAGE> 7
5. INVENTORY VALUATION. Inventories include costs of materials, labor and
plant overhead. The Corporation uses the dollar value pool method for
computing LIFO inventories. The major components of inventories were as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
(Millions) 1996 1995
--------------------------------------------------------
<S> <C> <C>
Raw materials $ 379 $ 526
Finished goods 985 896
Supplies 294 283
LIFO reserve (238) (259)
--------------------------------------------------------
Total inventories $ 1,420 $1,446
========================================================
</TABLE>
6. PROVISION FOR INCOME TAXES. The actual effective tax rate was 60 percent
for the three months ended June 30, 1996, and 39 percent for the three
months ended June 30, 1995. The actual effective tax rate was 48 percent
for the six months ended June 30, 1996, and 40 percent for the six months
ended June 30, 1995. The actual effective tax rate for each period was
different than the federal statutory rate primarily because of
nondeductible goodwill amortization expense.
7. 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. Liability
insurance in effect during the last several years provides only very
limited coverage for environmental matters.
The Corporation is involved in environmental remediation activities at
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 approximately 40 percent are
being investigated, approximately 50 percent are being remediated and
approximately 10 percent are being monitored (an activity which occurs
after either site investigation or remediation has been completed). The
ultimate costs to the Corporation for the investigation, remediation and
monitoring of many of these sites cannot be predicted with certainty due to
the often unknown magnitude of the pollution or the necessary cleanup, the
varying costs of alternative cleanup methods, the amount of time necessary
to accomplish such cleanups, the evolving nature of cleanup technologies
and government regulations, and the inability to determine the
Corporation's share of 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 $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 reserve for environmental remediation and the
possible range of additional costs, the Corporation has not assumed it will
bear the entire cost of remediation of every site to the exclusion of other
known potentially responsible parties who may be jointly and severally
liable. The ability of other potentially responsible parties to
participate has been taken into account, based generally on the parties'
financial condition and probable contribution on a per site basis.
The Corporation has received and responded to three comprehensive
information requests from the Environmental Protection Agency (EPA)
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) 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 1980.
On July 18, 1996, the Corporation reached a settlement with the U.S.
Department of Justice and EPA fully resolving the allegations contained in
the NOV and all other potential Clean Air Act claims relating to equipment
changes at 41 of its building product manufacturing plants which were
identified in its responses to the EPA's information requests. The
Corporation has agreed to install additional emissions control equipment at
an estimated cost of $22 million at 11 of its plywood facilities and at one
oriented strand board manufacturing plant, pay a civil penalty of $6
million, and provide $4.25 million for environmental improvement projects.
Approximately 9,200 plaintiffs have filed lawsuits in several state courts
in Mississippi based on the alleged discharge of dioxin into the Leaf River
by a pulp mill owned by a subsidiary of the Corporation. These suits
allege a variety of torts including nuisance, trespass and infliction of
emotional distress based on fear of future illness.
In January 1992, in the Ferguson case, a jury awarded two plaintiffs a
--------
total of $200,000 in compensatory damages for nuisance and emotional
distress and $3,000,000 in punitive damages. The Corporation appealed this
verdict. On October 19, 1995, the Mississippi Supreme Court reversed the
verdict in Ferguson and rendered judgment for the Corporation. The Court
--------
ruled that a claim for emotional distress based on fear of future illness
had to be supported by proof of exposure to the chemicals at issue and that
the plaintiffs had failed to provide such proof. Moreover, the Court held
that plaintiffs had produced no evidence that the Corporation created a
nuisance with respect to the plaintiffs' properties. Finally, the Court
ruled that the plaintiffs failed to show that the defendants' conduct
constituted intentional, willful, wanton or grossly negligent behavior.
Based on the Mississippi Supreme Court's opinion in Ferguson, the
--------
Corporation has moved for summary judgment in virtually all dioxin cases in
which it is a defendant. On April 12, 1996, the Corporation's motions for
summary judgment in approximately 170 dioxin cases involving approximately
3,702 plaintiffs were granted. The dismissal of these cases was not
appealed. The Corporation's summary judgment motion in another case
involving 35 plaintiffs was granted in June. These 35 plaintiffs have
filed a notice of appeal. On July 29, 1996, summary judgment was granted
in cases involving approximately 5,400 plaintiffs. To date, no notice of
appeal has been filed by these plaintiffs, although the time period in
which such a notice of appeal could be filed has not expired.
As a result, at the present time only eight suits involving 24 plaintiffs
that include a variety of allegations regarding dioxin exposure from the
Leaf River Mill remain pending. The Corporation intends to file summary
judgment motions in these cases based on the Ferguson decision.
--------
In addition, two appeals are pending in the Mississippi Supreme Court. In
the Simmons case, in 1990, a jury awarded one plaintiff $40,000 in
-------
compensatory damages and $1,000,000 in punitive damages. The Corporation
has appealed this judgment. In 1993, in the Beech/Williams case, a jury
--------------
verdict was rendered in favor of the Corporation. The plaintiffs have
appealed this verdict. No decision has been issued on either of the
Simmons or Beech/Williams appeals.
------- --------------
On April 8, 1996, the United States District Court for the Northern
District of Mississippi granted a declaratory judgment to several
subsidiaries of the Corporation against certain insurance carriers, holding
that these insurers are obligated to reimburse such subsidiaries against
costs incurred to defend against allegations of trespass, nuisance and
emotional distress related to the alleged discharge of dioxin from the Leaf
River mill and to indemnify such subsidiaries in the event they are found
liable for damages as a result of such alleged discharges. It is
anticipated that the insurance companies will appeal this judgment.
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
48,000 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 suffered any compensable loss as a
result of such exposure.
The Corporation generally resolves 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 has insurance available in amounts which it believes are
adequate to cover substantially all of the reasonably foreseeable damages
and settlement amounts arising out of claims and suits currently pending.
The Corporation has further insurance coverage available for the
disposition of suits and claims that may be filed against the Corporation
in the future, but there can be no assurance that the amounts of such
insurance will ultimately be adequate to cover all future claims. The
Corporation has established reserves for liabilities and legal defense
costs it believes are probable and reasonably estimable with respect to
pending suits and claims. It also has recorded a receivable for expected
insurance recoveries with respect to such pending suits and claims.
The Corporation is defending an action filed in state court in Mobile,
Alabama (Bettner, et al. v. Georgia-Pacific Corporation) that seeks to
----------------------------------------------
certify a class of all persons currently owning structures in the United
States on which hardboard siding manufactured by the Corporation after
January 1, 1980 has been installed. On January 3, 1996, the court entered
an order of conditional certification, which divided the "class" into two
conditionally certified subclasses. The two subclasses distinguish between
the hardboard siding manufactured at the Corporation's Catawba, South
Carolina plant and the hardboard siding formerly manufactured at the
Corporation's Jarratt, Virginia plant. The plaintiffs allege that the
hardboard siding manufactured and distributed by the Corporation was
inadequately designed and manufactured and as a consequence prematurely
discolors and deteriorates. The plaintiffs also dispute the validity and
availability of the warranty issued with the product. The plaintiffs seek
unspecified compensatory and punitive damages, declaratory relief regarding
the availability of warranties, restitution and injunctive relief. A
second Alabama action containing similar allegations, originally filed in
Choctaw County, Alabama (Henderson, et al. v. Georgia-Pacific Corporation)
------------------------------------------------
has been consolidated before the Mobile court hearing the Bettner action.
-------
On March 27, 1996, a third action was filed against the Corporation and a
codefendant, a mobile home manufacturer. The action (Rackley et al. v. G-P
---------------------
et al.), filed in the Superior Court of Bryan County, Georgia, seeks to
------
certify a class of individuals whose mobile homes were sided with the
Corporation's hardboard siding product. The complaint alleges that the
hardboard siding was defectively designed and manufactured. The plaintiffs
seek damages in excess of $10,000 for each purported class member. It is
unclear at the present time whether the action pertains to both the
Corporation's Catawba and Jarratt products.
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 their
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
(Dollar amounts, except Second Quarter
per share, in millions) First --------------
Quarter Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1996
NET SALES
Building products $1,570 52% $1,896 57% $3,466 55%
Pulp and paper 1,468 48 1,411 43 $2,879 45
Other operations 11 - 12 - $ 23 -
- --------------------------------------------------------------------------------
Total net sales $3,049 100% $3,319 100% $6,368 100%
===============================================================================
OPERATING PROFITS
Building products $ 67 28% $ 175 70% $ 242 50%
Pulp and paper 174 72 73 30 247 50
Other operations 2 - 3 - 5 -
- --------------------------------------------------------------------------------
Total operating profits 243 100% 251 100% 494 100%
=== === ===
General corporate expense (41) (38) (79)
Interest expense (107) (109) (216)
Cost of accounts receivable
sale program (5) (5) (10)
Other expense - (74) (74)
Provision for income taxes (40) (15) (55)
- --------------------------------------------------------------------------------
Income before
extraordinary item $ 50 $ 10 $ 60
Extraordinary item,
net of taxes - (5) (5)
- --------------------------------------------------------------------------------
Net income $ 50 $ 5 $ 55
===============================================================================
Per common share:
Income before
extraordinary item $ .55 $ .11 $ .66
Extraordinary item,
net of taxes - (.05) (.05)
- --------------------------------------------------------------------------------
Net income $ .55 $ .06 $ .61
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (unaudited)
Georgia-Pacific Corporation and Subsidiaries
(Dollar amounts, Third Quarter Fourth Quarter
except per share, ------------------------ ------------------------
in millions) Quarter Year-to-date Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
NET SALES
Building products
Pulp and paper
Other operations
- --------------------------------------------------------------------------------
Total net sales
===============================================================================
OPERATING PROFITS
Building products
Pulp and paper
Other operations
- --------------------------------------------------------------------------------
Total operating
profits
General corporate
expense
Interest expense
Cost of accounts
receivable sale
program
Provision for
income taxes
- --------------------------------------------------------------------------------
Net income
===============================================================================
Per common share:
Net income
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (unaudited)
Georgia-Pacific Corporation and Subsidiaries
(Dollar amounts, except Second Quarter
per share, in millions) First --------------
Quarter Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1995
NET SALES
Building products $1,800 52% $1,860 50% $3,660 51%
Pulp and paper 1,665 48 1,829 50 3,494 49
Other operations 12 - 11 - 23 -
- --------------------------------------------------------------------------------
Total net sales $3,477 100% $3,700 100% $7,177 100%
===============================================================================
OPERATING PROFITS
Building products $ 197 35% $ 143 24% $ 340 29%
Pulp and paper 368 65 457 76 825 70
Other operations 5 - 4 - 9 1
- --------------------------------------------------------------------------------
Total operating profits 570 100% 604 100% 1,174 100%
=== === ===
General corporate expense (62) (55) (117)
Interest expense (105) (100) (205)
Cost of accounts receivable
sale program (11) (12) (23)
Provision for income taxes (160) (172) (332)
- --------------------------------------------------------------------------------
Net income $ 232 $ 265 $ 497
===============================================================================
Per common share:
Net income $ 2.59 $ 2.95 $ 5.54
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (unaudited)
Georgia-Pacific Corporation and Subsidiaries
(Dollar amounts, Third Quarter Fourth Quarter
except per share, ------------------------ ------------------------
in millions) Quarter Year-to-date Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
NET SALES
Building products $ 1,901 51% $ 5,561 51% $ 1,738 51% $ 7,299 51%
Pulp and paper 1,789 49 5,283 49 1,660 49 6,943 49
Other operations 15 - 38 - 12 - 50 -
- --------------------------------------------------------------------------------
Total net sales $ 3,705 100% $10,882 100% $ 3,410 100% $14,292 100%
===============================================================================
OPERATING PROFITS
Building products $ 221 31% $ 561 30% $ 108 26% $ 669 29%
Pulp and paper 478 68 1,303 69 308 75 1,611 71
Other operations 4 1 13 1 (3) (1) 10 -
- --------------------------------------------------------------------------------
Total operating
profits 703 100% 1,877 100% 413 100% 2,290 100%
=== === === ===
General corporate
expense (61) (178) 17 (161)
Interest expense (94) (299) (96) (395)
Cost of accounts
receivable sale
program (8) (31) (6) (37)
Provision for
income taxes (216) (548) (131) (679)
- --------------------------------------------------------------------------------
Net income $ 324 $ 821 $ 197 $ 1,018
===============================================================================
Per common share:
Net income $ 3.57 $ 9.12 $ 2.17 $ 11.29
===============================================================================
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH 1995
The Corporation reported consolidated net sales of $3.3 billion and net income
of $5 million (6 cents per share) for the three months ended June 30, 1996,
compared with net sales of $3.7 billion and net income of $265 million ($2.95
per share) in 1995. The 1996 results include a $74 million pretax (after-tax 50
cents per share) charge to earnings related to the Corporation's voluntary early
retirement program and an extraordinary, after-tax loss of $5 million (5 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 Corporation's building products segment reported net sales of $1.9 billion
and operating profits of $175 million for the three months ended June 30, 1996,
compared with net sales of $1.9 billion and operating profits of $143 million in
1995. Return on sales was 9.2 percent in the 1996 second quarter compared with
7.7 percent in the 1995 second quarter. Higher profits for this segment in the
1996 quarter were primarily attributable to 12 percent higher lumber prices,
increased production of gypsum and oriented strand board and a 10 percent
decline in the cost of outside-purchased logs. These items more than offset a
13 percent decline in structural panel prices.
As previously reported, the Corporation has undertaken a project to change and
improve certain selling, administrative and logistical processes of its building
products distribution division. In addition to capital expenditures, the
Corporation incurred expenses of approximately $70 million during 1995 and $17
million during the first quarter of 1996 related to the project. During the
second quarter of 1996, the Corporation recorded additional expenses of $35
million. Future expenses for this project could be material to the
Corporation's building products segment results in any given quarter. Capital
expenditures are primarily related to the acquisition and construction of new
facilities and systems and are projected to be approximately $400 million,
excluding proceeds from facility sales. Approximately $285 million of that
amount has already been invested. The Corporation expects to substantially
complete the project by the end of 1996.
The Corporation's pulp and paper segment reported net sales of $1.4 billion and
operating profits of $73 million for the three months ended June 30, 1996,
compared with net sales of $1.8 billion and operating profits of $457 million
in 1995. Return on sales declined to 5 percent in the 1996 second quarter,
compared with 25 percent in 1995, primarily as a result of lower prices for most
of the Corporation's pulp and paper products. Compared with the 1995 second
quarter, prices were 50 percent lower for market pulp, 40 percent lower for
containerboard and 30 percent lower for communications papers. Tissue prices
improved approximately 10 percent.
In May 1996, the Corporation announced that it had set a goal of improving its
annual pretax earnings by approximately $400 million through a three-year effort
to reduce overhead costs and improve efficiencies throughout the Corporation.
As part of its effort to achieve its $400 million goal, the Corporation plans to
substantially reduce administrative and overhead costs during the remainder of
1996 and in 1997. The Corporation expects to achieve much of the cost reduction
by eliminating work and the related salaried positions (including, but not
limited to, positions eliminated as a result of the early retirement program
discussed below). The Corporation also expects to realize significant
efficiencies and cost savings from substantial investments it is making to re-
engineer its building products distribution division, install new information
systems and reduce operating costs.
As part of its three-year effort to reduce overhead and improve efficiencies,
the Corporation announced a voluntary early retirement program effective May 20,
1996, to July 8, 1996, for certain salaried employees who were at least 55 years
old and had 10 years of service or who had reached age 65. Approximately 950
employees elected to take early retirement effective August 30, 1996. Second
quarter 1996 results include a $74 million pretax charge for the estimated costs
of enhanced pension benefits and continued health care benefits offered under
the voluntary early retirement program. This charge is reported as "Other
expense" in the ``Sales and Operating Profits by Industry Segment'' table
(included in PART I - ITEM 1. hereto). The Corporation's Salaried Employee's
Retirement Plan will fund the enhanced pension benefits when the benefit
obligations are settled during the 1996 third and fourth quarters. In
accordance with the provisions of Financial Accounting Standard Number 87,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and Termination Benefits," the Corporation expects to record
a gain on the settlement of these pension obligations during the third
quarter. The Corporation also expects to record severance costs as it
identifies additional salaried positions to be eliminated in 1996 and 1997.
General corporate expense decreased to $38 million for the three months ended
June 30, 1996, compared with $55 million in 1995. The majority of the decrease
is attributable to lower expenses for both the Corporation's stock compensation
plans and its cash incentive compensation program.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH 1995
The Corporation reported consolidated net sales of $6.4 billion and net income
of $55 million (61 cents per share) for the six months ended June 30, 1996,
compared with net sales of $7.2 billion and net income of $497 million ($5.54
per share) in 1995. The 1996 results include a $74 million pretax (after-tax 50
cents per share) charge to earnings related to the Corporation's voluntary early
retirement program and an extraordinary, after-tax loss of $5 million (5 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 Corporation's building products segment reported net sales of $3.5 billion
and operating profits of $242 million for the six months ended June 30, 1996,
compared with net sales of $3.7 billion and operating profits of $340 million in
1995. Return on sales decreased to 7.0 percent from 9.3 percent a year ago. A
10 percent decline in the cost of outside-purchased logs was more than offset by
approximately 15 percent lower prices for plywood and increased expenses related
to the Corporation's distribution division project (discussed above), resulting
in lower operating profits in the 1996 period.
The Corporation's pulp and paper segment reported net sales of $2.9 billion and
operating profits of $247 million for the six-month period ended June 30, 1996,
compared with net sales of $3.5 billion and operating profits of $825 million
in 1995. Return on sales declined to 8.6 percent in the first half of 1996,
compared with 23.6 percent in 1995, primarily as a result of lower prices for
most of the Corporation's pulp and paper products. Compared with the first half
of 1995, prices were 40 percent lower for market pulp, 30 percent lower for
containerboard and 20 percent lower for communications papers. Tissue prices
improved approximately 12 percent.
General corporate expense was $79 million for the six months ended June 30,
1996, compared with $117 million in 1995. The majority of the decrease is
attributable to lower expenses for both the Corporation's stock compensation
plans and its cash incentive compensation program.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. The Corporation generated cash from operations of $572
million during the first six months of 1996, compared with $531 million in the
first half of 1995. Cash used for working capital in the first six months of
1995 (which included a $200 million reduction in the accounts receivable sale
program) was $502 million higher than in the first half of 1996. Excluding
changes in working capital, cash provided by operations in the first six
months of 1996 was 45 percent below the comparable 1995 level. This decline
is primarily attributable to lower pulp and paper prices.
Investing Activities. Capital expenditures for the six months ended June 30,
1996, were $692 million, which included $278 million in the pulp and paper
segment, $309 million in the building products segment, $40 million for timber
and timberlands and $65 million of other and general corporate. The Corporation
expects to invest approximately $1.3 billion in 1996.
On April 15, 1996, the Corporation completed the purchase of Domtar's gypsum
wallboard business for $350 million in cash. Domtar's gypsum business includes
nine U.S. wallboard manufacturing plants, four Canadian wallboard plants, three
joint compound plants, an industrial plaster plant and a gypsum paperboard
plant. As previously announced, as a condition to approval of this transaction,
the U.S. Department of Justice is requiring Georgia-Pacific to divest its
existing wallboard production facilities at Buchanan, New York, and Wilmington,
Delaware.
On August 6, 1996, the Corporation announced that it had reached an agreement to
sell these facilities to Lafarge Corporation. The Corporation expects to
complete the sale, for approximately $60 million, during the 1996 third quarter.
Financing Activities. The Corporation's total debt, including $350 million
under the accounts receivable sale program, was $6.1 billion at June 30, 1996,
compared with $5.6 billion at December 31, 1995. Most of the $500 million
increase is attributable to the acquisition of Domtar's gypsum business for $350
million in the second quarter of 1996 and an excess of capital expenditures over
cash provided by operations.
At June 30, 1996, the Corporation had outstanding borrowings of $628 million
under certain industrial revenue bonds. Approximately $48 million from the
issuance of these bonds is being held by trustees and is restricted for the
construction of certain capital projects. Amounts held by trustees are
classified as noncurrent assets in the accompanying balance sheet. Restricted
cash used for capital expenditures is shown as a source of cash in the
investment activities section of the statement of cash flows.
On April 1, 1996, the Corporation redeemed $150 million of its 9.25% Debentures
Due March 15, 2016. The Corporation recorded an after-tax extraordinary loss of
approximately $5 million (5 cents per share) related to this redemption during
the second quarter.
The Corporation has a $1.5 billion unsecured revolving credit facility that is
used for direct borrowings and as support for commercial paper and other short-
term borrowings. As of June 30, 1996, $554 million of committed credit was
available in excess of all short-term borrowings outstanding under or supported
by the facility.
At June 30, 1996, the Corporation's weighted average interest rate on its total
debt was 7.6% including the accounts receivable sale program and outstanding
interest rate exchange agreements. At June 30, 1996, these interest rate
exchange agreements effectively converted $496 million of floating rate
obligations with a weighted average interest rate of 5.3% to fixed rate
obligations with an average effective interest rate of 9.0%. These agreements
have a weighted average maturity of approximately 2.6 years. As of June 30,
1996, the Corporation's total floating rate debt, including the accounts
receivable sale program, exceeded related interest rate exchange agreements by
$1.64 billion.
As of June 30, 1996, the Corporation had registered for sale up to $500 million
of debt securities under a shelf registration statement filed with the
Securities and Exchange Commission.
In 1996, the Corporation expects its cash flow from operations, together with
proceeds from any asset sales and available financing sources, to be sufficient
to fund planned capital investments, pay dividends and make scheduled debt
payments.
Other. Except for the historical information contained herein, the foregoing
statements are forward-looking statements, the accuracy of which is subject to a
number of risks and assumptions. Among the key factors that could cause actual
results to differ materially are the following: changes in present business
conditions, the ability of the Corporation's managers to eliminate many
functions and associated positions that currently are a part of the
Corporation's overhead costs and the realization of projected savings from
numerous investments in systems, operations and cost reduction programs.
For a discussion of commitments and contingencies refer to Note 7 of the Notes
to Financial Statements.
PART II - OTHER INFORMATION
---------------------------
GEORGIA-PACIFIC CORPORATION
June 30, 1996
ITEM 1. LEGAL PROCEEDINGS
The information contained in Note 7 "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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of shareholders of the Corporation was held on May
7, 1996. At the annual meeting, four directors were elected. 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 are as
follows:
ELECTION OF DIRECTORS:
For Withheld
Robert C. Carswell 76,663,659 1,201,228
Alston D. Correll 77,226,722 638,165
T. Marshall Hahn, Jr. 77,212,883 652,004
Francis Jungers 77,270,495 584,392
ITEM 6. (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 June 30, 1996.
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: August 12, 1996 GEORGIA-PACIFIC CORPORATION
(Registrant)
by /s/John F. McGovern
--------------------------------
John F. McGovern,
Executive 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 JUNE 30, 1996
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)
(Millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income
- -------------
Income before extraordinary item $ 10 $ 265 $ 60 $ 497
Extraordinary item, net of tax 5 - 5 -
-------- ------- -------- --------
Net income $ 5 $ 265 $ 55 $ 497
======== ======= ======== ========
Weighted Average Shares
- -----------------------
Common shares outstanding,
net of restricted stock 90,510 89,761 90,495 89,690
Add - shares assumed to
be issued under long-term
incentive (restricted stock),
stock option and stock
purchase plans at the average
market price 603 886 584 839
-------- -------- -------- --------
Primary shares 91,113 90,647 91,079 90,529
-------- -------- -------- --------
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) - 186 - 259
-------- -------- -------- --------
Fully diluted shares 91,113 90,833 91,079 90,788
======== ======= ======== ========
Income Per Share
- -----------------------
Income before extraordinary item $ .11 $ 2.95 $ .66 $ 5.54
Extraordinary item,net of tax (.05) - (.05) -
-------- -------- -------- --------
Net income $ .06 $ 2.95 $ .61 $ 5.54
======== ======= ======== ========
Income Per Share - Primary
- ---------------------------------
Income before extraordinary item $ .11 $ 2.92 $ .66 $ 5.49
Extraordinary item, net of tax (.05) - (.05) -
-------- -------- -------- --------
Net income $ .06 $ 2.92 $ .61 $ 5.49
======== ======= ======== ========
Income Per Share - Fully Diluted
- ---------------------------------------
Income before extraordinary item $ .11 $ 2.92 $ .66 $ 5.47
Extraordinary item, net of tax (.05) - (.05) -
-------- -------- -------- --------
Net income $ .06 $ 2.92 $ .61 $ 5.47
======== ======= ======== ========
</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 THE
FINANCIAL STATEMENTS OF GEORGIA-PACIFIC CORPORATION FOR THE SIX MONTHS ENDED
JUNE 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 11
<SECURITIES> 0
<RECEIVABLES> 1,032
<ALLOWANCES> 27
<INVENTORY> 1,420
<CURRENT-ASSETS> 2,658
<PP&E> 13,695
<DEPRECIATION> 7,084
<TOTAL-ASSETS> 12,892
<CURRENT-LIABILITIES> 2,739
<BONDS> 4,253
0
0
<COMMON> 73
<OTHER-SE> 3,415
<TOTAL-LIABILITY-AND-EQUITY> 12,892
<SALES> 6,368
<TOTAL-REVENUES> 6,368
<CGS> 4,783
<TOTAL-COSTS> 4,783
<OTHER-EXPENSES> 460
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216
<INCOME-PRETAX> 115
<INCOME-TAX> 55
<INCOME-CONTINUING> 60
<DISCONTINUED> 0
<EXTRAORDINARY> 5
<CHANGES> 0
<NET-INCOME> 55
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
