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, 1998
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 10, 1998, Georgia-Pacific Corporation
had 87,976,547 shares of Georgia-Pacific Group Common Stock outstanding and
87,331,021 shares of The Timber Company Common Stock outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
-------------------------------------------
Item 1. Financial Statements
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
Three months Nine months
ended September 30, ended September 30,
-------------- --------------
(In millions, except per share amounts) 1998 1997 1998 1997
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Net sales $3,397 $3,373 $9,923 $ 9,844
- -----------------------------------------------------------------------
Costs and expenses
Cost of sales, excluding depreciation
and cost of timber harvested
shown below 2,619 2,579 7,689 7,691
Selling, general and
administrative 289 288 825 862
Depreciation and cost of timber
harvested 234 243 695 710
Interest 113 114 338 355
Other income - - - (128)
- -----------------------------------------------------------------------
Total costs and expenses 3,255 3,224 9,547 9,490
- -----------------------------------------------------------------------
Income before income taxes
and extraordinary item 142 149 376 354
Provision for income taxes 62 63 160 151
- -----------------------------------------------------------------------
Income before extraordinary item 80 86 216 203
Extraordinary item - loss from early
retirement of debt, net of taxes - - (15) -
- -----------------------------------------------------------------------
Net income $ 80 $ 86 $ 201 $ 203
==========================================================================
Georgia-Pacific Corporation
Basic per common share:
Net income $ 0.94 $ 2.23
- -----------------------------------------------------------------------
Diluted per common share:
Net income $ 0.94 $ 2.21
==========================================================================
Average number of shares outstanding:
Basic 91.5 91.2
Diluted 92.0 91.7
==========================================================================
Georgia-Pacific Group
Basic and diluted per common share:
Income before extraordinary item $ 0.43 $ 0.93
Extraordinary item - loss from early
retirement of debt, net of taxes - (0.14)
- -----------------------------------------------------------------------
Net income $ 0.43 $ 0.79
==========================================================================
Average number of shares outstanding:
Basic 90.2 90.7
Diluted 90.5 91.6
==========================================================================
The Timber Company
Basic per common share:
Income before extraordinary item $ 0.46 $ 1.43
Extraordinary item - loss from early
retirement of debt, net of taxes - (0.02)
- -----------------------------------------------------------------------
Net income $ 0.46 $ 1.41
- -----------------------------------------------------------------------
Diluted per common share:
Income before extraordinary item $ 0.46 $ 1.42
Extraordinary item - loss from early
retirement of debt, net of taxes - (0.02)
- -----------------------------------------------------------------------
Net income $ 0.46 $ 1.40
==========================================================================
Average number of shares outstanding:
Basic 89.6 91.4
Diluted 89.9 92.0
==========================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
Nine months
ended September 30,
-------------------------
(In millions) 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 201 $ 203
Adjustments to reconcile net income to cash
provided by operations:
Depreciation 561 588
Cost of timber harvested 134 122
Other income - (128)
Deferred income taxes 56 111
Amortization of goodwill 45 44
Increase in receivables (40) (142)
Decrease in inventories 67 73
Change in other working capital (44) (44)
Change in other assets, other
long-term liabilities and other 34 (47)
- -------------------------------------------------------------------------
Cash provided by operations 1,014 780
- -------------------------------------------------------------------------
Cash flows from investing activities
Property, plant and equipment investments (389) (426)
Timber and timberlands purchases (167) (118)
CeCorr acquisition (93) -
Decrease in cash restricted for capital expenditures 12 11
Proceeds from sales of assets 89 356
Other (10) (2)
- -------------------------------------------------------------------------
Cash used for investing activities (558) (179)
- -------------------------------------------------------------------------
Cash flows from financing activities
Share repurchases (376) -
Proceeds from option plan exercises 8 29
Repayments of long-term debt (798) (306)
Additions to long-term debt 525 -
Fees paid to issue debt (5) -
Increase (decrease) in bank overdrafts 4 (33)
Increase in commercial paper and
other short-term notes 322 (157)
Cash dividends paid (137) (137)
- -------------------------------------------------------------------------
Cash used for financing activities (457) (604)
- -------------------------------------------------------------------------
Decrease in cash (1) (3)
Balance at beginning of period 8 10
- -------------------------------------------------------------------------
Balance at end of period $ 7 $ 7
========================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Georgia-Pacific Corporation and Subsidiaries
September 30,December 31,
(In millions, except shares and per share amounts) 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Unaudited)
Current assets
Cash $ 7 $ 8
Receivables, less allowances of $15 and $13,
respectively 1,419 1,371
Taxes receivable 20 61
Inventories 1,305 1,357
Other current assets 118 119
- -------------------------------------------------------------------------
Total current assets 2,869 2,916
- -------------------------------------------------------------------------
Timber and timberlands 1,212 1,193
- -------------------------------------------------------------------------
Property, plant and equipment
Land, buildings, machinery and equipment, at cost 14,443 14,134
Accumulated depreciation (8,182) (7,837)
- -------------------------------------------------------------------------
Property, plant and equipment, net 6,261 6,297
- -------------------------------------------------------------------------
Goodwill 1,657 1,599
- -------------------------------------------------------------------------
Other assets 942 945
- -------------------------------------------------------------------------
Total assets $ 12,941 $12,950
========================================================================
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Bank overdrafts, net $ 232 $ 223
Commercial paper and other short-term notes 1,223 901
Current portion of long-term debt 28 653
Accounts payable 564 642
Accrued compensation 228 207
Other current liabilities 418 394
- -------------------------------------------------------------------------
Total current liabilities 2,693 3,020
- -------------------------------------------------------------------------
Long-term debt, excluding current portion 4,131 3,713
- -------------------------------------------------------------------------
Other long-term liabilities 1,602 1,544
- -------------------------------------------------------------------------
Deferred income tax liabilities 1,255 1,199
- -------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Common stock 74 74
Georgia-Pacific Group, par value $.80; 400,000,000
shares authorized; 89,402,000 and 92,249,000
shares issued and outstanding
The Timber Company, par value $.80; 250,000,000
shares authorized; 87,913,000 and 92,607,000
shares issued and outstanding
Additional paid-in capital 1,402 1,349
Treasury stock (325) -
Retained earnings 2,149 2,085
Long-term incentive plan deferred compensation (1) (5)
Other (39) (29)
- -------------------------------------------------------------------------
Total shareholders' equity 3,260 3,474
- -------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 12,941 $12,950
===========================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
GEORGIA-PACIFIC CORPORATION
SEPTEMBER 30, 1998
1. PRINCIPLES OF PRESENTATION. The consolidated financial statements
include the accounts of Georgia-Pacific Corporation and subsidiaries (the
"Corporation"). All significant intercompany balances and transactions
are eliminated in consolidation. 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 item discussed in Note 4
below. Certain 1997 amounts have been reclassified to conform with the
1998 presentation. The Timber Company's and the Georgia-Pacific Group's
combined financial statements should be read in conjunction with the
Corporation's consolidated financial statements.
2. OTHER INCOME. The 1997 first quarter sale of the company's Martell
operations, which included a sawmill, particleboard mill and timberlands,
generated a pretax gain of $128 million. This sale resulted in an after-
tax gain of $80 million.
3. PROVISION FOR INCOME TAXES. The effective tax rate was 44 percent for
the three months ended September 30, 1998, and 42 percent for the three
months ended September 30, 1997. The effective tax rate was 43 percent
for the nine months ended September 30, 1998 and 1997. The effective tax
rate for each period was different than the statutory rate primarily
because of nondeductible goodwill amortization expense.
4. EXTRAORDINARY ITEM. The Corporation redeemed approximately $600 million
of its outstanding debt during the first six months of 1998. As a
result, the Corporation recognized an after-tax extraordinary loss of $15
million, of which $14 million was recognized in the first quarter of 1998
and $1 million was recognized in the second quarter of 1998.
5. EARNINGS PER SHARE. The Corporation's common stock was redesignated in
December 1997 to reflect separately the performance of the Corporation's
pulp, paper and building products businesses, which are now known as
Georgia-Pacific Group. A separate class of common stock was distributed
to reflect the performance of the Corporation's timber operating group,
which is now known as The Timber Company. Basic earnings per share is
computed based on net income and the weighted average number of common
shares outstanding. Diluted earnings per share reflect the annual
issuance of common shares under long-term incentive stock option and
stock purchase plans. The computation of diluted earnings per share does
not assume conversion or exercise of securities that would have an
antidilutive effect on earnings per share. Earnings per share for 1998
are computed for each class of common stock based on the separate
earnings attributed to each of the respective businesses.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share", which specifies the computation, presentation and
disclosure requirements for earnings per share. The Corporation adopted
SFAS No. 128 in the 1997 fourth quarter. All prior period earnings per
share data were restated to conform with the provisions of SFAS No. 128.
The per share amounts reported under SFAS No. 128 are not materially
different from those calculated and presented under APB Opinion No. 15
"Earnings per Share".
<PAGE> 7
The following tables provide earnings and per share data for Georgia-
Pacific Group and The Timber Company for 1998 and for Georgia-Pacific
Corporation for 1997.
<TABLE>
<CAPTION>
Three months ended September 30,
----------------------------------------
(In millions, except per share amounts) 1998 1998 1997
---------------------------------------------------------------
Georgia-Pacific The TimberGeorgia-Pacific
Group Company Corporation
---------------------------------------------------------------
<S> <C> <C> <C>
Basic and diluted income available to
shareholders (numerator):
Income before extraordinary item $ 39 $ 41 $ 86
Extraordinary item, net of taxes - - -
---------------------------------------------------------------
Net income $ 39 $ 41 $ 86
================================================================
Shares (denominator):
Average shares outstanding 90.2 89.6 91.5
Dilutive securities:
Incentive plans and option plans 0.3 0.3 0.4
Employee stock purchase plans - - 0.1
---------------------------------------------------------------
Total assuming conversion 90.5 89.9 92.0
================================================================
Basic and diluted per share amounts:
Income before extraordinary item $ 0.43 $ 0.46 $ 0.94
Extraordinary item, net of taxes - - -
---------------------------------------------------------------
Net income $ 0.43 $ 0.46 $ 0.94
================================================================
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
Nine months ended September 30,
----------------------------------------
(In millions, except per share amounts) 1998 1998 1997
---------------------------------------------------------------
Georgia-Pacific The TimberGeorgia-Pacific
Group Company Corporation
---------------------------------------------------------------
<S> <C> <C> <C>
Basic and diluted income available to
shareholders (numerator):
Income before extraordinary item $ 85 $ 131 $ 203
Extraordinary item, net of taxes (13) (2) -
---------------------------------------------------------------
Net income $ 72 $ 129 $ 203
================================================================
Shares (denominator):
Average shares outstanding 90.7 91.4 91.2
Dilutive securities:
Incentive plans and option plans 0.8 0.6 0.4
Employee stock purchase plans 0.1 - 0.1
---------------------------------------------------------------
Total assuming conversion 91.6 92.0 91.7
================================================================
Basic per share amounts:
Income before extraordinary item $ 0.93 $ 1.43 $ 2.23
Extraordinary item, net of taxes (0.14) (0.02) -
---------------------------------------------------------------
Net income $ 0.79 $ 1.41 $ 2.23
---------------------------------------------------------------
Diluted per share amounts:
Income before extraordinary item $ 0.93 $ 1.42 $ 2.21
Extraordinary item, net of taxes (0.14) (0.02) -
---------------------------------------------------------------
Net income $ 0.79 $ 1.40 $ 2.21
================================================================
</TABLE>
<PAGE> 9
6. COMPREHENSIVE INCOME. In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components. The
Corporation adopted SFAS No. 130 in the first quarter of 1998. Other
comprehensive income includes primarily currency translation adjustments.
For the three months ended September 30, 1998 and 1997, the Corporation's
total comprehensive income was $75 million and $87 million, respectively.
For the nine months ended September 30, 1998 and 1997, the Corporation's
total comprehensive income was $194 million and $202 million,
respectively.
7. 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,
------------------------
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Total interest costs $ 342 $ 364
Interest capitalized (4) (9)
---------------------------------------------------------------
Interest expense $ 338 $ 355
================================================================
Interest paid $ 324 $ 340
================================================================
Income taxes paid, net $ 48 $ 24
================================================================
</TABLE>
In conjunction with the sale of the Corporation's Martell, California,
operations in March, 1997, the Corporation received notes receivable from
the purchaser in the amount of $270 million for the Martell timberlands.
In April 1997, the Corporation monetized these notes receivable through the
issuance of notes payable in a private placement. These proceeds were used
to reduce the Corporation's debt. Proceeds from the notes receivable will
be used to fund payments required for the notes payable, which are
classified as "Other long-term liabilities" on the Corporation's balance
sheets.
In connection with the June 30, 1998 acquisition of CeCorr Inc.
("CeCorr"), the Corporation issued 1.6 million shares of Georgia-Pacific
Group common stock ("Georgia-Pacific Group stock") valued at $57.875 per
share and assumed approximately $92 million of CeCorr debt, of which $34
million was owed to Georgia-Pacific Corporation ($58 million net debt
assumed). (See Note 9.)
<PAGE> 10
8. INVENTORY VALUATION. Inventories are valued at the lower of average cost
or market and include the costs of materials, labor, and plant overhead.
The Corporation uses the dollar value pool method for computing those
inventories valued on the last-in, first-out ("LIFO") method. The major
components of inventories were as follows:
<TABLE>
<CAPTION>
September 30,December 31,
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Raw materials $ 403 $ 396
Finished goods 822 878
Supplies 298 295
LIFO reserve (218) (212)
---------------------------------------------------------------
Total inventories $ 1,305 $1,357
============================================================
</TABLE>
9. ACQUISITION. On June 30, 1998, the Corporation completed its acquisition
of CeCorr, a leading independent producer of corrugated sheets in the
United States. On June 30, 1998, the Corporation paid approximately $93
million in cash (net of $2 million of acquired cash) and issued
approximately 1.6 million shares of Georgia-Pacific Group stock valued at
$57.875 per share for all the outstanding shares of CeCorr. In addition
the Corporation assumed approximately $58 million of CeCorr's debt. On
July 2, 1998, certain former owners of CeCorr exercised their rights to
sell to the Corporation approximately 1.1 million shares of Georgia-Pacific
Group stock. The acquisition includes 11 CeCorr sheet feeder plants, which
manufacture corrugated sheets that are sold to others for final conversion
into corrugated containers. Also included are a corrugating medium paper
mill, and several specialty operations and support service groups. CeCorr
ships 6.3 billion square feet of corrugated sheets per year. CeCorr's
results of operations have been consolidated with that of the Corporation
beginning July 1, 1998.
The Corporation has accounted for this transaction using the purchase
method to record a new cost basis for assets acquired and liabilities
assumed. The allocation of the purchase price and acquisition costs to the
assets acquired and liabilities assumed is preliminary as of September 30,
1998, and is subject to change pending finalization of appraisals and other
studies of fair value and finalization of management's plans which may
result in the recording of additional liabilities as part of the allocation
of the purchase price. The difference between the purchase price and the
fair market value of the assets acquired and liabilities assumed was
recorded as goodwill and is being amortized over forty years. The
preliminary allocation of the $93 million net cash paid for the acquisition
is summarized as follows (in millions of dollars):
<TABLE>
<CAPTION>
(In millions)
---------------------------------------------------------------
<S> <C>
Current assets $ 35
Property, plant and equipment 178
Goodwill 115
Liabilities (140)
Common stock issued (95)
---------------------------------------------------------------
Net cash paid $ 93
==================================================
</TABLE>
10. DEBT. In May 1998, the Corporation issued $300 million of 7.25% Debentures
due June 1, 2028.
11. SHARE REPURCHASES. During the first nine months of 1998, the Corporation
purchased on the open market 4,793,500 shares of Georgia-Pacific Group
stock at an aggregate price of $277 million, of which 3,585,700 shares
were held as treasury stock at September 30, 1998 and 284,300 shares were
purchased during September, 1998 and settled after September 30, 1998.
The Corporation also purchased on the open market 4,860,200 shares of The
Timber Company common stock ("The Timber Company stock") at an aggregate
price of $105 million, of which 4,828,900 shares were held as treasury
stock at September 30, 1998 and 31,300 shares were purchased during
September, 1998 and settled after September 30, 1998.
12. 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.
<PAGE> 11
The Corporation is involved in environmental remediation activities at
approximately 170 sites, both owned by the Corporation and owned by others,
where it has been notified that it is or may be a potentially responsible
party under the Comprehensive Environmental Response, Compensation and
Liability Act or similar state "superfund" laws. Of the known sites in
which it is involved, the Corporation estimates that approximately 47
percent are being investigated, approximately 25 percent are being
remediated and approximately 28 percent are being monitored (an activity
that occurs after either site investigation or remediation has been
completed). The ultimate costs to the Corporation for the investigation,
remediation and monitoring of many of these sites cannot be predicted with
certainty, due to the often unknown magnitude of the pollution or the
necessary cleanup, the varying costs of alternative cleanup methods, the
amount of time necessary to accomplish such cleanups, the evolving nature
of cleanup technologies and government regulations, and the inability to
determine the Corporation's share of multiparty cleanups or the extent to
which contribution will be available from other parties. The Corporation
has established reserves for environmental remediation costs for these
sites in amounts that it believes are probable and reasonably estimable.
Based on analysis of currently available information and previous
experience with respect to the cleanup of hazardous substances, the
Corporation believes 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
$60 million. This estimate of the range of reasonably possible additional
costs is less certain than the estimates upon which reserves are based, and
in order to establish the upper limit of such range, assumptions least
favorable to the Corporation among the range of reasonably possible
outcomes were used. In estimating both its current reserve for
environmental remediation and the possible range of additional costs, the
Corporation has not assumed it will bear the entire cost of remediation of
every site to the exclusion of other known potentially responsible parties
who may be jointly and severally liable. The ability of other potentially
responsible parties to participate has been taken into account, based
generally on the parties' financial condition and probable contribution on
a per site basis.
The Corporation and many other companies are defendants in suits brought in
various courts around the nation by plaintiffs who allege that they have
suffered personal injury as a result of exposure to asbestos-containing
products. These suits allege a variety of lung and other diseases based on
alleged exposure to products previously manufactured by the Corporation.
In many cases, the plaintiffs are unable to demonstrate that they have
suffered any compensable loss as a result of such exposure.
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 to date to defend and
settle these cases to date have been substantially covered by product
liability insurance. The Corporation is currently defending claims of
approximately 69,000 such plaintiffs and anticipates that additional suits
will be filed against it over the next several years. The Corporation has
insurance available in amounts that it believes are adequate to cover
substantially all of the reasonably foreseeable damages and settlement
amounts arising out of claims and suits currently pending. The Corporation
has further insurance coverage available for the disposition of suits that
may be filed against it in the future, but there can be no assurance that
the amounts of such insurance will be adequate to cover all future claims.
The Corporation has established reserves for liabilities and legal defense
costs it believes are probable and reasonably estimable with respect to
pending suits and claims and a receivable for expected insurance
recoveries.
The Corporation has been defending an action in Alabama state court brought
to recover damages on behalf of a class of all persons currently owning
structures in the United States on which allegedly defective hardboard
siding manufactured by the Corporation after January 1, 1980 has been
installed. On January 9, 1998, the court approved a settlement pursuant to
which the Corporation will establish a procedure for resolving product
warranty claims on certain of the Corporation's hardboard siding products,
and will pay $3 million in legal fees to plaintiffs' counsel, plus expenses
not to exceed $200,000. In addition, plaintiffs' counsel will be entitled
to additional fees based upon a percentage of claims paid by the
Corporation. The last date for filing claims under the settlement was
August 18, 1998. The Corporation has previously established financial
reserves it believes to be adequate to pay eligible claims and legal fees.
<PAGE> 12
In May 1997, the Corporation and nine other companies were named as
defendants in a suit brought by the Attorney General of the State of
Florida alleging that they engaged in a conspiracy to fix the prices of
sanitary commercial paper products, such as towels and napkins, in
violation of federal and state laws. Approximately 45 similar suits have
been filed by private plaintiffs in federal courts in California, Florida,
Georgia and Wisconsin, and in the state courts of California, Wisconsin,
Minnesota and Tennessee. On October 15, 1997, the Federal Judicial Panel
on Multi-District Litigation consolidated all federal court cases in the
federal district court in Gainesville, Florida. On July 24, 1998, the
court certified the suit as a class action consisting of non-governmental
direct purchasers of the defendants' products . The defendants have asked
the court to certify this decision for immediate appeal. The Corporation
has denied that it has engaged in any of the illegal conduct alleged in
these cases and intends to defend itself vigorously.
The Corporation's facility in Port Hudson, Louisiana has notified the State
of Louisiana of the emitting of noncondensable gases in violation of its
air permit. The State has proposed assessment of a penalty against the
Corporation of $425,000. The Corporation is awaiting receipt of definitive
documentation from the State, and has made no decision on whether or not to
appeal the proposed assessment.
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.
13. RELATED PARTY TRANSACTIONS. During 1998, The Timber Company sold timber
deeds to Georgia-Pacific Group. The Timber Company recognizes revenues and
earnings from these related-party timber deed contracts as the timber is
cut by the Georgia-Pacific Group.
During the second quarter of 1998, Georgia-Pacific Group and The Timber
Company revised the operating policy, which they had entered into last
fall, with respect to sales of timber and wood fiber. These revisions
arose from sharp changes in the prices of timber and wood fiber from the
first quarter to the second quarter of 1998, a significant decrease in the
volume of timber purchased by Georgia-Pacific Group in the second quarter,
and other issues in the policy. At the time these revisions were
negotiated, The Timber Company sold a timber deed to Georgia-Pacific Group
covering timber and wood fiber having a value of approximately $23 million,
and Georgia-Pacific Group made a one-time $3 million payment to The Timber
Company for second quarter adjustments due under the revised policy.
Under the revised policy, beginning July 1, 1998, the prices for southern
timber and wood fiber sold by The Timber Company are adjusted monthly,
rather than quarterly, and represent the average of prices paid by Georgia-
Pacific Group for timber purchased from third parties in a particular
forest, and prices received by The Timber Company for timber sold to third
parties from the same forest, over the most recent three-months period.
This change is intended to make prices for timber and wood fiber sold by
The Timber Company to Georgia-Pacific Group more quickly reflect changes in
market prices. In addition, premiums charged by The Timber Company for
various types of wood have been reduced, and Georgia-Pacific Group has
agreed to purchase, each quarter, in two key Southern forests, 20 percent
of the annual volume of timber and wood fiber it has committed to purchase
from The Timber Company during that year. The revised policy reduces the
volume of timber which Georgia-Pacific Group can purchase in the same two
forests from 80 percent to 70 percent of The Timber Company's annual
harvest in those forests, and also reduces Georgia-Pacific Group's minimum
annual purchase obligation in those forests from 60 percent to 50 percent
of the annual harvest in 1999-2000.
These changes are intended to cause prices paid by Georgia-Pacific Group to
more quickly reflect market prices in particular forests, to allow Georgia-
Pacific Group more flexibility in purchasing wood from third parties, and
to allow The Timber Company greater flexibility in the timing of sales of
its annual harvest on the open market. The revised policy also contains
additional provisions which resolve issues related to certain operating
practices of The Timber Company and Georgia-Pacific Group.
14. SUBSEQUENT EVENT. In September, 1998, The Timber Company reached an
agreement to sell approximately 61,000 acres of its West Virginia
timberland holdings to The Forestland Group, LLC. The sale is expected
to close in the fourth quarter of 1998.
<PAGE> 13
<TABLE>
<CAPTION>
CONSOLIDATED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
Second Quarter
First --------------
(In millions) Quarter Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998
NET SALES
Building products $1,777 55% $1,882 57% $3,659 56 %
Pulp and paper 1,431 45 1,413 43 2,844 44
Other operations 13 - 10 - 23 -
- --------------------------------------------------------------------------------
Total net sales $3,221 100% $3,305 100% $6,526 100%
===============================================================================
OPERATING PROFITS
Building products $ 168 64% $ 175 69% $ 343 66%
Pulp and paper 91 34 73 29 164 32
Other operations 6 2 6 2 12 2
- --------------------------------------------------------------------------------
Total operating profits 265 100% 254 100% 519 100%
=== === ===
General corporate expense (34) (26) (60)
Interest expense (114) (111) (225)
Provision for income taxes (49) (49) (98)
- --------------------------------------------------------------------------------
Income before extraordinary
item 68 68 136
Extraordinary item, net of taxes (14) (1) (15)
- --------------------------------------------------------------------------------
Net income $ 54 $ 67 $ 121
===============================================================================
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
CONSOLIDATED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
Third Quarter Fourth Quarter
------------------------ ------------------------
(In millions) Quarter Year-to-date Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998
NET SALES
Building products $1,972 58% $5,631 57%
Pulp and paper 1,416 42 4,260 43
Other operations 9 - 32 -
- --------------------------------------------------------------------------------
Total net sales $3,397100% $9,923100%
===============================================================================
OPERATING PROFITS
Building products $257 91% $600 75%
Pulp and paper 24 8 188 23
Other operations 2 1 14 2
- --------------------------------------------------------------------------------
Total operating
profits 283 100% 802 100%
=== ===
General corporate
expense (28) (88)
Interest expense (113) (338)
Provision for
income taxes (62) (160)
- --------------------------------------------------------------------------------
Income before extraordinary
item 80 216
Extraordinary item, net of taxes - (15)
- --------------------------------------------------------------------------------
Net income $ 80 $201
===============================================================================
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
CONSOLIDATED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
Second Quarter
First --------------
(In millions) Quarter Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997
NET SALES
Building products $1,781 57% $1,943 59% $3,724 58%
Pulp and paper 1,351 43 1,371 41 2,722 42
Other operations 13 - 12 - 25 -
- --------------------------------------------------------------------------------
Total net sales $3,145 100% $3,326 100% $6,471 100%
===============================================================================
OPERATING PROFITS
Building products $ 289 92% $ 203 93% $ 492 93%
Pulp and paper 20 7 12 6 32 6
Other operations 4 1 3 1 7 1
- --------------------------------------------------------------------------------
Total operating profits 313 100% 218 100% 531 100%
=== === ===
General corporate expense (37) (48) (85)
Interest expense (122) (119) (241)
Provision for income taxes (64) (24) (88)
- --------------------------------------------------------------------------------
Income before accounting
change 90 27 117
Cumulative effect of an
accounting change, net
of taxes - - -
- --------------------------------------------------------------------------------
Net income $ 90 $ 27 $ 117
===============================================================================
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
CONSOLIDATED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
Third Quarter Fourth Quarter
------------------------ ------------------------
(In millions) Quarter Year-to-date Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997
NET SALES
Building products $ 1,946 58% $ 5,670 58% $ 1,816 56% $ 7,486 57%
Pulp and paper 1,414 42 4,136 42 1,420 44 5,556 43
Other operations 13 - 38 - 14 - 52 -
- --------------------------------------------------------------------------------
Total net sales $ 3,373 100% $ 9,844 100% $ 3,250 100% $13,094 100%
===============================================================================
OPERATING PROFITS
Building products $ 221 70% $ 713 84% $ (36)(171)% $ 677 78%
Pulp and paper 93 29 125 15 49 233 174 20
Other operations 3 1 10 1 8 38 18 2
- --------------------------------------------------------------------------------
Total operating
profits 317 100% 848 100% 21 100% 869 100%
=== === === ===
General corporate
expense (54) (139) (30) (169)
Interest expense (114) (355) (110) (465)
(Provision) benefit for
income taxes (63) (151) 45 (106)
- --------------------------------------------------------------------------------
Income (loss) before accounting
change 86 203 (74) 129
Cumulative effect of an
accounting change, net
of taxes - - (60) (60)
- --------------------------------------------------------------------------------
Net income (loss) $ 86 $ 203 $ (134) $ 69
===============================================================================
</TABLE>
<PAGE> 17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH 1997
The Corporation reported consolidated net sales of approximately $3.4 billion
for both the three months ended September 30, 1998 and 1997. Net income for the
1998 third quarter was $80 million compared with $86 million in 1997.
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
for the three months ended September 30, 1998 compared with $1.9 billion in
1997. Operating profits increased in 1998 to $257 million compared with $221
million in 1997. Return on sales was 13.0 percent and 11.4 percent for the
three months ended September 30, 1998 and 1997, respectively.
The higher quarter-over-quarter operating profit resulted principally from a
significant increase in oriented strand board prices. Average prices for
oriented strand board were 98 percent higher than the previous year, and gypsum
prices were up 8 percent. Average prices for lumber were 15 percent lower in
the third quarter of 1998 than the third quarter of 1997, while Southern pine
log costs increased by an average of 5 percent. In the fourth quarter, however,
the Corporation anticipates that declines in prices for structural panels as
well as seasonal slowdown in demand for building products will adversely impact
its operating results. The Timber Company results decreased by $10 million in
the third quarter of 1998 compared with the third quarter of 1997. This decrease
was primarily the result of approximately 14 percent lower selling prices of
Western sawtimber over the third quarter of 1997 due to declining demand for
export-grade logs to Asia. Additionally, softwood pulpwood prices declined
approximately 24 percent from the 1997 third quarter, excluding the impact of
the Florida fires, as dry weather improved logging conditions across the South.
No significant rebound in pulpwood prices is anticipated in the near term.
Operating profits for the Corporation's building products distribution division
were $14 million in the third quarter of 1998 (excluding unusual net gains of $6
million, primarily related to assets sold as part of the division's
restructuring plan), compared with a loss of $17 million in the third quarter of
1997 (excluding unusual net gains of $4 million, primarily related to assets
sold as part of the division's restructuring plan). The distribution division
restructuring plan, finalized in December 1997, is proceeding on schedule. The
plan included disposing of the division's millwork fabrication facilities
nationwide as well as several distribution centers located in the Western United
States. Positive results in the third quarter were primarily driven by the
increase in oriented strand board prices described above. However, due to the
cyclical nature of the building products business, the distribution division
does not expect to achieve this level of profits in the fourth quarter.
Selected financial and operating data for the building products distribution
business are shown in the table below:
<TABLE>
<CAPTION>
SELECTED DISTRIBUTION DIVISION DATA
Three months ended September 30,
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Sales $1,088 $ 1,098
Operating profit (loss) before
net gain on
asset sales 14 (17)
Net gain on asset sales 6 4
Capital expenditures 2 9
Depreciation 11 12
============================================================
</TABLE>
<PAGE> 18
The Corporation's pulp and paper segment reported net sales of $1.4 billion and
operating profits of $24 million in the 1998 third quarter, including a one-time
$24 million charge associated with the closure of two hardwood pulp operations.
For the same period in 1997, the segment reported net sales of $1.4 billion and
operating profits of $93 million. Return on sales decreased to 1.7 percent in
1998 from 6.6 percent in 1997. During the third quarter of 1998, the Corporation
closed its hardwood pulp operations at its Port Hudson, Louisiana and Ashdown,
Arkansas facilities resulting in a one-time, before tax charge of $24 million
($15 million after tax). Excluding this one-time charge, return on sales was
3.4 percent. Average containerboard prices for the quarter were approximately 21
percent above prices in the same 1997 period. However, containerboard prices
have trended downward through the first nine months of the year and are
continuing that trend into the fourth quarter. Communications papers prices are
lower compared to the third quarter of 1997, with prices trending downward since
the first quarter of 1998, and continuing this trend into the fourth quarter.
Prices and demand for pulp are down from second quarter levels and are down
compared with third quarter of last year. Compared with a year ago, the
Corporation has reduced inventories for most pulp and paper products, incurring
downtime when necessary. During the second and third quarters of 1998, the
Corporation took market-related downtime at its pulp and paper mills, and
reduced pulp, containerboard and communication papers production. The
Corporation anticipates taking significant additional downtime in the fourth
quarter due to continued weakness in demand and pricing for pulp and paper,
primarily stemming from market conditions in Asia, and expects to incur an
operating loss in its pulp and paper segment in the fourth quarter of 1998 and
possibly into the first quarter of 1999.
General corporate expense decreased to $28 million for the three months ended
September 30, 1998 compared with $54 million in 1997. The majority of the
decrease is attributable to lower expenses for the corporation's stock
compensation programs and its cash incentive compensation program.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH 1997
The Corporation reported consolidated net sales of $9.9 billion and net income
of $201 million for the nine months ended September 30, 1998, compared with net
sales of $9.8 billion and net income of $203 million in 1997. The 1998 results
include an extraordinary, after-tax loss of $15 million 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 $5.6 billion
and operating profits of $600 million for the nine months ended September 30,
1998, compared with net sales of $5.7 billion and operating profits of $713
million in 1997. Return on sales decreased to 10.7 percent from 12.6 percent a
year ago. The 1997 results include a first quarter gain of $128 million ($80
million after taxes) from the sale of the Corporation's Martell, California,
assets to Sierra Pacific Industries. Excluding the pretax gain from the sale of
the Martell operations, operating profit in the building products segment would
have been $585 million and the return on sales would have been 10.3 percent. The
primary components of this increase were 60 percent higher oriented strand
board prices, 4 percent higher gypsum prices and an increase in prices for
Southern sawtimber sold by The Timber Company. Demand and volume were also
higher for both of these products than in the prior year. These increases were
offset slightly by 11 percent lower lumber prices and 12 percent higher log
costs. In the fourth quarter, however, the Corporation anticipates that
declines in prices for structural panels as well as seasonal slowdown in demand
for building products will adversely impact its operating results.
<PAGE> 19
Operating losses for the Corporation's building products distribution division
were $21 million in the first nine months of 1998 (excluding gains on asset
sales of $19 million) compared with a loss of $68 million in the first nine
months of 1997 (excluding gains on asset sales of $12 million). The
distribution division restructuring plan, finalized in December 1997, is
proceeding on schedule. Selected financial and operating data for the building
products distribution business are shown in the table below.
<TABLE>
<CAPTION>
SELECTED DISTRIBUTION DIVISION DATA
Nine months ended September 30,
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Sales $3,092 $ 3,189
Operating loss (before
net gain on asset sales) (21) (68)
Net gain on asset sales 19 12
Capital expenditures 5 33
Depreciation 35 35
============================================================
</TABLE>
The Corporation's pulp and paper segment reported net sales of $4.3 billion and
operating profits of $188 million for the nine-month period ended September 30,
1998, compared with net sales of $4.1 billion and operating profits of $125
million in 1997. Return on sales increased to 4.4 percent compared with 3.0
percent for the same period a year ago, principally due to a slight increase in
average prices for almost all of the Corporation's pulp and paper products.
Excluding the one-time, $24 million charge in the third quarter of 1998 for
closure of two hardwood market pulp operations, return on sales increased to 4.9
percent. Average containerboard prices for the first nine months of 1998 were
approximately 27 percent above prices in the same 1997 period, and average
prices of communications papers for the first nine months of 1998 were
approximately 3 percent above year ago levels. Prices for most of the
Corporation's pulp and paper products declined during the third quarter of 1998,
with softening of prices in pulp, containerboard and communication papers
continuing into the fourth quarter. As a result, the Corporation expects to
incur an operating loss in its pulp and paper segment in the fourth quarter of
1998 and possibly the first quarter of 1999. Compared with a year ago, the
Corporation has reduced inventories for most pulp and paper products, incurring
downtime when necessary. During the fourth quarter of 1998, the Corporation
expects to continue to take significant market-related downtime due to continued
weakness in demand and pricing for pulp and paper, primarily stemming from
market conditions in Asia. In the 1998 third quarter, the Corporation shut down
the hardwood pulp portion of its operations at Port Hudson, Louisiana and
Ashdown, Arkansas indefinitely. This action and other related reductions will
decrease the Corporation's total market pulp production by more than 500,000
tons annually.
Interest expense declined 5 percent to $338 million in the first nine months of
1998, compared with $355 million in the first nine months of 1997. This decline
was due primarily to a lower level of debt resulting from the application of the
proceeds from the sale of Martell timberlands in April, 1997 to pay down debt.
General corporate expense decreased to $88 million for the nine months ended
September 30, 1998 compared with $139 million in 1997. The majority of the
decrease is attributable to lower expenses for the corporation's stock
compensation programs and its cash incentive compensation program.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Corporation generated cash from operations of $1
billion during the first nine months of 1998, compared with $780 million in the
first nine months of 1997.
<PAGE> 20
INVESTING ACTIVITIES. Capital expenditures for property, plant and equipment
for the nine months ended September 30, 1998 were $389 million compared with
$426 million for the first nine months of 1997. Expenditures in 1998 included
$253 million in the pulp and paper segment, $106 million in the building
products segment, and $30 million of other and general corporate. The
Corporation expects to make capital expenditures for property, plant and
equipment of approximately $700 million in 1998, excluding the cost of any
acquisitions.
Cash paid for timber and timberlands was $167 million in the first nine months
of 1998 compared with $118 million in 1997.
On June 30, 1998, the Corporation completed its acquisition of CeCorr, a leading
independent producer of corrugated sheets in the United States. On June 30,
1998, the Corporation paid approximately $93 million in cash and issued
approximately 1.6 million shares of Georgia-Pacific Group stock valued at
$57.875 per share for all the outstanding shares of CeCorr. In addition the
Corporation assumed approximately $58 million of CeCorr's debt. On July 2,
1998, certain former owners of CeCorr exercised their rights to sell to the
Corporation approximately 1.1 million shares of Georgia-Pacific Group stock.
During the first nine months of 1998, the Corporation received $89 million from
the sale of assets, principally real estate development properties located in
South Carolina and Florida and various distribution facilities. During the
first nine months of 1997, the Corporation received proceeds of $356 million
from the sale of assets, primarily from the sale of its Martell operations.
In September, 1998, The Timber Company reached an agreement to sell
approximately 61,000 acres of its West Virginia timberland holdings to The
Forestland Group, LLC. The sale is expected to close in the fourth quarter of
1998.
In 1998, 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.
FINANCING ACTIVITIES. The Corporation's total debt was $5.6 billion and $5.5
billion at September 30, 1998 and December 31, 1997, respectively. At September
30, 1998 and December 31, 1997, $4.6 billion and $4.5 billion, respectively, of
such total debt was Georgia-Pacific Group's debt and $988 million and $971
million, respectively, was The Timber Company's debt.
In May 1998, the Corporation issued $300 million of 7.25% Debentures due June 1,
2028.
In conjunction with the sale of the Corporation's Martell, California,
operations in March, 1997, the Corporation received notes receivable from the
purchaser in the amount of $270 million for the Martell timberlands. In April
1997, the Corporation monetized these notes receivable through the issuance of
notes payable in a private placement. These proceeds were used to reduce the
Corporation's debt. Proceeds from the notes receivable will be used to fund
payments required for the notes payable, which are classified as `Other long-
term liabilities' on the Corporation's balance sheets.
At September 30, 1998, the Corporation had outstanding borrowings of $659
million under certain Industrial Revenue Bonds. Approximately $19 million from
the issuance of these bonds is being held by trustees and is restricted for the
refunding of a like issue. Amounts held by trustees are classified as
noncurrent assets in the accompanying balance sheets.
The Corporation has a $1.5 billion unsecured revolving credit facility which is
used for direct borrowings and as support for commercial paper and other short-
term borrowings. As of September 30, 1998, $571 million of committed credit was
available in excess of all short-term borrowings outstanding under or supported
by the facility.
<PAGE> 21
The Corporation's senior management establishes parameters of the Corporation's
financial risk. Hedging interest-rate exposure through the use of swaps and
options, and hedging foreign exchange exposure through the use of forward
contracts, are specifically contemplated to manage risk in keeping with
management policy. Derivative instruments such as swaps, forwards, option or
futures, which are based directly or indirectly upon interest rates, currencies,
equities and commodities, may be used by the Corporation to manage and reduce
the risk inherent in price, currency and interest rate fluctuations. There have
been no significant changes to reported market risk since December 31, 1997.
The Corporation does not utilize derivatives for speculative purposes.
Derivatives are transaction-specific so that a specific debt instrument,
contract, invoice or transaction determines the amount, maturity and other
specifics of the hedge. Counterparty risk is limited to institutions with long-
term debt ratings of A or better.
At September 30, 1998, the Corporation's weighted average interest rate on its
total debt was 7.2% including the accounts receivable sale program and
outstanding interest rate exchange agreements. At September 30, 1998, these
interest rate exchange agreements effectively converted $456 million of floating
rate obligations with a weighted average interest rate of 5.7% to fixed rate
obligations with an average effective interest rate of 6.8%. These agreements
have a weighted average maturity of approximately 3.7 years. As of September
30, 1998, the Corporation's total floating rate debt, including the accounts
receivable sale program, exceeded related interest rate exchange agreements by
$1.4 billion.
The Corporation's accounts receivable sale program has been extended to May
1999.
The Corporation also enters into foreign currency exchange agreements, the
amounts of which were not material to the consolidated financial position of the
Corporation at September 30, 1998.
As of September 30, 1998, 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.
During the first nine months of 1998, the Corporation purchased on the open
market 4,793,500 shares of Georgia-Pacific Group stock at an aggregate price
of $277 million, of which 3,585,700 shares were held as treasury stock at
September 30, 1998 and 284,300 shares were purchased during September, 1998
and settled after September 30, 1998. The Corporation also purchased on the
open market 4,860,200 shares of The Timber Company stock at an aggregate price
of $105 million, of which 4,828,900 shares were held as treasury stock at
September 30, 1998 and 31,300 shares purchased during September, 1998 settled
after September 30, 1998.
OTHER. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", that establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The Corporation adopted SFAS No. 130 in the 1998 first quarter.
Also in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, `Disclosure about Segments of an Enterprise and Related Information.''
This statement requires companies to determine segments based on how management
makes decisions about allocating resources to segments and measuring their
performance. Disclosures for each segment are similar to those required under
current standards, with the addition of certain quarterly disclosure
requirements. SFAS No. 131 also requires entity-wide disclosure about the
products and services an entity provides, the countries in which it holds
material assets and reports material revenues, and its significant customers.
The Corporation will be required to adopt the new standard in 1998; prior period
information will be restated. Management is evaluating the effect of this
statement on reported segment information.
<PAGE> 22
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement requires
additional pension related disclosures. The objective of the statement is to
provide sufficient information to understand the changes in benefit obligations
or to analyze the quality of earnings of the Corporation. SFAS No. 132 requires
disclosure of additional information about the changes in the benefit obligation
and the fair value of plan assets during the period, including unrecognized
gains and losses. The Corporation will be required to present this additional
information disclosure in the 1998 year end statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," that establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities on the
balance sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Corporation will be required to
adopt the new statement in 2000; early adoption is encouraged, no prior period
restatement is permitted. Management is evaluating the effect of this statement
on the Corporation's derivative instruments, primarily interest rate swaps and
foreign currency forward contracts. The impact of adjustment to fair value is
not expected to be material.
The Corporation is working to resolve the effects of the Year 2000 problem on
its information systems, including the operating systems used in its
manufacturing operations as well as its facilities systems. The Year 2000
problem, which is common to most businesses, concerns the inability of such
systems to properly recognize and process dates and date-sensitive information
on and beyond January 1, 2000. In 1996, the Corporation began a company-wide
assessment of the vulnerability of its systems to the Year 2000 problem. Based
on such assessment, the Corporation has developed a Year 2000 compliance plan,
under which all key information systems are being tested, and non-compliant
software or technology is being modified or replaced. The Corporation is also
surveying the Year 2000 compliance status and compatibility of customers' and
suppliers' systems which interface with the Corporation's systems or could
otherwise impact the Corporation's operations.
The Corporation completed an inventory of its information technology systems and
processes in 1997 and currently expects to have most of the necessary revisions
to such systems and processes completed by year-end 1998 with a few systems
completing revision in 1999.
Testing and verification of such systems and processes for Year 2000 compliance
will be completed during 1999. Earlier this year, the Corporation completed
an inventory of the
process control systems and embedded chips used in its manufacturing operations
and currently believes that only a small percentage of such systems and chips
could be
subject to Year 2000 problems. The Corporation currently expects to have these
affected manufacturing systems replaced or corrected by mid-year 1999, and to
complete testing and verification of such systems for Year 2000 compliance
during 1999. Since completion of these inventories, some additional systems
and devices have been discovered and added to the inventory list for
testing and, if necessary, remediation. Due to continuing system acquisitions
and the number and complexity of existing systems, the Corporation expects
some continuing
additions of non-critical systems to the inventory list. The Corporation has
contacted each of its critical suppliers to ascertain their respective levels
of readiness to address and remediate Year 2000 problems, and is currently
reviewing their responses. The Corporation is in the process of identifying
critical customers and also intends to communicate with each of them to
ascertain their respective levels of Year 2000 readiness. While the Corporation
currently believes that it will be able to modify or replace its affected
systems in time to minimize any detrimental effects on its operations, failure
to do so, or the failure of the Corporation's major customers and suppliers to
modify or replace their affected systems, could have a material adverse impact
on the Corporation's results of operations, liquidity or consolidated financial
position in the future. The most reasonably likely worst case scenario of
failure by the Corporation or its customers or suppliers to resolve the Year
2000 problem would be a temporary slowdown or cessation of manufacturing
operations at one or more of the Corporation's facilities and a temporary
inability on the part of the Corporation to timely process orders and billings
and to deliver finished products to customers. The Corporation's individual
business units are currently identifying and considering various contingency
options, including identification of alternate suppliers, vendors and service
providers, and manual alternatives to systems operations, which will allow them
to minimize the risks of any unresolved Year 2000 problems on their operations
and to minimize the effect of any unforeseen Year 2000 failures.
The Corporation currently estimates the incremental cost of the work needed to
resolve the Year 2000 problem at approximately $60 million (including
approximately $10 million of capital costs), of which approximately $8.9 million
has been incurred to date. In addition, the Corporation expects to incur
internal costs totaling approximately $20 million related to the Year 2000
problem, of which approximately $8.6 million has been incurred to date. The
bulk of the incremental costs relate to replacement or modification of affected
process control systems in the Corporation's manufacturing operations and is
projected to be incurred in late 1998 through 1999. The majority of
the internal costs relate to code remediation and testing and is projected to be
incurred in 1998 through 1999. These incremental and internal costs will be
expensed as incurred, except for new systems purchased that will be capitalized
in accordance with corporate policy. Such costs may be material to the
Corporation's results of operations in one or more fiscal quarters or years, but
will not have a material adverse effect on the long-term results of operations,
liquidity or consolidated financial position of the Corporation.
Approximately 44,000 acres of timberlands were affected by the forest fires in
Florida in June, 1998. This acreage represents approximately eight percent of
the timberlands owned in the State of Florida. The Timber Company is salvaging
useable timber and believes the loss could impact the rotation of harvests in
1999 and 2000.
<PAGE> 23
RELATED PARTY TRANSACTIONS
CHANGES TO THE SUPPLY AGREEMENT. During the second quarter of 1998, Georgia-
Pacific Group and The Timber Company revised the operating policy, which they
had entered into last fall, with respect to sales of timber and wood fiber.
These revisions arose from sharp changes in the prices of timber and wood fiber
from the first quarter to the second quarter of 1998, a significant decrease in
the volume of timber purchased by Georgia-Pacific Group in the second quarter,
and other issues in the policy. At the time these revisions were negotiated,
The Timber Company sold a timber deed to Georgia-Pacific Group covering timber
and wood fiber having a value of approximately $23 million, and Georgia-Pacific
Group made a one-time $3 million payment to The Timber Company for second
quarter adjustments due under the revised policy.
Under the revised policy, beginning July 1, 1998, the prices for southern timber
and wood fiber sold by The Timber Company are adjusted monthly, rather than
quarterly, and represent the average of prices paid by Georgia-Pacific Group for
timber purchased from third parties in a particular forest, and prices received
by The Timber Company for timber sold to third parties from the same forest,
over the most recent three-months period. This change is intended to make prices
for timber and wood fiber sold by The Timber Company to Georgia-Pacific Group
more quickly reflect changes in market prices. In addition, premiums charged by
The Timber Company for various types of wood have been reduced, and Georgia-
Pacific Group has agreed to purchase, each quarter, in two key Southern forests,
20 percent of the annual volume of timber and wood fiber it has committed to
purchase from The Timber Company during that year. The revised policy reduces
the volume of timber which Georgia-Pacific Group can purchase in the same two
forests from 80 percent to 70 percent of The Timber Company's annual harvest in
those forests, and also reduces Georgia-Pacific Group's minimum annual purchase
obligation in those forests from 60 percent to 50 percent of the annual harvest
in 1999-2000.
These changes are intended to cause prices paid by Georgia-Pacific Group to more
quickly reflect market prices in particular forests, to allow Georgia-Pacific
Group more flexibility in purchasing wood from third parties, and to allow The
Timber Company greater flexibility in the timing of sales of its annual harvest
on the open market. The revised policy also contains additional provisions
which resolve issues related to certain operating practices of The Timber
Company and Georgia-Pacific Group.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. The statements under
"Management's Discussion and Analysis" and other statements contained herein
that are not historical facts, including statements regarding pricing trends,
seasonal fluctuations in demand, expected market-related downtime and the
Corporation's expectations regarding the resolution of issues associated with
the Year 2000 problem, are forward-looking statements (as such term is defined
under the Private Securities Litigation Reform Act of 1995) based on current
expectations. The accuracy of such statements is subject to a number of risks,
uncertainties and assumptions. In addition to the risks, uncertainties and
assumptions discussed elsewhere herein, factors that could cause or contribute
to actual results differing materially from such forward-looking statements
include the following: the Corporation's production capacity continuing to
exceed demand for its pulp and paper products, necessitating market-related
downtime; the ability of the Corporation, and its customers and suppliers, to
timely and efficiently address the Year 2000 problem; changes in the productive
capacity of other building products and pulp and paper producers; the effect on
the Corporation of changes in environmental and pollution control laws and
regulations; the general level of economic activity in U.S. and export markets,
particularly the Asian markets; fluctuations in interest rates and currency
exchange rates; the availability and cost of wood fiber; and other risks,
uncertainties and assumptions discussed in the Corporation's Quarterly Reports
on Form 10-Q dated March 31, 1998 and June 30, 1998, the Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, the
Corporation's Registration Statement No. 333-35813 dated November 7, 1997 and
the Corporation's Form 8-K dated October 17, 1996.
For a discussion of commitments and contingencies refer to Note 12 of the Notes
to Consolidated Financial Statements.
<PAGE> 24
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF INCOME (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
Three months Nine months
ended September 30, ended September 30,
-------------- --------------
(In millions, except per share amounts) 1998 1997 1998 1997
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Net sales $3,367 $3,330 $9,835 $9,747
- -----------------------------------------------------------------------
Costs and expenses
Cost of sales, excluding depreciation
and cost of timber harvested
shown below
The Timber Company 27 22 70 56
Third parties 2,587 2,539 7,618 7,589
- -----------------------------------------------------------------------
Total cost of sales 2,614 2,561 7,688 7,645
Selling, general and
administrative 281 281 799 834
Depreciation and cost of timber
harvested
The Timber Company 78 87 238 267
Third parties 223 232 663 674
- -----------------------------------------------------------------------
Total depreciation and cost of
timber harvested 301 319 901 941
Interest 96 95 286 291
Other income - - - (14)
- -----------------------------------------------------------------------
Total costs and expenses 3,292 3,256 9,674 9,697
- -----------------------------------------------------------------------
Income before income taxes
and extraordinary item 75 74 161 50
Provision for income taxes 36 33 76 32
- -----------------------------------------------------------------------
Income before extraordinary item 39 41 85 18
Extraordinary item - loss from early
retirement of debt, net of taxes - - (13) -
- -----------------------------------------------------------------------
Net income $ 39 $ 41 $ 72 $ 18
==========================================================================
Georgia-Pacific Group
Basic and diluted per common share:
Income before extraordinary item $ 0.43 $ 0.93
Extraordinary item - loss from early
retirement of debt, net of taxes - (0.14)
- -----------------------------------------------------------------------
Net income $ 0.43 $ 0.79
==========================================================================
Average number of shares outstanding:
Basic 90.2 90.7
Diluted 90.5 91.6
==========================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 25
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF CASH FLOWS (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
Nine months
ended September 30,
-------------------------
(In millions) 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 72 $ 18
Adjustments to reconcile net income (loss) to cash
provided by operations:
Depreciation 557 585
Cost of timber harvested - The Timber Company 238 267
Cost of timber harvested - Third parties 106 89
Other income - (14)
Deferred income taxes 53 49
Amortization of goodwill 45 44
Increase in receivables (36) (142)
Decrease in inventories 67 73
Change in other working capital (53) (45)
Change in other assets, other
long-term liabilities and other 45 (45)
- -------------------------------------------------------------------------
Cash provided by operations 1,094 879
- -------------------------------------------------------------------------
Cash flows from investing activities
Property, plant and equipment investments (386) (426)
Timber and timberlands purchases
from the Timber Company (252) (267)
Timber and timberlands purchases from third parties (118) (82)
CeCorr acquisition (93) -
Decrease in cash restricted for capital expenditures 12 11
Proceeds from sales of assets 53 80
Other (10) (2)
- -------------------------------------------------------------------------
Cash used for investing activities (794) (686)
- -------------------------------------------------------------------------
Cash flows from financing activities
Share repurchases (272) -
Additions to (repayments of) long-term debt 31 (157)
Cash dividends paid (68) (68)
Other 8 29
- -------------------------------------------------------------------------
Cash used for financing activities (301) (196)
- -------------------------------------------------------------------------
Decrease in cash (1) (3)
Balance at beginning of period 8 10
- -------------------------------------------------------------------------
Balance at end of period $ 7 $ 7
========================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 26
<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS
Georgia-Pacific Corporation--Georgia-Pacific Group
September 30,December 31,
(In millions, except shares and per share amounts) 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Unaudited)
Current assets
Cash $ 7 $ 8
Receivables, less allowances of $15 and $13,
respectively 1,412 1,368
Inventories 1,304 1,355
Taxes receivable 20 61
Other current assets 115 119
- -------------------------------------------------------------------------
Total current assets 2,858 2,911
- -------------------------------------------------------------------------
Timber and timberlands 95 71
- -------------------------------------------------------------------------
Property, plant and equipment
Land, buildings, machinery and equipment, at cost 14,378 14,072
Accumulated depreciation (8,139) (7,795)
- -------------------------------------------------------------------------
Property, plant and equipment, net 6,239 6,277
- -------------------------------------------------------------------------
Goodwill 1,657 1,599
- -------------------------------------------------------------------------
Other assets 930 921
- -------------------------------------------------------------------------
Total assets $ 11,779 $11,779
========================================================================
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Short-term debt $ 1,222 $ 1,462
Accounts payable 560 639
Accrued compensation 226 207
Other current liabilities 405 390
- -------------------------------------------------------------------------
Total current liabilities 2,413 2,698
- -------------------------------------------------------------------------
Long-term debt, excluding current portion 3,404 3,057
- -------------------------------------------------------------------------
Other long-term liabilities 1,596 1,542
- -------------------------------------------------------------------------
Deferred income tax liabilities 1,012 959
- -------------------------------------------------------------------------
Commitments and contingencies
Total shareholders' equity 3,354 3,523
- -------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 11,779 $11,779
===========================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 28
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
SEPTEMBER 30, 1998
1. PRINCIPLES OF PRESENTATION. The financial statements include the
combined accounts of operations comprising the Georgia-Pacific Group.
All significant intercompany balances and transactions are eliminated in
consolidation. 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
Georgia-Pacific Group'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 item discussed in Note 4 below.
Certain 1997 amounts have been reclassified to conform with the 1998
presentation. The Georgia-Pacific Group's combined financial statements
should be read in conjunction with the Corporation's consolidated
financial statements and The Timber Company's combined financial
statements.
2. OTHER INCOME. The 1997 first quarter sale of the Corporation's Martell
operations, which included a sawmill, particleboard mill and timberlands,
generated a pretax gain of $128 million. Of this amount, a pretax gain
of $14 million ($9 million after taxes) was recorded in Georgia-Pacific
Group's building products segment for the sale of the sawmill and
particleboard plant.
3. PROVISION FOR INCOME TAXES. The effective tax rate was 48 percent for
the three months ended September 30, 1998, and 45 percent for the three
months ended September 30, 1997. The effective tax rate was 47 percent
for the nine months ended September 30, 1998, and 64 percent for the nine
months ended September 30, 1997. The effective tax rate for each period
was different than the statutory rate primarily because of nondeductible
goodwill amortization expense.
4. EXTRAORDINARY ITEM. The Corporation redeemed approximately $600 million
of its outstanding debt during the first six months of 1998. As a
result, an after-tax extraordinary charge of $13 million (14 cents per
share) was allocated to the Georgia-Pacific Group based on the ratio of
the Georgia-Pacific Group's debt to the Corporation's total debt, of
which $12 million was recognized in the first quarter of 1998 and $1
million was recognized in the second quarter of 1998.
5. EARNINGS PER SHARE. The Corporation's common stock was redesignated in
December 1997 to reflect separately the performance of the Corporation's
pulp, paper and building products businesses, which are now known as
Georgia-Pacific Group. A separate class of common stock was distributed
to reflect the performance of the Corporation's timber operating group,
which is now known as The Timber Company. Basic earnings per share is
computed based on net income and the weighted average number of common
shares outstanding. Diluted earnings per share reflect the annual
issuance of common shares under long-term incentive stock option and
stock purchase plans. The computation of diluted earnings per share does
not assume conversion or exercise of securities that would have an
antidilutive effect on earnings per share.
In February 1997, the FASB issued SFAS No. 128, which specifies the
computation, presentation and disclosure requirements for earnings per
share. Georgia-Pacific Group adopted SFAS No. 128 in the 1997 fourth
quarter.
<PAGE> 29
The following table provides earnings and per share data for Georgia-
Pacific Group for 1998.
<TABLE>
<CAPTION>
Three months Nine months
ended September 30,ended September 30,
-----------------------------------------
(In millions, except per share amounts) 1998 1998
---------------------------------------------------------------
<S> <C> <C>
Basic and diluted income available to
shareholders (numerator):
Income before extraordinary item $ 39 $ 85
Extraordinary item, net of taxes - (13)
---------------------------------------------------------------
Net income $ 39 $ 72
================================================================
Shares (denominator):
Average shares outstanding 90.2 90.7
Dilutive securities:
Incentive plans and option plans 0.3 0.8
Employee stock purchase plans - 0.1
---------------------------------------------------------------
Total assuming conversion 90.5 91.6
================================================================
Basic and diluted per share amounts:
Income before extraordinary item $ 0.43 $ 0.93
Extraordinary item, net of taxes - (0.14)
---------------------------------------------------------------
Net income $ 0.43 $ 0.79
================================================================
</TABLE>
6. COMPREHENSIVE INCOME. In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components. The
Georgia-Pacific Group adopted SFAS No. 130 in the first quarter of 1998.
Other comprehensive income includes primarily currency translation
adjustments. For the three months ended September 30, 1998, the Georgia-
Pacific Group's total comprehensive income was $34 million, compared to
$42 million for the same period last year. For the nine months ended
September 30, 1998, the Georgia-Pacific Group's total comprehensive
income was $65 million compared to $17 million for the same period last
year.
<PAGE> 30
7. 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,
------------------------
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Total interest costs $ 290 $ 300
Interest capitalized (4) (9)
---------------------------------------------------------------
Interest expense $ 286 $ 291
================================================================
Interest paid by the Corporation $ 324 $ 340
================================================================
Income taxes paid by the
Corporation, net $ 48 $ 24
================================================================
Portion of interest paid charged
to the Georgia-Pacific Group $ 272 $ 276
================================================================
Portion of income taxes refunded
credited to the Georgia-Pacific Group $ (33) $ (33)
================================================================
</TABLE>
In connection with the CeCorr acquisition, the Georgia-Pacific Group
issued 1.6 million shares of Georgia-Pacific Group common stock valued at
$57.875 per share and assumed approximately $92 million of CeCorr debt of
which $34 million was owed to Georgia-Pacific Group ($58 million net debt
assumed). (See Note 9.)
8. INVENTORY VALUATION. Inventories are valued at the lower of cost or
market and include the costs of materials, labor, and plant overhead. The
Georgia-Pacific Group uses the dollar value pool method for computing
those inventories valued on the LIFO method. The major components of
inventories were as follows:
<TABLE>
<CAPTION>
September 30,December 31,
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Raw materials $ 403 $ 396
Finished goods 822 878
Supplies 297 293
LIFO reserve (218) (212)
---------------------------------------------------------------
Total inventories $ 1,304 $1,355
============================================================
</TABLE>
<PAGE> 31
9. ACQUISITION. On June 30, 1998, the Corporation completed its acquisition
of CeCorr, a leading independent producer of corrugated sheets in the
United States. On June 30, 1998, the Corporation paid approximately $93
million in cash (net of $2 million of acquired cash) and issued
approximately 1.6 million shares of Georgia-Pacific Group stock valued at
$57.875 per share for all the outstanding shares of CeCorr. In addition
the Corporation assumed approximately $58 million of CeCorr's debt. On
July 2, 1998, certain former owners of CeCorr exercised their rights to
sell to the Corporation approximately 1.1 million shares of Georgia-Pacific
Group stock. The acquisition includes 11 CeCorr sheet feeder plants, which
manufacture corrugated sheets that are sold to others for final conversion
into corrugated containers. Also included are a corrugating medium paper
mill, and several specialty operations and support service groups. CeCorr
ships 6.3 billion square feet of corrugated sheets per year. CeCorr's
results of operations have been consolidated with that of the Corporation
beginning July 1, 1998.
The Corporation has accounted for this transaction using the purchase
method to record a new cost basis for assets acquired and liabilities
assumed. The allocation of the purchase price and acquisition costs to the
assets acquired and liabilities assumed is preliminary as of September 30,
1998, and is subject to change pending finalization of appraisals and other
studies of fair value and finalization of management's plans which may
result in the recording of additional liabilities as part of the allocation
of the purchase price. The difference between the purchase price and the
fair market value of the assets acquired and liabilities assumed was
recorded as goodwill and is being amortized over forty years. The
preliminary allocation of the $93 million net cash paid for the acquisition
is summarized as follows (in millions of dollars):
<TABLE>
<CAPTION>
(In millions)
---------------------------------------------------------------
<S> <C>
Current assets $ 35
Property, plant and equipment 178
Goodwill 115
Liabilities (140)
Common stock issued (95)
---------------------------------------------------------------
Net cash paid $ 93
==================================================
</TABLE>
10. DEBT. In May 1998, the Corporation issued $300 million of 7.25%
Debentures due June 1, 2028.
11. SHARE REPURCHASES. During the first nine months of 1998, Georgia-Pacific
Group purchased on the open market 4,793,500 shares of Georgia-Pacific
Group stock at an aggregate price of $277 million, of which 3,585,700
shares were held as treasury stock at September 30, 1998 and 284,300
shares were purchased during September, 1998 and settled after September
30, 1998..
12. COMMITMENTS AND CONTINGENCIES. The Georgia-Pacific Group is subject to
various legal proceedings and claims that arise in the ordinary course of
its business. As is the case with other companies in similar industries,
the Georgia-Pacific Group faces exposure from actual or potential claims
and legal proceedings involving environmental matters. Liability insurance
in effect during the last several years provides very limited coverage for
environmental matters.
The following sets forth legal proceedings and claims arising out of the
operations of the Georgia-Pacific Group to which the Corporation is a
party. The holders of Georgia-Pacific Group stock are shareholders of the
Corporation and are subject to all of the risks associated with an
investment in the Corporation, including any legal proceedings and claims
involving The Timber Company.
The Corporation is involved in environmental remediation activities at
approximately 170 sites, both owned by the Corporation and owned by others,
where it has been notified that it is or may be a potentially responsible
party under the Comprehensive Environmental Response, Compensation and
Liability Act or similar state "superfund" laws. Of the known sites in
which it is involved, the Corporation estimates that approximately 47
percent are being investigated, approximately 25 percent are being
remediated and approximately 28 percent are being monitored (an activity
that occurs after either site investigation or remediation has been
completed). The ultimate costs to the Corporation for the investigation,
remediation and monitoring of many of these sites cannot be predicted with
certainty, due to the often unknown magnitude of the pollution or the
necessary cleanup, the varying costs of alternative cleanup methods, the
amount of time necessary to accomplish such cleanups, the evolving nature
of cleanup technologies and government regulations, and the inability to
determine the Corporation's share of multiparty cleanups or the extent to
which contribution will be available from other parties. The Corporation
has established reserves for environmental remediation costs for these
sites in amounts that it believes are probable and reasonably estimable.
Based on analysis of currently available information and previous
experience with respect to the cleanup of hazardous substances, the
Corporation believes 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
$60 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.
<PAGE> 32
The Corporation and many other companies are defendants in suits brought in
various courts around the nation by plaintiffs who allege that they have
suffered personal injury as a result of exposure to asbestos-containing
products. These suits allege a variety of lung and other diseases based on
alleged exposure to products previously manufactured by the Corporation.
In many cases, the plaintiffs are unable to demonstrate that they have
suffered any compensable loss as a result of such exposure.
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 to date to defend and
settle these cases to date have been substantially covered by product
liability insurance. The Corporation is currently defending claims of
approximately 69,000 such plaintiffs and anticipates that additional suits
will be filed against it over the next several years. The Corporation has
insurance available in amounts that it believes are adequate to cover
substantially all of the reasonably foreseeable damages and settlement
amounts arising out of claims and suits currently pending. The Corporation
has further insurance coverage available for the disposition of suits that
may be filed against it in the future, but there can be no assurance that
the amounts of such insurance will be adequate to cover all future claims.
The Corporation has established reserves for liabilities and legal defense
costs it believes are probable and reasonably estimable with respect to
pending suits and claims and a receivable for expected insurance
recoveries.
The Corporation has been defending an action in Alabama state court brought
to recover damages on behalf of a class of all persons currently owning
structures in the United States on which allegedly defective hardboard
siding manufactured by the Corporation after January 1, 1980 has been
installed. On January 9, 1998, the court approved a settlement pursuant to
which the Corporation will establish a procedure for resolving product
warranty claims on certain of the Corporation's hardboard siding products,
and will pay $3 million in legal fees to plaintiffs' counsel, plus expenses
not to exceed $200,000. In addition, plaintiffs' counsel will be entitled
to additional fees based upon a percentage of claims paid by the
Corporation. The last date for filing claims under the settlement was
August 18, 1998. The Corporation has previously established financial
reserves it believes to be adequate to pay eligible claims and legal fees.
In May 1997, the Corporation and nine other companies were named as
defendants in a suit brought by the Attorney General of the State of
Florida alleging that they engaged in a conspiracy to fix the prices of
sanitary commercial paper products, such as towels and napkins, in
violation of federal and state laws. Approximately 45 similar suits have
been filed by private plaintiffs in federal courts in California, Florida,
Georgia and Wisconsin, and in the state courts of California, Wisconsin,
Minnesota and Tennessee. On October 15, 1997, the Federal Judicial Panel
on Multi-District Litigation consolidated all federal court cases in the
federal district court in Gainesville, Florida. On July 24, 1998, the
court certified the suit as a class action consisting of non-governmental
direct purchasers of the defendants' products. The defendants have asked
the court to certify this decision for immediate appeal. The Corporation
has denied that it has engaged in any of the illegal conduct alleged in
these cases and intends to defend itself vigorously.
The Corporation's facility in Port Hudson, Louisiana has notified the State
of Louisiana of the emitting of noncondensable gases in violation of its
air permit. The State has proposed assessment of a penalty against the
Corporation of $425,000. The Corporation is awaiting receipt of definitive
documentation from the State, and has made no decision on whether or not to
appeal the proposed assessment.
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.
<PAGE> 33
13. RELATED PARTY TRANSACTIONS. During 1998, The Timber Company sold timber
deeds to Georgia-Pacific Group. Georgia-Pacific Group recognizes costs
from these related-party timber deed contracts as the timber is cut.
During the second quarter of 1998, Georgia-Pacific Group and The Timber
Company revised the operating policy, which they had entered into last
fall, with respect to sales of timber and wood fiber. These revisions
arose from sharp changes in the prices of timber and wood fiber from the
first quarter to the second quarter of 1998, a significant decrease in the
volume of timber purchased by Georgia-Pacific Group in the second quarter,
and other issues in the policy. At the time these revisions were
negotiated, The Timber Company sold a timber deed to Georgia-Pacific Group
covering timber and wood fiber having a value of approximately $23 million,
and Georgia-Pacific Group made a one-time $3 million payment to The Timber
Company for second quarter adjustments due under the revised policy.
Under the revised policy, beginning July 1, 1998, the prices for southern
timber and wood fiber sold by The Timber Company are adjusted monthly,
rather than quarterly, and represent the average of prices paid by Georgia-
Pacific Group for timber purchased from third parties in a particular
forest, and prices received by The Timber Company for timber sold to third
parties from the same forest, over the most recent three-months period.
This change is intended to make prices for timber and wood fiber sold by
The Timber Company to Georgia-Pacific Group more quickly reflect changes in
market prices. In addition, premiums charged by The Timber Company for
various types of wood have been reduced, and Georgia-Pacific Group has
agreed to purchase, each quarter, in two key Southern forests, 20 percent
of the annual volume of timber and wood fiber it has committed to purchase
from The Timber Company during that year. The revised policy reduces the
volume of timber which Georgia-Pacific Group can purchase in the same two
forests from 80 percent to 70 percent of The Timber Company's annual
harvest in those forests, and also reduces Georgia-Pacific Group's minimum
annual purchase obligation in those forests from 60 percent to 50 percent
of the annual harvest in 1999-2000.
These changes are intended to cause prices paid by Georgia-Pacific Group to
more quickly reflect market prices in particular forests, to allow Georgia-
Pacific Group more flexibility in purchasing wood from third parties, and
to allow The Timber Company greater flexibility in the timing of sales of
its annual harvest on the open market. The revised policy also contains
additional provisions which resolve issues related to certain operating
practices of The Timber Company and Georgia-Pacific Group.
<PAGE> 34
<TABLE>
<CAPTION>
COMBINED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
Second Quarter
First --------------
(In millions) Quarter Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998
NET SALES
Building products $1,753 55% $1,854 57% $3,607 56%
Pulp and paper 1,431 45 1,413 43 2,844 44
Other operations 9 - 8 - 17 -
- --------------------------------------------------------------------------------
Total net sales $3,193 100% $3,275 100% $6,468 100%
===============================================================================
OPERATING PROFITS
Building products $ 66 41% $ 96 55% $ 162 48%
Pulp and paper 91 56 73 42 164 49
Other operations 5 3 5 3 10 3
- --------------------------------------------------------------------------------
Total operating profits 162 100% 174 100% 336 100%
=== === ===
General corporate expense (34) (26) (60)
Interest expense (96) (94) (190)
Provision for income taxes (16) (24) (40)
- --------------------------------------------------------------------------------
Income before extraordinary item 16 30 46
Extraordinary item, net of taxes (12) (1) (13)
- --------------------------------------------------------------------------------
Net income $ 4 $ 29 $ 33
===============================================================================
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
COMBINED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
Third Quarter Fourth Quarter
------------------------ ------------------------
(In millions) Quarter Year-to-date Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998
NET SALES
Building products $1,943 58% $5,550 57%
Pulp and paper 1,416 42 4,260 43
Other operations 8 - 25 -
- --------------------------------------------------------------------------------
Total net sales $3,367100% $9,835100%
===============================================================================
OPERATING PROFITS
Building products $173 87% $335 63%
Pulp and paper 24 12 188 35
Other operations 2 1 12 2
- --------------------------------------------------------------------------------
Total operating
profits $199 100% $535 100%
=== ===
General corporate
expense (28) (88)
Interest expense (96) (286)
Provision for
income taxes (36) (76)
- --------------------------------------------------------------------------------
Income before extraordinary
item 39 85
Extraordinary item,
net of taxes - (13)
- --------------------------------------------------------------------------------
Net income $ 39 $ 72
===============================================================================
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
COMBINED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
Second Quarter
First --------------
(In millions) Quarter Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997
NET SALES
Building products $1,760 57% $1,918 58% $3,678 57%
Pulp and paper 1,351 43 1,371 42 2,722 43
Other operations 9 - 8 - 17 -
- --------------------------------------------------------------------------------
Total net sales $3,120 100% $3,297 100% $6,417 100%
===============================================================================
OPERATING PROFITS (LOSS)
Building products $ 95 80% $ 122 90% $ 217 85%
Pulp and paper 20 17 12 9 32 13
Other operations 4 3 1 1 5 2
- --------------------------------------------------------------------------------
Total operating profits (loss) 119 100% 135 100% 254 100%
=== === ===
General corporate expense (36) (46) (82)
Interest expense (97) (99) (196)
Benefit for income taxes 1 - 1
- --------------------------------------------------------------------------------
Net loss $ (13) $ (10) $ (23)
===============================================================================
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
COMBINED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
Third Quarter Fourth Quarter
------------------------ ------------------------
(In millions) Quarter Year-to-date Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997
NET SALES
Building products $ 1,906 57% $ 5,584 57% $ 1,791 56% $ 7,375 57%
Pulp and paper 1,414 43 4,136 43 1,420 44 5,556 43
Other operations 10 - 27 - 10 - 37 -
- --------------------------------------------------------------------------------
Total net sales $ 3,330 100% $ 9,747 100% $ 3,221 100% $12,968 100%
===============================================================================
OPERATING PROFITS (LOSS)
Building products $ 127 57% $ 344 72% $ (106) 212% $ 238 56%
Pulp and paper 93 42 125 26 49 (98) 174 41
Other operations 3 1 8 2 7 (14) 15 3
- --------------------------------------------------------------------------------
Total operating
profits (loss) 223 100% 477 100% (50) 100% 427 100%
=== === === ===
General corporate
expense (54) (136) (28) (164)
Interest expense (95) (291) (90) (381)
(Provision) benefit for
income taxes (33) (32) 64 32
- --------------------------------------------------------------------------------
Income (loss) before accounting
change 41 18 (104) (86)
Cumulative effect of an
accounting change, net
of taxes - - (60) (60)
- --------------------------------------------------------------------------------
Net income (loss) $ 41 $ 18 $ (164) $ (146)
===============================================================================
</TABLE>
<PAGE> 38
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH 1997
Georgia-Pacific Group reported net sales of approximately $3.4 billion and $3.3
billion for the three months ended September 30, 1998 and 1997, respectively.
Net income for the 1998 third quarter was $39 million compared with $41 million
in 1997.
The remaining discussion refers to the "Sales and Operating Profits by
Industry Segment" table (included in PART I - ITEM 1. hereto).
Georgia-Pacific Group's building products segment reported net sales of $1.9
billion for both of the three months ended September 30, 1998 and 1997.
Operating profits increased in 1998 to $173 million compared with $127 million
in 1997. Return on sales was 8.9 percent and 6.7 percent for the three months
ended September 30, 1998 and 1997, respectively.
The higher quarter-over-quarter operating profit resulted principally from a
significant increase in oriented strand board prices. Average prices for
oriented strand board were 98 percent higher than the previous year, and gypsum
prices were up 8 percent. Average prices for lumber were 15 percent lower in the
third quarter of 1998 than the third quarter of 1997, while Southern pine log
costs increased by an average of 5 percent. In the fourth quarter, however, the
Georgia-Pacific Group anticipates that declines in prices for structural panels
as well as seasonal slowdown in demand for building products will adversely
impact its operating results.
Operating profits for the Georgia-Pacific Group's building products distribution
division were $14 million in the third quarter of 1998 (excluding unusual net
gains of $6 million, primarily related to assets sold as part of the division's
restructuring plan), compared with a loss of $17 million in the third quarter of
1997 (excluding unusual net gains of $4 million, primarily related to assets
sold as part of the division's restructuring plan). The distribution division
restructuring plan, finalized in December 1997, is proceeding on schedule. The
plan included disposing of the division's millwork fabrication facilities
nationwide as well as several distribution centers located in the Western United
States. Positive results in the third quarter were primarily driven by the
increase in oriented strand board prices described above. However, due to the
cyclical nature of the building products business, the distribution division
does not expect to achieve this level of profits in the fourth quarter. Selected
financial and operating data for the building products distribution business are
shown in the table below:
<TABLE>
<CAPTION>
SELECTED DISTRIBUTION DIVISION DATA
Three months ended September 30,
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Sales $1,088 $ 1,098
Operating profit (loss) before
net gain on asset sales 14 (17)
Net gain on asset sales 6 4
Capital expenditures 2 9
Depreciation 11 12
============================================================
</TABLE>
<PAGE> 39
Georgia-Pacific Group's pulp and paper segment reported net sales of $1.4
billion and operating profits of $24 million in the 1998 third quarter,
including a one-time $24 million charge associated with the closure of two
hardwood pulp operations. For the same period in 1997, the segment reported net
sales of $1.4 billion and operating profits of $93 million. Return on sales
decreased to 1.7 percent in 1998 from 6.6 percent in 1997. During the third
quarter of 1998, Georgia-Pacific Group closed its hardwood pulp operations at
its Port Hudson, Louisiana and Ashdown, Arkansas facilities, resulting in a one-
time, before tax charge of $24 million ($15 million after taxes). Excluding
this one-time charge, return on sales was 3.4 percent. Average containerboard
prices for the quarter were approximately 21 percent above prices in the same
1997 period. However, containerboard prices have trended downward through the
first nine months of the year and are continuing that trend into the fourth
quarter. Communications papers prices are lower compared to the third quarter
of 1997, with prices trending downward since the first quarter of 1998, and
continuing this trend into the fourth quarter. Prices and demand for pulp are
down from second quarter levels and are down compared with third quarter of last
year. Compared with a year ago, Georgia-Pacific Group has reduced inventories
for most pulp and paper products, incurring downtime when necessary. During the
second and third quarter of 1998, Georgia-Pacific Group took market-related
downtime at its pulp and paper mills, and reduced pulp, containerboard and
communication papers production. Georgia-Pacific Group anticipates taking
additional downtime in the fourth quarter due to continued weakness in demand
and pricing for pulp and paper, primarily stemming from market conditions in
Asia, and expects to incur an operating loss in its pulp and paper segment in
the fourth quarter of 1998 and possibly in the first quarter of 1999.
General corporate expense decreased to $28 million for the three months ended
September 30, 1998 compared with $54 million in 1997. The majority of the
decrease is attributable to lower expenses for Georgia-Pacific Group's stock
compensation programs and its cash incentive compensation program.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH 1997
Georgia-Pacific Group reported consolidated net sales of $9.8 billion and net
income of $72 million for the nine months ended September 30, 1998, compared
with net sales of $9.7 billion and net income of $18 million in 1997. The 1998
results include an extraordinary, after-tax loss of $13 million 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).
Georgia-Pacific Group's building products segment reported net sales of $5.6
billion and operating profits of $335 million for the nine months ended
September 30, 1998, compared with net sales of $5.6 billion and operating
profits of $344 million in 1997. Return on sales decreased to 6.0 percent from
6.2 percent a year ago. The 1997 results included a first quarter gain of $14
million ($9 million after taxes) from the sale of the Georgia-Pacific Group's
Martell, California, assets to Sierra Pacific Industries. Excluding the pretax
gain from the sale of the Martell operations, operating profit in the building
products segment would have been $330 million and the return on sales would have
been 5.9 percent. The primary components of this increase were 60 percent higher
oriented strand board prices and 4 percent higher gypsum prices. Demand and
volume was also higher for both of these products than in the prior year. These
increases were offset slightly by 11 percent lower lumber prices and 12 percent
higher log costs. In the fourth quarter, however, Georgia-Pacific Group
anticipates that declines in prices for structural panels as well as seasonal
slowdown in demand for building products will adversely impact its operating
results.
<PAGE> 40
Operating losses for the Corporation's building products distribution division
were $21 million in the first nine months of 1998 (excluding gains on asset
sales of $19 million) compared with a loss of $68 million in the first nine
months of 1997 (excluding gains on asset sales of $12 million). The distribution
division restructuring plan, finalized in December 1997, is proceeding on
schedule. Selected financial and operating data for the building products
distribution business are shown in the table below.
<TABLE>
<CAPTION>
SELECTED DISTRIBUTION DIVISION DATA
Nine months ended September 30,
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Sales $3,092 $ 3,189
Operating loss (before
net gain asset sales) (21) (68)
Net gain on asset sales 19 12
Capital expenditures 5 33
Depreciation 35 35
============================================================
</TABLE>
Georgia-Pacific Group's pulp and paper segment reported net sales of $4.3
billion and operating profits of $188 million for the nine-month period ended
September 30, 1998, compared with net sales of $4.1 billion and operating
profits of $125 million in 1997. Return on sales increased to 4.4 percent
compared with 3.0 percent for the same period a year ago, principally due to a
slight increase in average prices for almost all of the Georgia-Pacific Group's
pulp and paper products. Excluding the one-time, $24 million charge in the third
quarter of 1998 for closure of two hardwood pulp operations, return on sales
increased to 4.9 percent. Average containerboard prices for the first nine
months of 1998 were approximately 27 percent above prices in the same 1997
period, and average prices of communications papers for the first nine months of
1998 were approximately 3 percent above year ago levels. Prices for most of the
Georgia-Pacific Group's pulp and paper products declined during the third
quarter of 1998, with softening of prices in pulp, containerboard and
communication papers continuing into the fourth quarter. As a result, the
Georgia-Pacific Group expects to incur an operating loss in its pulp and paper
segment in the fourth quarter of 1998 and possibly in the first quarter of 1999.
Compared with a year ago, Georgia-Pacific Group has reduced inventories for most
pulp and paper products, incurring downtime when necessary. During the fourth
quarter of 1998, Georgia-Pacific Group expects to continue to take market-
related downtime due to continued weakness in demand and pricing for pulp and
paper, primarily stemming from market conditions in Asia. In the 1998 third
quarter, Georgia-Pacific Group shut down the hardwood pulp portion of its
operations at Port Hudson, Louisiana and Ashdown, Arkansas indefinitely. This
action and other related reductions will decrease the Group's total market pulp
production by more than 500,000 tons annually.
General corporate expense decreased to $88 million for the nine months ended
September 30, 1998 compared with $136 million in 1997. The majority of the
decrease is attributable to lower expenses for Georgia-Pacific Group's stock
compensation programs and its cash incentive compensation program.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Georgia-Pacific Group generated cash from
operations of $1.1 billion for the nine months ended September 30, 1998
compared with $879 million a year ago.
<PAGE> 41
INVESTING ACTIVITIES. Capital expenditures for property, plant and equipment
for the nine months ended September 30, 1998 were $386 million compared with
$426 million for the first nine months of 1997. Expenditures in 1998 included
$253 million in the pulp and paper segment, $103 million in the building
products segment, and $30 million of other and general corporate. Georgia-
Pacific Group expects to make capital expenditures for property, plant and
equipment of approximately $700 million in 1998, excluding the cost of any
acquisitions.
Cash paid for timber and timberlands was $370 million in the first nine months
of 1998 compared with $349 million in 1997.
On June 30, 1998, Georgia-Pacific Group completed its acquisition of CeCorr, a
leading independent producer of corrugated sheets in the United States. On June
30, 1998, the Corporation paid approximately $93 million in cash and issued
approximately 1.6 million shares of Georgia-Pacific Group stock valued at
$57.875 per share for all the outstanding shares of CeCorr. In addition the
Corporation assumed approximately $58 million of CeCorr's debt. On July 2,
1998, certain former owners of CeCorr exercised their rights to sell to the
Corporation approximately 1.1 million shares of Georgia-Pacific Group stock.
During the first nine months of 1998, the Georgia-Pacific Group received $53
million from the sales of assets, principally the sale of various distribution
facilities. During the first nine months of 1997, the Georgia-Pacific Group
received proceeds from the sale of assets of $80 million relating principally to
the sale of its Martell operations.
In 1998, 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.
FINANCING ACTIVITIES. The Corporation's total debt was $5.6 billion and $5.5
billion at September 30, 1998 and December 31, 1997, respectively. At September
30, 1998 and December 31, 1997, $4.6 billion and $4.5 billion, respectively, of
such total debt was Georgia-Pacific Group's debt and $988 million and $971
million, respectively, was The Timber Company's debt.
In May 1998, the Corporation issued $300 million of 7.25% Debentures due June 1,
2028.
In conjunction with the sale of the Corporation's Martell, California,
operations in March, 1997, the Corporation received notes receivable from the
purchaser in the amount of $270 million for the Martell timberlands. In April
1997, the Corporation monetized these notes receivable through the issuance of
notes payable in a private placement. These proceeds were used to reduce the
Corporation's debt. Proceeds from the notes receivable will be used to fund
payments required for the notes payable, which are classified as `Other long-
term liabilities' on the Corporation's balance sheets.
At September 30, 1998, the Corporation had outstanding borrowings of $659
million under certain Industrial Revenue Bonds. Approximately $19 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 sheets.
The Corporation has a $1.5 billion unsecured revolving credit facility which is
used for direct borrowings and as support for commercial paper and other short-
term borrowings. As of September 30, 1998, $571 million of committed credit was
available in excess of all short-term borrowings outstanding under or supported
by the facility.
The Corporation's senior management establishes parameters of the Corporation's
financial risk. Hedging interest-rate exposure through the use of swaps and
options, and hedging foreign exchange exposure through the use of forward
contracts, are specifically contemplated to manage risk in keeping with
management policy. Derivative instruments such as swaps, forwards, option or
futures, which are based directly or indirectly upon interest rates, currencies,
equities and commodities, may be used by the Corporation to manage and reduce
the risk inherent in price, currency and interest rate fluctuations. There have
been no significant changes to reported market risk since December 31, 1997.
The Corporation does not utilize derivatives for speculative purposes.
Derivatives are transaction-specific so that a specific debt instrument,
contract, invoice or transaction determines the amount, maturity and other
specifics of the hedge. Counterparty risk is limited to institutions with long-
term debt ratings of A or better.
At September 30, 1998, the Corporation's weighted average interest rate on its
total debt was 7.2% including the accounts receivable sale program and
outstanding interest rate exchange agreements. At September 30, 1998, these
interest rate exchange agreements effectively converted $456 million of floating
rate obligations with a weighted average interest rate of 5.7% to fixed rate
obligations with an average effective interest rate of 6.8%. These agreements
have a weighted average maturity of approximately 3.7 years. As of September
30, 1998, the Corporation's total floating rate debt, including the accounts
receivable sale program, exceeded related interest rate exchange agreements by
$1.4 billion.
The Corporation's accounts receivable sale program has been extended to May
1999.
<PAGE> 42
The Corporation also enters into foreign currency exchange agreements, the
amounts of which were not material to the consolidated financial position of the
Corporation at September 30, 1998.
As of September 30, 1998, 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
During the first nine months of 1998, Georgia-Pacific Group purchased on the
open market 4,793,500 shares of Georgia-Pacific Group stock at an aggregate
price of $277 million, of which 3,585,700 shares were held as treasury stock
at September 30, 1998 and 284,300 shares were purchased during September, 1998
and settled after September 30, 1998.
OTHER. In June 1997, the FASB issued SFAS No. 130 that establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. The Corporation adopted SFAS No.
130 in the 1998 first quarter.
Also in June 1997, the FASB issued SFAS No. 131 which requires companies to
determine segments based on how management makes decisions about allocating
resources to segments and measuring their performance. Disclosures for each
segment are similar to those required under current standards, with the addition
of certain quarterly disclosure requirements. SFAS No. 131 also requires
entity-wide disclosure about the products and services an entity provides, the
countries in which it holds material assets and reports material revenues, and
its significant customers. The Corporation will be required to adopt the new
standard in 1998; prior period information will be restated. Management is
evaluating the effect of this statement on reported segment information.
In February 1998, the FASB issued SFAS No. 132 which requires additional pension
related disclosures. The objective of the statement is to provide sufficient
information to understand the changes in benefit obligations or to analyze the
quality of earnings of the Corporation. SFAS No. 132 requires disclosure of
additional information about the changes in the benefit obligation and the fair
value of plan assets during the period, including unrecognized gains and losses.
The Corporation will be required to present this additional disclosure in the
1998 year end statements.
In June 1998, the FASB issued SFAS No. 133, `Accounting for Derivative
Instruments and Hedging Activities,' that establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities on the
balance sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Corporation will be required to
adopt the new statement in 2000; early adoption is encouraged, no prior period
restatement is permitted. Management is evaluating the effect of this statement
on the Corporation's derivative instruments primarily interest rate swaps and
foreign currency forward contracts. The impact of adjustment to fair value is
not expected to be material.
The Georgia-Pacific Group is working to resolve the effects of the Year 2000
problem on its information systems, including the operating systems used in its
manufacturing operations as well as its facilities systems. The Year 2000
problem, which is common to most businesses, concerns the inability of such
systems to properly recognize and process dates and date-sensitive information
on and beyond January 1, 2000. In 1996, Georgia-Pacific Group began a company-
wide assessment of the vulnerability of its systems to the Year 2000 problem.
Based on such assessment, Georgia-Pacific Group has developed a Year 2000
compliance plan, under which all key information systems are being tested, and
non-compliant software or technology is being modified or replaced. Georgia-
Pacific Group is also surveying the Year 2000 compliance status and
compatibility of customers' and suppliers' systems which interface with Georgia-
Pacific Group's systems or could otherwise impact Georgia-Pacific Group's
operations.
<PAGE> 43
Georgia-Pacific Group completed an inventory of its information technology
systems and processes in 1997 and currently expects to have most of the
necessary revisions to such systems and processes completed by year-end 1998,
with a few systems completing revisions in 1999. Testing and verification of
such systems and processes for Year
2000 compliance will be completed during 1999. Earlier this year,
Georgia-Pacific Group completed
an inventory of the process control systems and embedded chips used in its
manufacturing operations and currently believes that only a small percentage of
such
systems and chips could be subject to Year 2000 problems. Georgia-Pacific Group
currently expects to have these affected manufacturing systems replaced or
corrected in mid-year 1999, and to complete testing and verification of such
systems for Year 2000 compliance during 1999. Since completion of these
inventories, some additional systems and devices have been discovered and
added to the inventory list for testing and, if necessary, remediation. Due to
continuing system acquisitions and the number and complexity of existing
systems, the Georgia-Pacific Group expects some continuing additions of
non-critical systems to the
inventory list. The Georgia-Pacific Group has contacted each of its critical
suppliers to ascertain their respective levels of readiness to address and
remediate Year 2000 problems, and is currently reviewing their responses. The
Georgia-Pacific Group is in the process of identifying critical customers and
also intends to communicate with each of them to ascertain their respective
levels of Year 2000 readiness.
While Georgia-Pacific Group currently believes that it will be
able to modify or replace its affected systems in time to minimize any
detrimental effects on its operations, failure to do so, or the failure of
Georgia-Pacific Group's major customers and suppliers to modify or replace their
affected systems, could have a material adverse impact on Georgia-Pacific
Group's results of operations, liquidity or consolidated financial position in
the future. The most reasonably likely worst case scenario of failure by
Georgia-Pacific Group or its customers or suppliers to resolve the Year 2000
problem would be a temporary slowdown or cessation of manufacturing operations
at one or more of Georgia-Pacific Group's facilities and a temporary inability
on the part of Georgia-Pacific Group to timely process orders and billings and
to deliver finished products to customers. Georgia-Pacific Group's individual
business units are currently identifying and considering various contingency
options, including identification of alternate suppliers, vendors and service
providers, and manual alternatives to systems operations, which will allow them
to minimize the risks of any unresolved Year 2000 problems on their operations
and to minimize the effect of any unforeseen Year 2000 failures.
Georgia-Pacific Group currently estimates the incremental cost of the work
needed to resolve the Year 2000 problem at approximately $60 million (including
approximately $10 million of capital costs), of which approximately $8.9 million
has been incurred to date. In addition, Georgia-Pacific Group expects to incur
internal costs totaling approximately $20 million related to the Year 2000
problem, of which approximately $8.6 million has been incurred to date. The bulk
of the incremental costs relate to replacement or modification of affected
process control systems in the Corporation's manufacturing operations and is
projected to be incurred in late 1998 through 1999. The majority of the
internal costs relate to code remediation and testing and is projected to be
incurred in 1998 through 1999. These incremental and internal costs will be
expensed as incurred, except for new systems purchased that will be capitalized
in accordance with corporate policy. Such costs may be material to the
Corporation's results of operations in one or more fiscal quarters or years, but
will not have a material adverse effect on the long-term results of operations,
liquidity or consolidated financial position of the Corporation.
RELATED PARTY TRANSACTIONS
CHANGES TO THE SUPPLY AGREEMENT. During the second quarter of 1998, Georgia-
Pacific Group and The Timber Company revised the operating policy, which they
had entered into last fall, with respect to sales of timber and wood fiber.
These revisions arose from sharp changes in the prices of timber and wood fiber
from the first quarter to the second quarter of 1998, a significant decrease in
the volume of timber purchased by Georgia-Pacific Group in the second quarter,
and other issues in the policy. At the time these revisions were negotiated,
The Timber Company sold a timber deed to Georgia-Pacific Group covering timber
and wood fiber having a value of approximately $23 million, and Georgia-Pacific
Group made a one-time $3 million payment to The Timber Company for second
quarter adjustments due under the revised policy.
Under the revised policy, beginning July 1, 1998, the prices for southern timber
and wood fiber sold by The Timber Company are adjusted monthly, rather than
quarterly, and represent the average of prices paid by Georgia-Pacific Group for
timber purchased from third parties in a particular forest, and prices received
by The Timber Company for timber sold to third parties from the same forest,
over the most recent three-months period. This change is intended to make prices
for timber and wood fiber sold by The Timber Company to Georgia-Pacific Group
more quickly reflect changes in market prices. In addition, premiums charged by
The Timber Company for various types of wood have been reduced, and Georgia-
Pacific Group has agreed to purchase, each quarter, in two key Southern forests,
20 percent of the annual volume of timber and wood fiber it has committed to
purchase from The Timber Company during that year. The revised policy reduces
the volume of timber which Georgia-Pacific Group can purchase in the same two
forests from 80 percent to 70 percent of The Timber Company's annual harvest in
those forests, and also reduces Georgia-Pacific Group's minimum annual purchase
obligation in those forests from 60 percent to 50 percent of the annual harvest
in 1999-2000.
These changes are intended to cause prices paid by Georgia-Pacific Group to more
quickly reflect market prices in particular forests, to allow Georgia-Pacific
Group more flexibility in purchasing wood from third parties, and to allow The
Timber Company greater flexibility in the timing of sales of its annual harvest
on the open market. The revised policy also contains additional provisions
which resolve issues related to certain operating practices of The Timber
Company and Georgia-Pacific Group.
REFER TO THE "CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995" ON PAGE 23 OF THIS
FORM 10-Q.
For a discussion of commitments and contingencies refer to Note 12 of the Notes
to Combined Financial Statements.
<PAGE> 44
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF INCOME (Unaudited)
Georgia-Pacific Corporation--The Timber Company
Three months Nine months
ended September 30, ended September 30,
-------------- --------------
(In millions, except per share amounts) 1998 1997 1998 1997
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Net sales
Timber-Georgia-Pacific Group $ 105 $ 109 $ 308 $ 323
Timber-third parties
Delivered 17 31 42 65
Stumpage 12 2 39 10
Other 9 10 18 22
- -----------------------------------------------------------------------
Total net sales 143 152 407 420
- -----------------------------------------------------------------------
Costs and expenses
Cost of sales, excluding depreciation
and cost of timber harvested
shown below 40 40 82 102
Selling, general and
administrative 8 7 26 28
Depreciation and cost of timber
harvested 11 11 32 36
Interest 17 19 52 64
Other income - - - (114)
- -----------------------------------------------------------------------
Total costs and expenses 76 77 192 116
- -----------------------------------------------------------------------
Income before income taxes
and extraordinary item 67 75 215 304
Provision for income taxes 26 30 84 119
- -----------------------------------------------------------------------
Income before extraordinary item 41 45 131 185
Extraordinary item - loss from early
retirement of debt, net of taxes - - (2) -
- -----------------------------------------------------------------------
Net income $ 41 $ 45 $ 129 $ 185
==========================================================================
The Timber Company
Basic per common share:
Income before extraordinary item $ 0.46 $ 1.43
Extraordinary item - loss from early
retirement of debt, net of taxes - (0.02)
- -----------------------------------------------------------------------
Net income $ 0.46 $ 1.41
- -----------------------------------------------------------------------
Diluted per common share:
Income before extraordinary item $ 0.46 $ 1.42
Extraordinary item - loss from early
retirement of debt, net of taxes - (0.02)
- -----------------------------------------------------------------------
Net income $ 0.46 $ 1.40
==========================================================================
Average number of shares outstanding:
Basic 89.6 91.4 Diluted 89.9 92.0
==========================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 45
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF CASH FLOWS (Unaudited)
Georgia-Pacific Corporation--The Timber Company
Nine months
ended September 30,
------------------
(In millions) 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 129 $ 185
Adjustments to reconcile net income to cash
provided by operations:
Depreciation 4 3
Cost of timber harvested 28 33
Other income - (114)
Deferred income taxes 3 62
Gain on sales of assets (14) (6)
Change in other assets and other
long-term liabilities 22 5
- -----------------------------------------------------------------------
Cash provided by operations 172 168
- -----------------------------------------------------------------------
Cash flows from investing activities
Property, plant and equipment investments (3) -
Timber and timberlands purchases (49) (36)
Proceeds from sales of assets 36 276
- -----------------------------------------------------------------------
Cash provided by (used for) investing activities (16) 240
- -----------------------------------------------------------------------
Cash flows from financing activities
Share repurchases (104) -
Additions to (repayments of) long-term debt 17 (339)
Cash dividends paid (69) (69)
- -----------------------------------------------------------------------
Cash used for financing activities (156) (408)
- -----------------------------------------------------------------------
Increase in cash - -
Balance at beginning of period - -
- -----------------------------------------------------------------------
Balance at end of period $ - $ -
=======================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 46
<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS
Georgia-Pacific Corporation--The Timber Company
September 30,December 31,
(In millions) 1998 1997
- ----------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Timber and timberlands
Timberlands $ 301 $ 302
Fee timber 587 608
Reforestation 211 182
Other 30 30
- ----------------------------------------------------------------------------
Total timber and timberlands 1,129 1,122
- ----------------------------------------------------------------------------
Machinery and equipment, less accumulated
depreciation of $43 and $42, respectively 22 20
- ----------------------------------------------------------------------------
Investment in real estate held for
development and sale - 14
- ----------------------------------------------------------------------------
Other assets 23 15
- ----------------------------------------------------------------------------
Total assets $ 1,174 $ 1,171
============================================================================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Debt $ 988 $ 971
- ----------------------------------------------------------------------------
Other liabilities 37 9
- ----------------------------------------------------------------------------
Deferred income tax liabilities 243 240
- ----------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity (94) (49)
- ----------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,174 $ 1,171
============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 47
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
GEORGIA-PACIFIC CORPORATION--THE TIMBER COMPANY
SEPTEMBER 30, 1998
1. PRINCIPLES OF PRESENTATION. The financial statements include the
combined accounts of operations of The Timber Company. All significant
intercompany balances and transactions are eliminated in consolidation.
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 Timber Company'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 item discussed in Note 3 below. Certain 1997 amounts have been
reclassified to conform with the 1998 presentation. The Timber Company's
combined financial statements should be read in conjunction with the
Corporation's consolidated financial statements and Georgia-Pacific
Group's combined financial statements.
2. OTHER INCOME. The 1997 first quarter sale of the Corporation's Martell
operations, which included a sawmill, particleboard mill and timberlands,
generated a pretax gain of $128 million. Of this amount, a pretax gain
of $114 million ($71 million after-tax) was recorded by The Timber
Company for the sale of the timberlands.
3. EXTRAORDINARY ITEM. The Corporation redeemed approximately $600 million
of its outstanding debt during the first half of 1998. As a result, an
after-tax extraordinary charge of $2 million (two cents per share) was
allocated to The Timber Company based on the ratio of The Timber
Company's debt to the Corporation's total debt.
4. EARNINGS PER SHARE. The Corporation's common stock was redesignated in
December 1997 to reflect separately the performance of the Corporation's
pulp, paper and building products businesses, which are now known as
Georgia-Pacific Group. A separate class of common stock was distributed
to reflect the performance of the Corporation's timber operating group,
which is now known as The Timber Company. Basic earnings per share is
computed based on net income and the weighted average number of common
shares outstanding. Diluted earnings per share reflect the annual
issuance of common shares under long-term incentive stock option and
stock purchase plans. The computation of diluted earnings per share does
not assume conversion or exercise of securities that would have an
antidilutive effect on earnings per share.
In February 1997, the FASB issued SFAS No. 128, which specifies the
computation, presentation and disclosure requirements for earnings per
share. The Timber Company adopted SFAS No. 128 in the 1997 fourth
quarter.
<PAGE> 48
The following table provides earnings and per share data for The Timber
Company for 1998.
<TABLE>
<CAPTION>
Three months Nine months
ended September 30,ended September 30,
-----------------------------------------
(In millions, except per share amounts) 1998 1998
---------------------------------------------------------------
<S> <C> <C>
Basic and diluted income available to
shareholders (numerator):
Income before extraordinary item $ 41 $ 131
Extraordinary item, net of taxes - (2)
---------------------------------------------------------------
Net income $ 41 $ 129
================================================================
Shares (denominator):
Average shares outstanding 89.6 91.4
Dilutive securities:
Incentive plans and option plans 0.3 0.6
Employee stock purchase plans - -
---------------------------------------------------------------
Total assuming conversion 89.9 92.0
================================================================
Basic per share amounts:
Income before extraordinary item $ 0.46 $ 1.43
Extraordinary item, net of taxes - (0.02)
---------------------------------------------------------------
Net income $ 0.46 $ 1.41
---------------------------------------------------------------
Diluted per share amounts:
Income before extraordinary item $ 0.46 $ 1.42
Extraordinary item, net of taxes - (0.02)
---------------------------------------------------------------
Net income $ 0.46 $ 1.40
================================================================
</TABLE>
<PAGE> 49
5. COMPREHENSIVE INCOME. In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components. The
Timber Company adopted SFAS No. 130 in the 1998 first quarter. For the
three months ended September 30, 1998 and 1997, The Timber Company's
total comprehensive income was $41 million and $45 million, respectively.
For the nine months ended September 30, 1998 and 1997, The Timber
Company's total comprehensive income was $129 million and $185 million,
respectively.
6. SUPPLEMENTAL DISCLOSURES - STATEMENTS OF CASH FLOWS. In conjunction with
the sale of the Corporation's Martell, California, operations in March,
1997, the Corporation received notes receivable from the purchaser in the
amount of $270 million for the timberlands of The Timber Company. In April
1997, the Corporation monetized these notes receivable through the issuance
of notes payable in a private placement. These proceeds were used to
reduce The Timber Company's portion of the Corporation's debt. Proceeds
from the notes receivable will be used to fund payments required for the
notes payable, which are classified as `Other long-term liabilities'' on
the Corporation's balance sheets.
7. DEBT. In May 1998, the Corporation issued $300 million of 7.25%
Debentures due June 1, 2028.
8. SHARE REPURCHASES. During the first nine months of 1998, The Timber
Company purchased on the open market 4,860,200 shares of The Timber
Company stock at an aggregate price of $105 million, of which 4,828,900
were held as treasury stock at September 30, 1998 and 31,300 shares were
purchased during September, 1998 and settled after September 30, 1998..
9. COMMITMENTS AND CONTINGENCIES. The Corporation is a party to various legal
proceedings incidental to the businesses of the Georgia-Pacific Group and
The Timber Company and is subject to a variety of environmental and
pollution control laws and regulations in all jurisdictions in which it
operates. As is the case with other companies in similar industries, the
Corporation faces exposure from actual or potential claims and legal
proceedings involving environmental matters. Liability insurance in effect
during the last several years provides very limited coverage for
environmental matters. The management of The Timber Company believes that
the Corporation has established adequate reserves for probable losses with
respect to such environmental matters and legal proceedings. However,
holders of The Timber Company stock are shareholders of the Corporation and
are subject to all of the risks associated with an investment in the
Corporation, including the environmental matters and legal proceedings
involving the Georgia-Pacific Group discussed below.
COMMITMENTS AND CONTINGENCIES WITH RESPECT TO THE TIMBER COMPANY. The
Timber Company is subject to various legal proceedings and claims that
arise in the ordinary course of its business. Although the ultimate
outcome of these matters and legal proceedings cannot be determined with
certainty, based on presently available information, management of the
Corporation believes that the final outcome of such matters and legal
proceedings could be material to the operating results of The Timber
Company in any given quarter or year, but will not have a material adverse
effect on the long-term results of operations, liquidity or financial
position of The Timber Company.
COMMITMENTS AND CONTINGENCIES WITH RESPECT TO GEORGIA-PACIFIC GROUP. The
following sets forth legal proceedings to which the Corporation is a party
and claims related to the operations of the Georgia-Pacific Group.
The Corporation is involved in environmental remediation activities at
approximately 170 sites, both owned by the Corporation and owned by others,
where it has been notified that it is or may be a potentially responsible
party under the Comprehensive Environmental Response, Compensation and
Liability Act or similar state "superfund" laws. Of the known sites in
which it is involved, the Corporation estimates that approximately 47
percent are being investigated, approximately 25 percent are being
remediated and approximately 28 percent are being monitored (an activity
that occurs after either site investigation or remediation has been
completed). The ultimate costs to the Corporation for the investigation,
remediation and monitoring of many of these sites cannot be predicted with
certainty, due to the often unknown magnitude of the pollution or the
necessary cleanup, the varying costs of alternative cleanup methods, the
amount of time necessary to accomplish such cleanups, the evolving nature
of cleanup technologies and government regulations, and the inability to
determine the Corporation's share of multiparty cleanups or the extent to
which contribution will be available from other parties. The Corporation
has established reserves for environmental remediation costs for these
sites in amounts that it believes are probable and reasonably estimable.
Based on analysis of currently available information and previous
experience with respect to the cleanup of hazardous substances, the
Corporation believes 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
$60 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.
<PAGE> 50
The Corporation and many other companies are defendants in suits brought in
various courts around the nation by plaintiffs who allege that they have
suffered personal injury as a result of exposure to asbestos-containing
products. These suits allege a variety of lung and other diseases based on
alleged exposure to products previously manufactured by the Corporation.
In many cases, the plaintiffs are unable to demonstrate that they have
suffered any compensable loss as a result of such exposure.
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 to date to defend and
settle these cases to date have been substantially covered by product
liability insurance. The Corporation is currently defending claims of
approximately 69,000 such plaintiffs and anticipates that additional suits
will be filed against it over the next several years. The Corporation has
insurance available in amounts that it believes are adequate to cover
substantially all of the reasonably foreseeable damages and settlement
amounts arising out of claims and suits currently pending. The Corporation
has further insurance coverage available for the disposition of suits that
may be filed against it in the future, but there can be no assurance that
the amounts of such insurance will be adequate to cover all future claims.
The Corporation has established reserves for liabilities and legal defense
costs it believes are probable and reasonably estimable with respect to
pending suits and claims and a receivable for expected insurance
recoveries.
The Corporation has been defending an action in Alabama state court brought
to recover damages on behalf of a class of all persons currently owning
structures in the United States on which allegedly defective hardboard
siding manufactured by the Corporation after January 1, 1980 has been
installed. On January 9, 1998, the court approved a settlement pursuant to
which the Corporation will establish a procedure for resolving product
warranty claims on certain of the Corporation's hardboard siding products,
and will pay $3 million in legal fees to plaintiffs' counsel, plus expenses
not to exceed $200,000. In addition, plaintiffs' counsel will be entitled
to additional fees based upon a percentage of claims paid by the
Corporation. The last date for filing claims under the settlement was
August 18, 1998. The Corporation has previously established financial
reserves it believes to be adequate to pay eligible claims and legal fees.
In May 1997, the Corporation and nine other companies were named as
defendants in a suit brought by the Attorney General of the State of
Florida alleging that they engaged in a conspiracy to fix the prices of
sanitary commercial paper products, such as towels and napkins, in
violation of federal and state laws. Approximately 45 similar suits have
been filed by private plaintiffs in federal courts in California, Florida,
Georgia and Wisconsin, and in the state courts of California, Wisconsin,
Minnesota and Tennessee. On October 15, 1997, the Federal Judicial Panel
on Multi-District Litigation consolidated all federal court cases in the
federal district court in Gainesville, Florida. On July 24, 1998, the
court certified the suit as a class action consisting of non-governmental
direct purchasers of the defendants' products. The defendants have asked
the court to certify this decision for immediate appeal. The Corporation
has denied that it has engaged in any of the illegal conduct alleged in
these cases and intends to defend itself vigorously.
The Corporation's facility in Port Hudson, Louisiana has notified the
State of Louisiana of the emitting of noncondensable gases in violation of
its air permit. The State has proposed assessment of a penalty against the
Corporation of $425,000. The Corporation is awaiting receipt of definitive
documentation from the State, and has made no decision on whether or not to
appeal the proposed assessment.
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.
<PAGE> 51
10. RELATED PARTY TRANSACTIONS. During the first six months of 1998, The
Timber Company sold timber deeds to Georgia-Pacific Group. The Timber
Company recognizes revenues and earnings from these related party timber
deed contracts as the timber is cut by the Georgia-Pacific Group. Had The
Timber Company recognized revenues and earnings on these related party
timber deed contracts at the time of the agreement (which is the accounting
policy for timber deed sales to third parties), pro forma net sales,
depreciation and cost of timber harvested, income before income taxes and
extraordinary item, net income and basic and diluted earnings per share
would have been as follows:
<TABLE>
<CAPTION>
Georgia-Pacific Corporation--The Timber Company
Three months ending September 30, 1998
(In millions, except per share amounts) As ReportedPro forma (a)
---------------------------------------------------------------
<S> <C> <C>
Net Sales $ 143 $ 133
Depreciation and cost of timber harvested 11 10
Income before income taxes and
extraordinary item 67 58
Net income 41 35
Basic and diluted earnings per share 0.46 0.39
============================================================
Nine months ending September 30, 1998
(In millions, except per share amounts) As ReportedPro forma (a)
---------------------------------------------------------------
<S> <C> <C>
Net Sales $ 407 $ 421
Depreciation and cost of timber harvested 32 34
Income before income taxes and
extraordinary item 215 227
Net income 129 136
Basic earnings per share 1.41 1.49
Diluted earnings per share 1.40 1.48
============================================================
</TABLE>
(a) Reported on a pro forma basis as if The Timber Company had recognized
revenues and earnings on timber deed sales to Georgia-Pacific Group at the
time of the contract, which is the accounting treatment utilized in the
case of timber deeds sold to third parties.
During the second quarter of 1998, Georgia-Pacific Group and The Timber
Company revised the operating policy, which they had entered into last
fall, with respect to sales of timber and wood fiber. These revisions
arose from sharp changes in the prices of timber and wood fiber from the
first quarter to the second quarter of 1998, a significant decrease in the
volume of timber purchased by Georgia-Pacific Group in the second quarter,
and other issues in the policy. At the time these revisions were
negotiated, The Timber Company sold a timber deed to Georgia-Pacific Group
covering timber and wood fiber having a value of approximately $23 million,
and Georgia-Pacific Group made a one-time $3 million payment to The Timber
Company for second quarter adjustments due under the revised policy.
<PAGE> 52
Under the revised policy, beginning July 1, 1998, the prices for southern
timber and wood fiber sold by The Timber Company are adjusted monthly,
rather than quarterly, and represent the average of prices paid by Georgia-
Pacific Group for timber purchased from third parties in a particular
forest, and prices received by The Timber Company for timber sold to third
parties from the same forest, over the most recent three-months period.
This change is intended to make prices for timber and wood fiber sold by
The Timber Company to Georgia-Pacific Group more quickly reflect changes in
market prices. In addition, premiums charged by The Timber Company for
various types of wood have been reduced, and Georgia-Pacific Group has
agreed to purchase, each quarter, in two key Southern forests, 20 percent
of the annual volume of timber and wood fiber it has committed to purchase
from The Timber Company during that year. The revised policy reduces the
volume of timber which Georgia-Pacific Group can purchase in the same two
forests from 80 percent to 70 percent of The Timber Company's annual
harvest in those forests, and also reduces Georgia-Pacific Group's minimum
annual purchase obligation in those forests from 60 percent to 50 percent
of the annual harvest in 1999-2000.
These changes are intended to cause prices paid by Georgia-Pacific Group to
more quickly reflect market prices in particular forests, to allow Georgia-
Pacific Group more flexibility in purchasing wood from third parties, and
to allow The Timber Company greater flexibility in the timing of sales of
its annual harvest on the open market. The revised policy also contains
additional provisions which resolve issues related to certain operating
practices of The Timber Company and Georgia-Pacific Group.
11. SUBSEQUENT EVENT. In September, 1998, The Timber Company reached an
agreement to sell approximately 61,000 acres of its West Virginia
timberland holdings to The Forestland Group, LLC. The sale is expected to
close in the fourth quarter of 1998.
<TABLE>
<CAPTION>
SELECTED COMBINED SALES DATA (Unaudited)
Georgia-Pacific Corporation--The Timber Company
Three months Nine months
ended September 30, ended September 30,
-------------- --------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VOLUME (in thousand tons)
Southern softwood sawtimber 1,506 1,432 4,376 4,584
Western softwood sawtimber 491 457 1,260 1,191
Softwood pulpwood 1,208 1,223 3,195 3,874
Hardwood sawtimber 139 162 297 310
Hardwood pulpwood 665 827 1,601 2,000
- --------------------------------------------------------------------------------
Total volume 4,009 4,101 10,729 11,959
===============================================================================
SELLING PRICES (per ton)
Southern softwood sawtimber $ 48 $ 46 $ 51 $ 46
Western softwood sawtimber 69 80 71 77
Softwood pulpwood 12 17 15 15
Hardwood sawtimber 41 59 37 50
Hardwood pulpwood 10 12 11 11
- --------------------------------------------------------------------------------
Weighted average price $ 33 $ 35 $ 36 $ 35
===============================================================================
</TABLE>
<PAGE> 53
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH 1997
The Timber Company reported net sales of approximately $143 million for the
three months ended September 30, 1998 and $152 million for the same period in
1997. Earnings before interest and taxes decreased by $10 million to $84
million in the third quarter of 1998 compared with $94 million in the same
period of 1997. The 1998 third quarter results included a $1.4 million write-
off for the loss of pre-merchantable timber destroyed by forest fires in Florida
in June 1998. In addition, the pre-tax impact from reduced selling prices for
timber salvaged from these fires is estimated to be approximately $5 million in
the third quarter of 1998. The decrease in operating profits was primarily the
result of approximately 14 percent lower selling prices of Western sawtimber
compared to the third quarter of 1997, due to declining demand for export-grade
logs to Asia. Additionally, softwood pulpwood prices declined approximately 24
percent, excluding the impact of the Florida fires, as dry weather improved
logging conditions across the South. No significant rebound in pulpwood prices
are anticipated in the near term.
Interest expense declined 11 percent to $17 million in the 1998 third quarter,
compared with $19 million in the 1997 third quarter. This decline was due
primarily to a lower level of debt resulting from the application of the
proceeds from the sale of Martell timberlands in April, 1997 to pay down debt.
Net income for the 1998 third quarter was $41 million compared with $45 million
in 1997. The Timber Company recognizes revenues and earnings from related party
timber deed contracts as the timber is cut by the Georgia-Pacific Group. Had
The Timber Company recognized revenues and earnings on these related party
timber deed contracts at the time of the agreement (which is the accounting
policy for timber deed sales to third parties), pro forma net income for the
1998 third quarter would have been $35 million. Pro forma net income includes
earnings from timber deeds sold to and paid for by Georgia-Pacific Group earlier
in 1998, but not harvested as of the end of the quarter, which would have been
included in earnings had they been sold to a third party. Timber deeds sold to
Georgia-Pacific Group will be harvested within 12 months.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH 1997
The Timber Company reported net sales of approximately $407 million for the nine
months ended September 30, 1998 and $420 million for the same period in 1997.
Excluding the gain on the Martell sale, earnings before interest and taxes
increased by $13 million to $267 million for the nine months ended September 30,
1998, compared with $254 million in 1997, despite the reduction in 1998 third
quarter earnings related to the Florida forest fires. This increase was
primarily the result of a significant increase in Southern sawtimber prices, up
approximately 13 percent (excluding the impact of the Florida fires), most of
which took place in the first quarter of 1998 due to extremely wet weather
conditions, offset somewhat by a 10 percent decrease in total timber volumes
sold over the same period in 1997.
Interest expense declined by 19 percent to $52 million in the 1998 first nine
months, compared with $64 million in the 1997 first nine months. This decline
was due primarily to a lower level of debt resulting from the application of the
proceeds from the sale of Martell timberlands in April, 1997 to pay down debt.
Net income for the nine months ended September 30, 1998 was $129 million
compared with $114 million in 1997 excluding a net after-tax gain of $71 million
from the sale of 127,000 acres of timberlands located near Martell,
California.$1. The 1998 results included an after-tax extraordinary charge of $2
million for the early retirement of debt. Pro forma net income for the nine
months ended September 30, 1998 was $136 million.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Timber Company generated cash from operations of $172
million during the first nine months ended September 30, 1998 compared with $168
million a year ago.
<PAGE> 54
INVESTING ACTIVITIES. Expenditures for the nine months ended September 30, 1998
were $52 million, which included $49 million for timber and timberlands and $3
million for capital. The Timber Company expects to spend approximately $50
million on timber and timberlands in 1998 without considering the cost of any
acquisitions.
During the first nine months of 1998, The Timber Company received $36 million in
proceeds from the sale of assets, principally real estate development properties
located in South Carolina and Florida. On March 31, 1997, the Corporation
completed the sale of its Martell, California, timberlands to Sierra Pacific
Industries for $270 million. These proceeds were used to repay outstanding
debt. (See further discussion in Financing Activities below.)
In September, 1998, The Timber Company reached an agreement to sell
approximately 61,000 acres of its West Virginia timberland holdings to The
Forestland Group, LLC. The sale is expected to close in the fourth quarter of
1998.
In 1998, The Timber Company 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.
FINANCING ACTIVITIES. During the first nine months of 1998, The Timber Company
paid dividends of $69 million and repurchased shares for $104 million.
Additionally, The Timber Company increased debt by $17 million.
The Corporation's total debt was $5.6 billion and $5.5 billion at September 30,
1998 and December 31, 1997, respectively. At September 30, 1998 and December
31, 1997, $4.6 billion and $4.5 billion, respectively, of such total debt was
Georgia-Pacific Group's debt and $988 million and $971 million, respectively,
was The Timber Company's debt.
In May 1998, the Corporation issued $300 million of 7.25% Debentures due June 1,
2028.
In conjunction with the sale of the Corporation's Martell, California,
operations in March, 1997, the Corporation received notes receivable from the
purchaser in the amount of $270 million for the Martell timberlands. In April
1997, the Corporation monetized these notes receivable through the issuance of
notes payable in a private placement. These proceeds were used to reduce the
Corporation's debt. Proceeds from the notes receivable will be used to fund
payments required for the notes payable, which are classified as `Other long-
term liabilities' on the Corporation's balance sheets.
At September 30, 1998, the Corporation had outstanding borrowings of $659
million under certain Industrial Revenue Bonds. Approximately $19 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 sheets.
The Corporation has a $1.5 billion unsecured revolving credit facility which is
used for direct borrowings and as support for commercial paper and other short-
term borrowings. As of September 30, 1998, $571 million of committed credit was
available in excess of all short-term borrowings outstanding under or supported
by the facility.
The Corporation's senior management establishes parameters of the Corporation's
financial risk. Hedging interest-rate exposure through the use of swaps and
options, and hedging foreign exchange exposure through the use of forward
contracts, are specifically contemplated to manage risk in keeping with
management policy. Derivative instruments such as swaps, forwards, option or
futures, which are based directly or indirectly upon interest rates, currencies,
equities and commodities, may be used by the Corporation to manage and reduce
the risk inherent in price, currency and interest rate fluctuations. There have
been no significant changes to reported market risk since December 31, 1997.
The Corporation does not utilize derivatives for speculative purposes.
Derivatives are transaction-specific so that a specific debt instrument,
contract, invoice or transaction determines the amount, maturity and other
specifics of the hedge. Counterparty risk is limited to institutions with long-
term debt ratings of A or better.
At September 30, 1998, the Corporation's weighted average interest rate on its
total debt was 7.2% including the accounts receivable sale program and
outstanding interest rate exchange agreements. At September 30, 1998, these
interest rate exchange agreements effectively converted $456 million of floating
rate obligations with a weighted average interest rate of 5.7% to fixed rate
obligations with an average effective interest rate of 6.8%. These agreements
have a weighted average maturity of approximately 3.7 years. As of September
30, 1998, the Corporation's total floating rate debt, including the accounts
receivable sale program, exceeded related interest rate exchange agreements by
$1.4 billion.
The Corporation's accounts receivable sale program has been extended to May
1999.
<PAGE> 55
The Corporation also enters into foreign currency exchange agreements, the
amounts of which were not material to the consolidated financial position of the
Corporation at September 30, 1998.
As of September 30, 1998, 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.
During the first nine months of 1998, The Timber Company purchased on the open
market 4,860,200 shares of The Timber Company stock at an aggregate price of
$105 million, of which 4,828,900 were held as treasury stock at September 30,
1998 and 31,300 shares were purchased during September, 1998 and settled after
September 30, 1998.
OTHER. In June 1997, the FASB issued SFAS No. 130 that establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. The Timber Company adopted SFAS No.
130 in 1998.
Also in June 1997, the FASB issued SFAS No. 131 which requires companies to
determine reporting segments based on the manner in which management makes
decisions about allocating resources to segments and measuring their
performance. The Timber Company will be required to adopt SFAS No. 131 in 1998,
but is not expected to be impacted significantly as The Timber Company is not
expected to have any reportable segments under SFAS No. 131.
In February 1998, the FASB issued SFAS No. 132 which requires additional pension
related disclosures. The objective of the statement is to provide sufficient
information to understand the changes in benefit obligations or to analyze the
quality of earnings of the Corporation. SFAS No. 132 requires disclosure of
additional information about the changes in the benefit obligation and the fair
value of plan assets during the period, including unrecognized gains and losses.
The Corporation will be required to present this additional information
disclosure in the 1998 year end statements.
In June 1998, the FASB issued SFAS No. 133, `Accounting for Derivative
Instruments and Hedging Activities,' that establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities on the
balance sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Corporation will be required to
adopt the new statement in 2000; early adoption is encouraged, no prior period
restatement is permitted. Management is evaluating the effect of this statement
on the Corporation's derivative instruments; primarily interest rate swaps and
foreign currency forward contracts. The impact of adjustment to fair value is
not expected to be material.
The Timber Company is working to resolve the effects of the Year 2000 problem on
its information systems. The Year 2000 problem, which is common to most
businesses, concerns the inability of such systems to properly recognize and
process dates and date-sensitive information on and beyond January 1, 2000. In
1996, the Corporation began a company-wide assessment of the vulnerability of
its systems to the Year 2000 problem. Based on such assessment, The Timber
Company has developed a Year 2000 compliance plan, under which all of its key
information systems are being tested, and non-compliant software or technology
is being modified or replaced. The Timber Company is also surveying the Year
2000 compliance status and compatibility of customers' and suppliers' systems
which interface with The Timber Company's systems or could otherwise impact The
Timber Company's operations.
The Timber Company currently expects to have most of the necessary revisions to
its systems and processes completed by 1998 with a few systems completing
revisions in 1999. Testing
and verification of such systems and processes for Year 2000 compliance will be
completed during
1999. The Timber Company has completed an inventory of the systems and embedded
chips used in its operations and currently believes that a only a small
percentage
of such systems and chips could be subject to Year 2000 problems. The Timber
Company currently expects the work needed to resolve the Year 2000 problem with
regard to its operations to be performed as part of its normal systems
maintenance and replacement practices, and does not currently expect to
accelerate its internal maintenance schedule or to incur any incremental cost
for such work. The Timber Company is in the process of identifying critical
suppliers and customers and intends to communicate with each of them to
ascertain their level of readiness to address and remediate Year 2000 problems.
The most reasonably likely worst case scenario of failure by The
Timber Company or its customers or suppliers to resolve the Year 2000 problem
would be a temporary inability on the part of The Timber Company to timely
process timber sales and billings. The Timber Company is currently identifying
and considering various contingency options, including identification of
alternate suppliers, vendors and service providers, and manual alternatives to
systems operations, which will allow it to minimize the risks of any unresolved
Year 2000 problems on its operations and to minimize the effect of any
unforeseen Year 2000 failures.
<PAGE> 56
Approximately 44,000 acres of timberlands were affected by the forest fires in
Florida in June, 1998. This acreage represents approximately eight percent of
the timberlands owned by The Timber Company in the State of Florida. The Timber
Company is salvaging useable timber and believes that the losses are likely to
impact harvest levels in 1999 and 2000.
RELATED PARTY TRANSACTIONS
CHANGES TO THE SUPPLY AGREEMENT. During the second quarter of 1998, Georgia-
Pacific Group and The Timber Company revised the operating policy, which they
had entered into last fall, with respect to sales of timber and wood fiber.
These revisions arose from sharp changes in the prices of timber and wood fiber
from the first quarter to the second quarter of 1998, a significant decrease in
the volume of timber purchased by Georgia-Pacific Group in the second quarter,
and other issues in the policy. At the time these revisions were negotiated,
The Timber Company sold a timber deed to Georgia-Pacific Group covering timber
and wood fiber having a value of approximately $23 million, and Georgia-Pacific
Group made a one-time $3 million payment to The Timber Company for second
quarter adjustments due under the revised policy.
Under the revised policy, beginning July 1, 1998, the prices for southern timber
and wood fiber sold by The Timber Company are adjusted monthly, rather than
quarterly, and represent the average of prices paid by Georgia-Pacific Group for
timber purchased from third parties in a particular forest, and prices received
by The Timber Company for timber sold to third parties from the same forest,
over the most recent three-months period. This change is intended to make prices
for timber and wood fiber sold by The Timber Company to Georgia-Pacific Group
more quickly reflect changes in market prices. In addition, premiums charged by
The Timber Company for various types of wood have been reduced, and Georgia-
Pacific Group has agreed to purchase, each quarter, in two key Southern forests,
20 percent of the annual volume of timber and wood fiber it has committed to
purchase from The Timber Company during that year. The revised policy reduces
the volume of timber which Georgia-Pacific Group can purchase in the same two
forests from 80 percent to 70 percent of The Timber Company's annual harvest in
those forests, and also reduces Georgia-Pacific Group's minimum annual purchase
obligation in those forests from 60 percent to 50 percent of the annual harvest
in 1999-2000.
These changes are intended to cause prices paid by Georgia-Pacific Group to more
quickly reflect market prices in particular forests, to allow Georgia-Pacific
Group more flexibility in purchasing wood from third parties, and to allow The
Timber Company greater flexibility in the timing of sales of its annual harvest
on the open market. The revised policy also contains additional provisions
which resolve issues related to certain operating practices of The Timber
Company and Georgia-Pacific Group.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. The statements under this
"Management's Discussion and Analysis" and other statements contained herein
that are not historical facts, including statements regarding pricing trends,
expected harvest rotations and The Timber Company's expectations regarding
resolution of issues associated with the Year 2000 problem, are forward-looking
statements (as such term is defined under the Private Securities Litigation
Reform Act of 1995) based on current expectations. In addition to the risks,
uncertainties and assumptions discussed elsewhere herein, factors that could
cause or contribute to actual results differing materially from such forward-
looking statements include the following: the effect on The Timber Company of
government, legislative and environmental restrictions; catastrophic losses from
fires, floods, windstorms, earthquakes, volcanic eruptions, insect infestations
or diseases; material variations in regional market demand for timber products;
fluctuations in interest rates; the ability of The Timber Company, and its
customers and suppliers, to timely and efficiently address the Year 2000
problem; and other risks, uncertainties and assumptions discussed in the
Corporation's Quarterly Reports on 10-Q dated March 31, 1998 and June 30, 1998,
the Corporation's Annual Report on Form 10-K for the year ended December 31,
1997, the Corporation's Registration Statement No. 333-35813 dated November 7,
1997 and the Corporation's current report on Form 8-K dated October 17, 1996.
For a discussion of commitments and contingencies refer to Note 9 of the Notes
to Combined Financial Statements.
<PAGE> 57
PART II - OTHER INFORMATION
---------------------------
GEORGIA-PACIFIC CORPORATION
SEPTEMBER 30, 1998
Item 1. Legal Proceedings
The information contained in Note 12 "Commitments and
Contingencies" of the Notes to Consolidated Financial Statements--
Georgia-Pacific Corporation, Note 12 "Commitments and
Contingencies" of the Notes to Combined Financial Statements--
Georgia-Pacific Group and Note 9 "Commitments and Contingencies" of
the Notes to Consolidated Financial Statements--The Timber Company
filed as part of this Quarterly Report on Form 10-Q is incorporated
herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3.1 Amended and Restated Articles of Incorporation, as
of April 1, 1998 (Filed as Exhibit 3.1 to the
Corporation's Form 10-Q for the quarter ended June
30, 1998, and incorporated herein by this
reference thereto).
Exhibit 3.2 Bylaws, as amended to date.
Exhibit 10.3 Amendment No. 4 (Effective January 1, 1998)
to the Key Salaried Employees Group
Insurance Plan - Post-1986 Group
(Effective January 1, 1987).
Exhibit 10.9 Amendment No. 2 to Outside Directors
Stock Plan, effective September 23, 1998.
Exhibit 10.10(i) Form of Deferral Agreement.
Exhibit 10.10(ii) Directors Deferred Compensation Plan,
effective September 22, 1998.
Exhibit 27. Financial Data Schedule.
(b) No Current Reports on Form 8-K were filed by the Corporation
during the quarter ended September 30, 1998.
<PAGE> 58
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 10, 1998 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)
<PAGE> 59
GEORGIA-PACIFIC CORPORATION
---------------------------
INDEX TO EXHIBITS
FILED WITH THE QUARTERLY REPORT
ON FORM 10-Q FOR THE
QUARTER ENDED SEPTEMBER 30, 1998
Number Description
- ------ -----------
Exhibit 3.1 Amended and Restated Articles of Incorporation, as of April
1, 1998 (Filed as Exhibit 3.1 to the Corporation's Form 10-Q
for the quarter ended June 30, 1998, and incorporated herein
by this reference thereto).
Exhibit 3.2 Bylaws, as amended to date. (1)
Exhibit 10.3 Amendment No. 4 (Effective January 1, 1998) to the Key
Salaried Employees Group Insurance Plan - Post-1986 Group
(Effective January 1, 1987). (1)
Exhibit 10.9 Amendment No. 2 to Outside Directors Stock Plan, effective
September 23, 1998. (1)
Exhibit 10.10(i) Form of Deferral Agreement. (1)
Exhibit 10.10(ii) Directors Deferred Compensation Plan, effective September
22, 1998. (1)
Exhibit 27. Financial Data Schedule. (1)
- -------------------------------
(1) Filed by EDGAR
/
REVISED AS OF SEPTEMBER 23, 1998
BYLAWS
OF
GEORGIA-PACIFIC CORPORATION
ARTICLE I
SHAREHOLDERS' MEETINGS
SECTION 1. Annual Meeting. The annual meeting of the shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held at such place, either within or
without the State of Georgia, on such date and at such time as the Board of
Directors may by resolution provide, or, if the Board of Directors fails to
provide, then such meeting shall be held at the principal executive office of
the Corporation at 11:00 A.M. on the first Tuesday in the month of May in each
year, or, if such date is a legal holiday, on the next following business day.
If an annual meeting of shareholders is not held as provided in this Section 1
of this Article I, any business, including the election of directors, that might
properly have been acted upon at such annual meeting may be acted upon at a
special meeting in lieu of the annual meeting held pursuant to these Bylaws or
held pursuant to a court order.
SECTION 2. Special Meetings. Special meetings of the shareholders may be
called at any time by the Chairman, any Vice Chairman, the President, the Chief
Executive Officer or the Board of Directors. In addition, special meetings of
shareholders shall be called by the Corporation as set forth in the
Corporation's Articles of Incorporation or upon written demand of the holders of
at least seventy-five percent (75%) of the voting power of the outstanding
capital stock of the Corporation entitled to vote on any issue proposed to be
considered at the proposed special meeting, voting as a separate voting group,
or upon the written demand of shareholders as provided in Section 1 (C) of
Article II hereof, any such written demand to be made in accordance with the
requirements of applicable law. Each special meeting shall be held at such
place, either within or without the State of Georgia, as the Board of Directors
may by resolution provide, or, if the Board of Directors fails to provide, then
such meeting shall be held at the principal executive office of the Corporation,
on such date and at such time as shall be fixed by the party calling the
meeting.
SECTION 3. Notice of Meeting. Except as may otherwise be required or
prohibited by law, written notice stating the place, day and hour of the meeting
of shareholders and, in case of a special meeting of shareholders, the purpose
or purposes for which the meeting is called, shall be delivered in the case of
an annual or special meeting of shareholders, not less than ten (10) nor more
than sixty (60) days before the date of the meeting either personally or by
mail, by the Corporation by or at the direction of the Chairman, any Vice
Chairman, the President, the Chief Executive Officer, the Secretary or the
officer or persons calling the meeting, to each shareholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, addressed to the shareholder at his or
its address as it appears on the stock transfer books of the Corporation, with
first class postage thereon prepaid, or, if the Corporation has more than 500
shareholders of record entitled to vote at the meeting and the notice is mailed
not less than thirty (30) days before the date of the meeting, with postage
thereon prepaid for any other class of United States mail.
SECTION 4. Waivers. Notwithstanding anything herein to the contrary, notice of
a meeting of shareholders need not be given to any shareholder who waives notice
of such meeting in accordance with the Georgia Business Corporation Code.
SECTION 5. Voting Group. Voting group means all shares of one or more classes
or series that are entitled to vote and be counted together collectively on a
matter at a meeting of shareholders. All shares entitled to vote generally on
the matter are for that purpose a separate voting group.
SECTION 6. Quorum. With respect to shares entitled to vote as a separate
voting group on a matter at a meeting of shareholders, the presence, in person
or by proxy, of a majority of the votes entitled to be cast on the matter by the
voting group shall constitute a quorum of that voting group for action on that
matter unless the Articles of Incorporation, any designation of a class or
series of capital stock of the Corporation, or the Georgia Business Corporation
Code provides otherwise. Once a share is represented for any purpose at a
meeting, other than solely to object to holding the meeting or to transacting
business at the meeting, it is deemed present for quorum purposes for the
remainder of the meeting and for any adjournment of the meeting unless a new
record date is or must be set for the adjourned meeting.
SECTION 7. Vote Required for Action. If a quorum exists, action on a matter
(other than the election of directors) by a voting group is approved if the
votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the Articles of Incorporation, provisions of these
Bylaws validly adopted by the shareholders, or the Georgia Business Corporation
Code requires a greater number of affirmative votes. Unless otherwise provided
in the Articles of Incorporation, directors shall be elected by a plurality of
the votes cast by the shares entitled to vote in the election of directors at a
meeting at which a quorum is present. If the Articles of Incorporation or the
Georgia Business Corporation Code provide for voting by two or more voting
groups on a matter, action on that matter is taken only when voted upon by each
of those voting groups counted separately. Action may be taken by one voting
group on a matter even though no action is taken by another voting group
entitled to vote on the matter.
SECTION 8. Voting of Shares. Unless the Articles of Incorporation, any
designation of a class or series of capital stock of the Corporation, or the
Georgia Business Corporation Code provides otherwise, each outstanding share
having voting rights shall be entitled to one vote on each matter submitted to a
vote at a meeting of shareholders. Voting on all matters shall be by voice vote
or by show of hands unless any qualified voter, prior to the voting on any
matter, demands vote by ballot, in which case each ballot shall state the name
of the shareholder voting and the number of shares voted by him, and if the
ballot be cast by proxy, it shall also state the name of the proxy.
SECTION 9. Proxies. A shareholder entitled to vote may vote in person or by
proxy pursuant to an appointment of proxy executed in writing by the shareholder
or by his or its attorney in fact. An appointment of proxy shall be valid for
only one meeting to be specified therein, and any adjournments of such meeting,
but shall not be valid for more than eleven (11) months unless expressly
provided therein. Appointments of proxy shall be dated and filed with the
records of the meeting to which they relate. If the validity of any appointment
of proxy is questioned, it must be submitted to the secretary of the meeting of
shareholders for examination or to a proxy officer or committee appointed by the
person presiding at the meeting. The secretary of the meeting or, if appointed,
the proxy officer or committee shall determine the validity or invalidity of any
appointment of proxy submitted, and reference by the secretary in the minutes of
the meeting to the regularity of an appointment of proxy shall be received as
prima facie evidence of the facts stated for the purpose of establishing the
presence of a quorum at the meeting and for all other purposes.
SECTION 11. Presiding Officer. The Chief Executive Officer shall serve as the
chairman of every meeting of shareholders unless another person is elected by
shareholders to serve as chairman at the meeting. The chairman shall appoint
any persons he deems necessary to assist with the meeting.
SECTION 12. Adjournments. Whether or not a quorum is present to organize a
meeting, any meeting of shareholders (including an adjourned meeting) may be
adjourned by the holders of a majority of the voting power represented at the
meeting to reconvene at a specific time and place, but no later than 120 days
after the date fixed for the original meeting unless the requirements of the
Georgia Business Corporation Code concerning the selection of a new record date
have been met. At any reconvened meeting within that time period, any business
may be transacted that could have been transacted at the meeting that was
adjourned. If notice of the adjourned meeting was properly given, it shall not
be necessary to give any notice of the reconvened meeting or of the business to
be transacted, if the date, time and place of the reconvened meeting are
announced at the meeting that was adjourned and before adjournment; provided,
however, that if a new record date is or must be fixed, notice of the reconvened
meeting must be given to persons who are shareholders as of the new record date.
SECTION 13. Fixing of Record Date with Regard to Shareholder Action. For the
purpose of determining shareholders entitled to notice of a shareholders'
meeting, to demand a special meeting, to vote, or to take any other action, the
Board of Directors may fix a future date as the record date, which date shall be
not more than seventy (70) days and, in case of a meeting of shareholders, not
less than ten (10) days prior to the date on which the particular action,
requiring a determination of shareholders, is to be taken. A determination of
shareholders entitled to notice of or to vote at a shareholders' meeting is
effective for any adjournment of the meeting unless the Board of Directors fixes
a new record date, which it must do if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting. If no record date
is fixed by the Board of Directors, the record date shall be determined in
accordance with the provisions of the Georgia Business Corporation Code.
SECTION 14. Shareholder Proposals. No proposal for a shareholder vote (other
than director nominations, to which Section 1(D) of Article II applies) (a
"Shareholder Proposal") shall be submitted by a shareholder, either pursuant to
Securities and Exchange Commission Rule 14a-8, 14a-4 or otherwise, to the
Corporation's shareholders unless the shareholder submitting such proposal (the
"Proponent") shall have filed a written notice setting forth with particularity
(i) the names and business addresses of the Proponent and all natural persons,
corporations, partnerships, trusts or any other type of legal entity or
recognized ownership vehicle (collectively, a "Person") acting in concert with
the Proponent; (ii) the name and address of the Proponent and the Persons
identified in clause (i), as they appear on the Corporation's books (if they so
appear); (iii) the class and number of shares of the Corporation beneficially
owned by the Proponent and the Persons identified in clause (i); (iv) a
description of the Shareholder Proposal containing all material information
relating thereto; and (v) such other information as the Board of Directors
reasonably determines is necessary or appropriate to enable the Board of
Directors and shareholders of the Corporation to consider the Shareholder
Proposal. Shareholder Proposals shall be delivered to the Secretary of the
Corporation at the principal executive office of the Corporation within the time
period specified in Securities and Exchange Commission Rule 14a-8(e)(2), or any
successor rule. The presiding officer at any shareholders' meeting may
determine that any Shareholder Proposal was not made in accordance with the
procedures prescribed in these Bylaws or is otherwise not in accordance with
law, and if it is so determined, such officer shall so declare at the meeting
and the Shareholder Proposal shall be disregarded.
ARTICLE II
DIRECTORS
SECTION 1. Number, Election and Term of Office.
(A) Number of Directors. The business and affairs of the Corporation shall be
managed and controlled by or under the authority of its Board of Directors. In
addition to the powers and authority expressly conferred upon it by these Bylaws
and the Articles of Incorporation, the Board of Directors may exercise all such
lawful acts and things as are not by law, by the Articles of Incorporation or by
these Bylaws directed or required to be exercised or done by the shareholders.
The number of directors shall be thirteen (13), but the number may be increased
or diminished by amendment of these Bylaws either by the Board of Directors or
by the affirmative vote of at least seventy-five percent (75%) of the voting
power of the outstanding capital stock of the Corporation entitled to vote
generally in the election of directors, voting as a separate voting group. The
directors shall be divided into three (3) classes, each composed, as nearly as
possible, of one-third of the total number of directors. In the event that the
number of directors shall not be evenly divisible by three (3), the Board of
Directors shall determine in which class or classes the remaining director or
directors, as the case may be, shall be included. The term of office of each
director shall be three (3) years; provided, that, of those directors initially
elected in classes, the term of office of directors of the first class shall
expire at the first annual meeting of the shareholders after their election,
that of the second class shall expire at the second annual meeting after their
election, and that of the third class shall expire at the third annual meeting
after their election. At each annual meeting of shareholders subsequent to the
initial election of directors in classes, directors shall be elected for a full
term of three (3) years to succeed those whose terms expire. When the number of
directors is increased and any newly created directorships are filled by the
Board of Directors, there shall be no classification of the additional directors
until the next election of directors by the shareholders.
(B) Special Voting Rights. Anything in this Section 1 of this Article II to
the contrary notwithstanding, if and whenever any class or series of capital
stock of the Corporation shall have the exclusive right, voting as a separate
voting group, to elect one or more directors of the Corporation, the term of
office of all directors in office when such voting rights shall vest in such
class or series (other than directors who were elected by vote of another class
or series of capital stock) shall terminate upon the election of any new
directors at any meeting of shareholders called for the purpose of electing
directors; and, while such voting rights are vested in any class or series of
capital stock, the directors shall not be divided into classes, and the term of
office of each director elected shall extend only until the next succeeding
annual meeting of shareholders.
(C) Election of Directors Following Termination of Special Voting Rights. Upon
the termination of the exclusive right of one or more classes or series of
capital stock, voting as a separate voting group, to vote for directors, the
term of office of all such directors then in office shall terminate upon the
election of any new directors at a meeting of the shareholders then entitled to
vote for directors, which meeting may be held at any time after the termination
of such exclusive right and which meeting, if not previously called, shall be
called by the Secretary of the Corporation upon written request of the holders
of record of ten percent (10%) of the aggregate voting power of the outstanding
capital stock of the Corporation then entitled to vote generally in the election
of directors. At such election and thereafter, unless and until a class or
series of capital stock shall again have the exclusive right, voting as a
separate voting group, to vote for directors, the directors shall again be
divided into three (3) classes, as hereinabove provided, the term of office of
each to be three (3) years; provided, that the terms of office of those
initially elected in classes shall be as hereinabove provided.
(D) Nominations for Election of Directors.
(i) Subject to the rights of holders of any class or series of capital stock of
the Corporation then outstanding, nominations for the election of directors may
be made by the affirmative vote of a majority of the entire Board of Directors
or by any shareholder of record entitled to vote generally in the election of
directors. However, any shareholder of record entitled to vote generally in the
election of directors may nominate one or more persons for election as directors
at a meeting only if written notice of such shareholder's intent to make such
nomination or nominations has been given, either by personal delivery or by
first class United States mail, postage prepaid, to the Secretary of the
Corporation not less than 60 days nor more than 75 days prior to the meeting;
provided, that in the event that less than 70 days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders, notice
by the shareholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
meeting was mailed or such public disclosure was made, whichever first occurs.
(ii) Each notice to the Secretary under subsection (D)(i) above shall set
forth: (a) the name and address of record of the shareholder who intends to make
the nomination; (b) a representation that the shareholder is a holder of record
of shares of the Corporation's capital stock entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (c) the class and number of shares of
common stock held of record, owned beneficially, and represented by proxy, by
the shareholder, and each proposed nominee, as of the date of the notice; (d)
the name, age, business and residence addresses, and principal occupation or
employment of each proposed nominee; (e) a description of all arrangements or
understandings between the shareholder and each proposed nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder; (f) such other
information regarding each proposed nominee as would be required to be included
in a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission; and (g) the written consent of each proposed nominee to
serve as a director of the Corporation if so elected. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as a director of the Corporation.
(iii) The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
SECTION 2. Term. Subject to the provisions of the Articles of Incorporation
and of Section 1 of this Article II, each director shall hold office until the
election and qualification of his successor or until his death or until he shall
resign or be removed from office as hereinafter provided.
SECTION 3. Resignations. Any director of the Corporation may resign at any
time by giving written notice thereof to the Board of Directors, the Chairman or
the Corporation. Such resignation shall take effect at the time the notice is
delivered unless the notice specifies a later effective date; and, unless
otherwise specified with respect thereto, the acceptance of such resignation
shall not be necessary to make it effective.
SECTION 4. Removal of Directors. At any shareholders' meeting with respect to
which notice of such purpose has been given, the entire Board of Directors or
any individual director may be removed, with or without cause, by the
affirmative vote of the holders of seventy-five percent (75%) of the voting
power of the outstanding capital stock of the Corporation entitled to vote
generally in the election of directors, voting as a separate voting group.
Whenever the holders of the shares of any class or series of capital stock are
entitled to elect one or more directors by the provisions of the Articles of
Incorporation, the provisions of this Section 4 of this Article II shall apply,
in respect of the removal of a director or directors so elected, to the vote of
the holders of the outstanding shares of that class or series and not to the
vote of the outstanding shares as a whole. Removal action may be taken at any
shareholders' meeting with respect to which notice of such purpose has been
given.
SECTION 5. Vacancies.
(A) Director Elected by All Shareholders. Except as provided in Subsection
5(B) below, any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors, or by the sole remaining director, as the case
may be, or, if the vacancy is not so filled, or if no director remains, by the
holders of the shares of capital stock who are entitled to vote for the director
with respect to which the vacancy is being filled.
(B) Director Elected by Particular Class or Series. If a vacancy occurs with
respect to a director elected by a particular class or series of shares voting
as a separate voting group, the vacancy may be filled by the remaining director
or directors elected by that class or series, or, if the vacancy is not filled
by such remaining director or directors, or if no such director remains, by the
holders of that class or series of shares.
(C) Term of New Director. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office. Any directorship
to be filled by reason of an increase in the number of directors may be filled
by the Board of Directors, but only for a term of office continuing until the
next election of directors by the shareholders and the election and
qualification of his successor.
SECTION 6. Place of Meeting. Meetings of the Board of Directors or of any
committee thereof may be held either within or without the State of Georgia.
SECTION 7. Regular Meetings. The Board of Directors may, by resolution adopted
by vote of a majority of the whole Board, from time to time, appoint the time
and place for holding regular meetings of the Board, if deemed advisable by the
Board; and such regular meetings shall, thereupon, be held at the time and place
so appointed, without the giving of any notice with regard thereto. In case the
day appointed for the regular meeting shall fall on a legal holiday, such
meeting shall be held on the next following business day, at the regular
appointed hour.
SECTION 8. Special Meetings. Special meetings of the Board of Directors shall
be held whenever called by the Chairman, by any Vice Chairman, by the President,
by the Chief Executive Officer, by the Chief Operating Officer, or by any two
directors. Notice of any such meeting shall be mailed to each director,
addressed to him at his residence or usual place of business, not later than
three (3) days before the day on which the meeting is to be held, or shall be
sent to him at such place by telegram, telex, facsimile or cablegram, or be
delivered personally, or by telephone, not later than the day before the day on
which the meeting is to be held. Notice of a meeting of the Board of Directors
need not be given to any director who signs a waiver of notice either before or
after the meeting (in addition to any other form of waiver, such waiver may be
evidenced by a telegram, telex, facsimile or cablegram from a director).
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and waiver of any and all objections to the place of the meeting,
the time of the meeting or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting (or promptly upon
his arrival), any such objection or objections to the transaction of business
and does not thereafter vote for or assent to action taken at the meeting.
Neither the business to be transacted at, nor the purpose of, any special
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting. Except as is otherwise indicated in the notice thereof,
any and all business may be transacted at any special meeting of the Board of
Directors.
SECTION 9. Quorum and Manner of Acting. Except as herein otherwise provided,
two-fifths of the whole Board of Directors at a meeting duly assembled shall
constitute a quorum for the transaction of business, except that, if the
Chairman or the President is not present at any such meeting, a majority of the
whole Board of Directors shall be necessary to constitute a quorum; and, except
as otherwise required by statute or by the Bylaws, the act of a majority of the
directors present at any such meeting at which a quorum is present shall be the
act of the Board of Directors. In the absence of a quorum, a majority of the
directors present may adjourn the meeting from time to time, until a quorum is
present. No notice of any adjourned meeting need be given.
SECTION 10. Participation by Conference Telephone. Any or all directors may
participate in a meeting of the Board of Directors or of a committee of the
Board of Directors through the use of any means of communication by which all
directors participating may simultaneously hear each other during the meeting.
A director participating in a meeting by this means is deemed to be present in
person at the meeting.
SECTION 11. Action by Directors Without a Meeting. Unless the Articles of
Incorporation or these Bylaws provide otherwise, any action required or
permitted to be taken at any meeting of the Board of Directors or any action
that may be taken at a meeting of a committee of the Board of Directors may be
taken without a meeting if the action is taken by all the members of the Board
of Directors (or of the committee as the case may be). The action must be
evidenced by one or more written consents describing the action taken, signed by
each director (or each director serving on the committee, as the case may be),
and delivered to the Corporation for inclusion in the minutes or filing with the
corporate records.
SECTION 12. Directors' Fees. In consideration of a director serving in such
capacity, each director of the Corporation, other than directors who are
officers of the Corporation or any of its subsidiary companies, shall be
entitled to receive such compensation as the Board of Directors, by vote of a
majority of the whole Board, may from time to time determine. The Board of
Directors shall also have the authority to determine, from time to time, the
amount of compensation, if any, which shall be paid to its members for
attendance at any meeting of the Board or any committee thereof. A director may
also serve the Corporation in a capacity other than that of director and receive
compensation, as determined by the Board of Directors, for services rendered in
such other capacity.
ARTICLE III
EXECUTIVE COMMITTEE
SECTION 1. Constitution and Powers. The Board of Directors may, by resolution
adopted by vote of a majority of the whole Board, designate from among its
members an Executive Committee, to consist of the Chairman, the Chief Executive
Officer (provided he is also a director), and one or more other directors, which
Executive Committee shall have and may exercise all the powers of the Board of
Directors in the management of the business, affairs and property of the
Corporation and the exercise of its corporate powers, including the power to
authorize the seal of the Corporation to be affixed to all papers which may
require it. So far as practicable, members of the Executive Committee shall be
designated at the organization meeting of the Board, in each year, and, unless
sooner discharged by vote of a majority of the whole Board of Directors, shall
hold office until the organization meeting of the Board in the next subsequent
year and until their respective successors are appointed. The Board shall
designate one member of the Committee as Chairman of the Executive Committee,
but such designee shall not be considered to be an officer of the Corporation by
reason of such designation. Anything herein to the contrary notwithstanding,
the Executive Committee shall not exercise the authority of the Board of
Directors in reference to: (1) approving or proposing to shareholders any action
required by applicable law to be approved by the shareholders of the
Corporation; (2) the filling of vacancies on the Board of Directors or any of
its committees; (3) amending the Articles of Incorporation of the Corporation;
(4) the adoption, amendment or repeal of any Bylaws of the Corporation; or (5)
the approval of a plan of merger or consolidation, the sale, lease, exchange or
other disposition of all or substantially all the property and assets of the
Corporation, or a voluntary dissolution of the Corporation or a revocation
thereof.
SECTION 2. Meetings. Regular meetings of the Executive Committee, of which no
notice shall be necessary, shall be held on such days and at such places as
shall be fixed, from time to time, by resolution adopted by vote of a majority
of the Committee and communicated to all the members thereof. Special meetings
of the Executive Committee may be called by the Chairman of the Committee at any
time. Notice of each special meeting of the Committee shall be sent to each
member of the Committee by mail to his residence or usual place of business not
later than three (3) days before the day on which the meeting is to be held, or
shall be sent to him at such place by telegram, telex, facsimile or cablegram,
or be delivered personally, or by telephone, to each member of the Committee not
later than the day before the day on which the meeting is to be held. Notice of
any such meeting need not be given to any member who signs a waiver of notice
either before or after the meeting (in addition to any other form of waiver,
such waiver may be evidenced by a telegram, telex, facsimile or cablegram from a
member). Attendance of a member at a meeting shall constitute a waiver of
notice of such meeting and waiver of any and all objections to the place of the
meeting, the time of the meeting or the manner in which it has been called or
convened, except when a member states, at the beginning of the meeting (or
promptly upon his arrival), any such objection or objections to the transaction
of business. Neither the business to be transacted at, nor the purpose of, any
meeting of the Committee need be specified in the notice or waiver of notice of
such meeting. A majority of the Executive Committee shall constitute a quorum
for the transaction of business, and the act of a majority of those present at a
meeting, at which a quorum is present, shall be the act of the Executive
Committee. The members of the Executive Committee shall act only as a
committee, and the individual members shall have no power as such.
SECTION 3. Records. The Executive Committee shall keep a record of its acts
and proceedings and shall report the same promptly to the Board of Directors.
Such acts and proceedings shall be subject to review by the Board of Directors,
but no rights of third parties shall be affected by such review. The Secretary
of the Corporation, or, in his absence, an Assistant Secretary, shall act as
secretary to the Executive Committee; or the Committee may, in its discretion,
appoint its own secretary.
SECTION 4. Vacancies. Any vacancy in the Executive Committee shall be filled
by vote of a majority of the whole Board of Directors.
ARTICLE IV
OTHER COMMITTEES
The Board of Directors, by resolution adopted by a majority of the whole Board,
may designate from among its members other committees in addition to the
Executive Committee, each consisting of two (2) or more directors and each of
which, to the extent provided in such resolution, shall have and may exercise
all the authority of the Board of Directors, provided that no such committee
shall have the authority of the Board of Directors in reference to: (1)
approving or proposing to shareholders any action required by applicable law to
be approved by the shareholders of the Corporation; (2) the filling of vacancies
on the Board of Directors or any of its committees; (3) amending the Articles of
Incorporation of the Corporation; (4) the adoption, amendment or repeal of any
Bylaws of the Corporation; or (5) the approval of a plan of merger or
consolidation, the sale, lease, exchange or other disposition of all or
substantially all of the property and assets of the Corporation, or a voluntary
dissolution of the Corporation or a revocation thereof. The provisions of
Section 2 of Article III as to the Executive Committee and its deliberations
shall be applicable to any such other committee of the Board of Directors.
ARTICLE V
OFFICERS AND AGENTS; POWERS AND DUTIES
SECTION 1. Officers. The Board of Directors shall elect a Chairman (who shall
be a director), a President, a Secretary and a Treasurer. The Board of
Directors may also elect one or more Vice Chairmen, one or more Vice Presidents
(one or more of whom may be designated an Executive Vice President and one or
more of whom may be designated a Senior Vice President and one or more of whom
may be designated a Group Vice President), a Controller and such other officers
and agents of the Corporation as from time to time may appear to be necessary or
advisable in the conduct of the affairs of the Corporation. The Board shall
designate from among such elected officers a Chief Executive Officer and may
designate from among such elected officers a Chief Operating Officer. Any two
or more offices may be held by the same person, except that the office of
President and the office of Secretary shall be held by separate persons. In
addition to the authority of the Board of Directors set forth in this Section 1,
the Chief Executive Officer shall have the authority to appoint one or more Vice
Presidents, none of whom may be designated an Executive Vice President, Senior
Vice President or Group Vice President (a `CEO Appointed Office'').
Individuals appointed to CEO Appointed Offices by the Chief Executive Officer
shall be officers of the Corporation as fully as if elected by the Board of
Directors.
SECTION 2. Term of Office. So far as practicable, all officers shall be
elected at the organization meeting of the Board of Directors in each year, and,
subject to the provisions of Section 3 of this Article V, each officer shall
hold office until the organization meeting of the Board of Directors in the next
subsequent year and until his successor has been elected and has qualified, or
until his earlier resignation, removal from office, or death.
SECTION 3. Removal of Officers. Any officer may be removed at any time, either
with or without cause, by the Board of Directors at any meeting. Any officer
holding a CEO Appointed Office, whether elected to such office by the Board or
appointed by the Chief Executive Officer, may be removed at any time, either
with or without cause, by the Chief Executive Officer, except for such
individuals holding CEO Appointed Offices who also hold any of the titles of
Controller, Treasurer or Secretary.
SECTION 4. Vacancies. If any vacancy occurs in any office, the Board of
Directors may elect a successor to fill such vacancy for the remainder of the
term. If a vacancy occurs in any CEO Appointed Office, the Chief Executive
Officer may appoint a successor to fill such vacancy for the remainder of the
term.
SECTION 5. Chief Executive Officer. The Chief Executive Officer shall, under
the direction of the Board of Directors, have general direction of the
Corporation's business, policies and affairs. He shall preside, when present,
at all meetings of the shareholders and, in the absence of the Chairman of the
Executive Committee, at all meetings of the Executive Committee. He, the Vice
Chairmen, the President and the Chief Operating Officer shall each have general
power to execute bonds, deeds and contracts in the name of the Corporation and
to affix the corporate seal; to sign stock certificates; and to remove or
suspend such employees or agents as shall not have been appointed by the Board
of Directors. In the absence or disability of the Chief Executive Officer, his
duties shall be performed and his powers may be exercised by the Chief Operating
Officer or by such other officer as shall be designated by the Board of
Directors.
SECTION 6. Chief Operating Officer. The Chief Operating Officer shall, under
the direction of the Chief Executive Officer, have direct superintendence of the
Corporation's business, policies, properties and affairs. He shall have such
further powers and duties as from time to time may be conferred upon, or
assigned to, him by the Board of Directors or the Chief Executive Officer. In
the absence or disability of the Chief Executive Officer, the Chief Operating
Officer shall perform his duties and may exercise his powers.
SECTION 7. Chairman. The Chairman shall preside, when present, at all meetings
of the Board of Directors and shall have such other powers and duties as from
time to time may be conferred upon or assigned to him by the Board of Directors
or the Chief Executive Officer (if the Chairman is not the Chief Executive
Officer).
SECTION 8. Vice Chairmen. Each of the several Vice Chairmen shall have such
powers and duties as from time to time may be conferred upon or assigned to him
by the Board of Directors or the Chief Executive Officer (if such Vice Chairman
is not the Chief Executive Officer).
SECTION 9. President. The President shall have such powers and duties as from
time to time may be conferred upon or assigned to him by the Board of Directors
or the Chief Executive Officer (if the President is not the Chief Executive
Officer).
SECTION 10. Vice Presidents. The several Vice Presidents shall have such
powers and duties as shall be assigned to or required of them, from time to
time, by the Board of Directors, the Chief Executive Officer or the Chief
Operating Officer.
SECTION 11. Secretary. The Secretary shall attend to the giving of notice of
all meetings of shareholders and of the Board of Directors and shall keep and
attest true records of all proceedings thereat. He shall have the
responsibility of authenticating records of the Corporation. He shall have
charge of the corporate seal and have authority to attest any and all
instruments or writings to which the same may be affixed. He shall keep and
account for all books, documents, papers and records of the Corporation, except
those which are hereinafter directed to be in the charge of the Treasurer or the
Controller. He shall have authority to sign stock certificates and shall
generally perform all the duties usually appertaining to the office of secretary
of a corporation. In the absence of the Secretary, an Assistant Secretary or
Secretary pro tempore shall perform his duties.
SECTION 12. Treasurer. The Treasurer shall have the care and custody of all
moneys, funds and securities of the Corporation and shall deposit or cause to be
deposited all funds of the Corporation in and with such depositories as shall,
from time to time, be designated by the Board of Directors or by such officers
of the Corporation as may be authorized by the Board of Directors to make such
designation. He shall have power to sign stock certificates; to endorse for
deposit or collection, or otherwise, all checks, drafts, notes, bills of
exchange or other commercial paper payable to the Corporation; and to give
proper receipts or discharges therefor.
SECTION 13. Controller. The Controller shall keep complete and accurate books
of account relating to the business of the Corporation, including records of all
assets, liabilities, commitments, receipts, disbursements and other financial
transactions of the Corporation, and its divisions and subsidiaries. He shall
render a statement of the Corporation's financial condition whenever required to
do so by the Board of Directors, the Chief Executive Officer, the Chief
Operating Officer or the Executive Vice President - Finance.
SECTION 14. Attorneys. The Board of Directors may, from time to time, appoint
one or more attorneys-in-fact to act for and in representation of the
Corporation, either generally or specially, judicially or extra-judicially, and
may delegate to any such attorney or attorneys-in-fact all or any powers which,
in the judgment of the Board of Directors, may be necessary, advisable,
convenient or suitable for exercise in any country or jurisdiction in the
administration or management of the business of the Corporation, or the defense
or enforcement of its rights, even though such powers be herein provided or
directed to be exercised by a designated officer of the Corporation, or by the
Board of Directors. The act of the Board of Directors in conferring any such
powers upon, or delegating the same to, any attorney-in-fact shall be conclusive
evidence in favor of any third person of the right of the Board of Directors so
to confer or delegate such powers; and the exercise by any attorney-in-fact of
any powers so conferred or delegated shall in all respects be binding upon the
Corporation.
SECTION 15. Additional Powers and Duties. In addition to the foregoing
especially enumerated duties and powers, the several officers of the Corporation
shall perform such other duties and exercise such further powers as may be
provided by these Bylaws or as the Board of Directors may, from time to time,
determine, or as may be assigned to them by any competent superior officer.
SECTION 16. Compensation. The compensation of all officers of the Corporation
shall be fixed, from time to time, by the Board of Directors.
SECTION 17. Designated Positions and Titles. The Chief Executive Officer may,
from time to time, designate employees ("Designated Employees") to serve in
such designated capacities for the Corporation and to hold such nominal titles
(such as a designated officer of a group, division or of another area of the
business affairs of the Corporation) as the Chief Executive Officer may deem
appropriate. No individual designated pursuant to this Section 17 shall, by
reason of such designation, become an officer of the Corporation. Each
Designated Employee shall perform such duties and shall have such authority as
shall be delegated to him from time to time by the Chief Executive Officer. Any
title granted to any Designated Employee pursuant to this Section 17 may be
withdrawn, with or without cause, at any time by the Chief Executive Officer,
and any duty or authority delegated to any Designated Employee pursuant to this
Section 17 may be withdrawn, with or without cause, at any time by the Chief
Executive Officer.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. Indemnified Parties. Every person (and the heirs and personal
representatives of such person) who is or was a director, officer, employee or
agent of the Corporation, or of any other corporation, partnership, joint
venture, trust or other enterprise in which he served as such at the request of
the Corporation, shall be indemnified by the Corporation in accordance with the
provisions of this Article VI against any and all liability and expense
(including, without limitation, counsel fees and disbursements, and amounts of
judgments, fines or penalties against, or amounts paid in settlement by, a
director, officer, employee or agent) actually and reasonably incurred by him in
connection with or resulting from any threatened, pending or completed claim,
action, suit or proceeding, whether civil, criminal, administrative, or
investigative or in connection with any appeal relating thereto, in which he may
become involved, as a party or otherwise, or with which he may be threatened, by
reason of his being or having been a director, officer, employee or agent of the
Corporation or such other corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action taken or omitted by him in his
capacity as such director, officer, employee or agent whether or not he
continues to be such at the time such liability or expense shall have been
incurred.
SECTION 2. Indemnification As of Right. Every person (and the heirs and
personal representatives of such person) referred to in Section I of this
Article VI, to the extent that such person has been successful on the merits or
otherwise with respect to any claim, action, matter, suit or proceeding of the
character described in Section 1, shall be entitled to indemnification as of
right for expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith.
SECTION 3. Indemnification Based on Review. Except as provided in Section 2 of
this Article VI, upon receipt of a claim for indemnification hereunder, the
Corporation shall proceed as follows, or as otherwise permitted by applicable
law. If the claim is made by a director or officer of the Corporation, the
Board of Directors, by a majority vote of a quorum consisting of directors who
were not parties to the applicable action, suit or proceeding, shall determine
whether the claimant met the applicable standard of conduct as set forth in
Subsections (A) and (B) below. If such quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs, such determination
shall be made by independent legal counsel (who may be the regular inside or
outside counsel of the Corporation) in a written opinion. If such determination
has not been made within 90 days after the claim is asserted, the claimant shall
have the right to require that the determination be submitted to the
shareholders at the next regular meeting of shareholders by vote of a majority
of the shares entitled to vote thereon. If a claim is made by a person who is
not a director or officer of the Corporation, the Chief Executive Officer and
the general counsel of the Corporation shall determine, subject to applicable
law, the manner in which there shall be made the determination as to whether the
claimant met the applicable standard of conduct as set forth in Subsections (A)
and (B) below. In the case of each claim for indemnification, the Corporation
shall pay the claim to the extent the determination is favorable to the person
making the claim.
(A) In the case of a claim, action, suit or proceeding other than by or in the
right of the Corporation to procure a judgment in its favor, the director,
officer, employee or agent must have acted in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, in addition,
in any criminal action or proceeding, had no reasonable cause to believe that
his conduct was unlawful. In addition, any director seeking indemnification
must not have been adjudged liable on the basis that any personal benefit was
received by him. For the purpose of this Subsection (A), the termination of any
claim, action, suit or proceeding, civil, criminal or administrative, by
judgment, order, settlement (either with or without court approval) or
conviction, or upon a plea of guilty or nolo contenders or its equivalent, shall
not create a presumption that a director, officer, employee or agent did not
meet the standards of conduct set forth in this Subsection.
(B) In the case of a claim, action, suit or proceeding by or in the right of
the Corporation to procure a judgment in its favor, the director, officer,
employee or agent must have acted in good faith in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation;
provided, however, that no indemnification under this Subsection (B) shall be
made (1) with regard to any claim, issue or matter as to which such director,
officer, employee or agent shall have been adjudged to be liable to the
Corporation unless and only to the extent that the court in which such action or
suit was brought shall determine that, despite the adjudication of liability but
in view of all the circumstances of the case, such director, officer, employee
or agent is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper, or (2) for amounts paid, or expenses incurred, in
connection with the defense or settlement of any such claim, action, suit or
proceeding, unless a court of competent jurisdiction has approved
indemnification with regard to such amounts or expenses.
SECTION 4. Advances. Expenses incurred with respect to any claim, action, suit
or proceeding of the character described in Section 1 of this Article VI shall
be advanced by the Corporation prior to the final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
if it shall be ultimately determined that he is not entitled to indemnification
under this Article VI.
SECTION 5. General. The rights of indemnification and advancement of expenses
provided in this Article VI shall be in addition to any rights to which any such
director, officer, employee or other person may otherwise be entitled by
contract or as a matter of law. Each person who shall act as a director,
officer, employee or agent of the Corporation or of any other corporation
referred to in Section 1 of this Article VI, shall be deemed to be doing so in
reliance upon the right of indemnification provided for in this Article VI, and
this Article VI constitutes a contract between the Corporation and each of the
persons from time to time entitled to indemnification hereunder, and the rights
of each such person hereunder may not be modified without the consent of such
person.
ARTICLE VII
STOCK AND TRANSFER OF STOCK
SECTION 1. Direct Registration of Shares. The Corporation may, with the Board
of Directors' approval, participate in a direct registration system approved by
the Securities and Exchange Commission and by the New York Stock Exchange or any
securities exchange on which the stock of the Corporation may from time to time
be traded, whereby shares of capital stock of the Corporation may be registered
in the holder's name in uncertificated, book-entry form on the books of the
Corporation.
SECTION 2. Stock Certificates. Except in the case of shares represented in
book-entry form under a direct registration system contemplated in Section 1 of
this Article VII, every shareholder shall be entitled to a certificate signed by
the Chairman, the President or a Vice President and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer, certifying the
number of shares owned by him in the Corporation and that those shares are fully
paid and non-assessable. Where any such certificate is countersigned by either
a Transfer Agent or a Registrar (other than the Corporation or one of its
employees) designated by the Corporation for that purpose, any other signature
on such certificate may be a facsimile, engraved, stamped or printed. In case
any person who served as any such officer shall have signed any such certificate
or whose facsimile signature shall have been placed thereon shall have ceased to
hold such office prior to the issue of such certificate, such certificate may be
issued at the direction of the Corporation with the same effect as if such
person held such office at the date of the issue of such certificate.
SECTION 3. Transfer Agents and Registrars. The Board of Directors may, in its
discretion, appoint responsible banks or trust companies in such city or cities
as the Board may deem advisable, from time to time, to act as Transfer Agents
and Registrars of the stock of the Corporation; and, upon such appointments
being made, no stock certificate shall be valid until countersigned by one of
such Transfer Agents and registered by one of such Registrars.
SECTION 4. Transfer of Stock. Except in the case of shares represented in
book-entry form under a direct registration system contemplated in Section 1 of
this Article VII, shares of stock may be transferred by delivery of the
certificates therefor, accompanied either by an assignment, in writing on the
back of the certificates or by written power of attorney to sell, assign and
transfer the same, signed by the record holder thereof; but no transfer shall
affect the right of the Corporation to pay any dividend upon the stock to the
holder of record thereof, or to treat the holder of record as the holder in fact
thereof for all purposes, and no transfer shall be valid, except between the
parties thereto, until such transfer shall have been made upon the books of the
Corporation.
SECTION 5. Lost Certificates. In case any certificate of stock shall be lost,
stolen or destroyed, the Board of Directors or the Executive Committee, in its
discretion, may authorize the issue of a substitute certificate in place of the
certificate so lost, stolen or destroyed, and may cause such substitute
certificate to be countersigned by the appropriate Transfer Agent and registered
by the appropriate Registrar; provided, that, in each such case, the applicant
for a substitute certificate shall furnish to the Corporation, or to its
Transfer Agents and Registrars, satisfactory evidence of the loss, theft or
destruction of such certificate and of the ownership thereof, and also such
security or indemnity as may be required by any of such parties.
ARTICLE VIII
MISCELLANEOUS
SECTION 1. Inspection of Books and Records. The Board of Directors shall have
power to determine which accounts, books and records of the Corporation shall be
opened to the inspection of shareholders, except those as may by law
specifically be made open to inspection, and shall have power to fix reasonable
rules and regulations not in conflict with the applicable law for the inspection
of accounts, books and records which by law or by determination of the Board of
Directors shall be open to inspection. Without the prior approval of the Board
of Directors in its discretion, the right of inspection set forth in Section 14-
2-1602(c) of the Georgia Business Corporation Code shall not be available to any
shareholder owning two percent or less of the shares outstanding.
SECTION 2. Fiscal Year. The fiscal year of the Corporation shall be the
calendar year.
SECTION 3. Surety Bonds. Such officers or agents of the Corporation as the
Board of Directors may direct, from time to time, shall be bonded for the
faithful performance of their duties, in such amounts and by such surety
companies as the Board of Directors may determine. The premiums on such bonds
shall be paid by the Corporation, and the bonds so furnished shall be in the
custody of the Secretary.
SECTION 4. Signature of Negotiable Instruments. All bills, notes, checks or
other instruments for the payment of money shall be signed or countersigned by
such officers and in such manner as, from time to time, may be prescribed by
resolution (whether general or special) of the Board of Directors.
SECTION 5. Conflict with Articles of Incorporation. In the event that any
provision of these Bylaws conflicts with any provision of the Articles of
Incorporation, the Articles of Incorporation shall govern.
SECTION 6. Election of Certain Provisions of Georgia Business Corporation Code.
All requirements and provisions of Parts 2 and 3 of Article 11 of the Georgia
Business Corporation Code, as may be in effect from time to time, including any
successor statutes, shall be applicable to any "business combination" (as
respectively defined in Parts 2 and 3 of such Article 11) of the Corporation.
ARTICLE IX
AMENDMENTS
Subject to the provisions of the Georgia Business Corporation Code, the
Board of
Directors shall have the power to alter, amend or repeal these Bylaws or to
adopt new bylaws, but any bylaws adopted by the Board of Directors may be
altered, amended or repealed, and new bylaws adopted, by the shareholders. The
shareholders may prescribe that any bylaw or bylaws adopted by them shall not be
altered, amended or repealed by the Board of Directors. Action by the directors
with respect to the Bylaws shall be taken by an affirmative vote of a majority
of all of the directors then in office. Except as provided in the Articles of
Incorporation, action by the shareholders with respect to the Bylaws shall be
taken by an affirmative vote of the holders of a majority of the voting power of
the outstanding capital stock of the Corporation entitled to vote generally in
the election of directors, voting as a separate voting group.
The undersigned Secretary of Georgia-Pacific Corporation, a Georgia
corporation, hereby certifies that the foregoing is a true and complete copy of
the Bylaws of the said Corporation, as at present in full force and effect.
Witness the hand of the undersigned and the seal of the said Corporation
this 23rd day of September, 1998.
Kenneth F. Khoury
Vice President, Deputy
General Counsel and Secretary
AMENDMENT NUMBER FOUR
TO THE
GEORGIA-PACIFIC CORPORATION
KEY SALARIED EMPLOYEES GROUP INSURANCE PLAN
POST-1986 GROUP
(Effective January 1, 1987)
Pursuant to the authority granted to Georgia-Pacific Corporation (the
"Company") to amend the Georgia-Pacific Corporation Key Salaried Employees Group
Insurance Plan/Post-1986 Group (the "Plan") under Section 6.2 of the Plan,
effective January 1, 1998, the Plan has been amended to update the eligibility
rules and to incorporate long-standing administrative interpretations of certain
provisions as follows:
1) Section 2.1 of the Plan is amended and restated as follows:
"2.1 Participation
"a. Eligibility Criteria. All salaried employees who meet the following
qualifications on their respective participation effective dates as specified in
subparagraph b. below shall become Participants in this Plan on such date:
"i. The employee is actively at work.
"ii. The employee is a non-officer whose rate of annual base salary
equals or exceeds $150,000 OR the employee is an officer (other than an
assistant officer such as an Assistant Secretary or an Assistant Treasurer) of
Georgia-Pacific Corporation.
"iii. The employee is not eligible to participate in the Georgia-
Pacific Key Salaried Employees Group Insurance Plan/Pre-1987 Group.
"b. Participation Effective Dates. An employee's participation in this
Plan shall commence on the earliest applicable participation effective date
specified below:
"i. Any January 1 on which the employee first meets the eligibility
standards of subsection a., in which case coverage for the initial calendar year
of coverage shall be determined using the employee's age and rate of annual base
salary as of such January 1.
"ii. The authorization date of a salary action first increasing a
non-officer employee's rate of annual base salary to a level at or above
$150,000 on a retroactive basis to a date on or before the January 1 next
preceding such authorization date, in which case coverage for the initial
calendar year of coverage shall be determined using the employee's age and rate
of annual base salary as of such January 1.
"iii. The date as of which an employee is first elected or appointed
an officer (other than an assistant officer such as an Assistant Secretary or an
Assistant Treasurer) of Georgia-Pacific Corporation, in which case coverage for
the initial calendar year of coverage shall be determined using the employee's
age and rate of annual base salary as of such date of election or appointment.
"iv. The date that an employee who is otherwise eligible on one of
the participation effective dates described in clauses i. through iii. of this
subsection b., but is not then actively at work (the employee's "tentative
effective date"), returns to work, in which case coverage shall be determined
as of the tentative effective date applicable to such employee. This
participation effective date shall be applicable only if the employee maintains
a continuous employment relationship with the Company and/or its subsidiaries
from the tentative effective date through the date specified in this clause iv.
"c. Actively at Work. For purposes of this Plan, an employee
will be deemed to be "actively at work" (without limitation) while on vacation
and during any period of approved, paid medical leave.
"d. Continued Participation. Subject to the provisions of
Sections 2.3 and 3.3, once an employee has become a Participant in the Plan, the
employee shall continue to participate notwithstanding any future failure of
employee to meet the minimum qualification requirements for new Participants.
"e. Basic Life Plan Participation. Effective on a Participant's
participation effective date with respect to this Plan, the Participant's
coverage under the Company's Basic Life and Accidental Death and Dismemberment
Plan shall cease."
2) The introductory sentence of Section 2.2a. is amended and restated as
follows:
"a. Normal Coverage. Each Participant in the Plan will receive
death benefit coverage for the calendar year of determination (including any
partial calendar year of participation) equal to the amount indicated below
opposite the Participant's age as of the Participant's participation effective
date (as defined in Section 2.1b.) or such other date specified in Section 2.1b.
for the initial (full or partial) calendar year of coverage and as of each
subsequent January 1 for each subsequent calendar year of coverage:"
3) The last two sentences of Section 2.2a. are amended and restated to read as
follows:
"The amount of coverage shall be adjusted effective as of each January 1
after the Participant's participation effective date, if necessary, to take
account of any increase (including retroactive increases) in the Participant's
annual base salary in effect as of such January 1 and any change of coverage
pursuant to the coverage schedule (using the Participant's age on that January
1). In addition, if a non-officer Participant is elected or appointed an
officer (other than an assistant officer such as an Assistant Secretary or an
Assistant Treasurer), his/her coverage shall be modified as of the date of such
election or appointment to reflect the employee's then current age and rate of
annual base salary, provided, however, that in no event shall such employee's
coverage for the then current calendar year be reduced. No adjustment shall be
made because of a decrease in the Participant's salary."
4) Section 2.3c. is amended by adding the following at the end of the present
provision:
"For purposes of this Section 2.3c., a Participant shall be considered to
be totally disabled at a given time if he/she would be deemed to be "totally
disabled" at such time under the Georgia-Pacific Corporation Long-Term
Disability Plan for Salaried Employees (whether or not the Participant actually
participated in that plan at such time). Coverage pursuant to this Section
2.3c. will cease when the Participant ceases to be totally disabled, at which
time provisions of Section 2.3d. will apply as if the employee had then
terminated employment."
5) Section 2.3d. is amended and restated to read as follows:
"d. Upon Separation from Service for Reasons Other Than Disability.
A Participant terminating employment for reasons other that disability shall
continue to be covered by the Plan for thirty-one (31) days following the last
day of the month coincident with or next following his/her termination date.
Within the thirty-one (31) day period, the terminating Participant may convert
any group insurance covering him/her under this the Plan to an individual life
insurance Policy mirroring his/her coverage under the Plan.
6) Except as hereinabove and heretofore amended and modified, the Plan as
effective as of January 1, 1987 shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has duly executed this Amendment this 12th
day of November, 1998.
GEORGIA-PACIFIC CORPORATION
By:
-----------------------------
A. D. Correll
Chairman and Chief Executive Officer
GEORGIA-PACIFIC CORPORATION
OUTSIDE DIRECTORS STOCK PLAN
AMENDMENT NO. 2
THIS AMENDMENT to the Georgia-Pacific Corporation Outside Directors Stock
Plan (the "Plan"), approved by the Board of Directors of Georgia-Pacific
Corporation (the "Board") and effective as stated below;
W I T N E S S E T H:
WHEREAS, the Plan was originally adopted by resolution of the Board dated
March 17, 1995 and was approved by the shareholders of Georgia-Pacific
Corporation at their meeting on May 2, 1995, and Amendment No. 1 to the Plan was
adopted by resolution of the Board dated February 4, 1997 and approved by the
shareholders on May 6, 1997;
WHEREAS, pursuant to Section 4.6 of the Plan, the Board has retained the
right to amend or terminate the Plan at any time, subject to certain
restrictions stated in the Plan, which the Board has determined are not
applicable to this amendment;
WHEREAS, the Board now desires to amend the Plan to reflect its intent to
provide for prorated grants to Outside Directors elected to the Board after the
annual grant date for a calendar year specified in Section 3.2 of the Plan, and
to modify the Plan to reflect the effects of the Letter Stock Transaction
approved by the Board on September 16, 1997 and by the shareholders on December
16, 1997; and
WHEREAS, the Board has determined that under the terms of the Plan, such
amendments will not require shareholder approval;
NOW, THEREFORE, in consideration of the premises, the Board hereby amends
the Plan as follows, effective as stated below:
1. The Plan is amended by restating Section 2.7 in its entirety as
follows:
"2.7. Stock.
"(a) Prior to December 17, 1997. Prior to December 17, 1997, the term
"Stock" shall mean G-P common stock, par value $0.80.
"(b) On and After December 17, 1997. On and after December 17, 1997,
the term "Stock" shall refer to the each of the two classes of common stock
issued by G-P, viz. Georgia-Pacific Corporation - Georgia-Pacific Group Common
Stock, par value $0.80 ('Group Stock') and Georgia-Pacific Corporation - Timber
Group Common Stock, par value $0.80 (`Timber Stock').'
2. The Plan is amended by restating Section 3.1 in its entirety as
follows:
"3.1. Available Shares. G-P shall make 200,000 shares of
Stock (as defined prior to December 17, 1997) available for Stock grants under
this Plan from G-P's authorized but unissued Stock; provided, however, that as a
consequence of the approval of the Letter Stock Transaction by the shareholders
on December 16, 1997, on and after December 17, 1998, the available shares shall
consist of 200,000 shares of Group Stock and 200,000 shares of
Timber Stock.
3. The Plan is amended by restating Section 3.2 in its entirety as
follows:
"3.2. Annual Grants.
"(a) May 3, 1995. Each person who is an Outside Director on May 3,
1995 shall be granted 200 shares of Stock subject to the terms and conditions
set forth in this Plan.
"(b) May 15, 1996. Each person who is an Outside Director on
May 15, 1996 shall be granted a number of shares of Stock subject to the terms
and conditions set forth in this Plan, which number shall be determined by
dividing $15,000 by the Market Price of a share of Stock on such date and
rounding the resulting number to the nearest whole share of Stock.
"(c) May 15, 1997. Each person who is an Outside Director on May 15,
1997 shall be granted a number of shares of Stock subject to the terms and
conditions set forth in this Plan, which number shall be determined by dividing
$40,000 by the Market Price of a share of Stock on such date and rounding the
resulting number to the nearest whole share of Stock.
"(d) May 15, 1998 and thereafter. Each person who is an Outside
Director on May 15, 1998 or on May 15 of any subsequent year shall (so long as a
sufficient number of shares of Group Stock and Timber Stock remain available for
grants under Section 3.1) be granted a number of shares of Group Stock and an
equal number of shares of Timber Stock subject to the terms and conditions set
forth in this Plan, which number shall be determined by dividing $40,000 by the
sum of the Market Prices of a share of Group Stock and a share of Timber Stock
on such date and rounding the resulting number to the nearest whole share."
4. The Plan is amended (i) by redesignating Section 3.2 (as amended in
Section 2 of this Amendment) as subsection (a) of Section 3.2 and subsections
(a) through (d) of Section 3.2 as paragraphs (i) through (iv) of subsection (a),
respectively, (ii) by adding the following new subsection (b) at the end of
Section 3.2 and (iii) by changing the title of the amended Section 3.2 to
"Grants":
"(b) Prorated Grants. If in any calendar year, a
person is initially elected as an Outside Director after May 15 of such
year but prior to May 1 of the next following calendar year, he
or she shall be granted a prorated grant of Group Stock and Timber Stock (so
long as a sufficient number of shares of Stock remain available for grants under
Section 3.1). Stock granted under this Section 3.2(b) shall be subject to the
terms and conditions of this Plan. The number of shares of Group Stock and of
Timber Stock in any prorated grant shall be determined as follows:
"(i) Proration. Multiply $40,000 by a fraction, the numerator of
which is the number of complete calendar months (if any) in the period
commencing on the date the Outside Director was elected to the Board and ending
on April 30 of the next following calendar year, and the
denominator of which is 12.
"(ii) Number of Shares. Divide the result in paragraph (i) by the
sum of the Market Prices of a share of Group Stock and a share of Timber Stock
on the later of the date the Outside Director is initially elected to the Board
and July 30, 1998 (the "Stock Price Date"), and round the resulting number to
the nearest whole share.
"Prorated grants under this Section 3.2(b) shall be effective as of the
Stock Price Date for such grant as defined in Section 3.2 (b)(ii)."
5. Upon adoption by the Board, this amendment shall be effective from and
after the dates indicated below with respect to the specified amendment
sections:
Amendment Section(s) Effective Date
1-3 December 17, 1997
4 July 30, 1998
Except as hereinabove and heretofore amended and modified, the Plan as
originally adopted shal remain in full force and effect.
DEFERRAL AGREEMENT
AGREEMENT, dated , , by and between
------------- ---- --------------
("Director") and GEORGIA-PACIFIC CORPORATION ("G-P").
W I T N E S S E T H:
WHEREAS, Director is a member of the Board of Directors of G-P (the
"G-P Board"); and
WHEREAS, Director desires to enter into the arrangement hereinafter
set forth as an alternative payment arrangement for all or a portion of
Director's retainer and fees for services as a member of the G-P Board for the
Election Duration (as defined below);
NOW, THEREFORE, in consideration of the premises, G-P and Director
hereby agree as follows:
1. Effective Date of Agreement and Elections. This Agreement and the
elections set forth in Sections 2, 3 and 4 below shall be effective as of the
later of (i) the actual execution date stated below, (ii) the commencement date
specified below in this Section 1 or (iii) the date upon which the completed and
executed Agreement is delivered to the Secretary of G-P or his/her delegate. If
Director desires to specify a commencement date, it is indicated below (must be
after execution date but within ninety (90) days following such date):
Commencement Date : ,
---------------- ----
2. Election to Defer Fees; Election Duration. Director hereby
irrevocably elects to defer receipt of the portion indicated below of the fees,
including, without limitation, any retainer, meeting fee or committee meeting
fee ("Fees"), that Director will become entitled to receive for services as a
member of the G-P Board for the period commencing on the effective date
determined in accordance with Section 1 and ending on the termination date
determined in accordance with Section 3 (the "Election Duration"):
% of Director's Fees are to be deferred
- ----
If Director elects to have an amount which is less than 100% of Director's Fees
deferred, the specified percentage must be one which is expected to result in at
least $10,000 being deferred in any 12-month period, and such percentage of each
payment of Fees for services during the period covered by this Agreement shall
be deferred.
If the effective date of Director's deferral election under this Agreement falls
in the middle of a pay period and he/she has not already received payment for
the that entire pay period, the portion of Fees deemed earned following the
election date shall consist of (i) meeting or other meeting-specific fees
related to Board or committee meetings occurring during the Election Duration
and (ii) a prorated portion of any retainer based on the portion of the pay
period included in the Election Duration. If the effective date of Director's
deferral election under this Agreement falls in the middle of a pay period and
he/she has already received payment of some or all of the Fees for the that
entire pay period, no portion of the Fees which have already been paid may be
deferred. This paragraph of this Section 2 shall be applicable notwithstanding
anything in this Agreement to the contrary.
3. Termination of Election. The deferral election in this Agreement
may be terminated at any time by Director with respect to Fees earned after the
effective date of such termination by giving written notice of such termination
to the Secretary of G-P or his/her delegate. The effective date of any such
termination shall be the later of the date of the written notice, (ii) the
effective date specified in the notice or (iii) the date such notice is received
by the Secretary of G-P or his/her delegate. Only Fees earned with respect to
the period after the effective date of such termination shall be affected by
Director's termination of his/her deferral notice under this Agreement, and the
terms and conditions of this Agreement shall continue to apply to Fees deferred
during the Election Duration.
4. Election of Treatment of Deferred Fees. Director hereby
irrevocably (choose one of the following):
_______ elects or ________ does not elect
to have the deferred Fees treated as if they were invested in Georgia-Pacific
Corporation common stock ("Common Stock"), as provided in Section 6 of this
Agreement.
If Director does not elect to have the deferred Fees treated as if
they were invested in Common Stock, the deferred Fees shall be treated as if
they were earning interest as provided in Section 7 of this Agreement.
5. Election of Method of Payment of Deferred Fees to Director.
Director hereby irrevocably elects to have the deferred Fees paid as provided in
Section 8 of this Agreement, (choose one)
(i) in a single sum payment, as soon as practicable after the
last business day of the calendar quarter in which Director ceases to be a
member of the G-P Board, or
(ii) in a series of annual installments (not more than
10) commencing on the last business day of the calendar quarter in which
Director ceases to be a member of the G-P Board. The amount of each such
installment shall be equal to the value (as determined pursuant to Section 8 of
this Agreement) on the day next preceding the date of payment of the installment
of a number of units of each class of Common Stock credited to Director's Unit
Account (as defined in Section 6 of this Agreement) calculated by dividing the
total number of such units for each class of Common Stock by the number of
installments remaining to be paid, or the amount credited to Director's Interest
Account (as defined in Section 7 of this Agreement) on the day next preceding
the date of payment of the installment, as the case may be, divided by the
number of installments remaining to be paid. The unpaid portion of the deferred
Fees shall continue to be adjusted, as provided in Section 6 or Section 7 of
this Agreement, during the period that Director is receiving such installment
payments.
6. Deferred Fees Treated as if Invested in Common Stock. If the
deferred Fees are to be treated as if they were invested in Common Stock, such
deferred Fees shall be deemed to be invested in a THEORETICAL number of units of
each of Georgia-Pacific Corporation/Georgia-Pacific Group Common Stock, $0.80
par value ("Group Stock"), and Georgia-Pacific Corporation/Timber Group Common
Stock, $0.80 par value ("Timber Stock"), obtained by dividing the dollar
amount of such deferred Fees by the sum of the Market Values Per Share, as
defined below, of Group Stock and Timber Stock on the date such deferred Fees
would otherwise have been payable to Director. The number of such units shall
be computed to four decimal places and shall be credited to an account
established and maintained to record such units (the "Unit Account").
From time to time thereafter additional units of Group Stock or Timber
Stock shall be credited to the Unit Account in conjunction with the payment of
dividends to actual holders of such stock. Dividends on each class of Common
Stock shall be reflected by the crediting of additional units of that class of
Common Stock to Director's Unit Account in amounts equal to
(i) the amount of any cash dividend (or the fair market value of a
dividend paid in property, other than a dividend paid in Common Stock) on Group
Stock or Timber Stock which Director would have received if on the record date
for such dividend Director had been the owner of record of a number of shares of
Group Stock or Timber Stock, respectively, equal to the number of units
(including fractions) then credited to the Unit Account divided by
(ii) the Market Value Per Share of Group Stock or Timber Stock, as the case
may be, on the date such dividend is paid.
From time to time additional units of a particular class of Common Stock shall
be credited to the Unit Account in amounts equal to the number of full and
fractional shares of Common Stock which Director would have received if, on the
record date for a dividend which is to be paid on that class of Common Stock,
Director had been the owner of record of a number of shares of the affected
class of Common Stock equal to the number of units (including fractions) then
credited to the Unit Account. The Unit Account shall also be appropriately
adjusted for any change in the Common Stock by reason of any recapitalization,
reorganization, merger, consolidation, split-up, or any similar change affecting
the Common Stock.
For purposes of this Agreement, Market Value Per Share is defined as
the mean between the highest and lowest quoted selling prices on the date of
reference for shares of the appropriate class of Common Stock as reported on the
composite tape on such date (or, if such date shall be a business day, the next
preceding day which shall be a business day). If no sale occurs on such date,
the Market Value Per Share shall be the mean between the bid and asked prices
for such date. If no bid and asked prices are quoted for such date, the Market
Value Per Share shall be determined, in the manner described above, as of the
first preceding business day on which a sale occurs or on which bid and asked
prices are quoted.
7. Deferred Fees Treated as if Earning Interest. If the deferred
Fees are to be treated as if they were earning interest, such deferred Fees
shall be credited to a THEORETICAL account established and maintained to record
such deferred Fees (an "Interest Account"). Such credit shall be as of the date
such deferred Fees would otherwise have been payable to Director.
Thereafter, at intervals of every 26 weeks, such Interest Account will be
credited with interest, at an annual rate equal to (i) the rate, on a bond yield
equivalency basis, on six month (26 weeks) Treasury Bills which mature during
the week in which such 26-week interval ends plus (ii) 75 basis points, on the
average daily balance credited to such Interest Account during such 26-week
interval.
8. Manner of Payment of Deferred Fees. All payments to be made under
this Agreement shall be made in cash. The amount of any payment with respect to
the Unit Account shall be based on the value of the Unit Account as determined
by multiplying (i) the number of units of each class of Common Stock credited to
the Unit Account by (ii) the Market Value Per Share of that class of Common
Stock on the day next preceding the date of such payment and adding together the
results for Group Stock and Timber Stock. A single sum payment, or the last
installment of a series of annual installment payments, with respect to an
Interest Account shall include interest to the date of such payment.
9. Designation of Beneficiary. Director may designate a beneficiary
or beneficiaries (which may be an entity other than a natural person) to receive
any payments to be made under Section 10 of this Agreement upon Director's
death. At any time, and from time to time, any such designation may be changed
or canceled by Director without the consent of any beneficiary. Any such
designation, change or cancellation must be by written notice filed with the
Secretary of G-P and shall not be effective until received by the Secretary of
G-P. If Director designates more than one beneficiary, any payments under
Section 10 of this Agreement to such beneficiaries shall be made in equal shares
unless Director has designated otherwise, in which case the payments shall be
made in the shares designated by the Director. If no beneficiary has been named
by Director, or the designated beneficiaries have predeceased Director,
Director's beneficiary shall be the executor or administrator of Director's
estate.
10. Payment of Deferred Fees in the Event of Death. In the event of
the death of Director while a member of the G-P Board or prior to the full
payment to Director of the Fees deferred under this Agreement, as adjusted as
provided in Section 6 or Section 7 above, as the case may be, an amount equal to
the unpaid portion of the deferred Fees, as adjusted as provided in Section 6 or
Section 7 above, as the case may be, shall be paid in a single sum payment to
Director's designated beneficiary or beneficiaries. Such single sum payment
shall be made as soon as practicable after the death of Director.
11. No Right to Continue as a Director. Nothing in this Agreement
shall be construed as conferring upon Director any right to continue as a member
of the G-P Board.
12. No Interest as a Stockholder. The crediting of units of Common
Stock to the Unit Account under Section 6 of this Agreement, if applicable,
shall not be deemed to create for Director any interest in any class of equity
securities of G-P.
13. No Right to Corporate Assets. Nothing in this Agreement shall be
construed as giving Director, Director's designated beneficiaries or any other
person any equity or interest of any kind in the assets of G-P or creating a
trust of any kind of a fiduciary relationship of any kind between G-P and any
such person. As to any claim for payments due under the provisions of this
Agreement, Director, Director's designated beneficiaries and any other persons
having a claim for payments shall be unsecured creditors of G-P, as the case may
be.
14. No Limit on Further Corporate Action. Nothing contained in this
Agreement shall be construed so as to prevent G-P from taking any corporate
action which is deemed by G-P to be appropriate or in its best interest.
15. Assignment; Successors in Interest. The rights and benefits of
Director under this Agreement are personal to Director and (upon his/her death)
his/her named beneficiaries, and neither Director nor Director's designated
beneficiaries shall have the power or right to transfer, assign, anticipate,
mortgage, or otherwise encumber any payments to be made under this Agreement.
The provisions of this Agreement shall inure to the benefit of Director's
designated beneficiaries, heirs, executors, administrators and successors in
interest.
The obligations of G-P under this Agreement are not assignable or
transferable except to a corporation which acquires all or substantially all of
the assets of G-P, as the case may be, or any corporation into which G-P, as the
case may be, may be merged, converted or consolidated.
16. Governing Law. This Agreement shall be construed in accordance
with and be governed by the laws of the State of Georgia.
17. Execution in Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement.
Dated:
Director:
GEORGIA-PACIFIC CORPORATION
Dated:
By:
---------------------------
Name:
Title:
NOTE: PLEASE BE SURE YOU HAVE MADE THE FOLLOWING ELECTIONS:
1. The election on page 1 as to the portion of your Fees which is to be
deferred.
2. The election on page 1 as to whether the deferred Fees are to be
treated as if invested in G-P Common Stock.
3. The election on page 2 as to the manner of payment.
INITIAL DESIGNATION OF BENEFICIARY:
1. Name:
Address:
Social Security No:
2. Name:
Address:
Social Security No:
Signature
Date:
----------------------------
Georgia-Pacific Corporation
DIRECTORS' DEFERRED COMPENSATION PLAN
1. Adoption and Purpose
The Board of Directors (the "Board") of Georgia-Pacific Corporation (the
"Company") has, under specified conditions, permitted active directors
("Directors") of the Company to defer receipt of all or some portion of the
fees (including, without limitation, any retainer, meeting fee or committee
meeting fee; the "Fees") that each Director may receive for services to the
Company. The Governance Committee of the Board desired to make this practice
more formal by adopting, by resolution dated September 22, 1998, this Directors'
Deferred Compensation Plan (the "Plan"). The purpose of this Plan is to
promote the interests of the Company and its shareholders by attracting and
retaining exceptional Directors for the Company. This Plan is intended to
reflect the practices established by the Board in this regard in the past.
2. Definitions
(a) "Agreement" - A written agreement in the form determined from
time to time by the Plan Administrator under Section 4 which specifies the terms
and conditions pursuant to which a Director has deferred Fees under this Plan.
(b) "Beneficiary(ies)" - The person or persons designated by a
Director in accordance with Section 5(d)(ii) to receive his/her interest under
this Plan in the event of the Director's death prior to the distribution of that
interest.
(c) "Board" - The Board of Directors of the Company, as constituted
from time to time.
(d) "Committee" - The Governance Committee of the Board, as
constituted from time to time, or such subcommittee of that body as the
Governance Committee shall specify to act for the Governance Committee with
respect to this Plan.
(e) "Company" - Georgia-Pacific Corporation, a Georgia corporation.
(f) "Director" - An active member of the Board.
(g) "Effective Date" - The date this Plan was adopted by the
Committee, viz. September 22, 1998.
(h) "Fees" - The fees, including, without limitation, any retainer,
meeting fee or committee meeting fee, that a Director will become entitled to
receive for services as a member of the Board.
(i) "Plan" - The Directors' Deferred Compensation Plan, as
described in this plan document.
(j) "Plan Administrator" - The administrator of the Plan as
designated in Section 6 of this Plan.
3. Eligibility and Election to Defer
Any Director may elect deferral of all or a portion of his/her Fees at any
time by executing an Agreement in the form approved from time to time by the
Plan Administrator pursuant to Section 4 of this Plan and submitting the
executed Agreement to the Secretary of the Company or his/her delegate.
4. Agreement Form
The Plan Administrator shall from time to time approve a form Agreement
providing the terms and conditions of any deferral of Fees under this Plan.
Such terms and conditions shall be at the discretion of the Plan Administrator,
provided, however, that any such form Agreement must comply with, reflect and be
subject to the terms and conditions of this Plan, regardless of whether they are
specifically reiterated in the text of the form Agreement. Whenever a Director
elects to participate in this Plan, the Plan Administrator shall have the
responsibility to provide to the Director, if one has not been supplied
previously, a copy of this Plan.
5. Agreement Standards
The content of the form Agreement promulgated by the Plan Administrator
under Section 4 of this Plan must meet the following standards:
(a) Fee Deferral Elections. No election to defer Fees under this
Plan may take effect prior to the later of (i) the actual execution date of the
form Agreement submitted by the Director, (ii) the commencement date specified
in such Agreement or (iii) the date upon which the completed and executed
Agreement is delivered to the Secretary of the Company or his/her delegate. No
election to terminate a previous deferral election may be effective prior to the
later of the date of written notice of such termination from the affected
Director to the Secretary of the Company, (ii) the effective date specified in
the notice or (iii) the date such notice is received by the Secretary of the
Company or his/her delegate.
(b) Options for Treatment of Deferred Fees. Deferred Fees shall at a
minimum be credited, on an unfunded basis, with interest at a rate and frequency
deemed appropriate by the Plan Administrator and stated in the Agreement form.
At its discretion, the Plan Administrator may also offer, subject to Director
election, alternative methods for determining an appropriate hypothetical
investment return on the deferred Fees. Such alternatives may include treating
such Fees as if they had been invested in common stock issued by the Company,
although election of such an option may not give to the Director any rights as a
shareholder with respect to the hypothetical shares of Company-issued common
stock into which his/her deferred Fees may be converted for accounting purposes.
Any such election shall be irrevocable with respect to the deferred Fees to
which it pertains. The procedures for administering any of these options shall
be determined by the Plan Administrator and specified in the form Agreement.
(c) Distribution of Deferred Fees. Fees deferred under this Plan
(and any hypothetical investment return allocated to them pursuant to subsection
(b) of this Section 5) may not be distributed under any circumstances prior to
the cessation of the Director's service on the Board. The form Agreement must
specify the timing and method of distribution at such time and may, in the
discretion of the Plan Administrator, permit the Director to select from among
alternative methods of making such distributions. Any such election shall be
irrevocable with respect to the deferred Fees to which it pertains.
(d) Assignability; Designation of Beneficiaries.
(i) Prohibition on Transfer. A Director's interest under this Plan
shall be nontransferable and may not be sold, hypothecated, assigned,
anticipated, alienated, commuted, pledged, encumbered or otherwise conveyed by a
Director (whether voluntarily or involuntarily) to any party, nor may any award
be subject to attachment or garnishment by any creditor or a Director; provided,
however, that in the event of the incapacity (as determined by the Plan
Administrator) or death of the Director, his/her attorney-in-fact pursuant to a
valid power of attorney giving general or specific authority to make elections
with respect to this Plan, his/her court-appointed guardian or the custodian of
his/her affairs or the executor or administrator of his/her estate (as the case
may be) may exercise any rights with respect to this Plan that the Director
could have exercised if he/she were still alive or not incapacitated. No
assignment or transfer of the rights of any Director under this Plan, whether
voluntary, involuntary, or by operation of law or otherwise, except by will or
the laws of descent and distribution, shall vest in the assignee or transferee
any interest or right under this Plan whatsoever.
(ii) Designation of Beneficiary(ies). Notwithstanding anything in
Section 5(d)(i) to the contrary, a Director may designate a person or persons
(which may be an entity other than a natural person) to receive, in the event of
his/her death, any rights to which he/she would be entitled under this Plan
(his/her "Beneficiary(ies)"). Such a designation (or modification of
designation) shall be made in writing, and filed with the Secretary of the
Company or his/her delegate. If a Director fails to designate a Beneficiary,
then Section 5(d)(i) will apply.
(e) Tax Withholding. The Company shall have the responsibility,
power and the right to deduct or withhold an amount sufficient to satisfy
federal, state and local taxes required under applicable law to be withheld with
respect to payments under this Plan.
(f) Unfunded Plan. The Company shall not be required to segregate
any assets in connection with this Plan, and the Plan shall constitute an
`unfunded'' plan of the Company. The Company shall not, by any provisions of
the Plan, be deemed to be a trustee of any property, and the liabilities of the
Company to any Director pursuant to the Plan shall be those of a debtor pursuant
to such contract obligations as are created by or pursuant to the Plan, and the
rights of any Director, former Director or Beneficiary under the Plan shall be
limited to those of a general unsecured creditor of the Company. In its sole
discretion, the Board may authorize the creation of trusts or other arrangements
to meet the obligations of the Company under the Plan, provided, however, that
the existence of such trusts or other arrangements shall be consistent with the
unfunded status of the Plan.
6. Plan Administration
(a) Committee as Plan Administrator. This Plan shall be administered
by the Committee. Except as otherwise expressly required by this Plan, the
Committee shall have the complete authority and absolute discretion to interpret
and construe the provisions of this Plan and the Agreements and make
determinations pursuant to any Plan provision or Agreement which shall be final
and binding on all persons. No member of the Committee shall be liable to any
person for any action taken or omitted in connection with the interpretation and
administration of this Plan unless attributable to the member's own willful
misconduct or lack of good faith.
(b) Determinations Final. All determinations and decisions made by
the Committee and the Board with respect to this Plan shall be final,
conclusive, and binding on all persons, and shall be given the maximum deference
permitted by law.
7. Amendment and Termination of the Plan
Except as otherwise provided in this Plan, the Board may at any time
terminate and, from time to time, may amend or modify this Plan, provided,
however, that no outstanding deferral Agreement may be modified without the
consent of the Director party to such agreement and any Agreement outstanding at
the time of the termination of this Plan shall continue in force notwithstanding
any such termination. For purposes of this Plan, an Agreement will be deemed to
be "outstanding" if amounts have accrued under the Agreement that have not
been distributed to the Director or his/her Beneficiary. Any such action of the
Board may be taken without the approval of the Company's shareholders.
8. Corporate Restructuring
(a) No Bar to Corporate Restructuring. The existence of this Plan or
any outstanding Agreement under this Plan shall not affect in any way the right
or power of the Company or its shareholders (i) to make or authorize any and all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, (ii) to issue bonds, debentures, preferred or preference stocks
ahead of or affecting the Common Stock or the rights thereof, (iii) to dissolve
or liquidate the Company, (iv) to sell or transfer all or part of its assets or
business or (v) to effect any other corporate act or proceeding, whether of a
similar character or otherwise.
(b) Capital Readjustments/Award Modifications. In the event that an
option to have deferred Fees treated as if invested in hypothetical shares of
Company-issued common stock is permitted in any Agreement, interests under this
Plan involving such stock will be deemed to be made in hypothetical shares of
the stock as constituted on the date the deferred Fees are converted to
hypothetical shares. However, such hypothetical shares of stock shall reflect
the adjustments (if any) with respect to the Company's common stock contemplated
in this Section 8(b). In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split, or extraordinary
distribution with respect to the Company's common stock or other change in
corporate structure affecting the such stock, the Plan Administrator shall have
the authority to make such substitution or adjustments in the aggregate number
and kind of shares deemed issued on a hypothetical basis under the Plan and/or
such other equitable substitution or adjustments as it may determine in its sole
discretion to be appropriate to ensure that all Directors are treated equitably
as a result of any such event. Any such adjustment may provide for the
elimination of fractional shares. Any hypothetical shares accruing to the
interest of any Director under this Plan as a result of any adjustment under
this Section 8(b) will be subject to the same terms and conditions as the
hypothetical shares to which they accrue.
9. No Right to Continue As Director
Participation in this Plan shall not be construed as giving a Director the
right to be retained as such by the Company. Nothing in this Plan shall
interfere with or limit in any way the right of the Board to terminate any
Director's tenure or fail to renominate any Director at any time in accordance
with the Bylaws of the Company, nor confer upon any Director any right to
continue as a Director of the Company.
10. Governing Law
To the extent that federal laws do not otherwise control, this Plan shall
be construed in accordance with and governed by the law of the State of Georgia.
11. Captions
Captions are provided herein for convenience of reference only, and shall
not serve as a basis for interpretation or construction of this Plan.
12. Savings Clause
This Plan is intended to comply in all aspects with applicable law and
regulations. In case any one or more of the provisions of this Plan shall be
held invalid, illegal or unenforceable in any respect under applicable law and
regulation, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby and the invalid,
illegal or unenforceable provision shall be deemed null and void. However, to
the extent permitted by law, any provision which could be deemed null and void
shall first be construed, interpreted or revised retroactively to permit this
Plan to be construed in compliance with all applicable laws so as to foster the
intent of this Plan.
13. Effect on Existing Deferral Agreements
Any agreement providing for the deferral of Fees which was executed by a
Director prior to the adoption of this Plan and which is still outstanding as of
the Effective Date shall continue to be fully effective according to its terms
and shall in no way be affected by the adoption of this Plan.
14. Effective Date
The Effective Date of this Plan shall be September 22, 1998, provided that
it is then approved by the Committee.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GEORGIA-PACIFIC CORPORATION FOR THE 9 MONTHS ENDED
SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS."
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 1,434
<ALLOWANCES> 15
<INVENTORY> 1,305
<CURRENT-ASSETS> 2,869
<PP&E> 14,443
<DEPRECIATION> 8,182
<TOTAL-ASSETS> 12,941
<CURRENT-LIABILITIES> 2,693
<BONDS> 4,131
0
0
<COMMON> 74
<OTHER-SE> 3,186
<TOTAL-LIABILITY-AND-EQUITY> 12,941
<SALES> 9,923
<TOTAL-REVENUES> 9,923
<CGS> 7,689
<TOTAL-COSTS> 7,689
<OTHER-EXPENSES> 695
<LOSS-PROVISION> 7
<INTEREST-EXPENSE> 338
<INCOME-PRETAX> 376
<INCOME-TAX> 160
<INCOME-CONTINUING> 216
<DISCONTINUED> 0
<EXTRAORDINARY> (15)
<CHANGES> 0
<NET-INCOME> 201
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Georgia-Pacific Group EPS - Basic 0.79
The Timber Company EPS - Basic 1.41
<F2>Georgia-Pacific Group EPS - Diluted 0.79
The Timber Company EPS - Diluted 1.40
</FN>
</TABLE>
