SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 November 5, 1996, Georgia-Pacific Corporation
had 91,384,396 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 Nine months
ended September 30, ended September 30,
------------------- ------------------
(Millions, except per share amounts) 1996 1995 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $3,446 $3,705 $9,814 $10,882
- ----------------------------------------------------------------------------
Costs and expenses
Cost of sales, excluding depreciation
and cost of timber harvested
shown below 2,635 2,477 7,418 7,450
Selling, general and
administrative 352 357 1,072 1,070
Depreciation and cost of timber
harvested 247 237 707 694
Interest 115 94 331 299
Other income 78 - 4 -
- ----------------------------------------------------------------------------
Total costs and expenses 3,271 3,165 9,524 9,513
- ----------------------------------------------------------------------------
Income before income taxes
and extraordinary item 175 540 290 1,369
Provision for income taxes 76 216 131 548
- ---------------------------------------------------------------------------
Income before extraordinary item 99 324 159 821
Extraordinary item - loss from early
retirement of debt, net of taxes - - (5) -
- ---------------------------------------------------------------------------
Net income $ 99 $ 324 $ 154 $ 821
===========================================================================
Per share:
Income before extraordinary item $ 1.09 $ 3.57 $ 1.75 $ 9.12
Extraordinary item - loss from early
retirement of debt, net of taxes - - (.05) -
- ---------------------------------------------------------------------------
Net income $ 1.09 $ 3.57 $ 1.70 $ 9.12
===========================================================================
Average number of shares outstanding 90.6 90.7 90.5 90.0
===========================================================================
</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>
Nine months
ended September 30,
-----------------------
(Millions) 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used for) operations
Net income $ 154 $ 821
Adjustments to reconcile net income to cash
provided by operations:
Depreciation 574 526
Cost of timber harvested 133 168
Other income (41) -
Deferred income tax (benefit) provision 23 (13)
Amortization of goodwill 45 44
Stock compensation programs 29 43
Gain on sales of assets (24) (7)
(Increase) in receivables (27) (191)
(Decrease) in accounts receivable sale program - (200)
(Increase) decrease in inventories 41 (187)
Change in other working capital 62 70
Increase in taxes payable 39 49
Change in other assets and other
long-term liabilities 26 64
- -------------------------------------------------------------------------
Cash provided by operations 1,034 1,187
- -------------------------------------------------------------------------
Cash provided by (used for) investment activities
Capital expenditures
Property, plant and equipment (871) (827)
Timber and timberlands (92) (188)
- -------------------------------------------------------------------------
Total capital expenditures (963) (1,015)
Acquisition (363) -
(Increase) decrease in cash restricted
for capital expenditures 78 (24)
Proceeds from sales of assets 113 25
Other (7) -
- -------------------------------------------------------------------------
Cash (used for) investment activities (1,142) (1,014)
- -------------------------------------------------------------------------
Cash provided by (used for) financing activities
Proceeds from option plan exercises 2 26
Repayments of long-term debt (161) (223)
Additions to long-term debt 24 561
Fees paid to issue debt (1) (6)
Increase (decrease) in bank overdrafts (25) 12
Increase (decrease) in commercial paper and
other short-term notes 405 (93)
Cash dividends paid (137) (128)
- -------------------------------------------------------------------------
Cash provided by financing activities 107 149
- -------------------------------------------------------------------------
Increase (decrease) in cash (1) 322
Balance at beginning of period 11 53
- -------------------------------------------------------------------------
Balance at end of period $ 10 $ 375
========================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
BALANCE SHEETS
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
September 30,December 31,
(Millions, except shares and per share amounts) 1996 1995
- -------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash $ 10 $ 11
Receivables, less allowances of $27 and $25 1,021 949
Inventories 1,423 1,446
Deferred income taxes 123 123
Other current assets 65 66
- -------------------------------------------------------------------------
Total current assets 2,642 2,595
- -------------------------------------------------------------------------
Timber and timberlands 1,328 1,374
- -------------------------------------------------------------------------
Property, plant and equipment
Land, buildings, machinery and equipment, at cost 13,779 12,576
Accumulated depreciation (7,188) (6,563)
- -------------------------------------------------------------------------
Property, plant and equipment, net 6,591 6,013
- -------------------------------------------------------------------------
Goodwill 1,670 1,714
- -------------------------------------------------------------------------
Other assets 642 639
- -------------------------------------------------------------------------
Total assets $ 12,873 $12,335
========================================================================
</TABLE>
<PAGE> 5
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Bank overdrafts, net $ 182 $ 201
Commercial paper and other short-term notes 726 321
Current portion of long-term debt 310 15
Accounts payable 657 644
Accrued compensation 195 218
Accrued interest 104 87
Other current liabilities 404 276
- -------------------------------------------------------------------------
Total current liabilities 2,578 1,762
- -------------------------------------------------------------------------
Long-term debt, excluding current portion 4,274 4,704
- -------------------------------------------------------------------------
Other long-term liabilities 1,296 1,203
- -------------------------------------------------------------------------
Deferred income tax liabilities 1,173 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 1,282 1,267
Retained earnings 2,244 2,227
Long-term incentive plan deferred compensation (16) (24)
Other (31) (24)
- -------------------------------------------------------------------------
Total shareholders' equity 3,552 3,519
- -------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 12,873 $12,335
===========================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS (Unaudited)
GEORGIA-PACIFIC CORPORATION
SEPTEMBER 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 except for the items discussed in Note
3 below. 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 $22 million in the 1996 third quarter and $43
million in the 1995 third 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. OTHER INCOME. In the 1996 third quarter, the Corporation recorded other
pretax income of $78 million. The sale of two gypsum wallboard production
facilities generated a pretax gain of $41 million. The remaining gain of
$37 million primarily related to settlement of pension obligations from
the implementation of the company's voluntary early retirement program.
The 1996 second quarter earnings reflect other pretax expense of $74
million for the estimated costs of enhanced pension benefits and
continued health care benefits offered under the voluntary early
retirement program.
4. EXTRAORDINARY ITEM. The Corporation redeemed 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.
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.
<TABLE>
<CAPTION>
Nine months
ended September 30
------------------------
(Millions) 1996 1995
---------------------------------------------------------------
<S> <C> <C>
Total interest costs $ 354 $ 322
Interest capitalized (23) (23)
---------------------------------------------------------------
Interest expense $ 331 $ 299
================================================================
Interest paid $ 334 $ 307
================================================================
Income taxes paid, net of refunds $ 63 $ 511
================================================================
</TABLE>
<PAGE> 7
6. 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>
September 30, December 31,
(Millions) 1996 1995
--------------------------------------------------------------
<S> <C> <C>
Raw materials $ 358 $ 526
Finished goods 1,005 896
Supplies 293 283
LIFO reserve (233) (259)
--------------------------------------------------------------
Total inventories $ 1,423 $1,446
==============================================================
</TABLE>
7. PROVISION FOR INCOME TAXES. The effective tax rate was 43 percent for
the three months ended September 30, 1996, and 40 percent for the three
months ended September 30, 1995. The effective tax rate was 45 percent
for the nine months ended September 30, 1996, and 40 percent for the nine
months ended September 30, 1995. The effective tax rate for each period
was different than the statutory rates primarily because of nondeductible
goodwill amortization expense.
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. Liability
insurance in effect during the last several years provides only very
limited coverage for environmental matters.
The Corporation is involved in environmental remediation activities at
approximately 200 sites, both owned by the Corporation and owned by others,
where it has been notified that it is or may be a potentially responsible
party under the Comprehensive Environmental Response, Compensation and
Liability Act or similar state "superfund" laws, or which the Corporation
has identified for remediation. 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 such 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.
A Consent Decree embodying this settlement has been filed with the Federal
District Court in Atlanta for approval.
Between 1989 and 1993, approximately 9,200 plaintiffs 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 alleged a variety of torts including nuisance,
trespass, and infliction of emotional distress based on fear of future
illness.
On October 19, 1995, the Mississippi Supreme Court reversed an adverse
verdict in one of these cases, the Ferguson case, and rendered judgment in
--------
favor of 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 and been granted summary judgment against
virtually all dioxin plaintiffs. Of these plaintiffs, approximately 600
have filed a notice of appeal to the Mississippi Supreme Court. In
addition, two appeals of earlier dioxin cases remain 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 appealed that verdict. 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.
------- --------------
At the present time, only eight suits involving 24 plaintiffs alleging
dioxin exposure from the Leaf River Mill remain pending in trial courts.
The Corporation intends to file summary judgment motions in these cases
based on the Ferguson decision. In light of the Ferguson opinion and recent
-------- --------
disposition of the overwhelming majority of these cases, the Corporation
believes the Mississippi dioxin litigation no longer represents a material
contingency.
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 of its insurance carriers,
holding that these insurers are obligated to reimburse such subsidiaries
for 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.
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
52,000 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. Its defense costs and amounts paid in
settlement to date have been substantially covered by product liability
insurance, and it has insurance available in amounts which it believes are
adequate to cover substantially all of the reasonably foreseeable defense
costs, damages, and settlement amounts arising out of claims and suits
currently pending. The Corporation has further insurance coverage available
for 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 dismissed without prejudice, however the Henderson class members
---------
are now members of the alleged Bettner class in the Mobile court.
-------
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 this 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. Management further
believes that the ultimate outcome of such environmental matters and legal
proceedings could be material to operating results in any given quarter or
year, but will not have a material adverse effect on the long-term results
of operations, liquidity, or consolidated financial position of the
Corporation.
<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 99% $ 242 58%
Pulp and paper 174 72 73 41 247 59
Other operations 2 - 3 1 5 -
Other expense - - (74)(41) (74)(17)
- ------------------------------------------------------------------------
Total operating profits 243 100% 177 100% 420 100%
=== === ===
General corporate expense (41) (38) (79)
Interest expense (107) (109) (216)
Cost of accounts receivable
sale program (5) (5) (10)
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 $ 2,040 59% $ 5,506 56%
Pulp and paper 1,396 41 4,275 44
Other operations 10 - 33 -
- --------------------------------------------------------------------------
Total net sales $ 3,446 100% $9,814 100%
==========================================================================
OPERATING PROFITS
Building products $ 182 52% $ 424 55%
Pulp and paper 84 24 331 43
Other operations 4 1 9 1
Other income 78 23 4 1
- -------------------------------------------------------------------------
Total operating
profits $ 348 100% $ 768 100%
General corporate
expense (53) (132)
Interest expense (115) (331)
Cost of accounts
receivable sale
program (5) (15)
Provision for
income taxes (76) (131)
- -------------------------------------------------------------------------
Income before
extraordinary item 99 159
Extraordinary item,
net of taxes - (5)
- -------------------------------------------------------------------------
Net income $ 99 $ 154
=========================================================================
Per common share:
Income before
extraordinary
item $ 1.09 $ 1.75
Extraordinary item,
net of taxes - (.05)
- -------------------------------------------------------------------------
Net income $ 1.09 $ 1.70
=========================================================================
</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 SEPTEMBER 30, 1996 COMPARED WITH 1995
The Corporation reported consolidated net sales of $3.4 billion and net income
of $99 million ($1.09 per share) for the three months ended September 30, 1996,
compared with net sales of $3.7 billion and net income of $324 million ($3.57
per share) in 1995. The 1996 results include a $78 million pretax (after-tax 50
cents per share) gain, including a gain of $37 million primarily related to the
Corporation's voluntary early retirement program and a gain of $41 million from
the sale of two gypsum wallboard production facilities.
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 $2.0 billion
and operating profits of $182 million for the three months ended September 30,
1996, compared with net sales of $1.9 billion and operating profits of $221
million in 1995. Return on sales was 9.1 percent in the 1996 third quarter
compared with 11.6 percent in the 1995 third quarter. This segment showed
significant increases in sales volume for structural panels resulting from two
new oriented strand board facilities. The increased sales volume was offset by
lower average sales prices for plywood and oriented strand board, which were 17
percent and 31 percent below those of the third quarter 1995, respectively. An
increase in gypsum wallboard prices, together with higher shipments (reflecting
the first full quarter of operation of assets acquired from Domtar Inc. in
April of 1996), more than doubled that product's contribution to profits over
the third quarter of 1995. A 17 percent increase in sales price combined with a
7 percent decrease in log costs over the prior year third quarter increased
softwood lumber's contribution to income.
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
$68 million during the first three quarters of 1996 related to the project.
These amounts included third quarter expenses of $16 million in 1996 and $13
million in 1995. 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 $310 million of that
amount has already been invested. The Corporation expects to substantially
complete the project by the second quarter of 1997.
The Corporation's pulp and paper segment reported net sales of $1.4 billion and
operating profits of $84 million for the three months ended September 30, 1996,
compared with net sales of $1.8 billion and operating profits of $478 million
in 1995. Return on sales declined to 6 percent in the 1996 third quarter,
compared with 27 percent in 1995, primarily as a result of substantially lower
prices for most of the Corporation's pulp and paper products. Compared with the
1995 third quarter, prices were 49 percent lower for market pulp, 42 percent
lower for containerboard, and 30 percent lower for communication papers. Tissue
shipments were 13 percent higher than the 1995 third quarter, prices increased 4
percent.
The Corporation continued to work toward its 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 this goal, the Corporation plans to substantially reduce
administrative and overhead costs during the remainder of 1996 and in 1997 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.
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. The
Corporation's Salaried Employee's Retirement Plan is funding the enhanced
pension benefits as the benefit obligations are settled during the 1996 third
and fourth quarter. Third quarter 1996 earnings include other pretax income of
$37 million primarily resulting from a pretax gain on the settlement of these
pension obligations in accordance with the provisions of Financial Accounting
Standard Number 87, "Employers' Accounting for Settlement and Curtailments of
Defined Benefit Pension Plans and Termination Benefits".
Interest expense increased to $115 million for the three months ended September
30, 1996, compared with $94 million in 1995. The increase is attributable to a
higher debt level and less capitalized interest.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH 1995
The Corporation reported consolidated net sales of $9.8 billion and net income
of $154 million ($1.70 per share) for the nine months ended September 30, 1996,
compared with net sales of $10.9 billion and net income of $821 million ($9.12
per share) in 1995. The 1996 results include other pretax income of $4 million
(4 cents per share), including a net pretax charge of $37 million primarily
related to the voluntary early retirement program discussed above, and a pretax
gain of $41 million from the sale of two gypsum wallboard facilities. An
extraordinary, after-tax loss of $5 million (5 cents per share) was recorded in
the second quarter 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 $5.5 billion
and operating profits of $424 million for the nine months ended September 30,
1996, compared with net sales of $5.6 billion and operating profits of $561
million in 1995. Return on sales decreased to 7.7 percent from 10.0 percent a
year ago. A 5 percent increase in lumber prices combined with a 7 percent
decrease in log costs, and increased gypsum revenues, were more than offset by
approximately 21 percent lower prices for oriented strand board. Increased
expenses related to the Corporation's distribution division restructuring
project (discussed above) also contributed to lower operating profits in the
1996 period.
The Corporation's pulp and paper segment reported net sales of $4.3 billion and
operating profits of $331 million for the nine-month period ended September 30,
1996, compared with net sales of $5.3 billion and operating profits of $1,303
million in 1995. Return on sales decreased to 7.7 percent compared with 24.6
percent a year ago, primarily as a result of substantially lower prices for most
of the Corporation's pulp and paper products. Compared with 1995, prices were 41
percent lower for market pulp, 35 percent lower for containerboard, and 22
percent lower for communication papers. Tissue prices improved approximately 9
percent.
General corporate expense was $132 million for the nine months ended September
30, 1996, compared with $178 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 $1,034
million during the first nine months of 1996, compared with $1,187 million in
the first nine months of 1995. Cash used for working capital in the first nine
months of 1995 was $574 million higher than in the first nine months of 1996.
The 1995 amount included a $200 million reduction in the accounts receivable
sale program. The Corporation repurchased receivables to reduce the cost of
the program, which was higher than the cost of financing from alternative
sources. Excluding changes in working capital, however, cash provided by
operations in the first nine months of 1996 was 43 percent below the
comparable 1995 level. This decline is primarily attributable to lower pulp
and paper prices.
INVESTING ACTIVITIES: Capital expenditures for the nine months ended September
30, 1996 were $963 million, which included $341 million in the pulp and paper
segment, $498 million in the building products segment, $92 million for timber
and timberlands, and $32 million of other and general corporate. The Corporation
expects to invest a total of approximately $1.3 billion in 1996 as it completes
a number of significant capital projects to expand its engineered lumber
business, increase its linerboard capacity, reengineer the operations of its
Distribution Division, and expand its gypsum business through an acquisition.
With the completion of these programs, the Corporation anticipates that its
capital spending in 1997 and 1998 will approximate $800 million per year,
without considering the cost of any acquisitions.
The Corporation purchased the U.S. and Canadian gypsum operations of Domtar Inc.
for $350 million in the second quarter of 1996. The Corporation completed the
sale of its gypsum wallboard production facilities at Buchanan, N.Y., and
Wilmington, Del. to Lafarge Corporation in the third quarter. The sale of the
facilities generated cash proceeds of approximately $60 million. The Corporation
had agreed with the U.S. Department of Justice to sell these plants in order to
complete the Domtar acquisition.
FINANCING ACTIVITIES: The Corporation's total debt was $5.8 billion at
September 30, 1996, compared with $5.6 billion at December 31, 1995. In addition
to bank overdrafts, short-term debt, and long-term debt on the balance sheets,
each of these amounts includes $350 million of proceeds from the Corporation's
accounts receivable sale program. This amount, although not reflected on the
balance sheet, is included in total debt under the assumption that at the end of
the program the proceeds will be replaced by debt. Most of the increase in total
debt is attributable to borrowings incurred in connection with the acquisition
of Domtar's gypsum business for $350 million in the second quarter of 1996,
offset by proceeds from the sale of assets and an excess of cash provided by
operations over capital expenditures.
At September 30, 1996, the Corporation's weighted average interest rate on its
total debt was 7.7 percent including the cost of the accounts receivable sale
program and outstanding interest rate exchange agreements. At September 30,
1996, these interest rate exchange agreements effectively converted $496 million
of floating rate obligations with a weighted average interest rate of 5.6
percent to fixed rate obligations with an average effective interest rate of 9.0
percent. These agreements have a weighted average maturity of approximately 2.8
years. As of September 30, 1996, the Corporation's total floating rate debt,
including the accounts receivable sale program, exceeded related interest rate
exchange agreements by $1.44 billion.
At September 30, 1996, the Corporation had outstanding borrowings of $650
million under certain Industrial Revenue Bonds. Approximately $32 million from
the issuance of these bonds is being held by trustees and is restricted for use
in 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.
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 September 30, 1996, $774 million of committed credit was
available in excess of all short-term borrowings outstanding under or supported
by the facility. As of September 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. The Corporation's Form 8-K dated October 17,
1996, discusses such risks and assumptions and other key factors that could
cause actual results to differ materially from those expressed in such forward-
looking statements.
For a discussion of commitments and contingencies refer to Note 8 of the Notes
to Financial Statements.
PART II - OTHER INFORMATION
---------------------------
GEORGIA-PACIFIC CORPORATION
September 30, 1996
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.
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 September 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: November 7, 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 SEPTEMBER 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 Nine Months
Ended September 30, Ended September 30,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income
- -------------
Income before extraordinary item $ 99 $ 324 $ 159 $ 821
Extraordinary item, net of tax - - (5) -
-------- ------- -------- --------
Net income $ 99 $ 324 $ 154 $ 821
======== ======= ======== ========
Weighted Average Shares
- -----------------------
Common shares outstanding,
net of restricted stock 90,557 90,694 90,516 90,029
Add - shares assumed to
be issued under long-term
incentive (restricted stock),
stock option and stock
purchase plans at the average
market price 648 930 599 899
-------- -------- -------- --------
Primary shares 91,205 91,624 91,115 90,928
-------- -------- -------- --------
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) 105 - 159 144
-------- -------- -------- --------
Fully diluted shares 91,310 91,624 91,274 91,072
======== ======= ======== ========
Income Per Share
- -----------------------
Income before extraordinary item $ 1.09 $ 3.57 $ 1.75 $ 9.12
Extraordinary item,net of tax - - (.05) -
-------- -------- -------- --------
Net income $ 1.09 $ 3.57 $ 1.70 $ 9.12
======== ======= ======== ========
Income Per Share - Primary
- ---------------------------------
Income before extraordinary item $ 1.09 $ 3.54 $ 1.74 $ 9.03
Extraordinary item, net of tax - - (.05) -
-------- -------- -------- --------
Net income $ 1.09 $ 3.54 $ 1.69 $ 9.03
======== ======= ======== ========
Income Per Share - Fully Diluted
- --------------------------------
Income before extraordinary item $ 1.08 $ 3.54 $ 1.74 $ 9.01
Extraordinary item, net of tax - - (.05) -
-------- -------- -------- --------
Net income $ 1.08 $ 3.54 $ 1.69 $ 9.01
======== ======= ======== ========
</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 NINE MONTHS ENDED
SEPTEMBER 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> 1,048
<ALLOWANCES> 27
<INVENTORY> 1,423
<CURRENT-ASSETS> 2,642
<PP&E> 13,779
<DEPRECIATION> 7,188
<TOTAL-ASSETS> 12,873
<CURRENT-LIABILITIES> 2,578
<BONDS> 4,274
0
0
<COMMON> 73
<OTHER-SE> 3,479
<TOTAL-LIABILITY-AND-EQUITY> 12,873
<SALES> 9,814
<TOTAL-REVENUES> 9,814
<CGS> 7,418
<TOTAL-COSTS> 7,418
<OTHER-EXPENSES> 707
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 331
<INCOME-PRETAX> 290
<INCOME-TAX> 131
<INCOME-CONTINUING> 159
<DISCONTINUED> 0
<EXTRAORDINARY> 5
<CHANGES> 0
<NET-INCOME> 154
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.69
</TABLE>
