SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
133 PEACHTREE STREET, N.E., ATLANTA, GEORGIA 30303
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 652-4000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Georgia-Pacific Corporation - Georgia-Pacific New York Stock Exchange
Group Common Stock ($.80 par value)
Georgia-Pacific Corporation - Timber New York Stock Exchange
Group Common Stock ($.80 par value)
Georgia-Pacific Group Rights to Purchase New York Stock Exchange
Series B Junior Preferred Stock (no par value)
Timber Group Rights to Purchase New York Stock Exchange
Series C Junior Preferred Stock (no par value)
Securities registered pursuant to Section 12(g) of the Act: None
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 Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of the close of business on March 25, 1998, the registrant had
92,191,860 shares of Georgia-Pacific Group Common Stock outstanding and
92,633,759 shares of Timber Group Common Stock outstanding.
The aggregate market value of the voting stock held by non-affiliates of
the registrant on March 1, 1998 (assuming, for the sole purpose of this
calculation that all executive officers and directors of the registrant are
"affiliates") was $5,520,056,905 for Georgia-Pacific Group Common Stock and
$2,128,647,169 for Timber Group Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Listed hereunder are the documents any portions of which are incorporated
by reference and the Parts of this Form 10-K into which such portions are
incorporated:
1. The Corporation's Annual Report to Shareholders for the fiscal year
ended December 31, 1997, portions of which are incorporated by
reference in Parts I, II and IV of this Form 10-K; and
2. The Corporation's definitive Proxy Statement dated March 23, 1998, for
use in connection with the Annual Meeting of Shareholders to be held
on May 5, 1998, portions of which are incorporated by reference into
Part III of this Form 10-K.
GEORGIA-PACIFIC CORPORATION
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 1997
TABLE OF CONTENTS
PART I Page
Item 1. Business 1
Item 2. Properties 2
Item 3. Legal Proceedings 2
Item 4. Submission of Matters to a Vote of Security
Holders 3
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 4
Item 6. Selected Financial Data 4
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 5
Item 8. Financial Statements and Supplementary Data 5
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 6
PART III
Item 10. Directors and Executive Officers of the
Registrant 6
Item 11. Executive Compensation 9
Item 12. Security Ownership of Certain Beneficial Owners
and Management 9
Item 13. Certain Relationships and Related Transactions 9
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 9
PART I
ITEM 1. BUSINESS
Georgia-Pacific Corporation was organized in 1927 under the laws of the State of
Georgia.
On December 16, 1997, shareholders of Georgia-Pacific Corporation approved the
creation of two classes of common stock, Georgia-Pacific Group Stock and Timber
Group Stock, intended to reflect separately the performance of the Corporation's
two operating groups, Georgia-Pacific Group and The Timber Company.
In this document, the following terms and definitions are used:
"Corporation" refers to Georgia-Pacific Corporation and its subsidiaries,
which includes the businesses of both the Georgia-Pacific Group and The Timber
Company.
"Georgia-Pacific Group" refers to the Corporation's manufacturing and
distribution businesses.
"The Timber Company" refers to the Corporation's timber and timberlands
business.
"Georgia-Pacific Group Stock" refers to the Corporation's Georgia-Pacific
Group common stock, par value $.80.
"The Timber Company Stock" refers to the Corporation's Timber Group common
stock, par value $.80.
Information pertaining to the Corporation's businesses, including industry
segments, set forth under the captions "Financial Strategy", "Georgia-Pacific
Corporation and Subsidiaries - Management's Discussion and Analysis,"
"Georgia-Pacific Corporation and Subsidiaries - Sales and Operating Profits by
Industry Segment," "Georgia-Pacific Corporation and Subsidiaries - Operating
Statistics" and the Corporation's Notes 1-3 of the Notes to Financial
Statements of the Corporation's 1997 Annual Report to Shareholders is
incorporated herein by reference.
Information pertaining to Georgia-Pacific Group's businesses, including industry
segments, set forth under the captions "Georgia-Pacific Group operations
review," "Georgia-Pacific Group - Management's Discussion and Analysis" and
Georgia-Pacific Group's Notes 1-4 of the Notes to Combined Financial Statements
of the Corporation's 1997 Annual Report to Shareholders is incorporated herein
by reference.
Information pertaining to The Timber Company's business set forth under the
captions "The Timber Company operations review," "The Timber Company -
Management's Discussion and Analysis" and The Timber Company's Notes 1-3 of the
Notes to Combined Financial Statements of the Corporation's 1997 Annual Report
to Shareholders is incorporated herein by reference.
TIMBER RESOURCES
Information pertaining to the Corporation's timber resources set forth under the
captions "The Timber Company operations review" and "Georgia-Pacific
Corporation and Subsidiaries - Operating Statistics" of the Corporation's 1997
Annual Report to Shareholders is incorporated herein by reference.
MINERAL RESOURCES
Information pertaining to the Corporation's gypsum resources set forth under the
caption "Georgia-Pacific Group operations review - Building Products - Gypsum
Products" of the Corporation's 1997 Annual Report to Shareholders is
incorporated herein by reference.
ENVIRONMENT
Information pertaining to environmental issues and the Corporation's
expenditures for pollution control facilities and equipment set forth under the
captions "Georgia-Pacific Corporation and Subsidiaries - Management's
Discussion and Analysis - Liquidity and Capital Resources - Investing
Activities", "Georgia-Pacific Group - Management's Discussion and Analysis -
Liquidity and Capital Resources - Investing Activities", the Corporation's Note
10 of the Notes to Financial Statements of the Corporation's 1997 Annual Report
to Shareholders, Georgia-Pacific Group's Note 11 and The Timber Company's Note 9
of the Notes to Combined Financial Statements of the Corporation's 1997 Annual
Report to Shareholders is incorporated herein by reference.
EMPLOYEES
Information pertaining to persons employed by the Corporation set forth under
the captions "Georgia-Pacific Corporation and Subsidiaries - Management's
Discussion and Analysis - Liquidity and Capital Resources - Other", "Georgia-
Pacific Group - Management's Discussion and Analysis - Liquidity and Capital
Resources - Other" and "The Timber Company - Management's Discussion and
Analysis - Liquidity and Capital Resources - Other" of the Corporation's 1997
Annual Report to Shareholders is incorporated herein by reference.
ITEM 2. PROPERTIES
Information pertaining to the number of manufacturing facilities as of December
31, 1997 and capacity and historical production volumes as of December 31, 1997
by plant type set forth under the caption "Georgia-Pacific Corporation and
Subsidiaries - Operating Statistics" of the Corporation's 1997 Annual Report to
Shareholders is incorporated herein by reference.
Information concerning the Corporation's timber and mineral resources is
presented under Item 1 of this Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
Information pertaining to the Corporation's Legal Proceedings set forth in the
Corporation's Note 10 of the Notes to Financial Statements of the Corporation's
1997 Annual Report to Shareholders, Georgia-Pacific Group's Note 11 and The
Timber Company's Note 9 of the Notes to Combined Financial Statements of the
Corporation's 1997 Annual Report to Shareholders is incorporated herein by
reference.
ENVIRONMENTAL PROCEEDINGS
Pursuant to the rules of the Securities and Exchange Commission, the Corporation
is required to describe environmental proceedings to which a governmental
authority is a party and which involve potential monetary sanctions, exclusive
of interest and costs, of at least $100,000. In addition to any environmental
proceedings described in the information pertaining to the Corporation's legal
proceedings set forth in the preceding paragraph, the legal proceeding described
below meets this criteria.
The Puget Soundkeepers Alliance, a Seattle based environmental group, filed a
Clean Water Act Citizens Suit against our Bellingham, Washington facility on
December 30, 1997. The lawsuit alleges that the Bellingham facility exceeded
its wastewater discharge permit limits for mercury discharges from the
chloralkali operation. The allegations, if true, could result in the imposition
of penalties against the facility in excess of $100,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, a special meeting of shareholders of the
Corporation was held on December 16, 1997. At the special meeting, the Letter
Stock Proposal was approved, the Georgia-Pacific Corporation Amended and
Restated 1995 Shareholder Value Incentive Plan, the Georgia-Pacific
Corporation/Georgia-Pacific Group 1997 Long-Term Incentive Plan and the Georgia-
Pacific Corporation/Timber Group 1997 Long Term Incentive Plan were each
approved, and restatement and amendments to the Corporation's Articles of
Incorporation were approved. Proxies for the meeting were solicited pursuant
to Regulation 14 under the
Securities Exchange Act of 1934. The result of shareholder voting are as
follows:
Approval of the Letter Stock Proposal:
For Against Abstain Non-Votes
63,188,286 7,917,849 330,860 4,942,373
Approval of the Georgia-Pacific Corporation Amended and Restated 1995
Shareholder Value Incentive Plan:
For Against Abstain Non-Votes
63,769,534 7,165,377 490,082 4,954,375
Approval of the Georgia-Pacific Corporation/Georgia-Pacific Group 1997 Long Term
Incentive Plan:
For Against Abstain Non-Votes
59,737,337 11,129,531 570,124 4,942,376
Approval of the Georgia-Pacific Corporation/Timber Group 1997 Long-Term
Incentive Plan:
For Against Abstain Non-Votes
59,728,675 11,137,584 570,733 4,942,376
Approval of the amendments to certain provisions of the Georgia-Pacific
Corporation Articles of Incorporation:
For Against Abstain Non-Votes
74,668,721 1,168,473 542,174 -0-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information with respect to the Market for the Corporation's Common Equity and
Related Stockholder Matters set forth under the captions "Highlights,"
"Investor Information", the Corporation's Note 12 of the Notes to Financial
Statements of the Corporation's 1997 Annual Report to Shareholders, Georgia-
Pacific Group's Note 13 and The Timber Company's Note 11 of the Notes to
Combined Financial Statements of the Corporation's 1997 Annual Report to
Shareholders is incorporated herein by reference.
As of the close of business on March 25, 1998, the Georgia-Pacific Group Stock
price was $65.06 and The Timber Company Stock price was $26.69, and there were
approximately 38,462 record holders of Georgia-Pacific Group Stock and 38,560
record holders of The Timber Company Stock.
The Corporation unconditionally guaranteed $100 million of 7.20% Senior Notes
which were issued on December 11, 1996 (the "1996 Notes"), by one of its
indirect wholly-owned subsidiaries, G-P Canada Finance Company (the "1996
Issuer"). The 1996 Notes were issued under a Fiscal and Paying Agency
Agreement dated as of December 16, 1996, among the 1996 Issuer, the Corporation
and The Bank of New York, as fiscal agent. The 1996 Notes were sold to Salomon
Brothers Inc as Initial Purchaser at a purchase price equal to 99.287% of the
principal amount, representing the offer price of the 1996 Notes of 99.937% less
a commission of 0.650% of such offer price to Qualified Institutional Buyers as
defined in Rule 144A under the Securities Act of 1933, as amended, (the
"Securities Act") in accordance with the exemption from the registration
requirements of the Securities Act.
The Corporation also unconditionally guaranteed $264,728,058 in aggregate
principal amount of the Senior Notes which were issued on April 11, 1997 (the
"1997 Notes"), by one of its indirect wholly-owned subsidiaries, GPMF, Inc. (the
"1997 Issuer"), consisting of $65,751,295 Series A 7.72% Senior Notes due 2006,
$66,118,926 Series B 7.82% Senior Notes due 2008, $66,297,710 Series C 7.86%
Senior Notes due 2009 and $66,560,127 Series D 7.90% Senior Notes due 2010. The
1997 Notes were issued under a Note Purchase Agreement dated as of April 11,
1997, among the 1997 Issuer, the Corporation and the purchasers named in
Schedule A thereto and were sold in accordance with an exemption from the
registration requirements of the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to Selected Financial Data for the Corporation set
forth under the captions "Georgia-Pacific Corporation and Subsidiaries -
Selected Financial Data - Operations" and "Georgia-Pacific Corporation and
Subsidiaries - Selected Financial Data - Financial Position, End of Year" of
the Corporation's 1997 Annual Report to Shareholders is incorporated herein by
reference.
Information with respect to Selected Financial Data for Georgia-Pacific Group
set forth under the captions "Georgia-Pacific Group - Selected Financial Data -
Operations" and "Georgia-Pacific Group - Selected Financial Data - Financial
Position, End of Year" of the Corporation's 1997 Annual Report to Shareholders
is incorporated herein by reference.
Information with respect to Selected Financial Data for The Timber Company set
forth under the captions "The Timber Company - Selected Financial Data -
Operations" and "The Timber Company - Selected Financial Data - Financial
Position, End of Year" of the Corporation's 1997 Annual Report to Shareholders
is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information with respect to Management's Discussion and Analysis for the
Corporation set forth under the caption "Georgia-Pacific Corporation and
Subsidiaries - Management's Discussion and Analysis" of the Corporation's 1997
Annual Report to Shareholders is incorporated herein by reference.
Information with respect to Management's Discussion and Analysis and factors
affecting future performance for Georgia-Pacific Group set forth under the
caption "Georgia-Pacific Group - Management's Discussion and Analysis" and
Georgia-Pacific Group's Note 2 of the Notes to Combined Financial Statements of
the Corporation's 1997 Annual Report to Shareholders is incorporated herein by
reference.
Information with respect to Management's Discussion and Analysis and factors
affecting future performance for The Timber Company set forth under the caption
"The Timber Company - Management's Discussion and Analysis" and The Timber
Company's Note 2 of the Notes to Combined Financial Statements of the
Corporation's 1997 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information with respect to Quantitative and Qualitative Disclosure about Market
Risk for the Corporation set forth under the captions "Georgia-Pacific
Corporation and Subsidiaries - Management's Discussion and Analysis - Liquidity
and Capital Resources - Financing Activities", "Georgia-Pacific Group -
Management's Discussion and Analysis - Liquidity and Capital Resources -
Financing Activities" and "The Timber Company - Management's Discussion and
Analysis - Liquidity and Capital Resources - Financing Activities" of the
Corporation's 1997 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to Financial Statements and Supplementary Data for the
Corporation set forth under the captions "Georgia-Pacific Corporation and
Subsidiaries - Statements of Income," "Georgia-Pacific Corporation and
Subsidiaries - Statements of Cash Flows, "Georgia-Pacific Corporation and
Subsidiaries - Balance Sheets," "Georgia-Pacific Corporation and Subsidiaries
- - Statements of Shareholders' Equity," "Report of Independent Public
Accountants"
and the Corporation's Notes to Financial Statements of the Corporation's 1997
Annual
Report to Shareholders is incorporated herein by reference.
Information with respect to Financial Statements and Supplementary Data for
Georgia-Pacific Group set forth under the captions "Georgia-Pacific Group -
Combined Statements of Income," "Georgia-Pacific Group - Combined Statements
of Cash Flows," "Georgia-Pacific Group - Combined Balance Sheets,"
"Georgia-Pacific Group - Combined Statements of Shareholders' Equity,"
"Report of Independent Public Accountants" and Georgia-Pacific Group's Notes
to Combined Financial Statements of the Corporation's 1997 Annual Report to
Shareholders is incorporated herein by reference.
Information with respect to Financial Statements and Supplementary Data for The
Timber Company set forth under the captions "The Timber Company - Combined
Statements of Income,''
"The Timber Company - Combined Statements of Cash Flows," "The Timber Company -
Combined
Balance Sheets," "The Timber Company - Combined Statements of Shareholders'
Equity," "Report of Independent Public Accountants" and The Timber Company's
Notes to Combined Financial Statements of the Corporation's 1997 Annual Report
to Shareholders is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on accounting
and financial disclosure within the twenty-four months prior to the date of the
most recent financial statements filed as part of the 1997 Annual Report on Form
10-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors of the Corporation and disclosure pursuant
to Item 405 of Regulation S-K is incorporated herein by reference to the
Corporation's Notice of 1998 Annual Meeting of Shareholders and Proxy Statement
dated March 23, 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Corporation are as follows:
Date first
elected as
Name Age an officer Position or office
A. D. Correll 56 1988 Chairman, Chief Executive Officer,
President and a Director
Donald L. Glass 49 1982 Executive Vice President - Timber,
President and Chief Executive
Officer,
The Timber Company
Clint M. Kennedy 48 1988 Executive Vice President - Pulp and
Paperboard
John F. McGovern 51 1983 Executive Vice President - Finance
and Chief Financial Officer
Ronald L. Paul 54 1997 Executive Vice President - Wood
Products and Distribution
John F. Rasor 54 1983 Executive Vice President - Wood
Procurement, Gypsum and Industrial
Wood Products
Lee M. Thomas 53 1993 Executive Vice President - Paper
and Chemicals
James E. Bostic, Jr. 50 1991 Senior Vice President -
Environmental, Government
Affairs and Communications
Gerard R. Brandt1 58 1990 Senior Vice President -
Human Resources
James F. Kelley 56 1993 Senior Vice President - Law
and General Counsel
Stephen E. Macadam 37 1998 Senior Vice President -
Containerboard and Packaging
James E. Terrell 48 1989 Vice President and Controller
Alston D. Correll has been Chief Executive Officer of Georgia-Pacific since May
1993, Chairman since December 1993 and President since May 1996. He served as
Chief Operating Officer of the Corporation from August 1991 until May 1993, and
President and Chief Executive Officer from May 1993 until December 1993. Mr.
Correll was elected as a Director of the Corporation on May 5, 1992.
Donald L. Glass has been Executive Vice President - Timber and President and
Chief Executive Officer of The Timber Company since December 16, 1997. Mr.
Glass served as Executive Vice President - Building Products from January 1997
to December 1997 and Senior Vice President - Building Products Manufacturing and
Sales from 1991 until December 1996.
Clint M. Kennedy has been Executive Vice President - Pulp and Paperboard since
January 1, 1997. Prior to that time, he served as Senior Vice President - Pulp,
Bleached Board and Logistics from February 1995 until December 1996, Group Vice
President - Pulp and Bleached Board from July 1992 through January 1995 and Vice
President - Sales and Marketing, Pulp and Bleached Board from May 1990 to July
1992.
John F. McGovern has been Executive Vice President - Finance since September
1995, and Chief Financial Officer since February 1994. He served as Senior Vice
President - Finance from January 1993 until September 1995, Vice President -
Finance from 1983 until January 1993, and Treasurer from March 1992 to October
1993.
Ronald L. Paul has been Executive Vice President - Wood Products and
Distribution since December 30, 1997. Prior to that time, he served as
Executive Vice President - Wood Products from September 1997 until December
1997, Vice President - Structural Panels and Building Products Engineering from
May 1996 until September 1997 and Vice President - Engineering and Technology -
Building Products from May 1995 until May 1996. Prior to joining the
Corporation in 1995, Mr. Paul was Vice President - Corporate Operations, General
Manager - Southern Division, Louisiana-Pacific Corporation (a building
products manufacturing company) from 1994 through 1995 and President of Kirby
Forest Industries, Inc. (a building products manufacturing company) from 1987 to
1994.
John F. Rasor has been Executive Vice President - Wood Procurement, Gypsum and
Industrial Wood Products since December 16, 1997. Prior to that time, he served
as Executive Vice President - Forest Resources from January 1997 to December
1997, Senior Vice President - Forest Resources from February 1995 until December
1996, Group Vice President - Forest Resources from May 1992 through January
1995, Group Vice President - Timber from January 1992 to May 1992 and Vice
President - Forest Resources from 1991 to January 1992.
Lee M. Thomas has been Executive Vice President - Paper and Chemicals since
December 16, 1997. Prior to that time, he served as Executive Vice President -
Paper from January 1997 to December 1997, Senior Vice President - Paper from
February 1995 until December 1996, Senior Vice President - Environmental,
Government Affairs and Communications from February 1994 through January 1995,
and Senior Vice President - Environmental and Government Affairs from March 1993
through January 1994. Prior to joining the Corporation in March 1993, Mr.
Thomas served as Chairman and Chief Executive Officer of Law Companies
Environmental Group, Inc. (an engineering and environmental services company)
from 1989 until March 1993.
James E. Bostic, Jr. has been Senior Vice President - Environmental, Government
Affairs and Communications since February 1995. Prior to that time, he served
as Group Vice President - Communication Papers from April 1992 through January
1995, Group Vice President - Butler Paper and Mail-Well from January 1992 to
April 1992, and Vice President - Butler Paper and Mail-Well from January 1991 to
January 1992.
1 Gerard R. Brandt has been Senior Vice President - Human Resources since
February 1995. Prior to that time, he served as Group Vice President - Packaged
Products from July 1993 through January 1995, Group Vice President - Butler
Paper and Mail-Well from May 1992 to July 1993, Vice President - Butler
Paper and Mail-Well from April 1992 to May 1993, and Vice President -
Communication Papers Manufacturing from May 1990 to April 1992. Mr. Brandt will
retire from the Corporation on April 1, 1998.
James F. Kelley has been Senior Vice President - Law and General Counsel since
December 1993.
Stephen E. Macadam has been Senior Vice President - Containerboard and Packaging
since March 1, 1998. Mr. Macadam was Principal at McKinsey & Company, Inc. (a
management consulting firm) from 1988 through February 1998.
James E. Terrell was elected Vice President of the Corporation in January 1991
and has served as Controller since 1989.
The Corporation's Board of Directors elects officers of the Corporation. The
Chief Executive Officer has the authority to appoint one or more Vice Presidents
to hold such office until the next annual organizational meeting of the Board.
The Compensation Committee determines the compensation of all officers of the
Corporation, including officers who are also directors of the Corporation.
There are no other arrangements or understandings between the respective
officers and any other person pursuant to which such officers are elected.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is incorporated herein by
reference to the Corporation's Notice of 1998 Annual Meeting of Shareholders and
Proxy Statement dated March 23, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to Security Ownership of Certain Beneficial Owners and
Management is incorporated herein by reference to the Corporation's Notice of
1998 Annual Meeting of Shareholders and Proxy Statement dated March 23, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to Certain Relationships and Related Transactions is
incorporated herein by reference to the Corporation's Notice of 1998 Annual
Meeting of Shareholders and Proxy Statement dated March 23, 1998.
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Annual Report for
the Corporation:
(1) The Financial Statements, Notes to Financial Statements and the
Reports of Independent Public Accountants for Georgia-Pacific
Corporation and subsidiaries, Georgia-Pacific Group and The
Timber Company dated February 6, 1998 are incorporated herein by
reference to the Corporation's 1997 Annual Report to
Shareholders.
(2) Financial Statement Schedules:
Reports of Independent Public Accountants as to Schedules
II Valuation and Qualifying Accounts of Georgia-Pacific
Corporation and subsidiaries and Georgia-Pacific Group for
the years ended December 31, 1997, 1996 and 1995.
Schedules other than that listed above are omitted because they
are not required, are inapplicable or the information is
otherwise shown in the financial statements or notes thereto.
(3) Exhibits
The exhibits required to be filed as part of this Annual Report
on Form 10-K are as follows:
NUMBER DESCRIPTION
3.1 Articles of Incorporation, restated as of December 16,
1997 (Filed as Exhibit 4.1 to the Corporation's
Registration Statement on Form S-8 as filed with the
Commission on December 18, 1997, and incorporated
herein by this reference thereto).
3.3 Bylaws as amended to date (Filed as Exhibit 3 to the
Corporation's Registration Statement on Form 8-A as
filed with the Commission on November 26, 1997, and
incorporated herein by this reference thereto).
4.1 Credit Agreement, dated as of December 23, 1996, among
Georgia-Pacific Corporation, as borrower, the lenders
named therein, and Bank of America National Trust and
Savings Association, as agent (Filed as Exhibit 4.1(i)
to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1996, and incorporated herein
by this reference thereto).
4.2 In reliance upon Item 601(b)(4)(iii) of Regulation S-K,
various instruments defining the rights of holders of
long-term debt of the Corporation are not being filed
herewith because the total of securities authorized
under each such instrument does not exceed 10% of the
total assets of the Corporation. The Corporation
hereby agrees to furnish a copy of any such instrument
to the Commission upon request.
4.3 Restated Rights Agreement, dated as of December 16,
1997, between Georgia-Pacific Corporation and First
Chicago Trust Company of New York, with form of
Georgia-Pacific Group Rights Certificate attached as
Exhibit A-1, form of Timber Group Rights Certificate
attached as Exhibit A-2, Series B Preferred Stock
Designation attached as Exhibit B-1 and Series C
Preferred Stock Designation attached as Exhibit B-2
(Filed as Exhibit 8 to the Corporation's Registration
Statement on Form 8-A as filed with the Commission on
November 26, 1997, and incorporated herein by this
reference thereto).
4.4(i) Indenture, dated as of March 1, 1983, between
Georgia-Pacific Corporation and The Chase Manhattan
Bank (National Association), Trustee (Filed as Exhibit
4.4(i) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1996, and incorporated
herein by this reference thereto).
4.4(ii) First Supplemental Indenture, dated as of July 27,
1988, among Georgia-Pacific Corporation, The Chase
Manhattan Bank (National Association), Trustee, and
Morgan Guaranty Trust Company of New York (Filed as
Exhibit 4.4(ii) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1996, and
incorporated herein by this reference thereto).
4.4(iii) Agreement of Resignation, Appointment and
Acceptance, dated as of January 31, 1992 by and among
Georgia-Pacific Corporation, Morgan Guaranty Trust
Company of New York and The Bank of New York, as
Successor Trustee (Filed as Exhibit 4.4(iii) to the
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1996, and incorporated herein by
this reference thereto).
10.1 Directors Group Life Insurance Program (Filed as
Exhibit 10.1 to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1993, and
incorporated herein by this reference thereto).*
10.2(i) Executive Retirement Agreement (Officers
Retirement Plan) (Filed as Exhibit 10.2(i) to the
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1996, and incorporated herein by
this reference thereto).*
*Management contract or compensatory plan or arrangement required to be filed
pursuant to Item 14(c) of this Annual Report on Form 10-K.
10.2(ii) Amendment No. 1 to Executive Retirement Agreement
(Officers Retirement Plan) (Filed as Exhibit 10.2(ii)
to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1996, and incorporated herein
by this reference thereto).*
10.2(iii) Executive Retirement Agreement (Officers Retirement
Plan), as amended, as in effect after January 1, 1992
(Filed as Exhibit 10.2(iii) to the Corporation's Annual
Report on Form 10-K for the year ended December 31,
1996, and incorporated herein by this reference
thereto).*
10.2(iv) Executive Retirement Agreement of James F. Kelley
(entered into December 6, 1993) (Filed as Exhibit 10.2
(v) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1994, and incorporated
herein by this reference thereto).*
10.3(i) Key Salaried Employees Group Insurance Plan - Pre-
1987 Group (As Amended and Restated Effective January
1, 1987) (Filed as Exhibit 10.3(i) to the Corporation's
Annual Report on Form 10-K for the year ended December
31, 1996, and incorporated herein by this reference
thereto).*
10.3(ii) Amendment No. 1 (Effective January 1, 1991) to the
Key Salaried Employees Group Insurance Plan - Pre-1987
Group (As Amended and Restated Effective January 1,
1987) (Filed as Exhibit 10.3(ii) to the Corporation's
Annual Report on Form 10-K for the year ended December
31, 1996, and incorporated herein by this reference
thereto).*
10.3(iii) Key Salaried Employees Group Insurance Plan - Post-1986
Group (Effective January 1, 1987) (Filed as Exhibit
10.3(iii) to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1996, and
incorporated herein by this reference thereto).*
10.3(iv) Amendment No. 1 (Effective January 1, 1991) to the
Key Salaried Employees Group Insurance Plan - Post-1986
Group (Effective January 1, 1987) (Filed as Exhibit
10.3(iv) to the Corporation's Annual Report on Form 10-
K for the year ended December 31, 1996, and
incorporated herein by this reference thereto).*
*Management contract or compensatory plan or arrangement required to be filed
pursuant to Item 14(c) of this Annual Report on Form 10-K.
10.3(v) Amendment No. 2 to the Key Salaried Employees
Group Insurance Plan - Post-1986 Group (effective
January 1, 1987) (Filed as Exhibit 10.3(v) to the
Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993, and incorporated
herein by this reference thereto).*
10.3(vi) Amendment No. 3 to the Key Salaried Employees
Group Insurance Plan - Post-1986 Group (effective
August 1, 1994) (Filed as Exhibit 10.3(vi) to the
Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, and incorporated herein by
this reference thereto).*
10.4(i) 1990 Long-Term Incentive Plan (Filed as Exhibit
10.5(i) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1996, and incorporated
herein by this reference thereto).*
10.4(ii) Amendment No. 1 to 1990 Long-Term Incentive Plan
(Filed as Exhibit 10.5(ii) to the Corporation's Annual
Report on Form 10-K for the year ended December 31,
1996, and incorporated herein by this reference
thereto).*
10.4(iii) Amendment No. 2 to the 1990 Long-Term Incentive Plan
(Filed as Exhibit 10.8(iii) to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, and incorporated herein by this
reference thereto).*
10.5(i) 1993 Employee Stock Option Plan (Filed as Exhibit
4.3 to the Corporation's Form S-8 as filed with the
Commission on February 23, 1993, and incorporated
herein by this reference thereto).*
10.5(ii) Form of Replacement Option Under the 1993 Employee
Stock Option Plan (Georgia-Pacific Group Stock) (Filed
as Exhibit 99.5 to the Corporation's Form S-8 as filed
with the Commission on December 18, 1997, and
incorporated herein by this reference thereto).*
10.5(iii) Form of Replacement Option Under the 1993 Employee
Stock Option Plan (Timber Group Stock) (Filed as
Exhibit 99.6 to the Corporation's Form S-8 as filed
with the Commission on December 18, 1997, and
incorporated herein by this reference thereto).*
*Management contract or compensatory plan or arrangement required to be filed
pursuant to Item 14(c) of this Annual Report on Form 10-K.
10.6(i) 1994 Employee Stock Option Plan (Filed as Exhibit
4.3 to the Corporation's S-8 as filed with the
Commission on March 25, 1994, and incorporated herein
by this reference thereto).*
10.6(ii) Form of Replacement Option Under the 1994 Employee
Stock Option Plan (Georgia-Pacific Group Stock) (Filed
as Exhibit 99.8 to the Corporation's Form S-8 as filed
with the Commission on December 18, 1997, and
incorporated herein by this reference thereto).*
10.6(iii) Form of Replacement Option Under the 1994 Employee
Stock Option Plan (Timber Group Stock) (Filed as
Exhibit 99.9 to the Corporation's Form S-8 as filed
with the Commission on December 18, 1997, and
incorporated herein by this reference thereto).*
10.7 1995 Economic Value Incentive Plan (Filed as Exhibit
10.10 to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1994, and incorporated
herein by this reference thereto).*
10.8(i) 1995 Shareholder Value Incentive Plan, as Amended
and Restated effective December 16, 1997 (Filed as
Exhibit 10.8(iv) to the Corporation's Amendment No. 2
to Registration Statement on Form S-4 as filed with the
Commission on November 7, 1997, and incorporated herein
by this reference thereto).*
10.8(ii) Form of Replacement Option Under the 1995
Shareholder Value Incentive Plan (Georgia-Pacific Group
Stock) (1995 Grant) (Filed as Exhibit 99.11 to the
Corporation's Registration Statement on Form S-8 as
filed with the Commission on December 18, 1997, and
incorporated herein by this reference thereto).*
10.8(iii) Form of Replacement Option Under the 1995 Shareholder
Value Incentive Plan (Timber Group Stock) (1995 Grant)
(Filed as Exhibit 99.12 to the Corporation's
Registration Statement on Form S-8 as filed with the
Commission on December 18, 1997, and incorporated
herein by this reference thereto).*
10.8(iv) Form of Replacement Option Under the 1995
Shareholder Value Incentive Plan (Georgia-Pacific Group
Stock) (1996 Grant) (Filed as Exhibit 99.13 to the
Corporation's Registration Statement on Form S-8 as
filed with the Commission on December 18, 1997, and
incorporated herein by this reference thereto).*
*Management contract or compensatory plan or arrangement required to be filed
pursuant to Item 14(c) of this Annual Report on Form 10-K.
10.8(v) Form of Replacement Option Under the 1995
Shareholder Value Incentive Plan (Timber Group Stock)
(1996 Grant) (Filed as Exhibit 99.14 to the
Corporation's Registration Statement on Form S-8 as
filed with the Commission on December 18, 1997, and
incorporated herein by this reference thereto).*
10.8(vi) Form of Replacement Option Under the 1995
Shareholder Value Incentive Plan (Georgia-Pacific Group
Stock) (1997 Grant) (Filed as Exhibit 99.15 to the
Corporation's Registration Statement on Form S-8 as
filed with the Commission on December 18, 1997, and
incorporated herein by this reference thereto).*
10.8(vii) Form of Replacement Option Under the 1995 Shareholder
Value Incentive Plan (Timber Group Stock) (1997 Grant)
(Filed as Exhibit 99.16 to the Corporation's
Registration Statement on Form S-8 as filed with the
Commission on December 18, 1997, and incorporated
herein by this reference thereto).*
10.8(viii)Form of Special Replacement Option Under the 1995
Shareholder Value Incentive Plan (Georgia-Pacific Group
Stock) (1997 Grant) (Filed as Exhibit 99.17 to the
Corporation's Registration Statement on Form S-8 as
filed with the Commission on December 18, 1997, and
incorporated herein by this reference thereto).*
10.8(ix) Form of Special Replacement Option Under the 1995
Shareholder Value Incentive Plan (Timber Group Stock)
(1997 Grant) (Filed as Exhibit 99.18 to the
Corporation's Registration Statement on Form S-8 as
filed with the Commission on December 18, 1997, and
incorporated herein by this reference thereto).*
10.9(i) Outside Directors Stock Plan, adopted March 17,
1995 (Filed as Exhibit 10.12 to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, and incorporated herein by this
reference thereto).*
*Management contract or compensatory plan or arrangement required to be filed
pursuant to Item 14(c) of this Annual Report on Form 10-K.
10.9(ii) Amendment No. 1 to Outside Directors Stock Plan,
effective May 6, 1997 (Filed as Exhibit 10.11 to the
Corporation's Quarterly Report on Form 10-Q for the
Quarter ended June 30, 1997, and incorporated herein by
this reference thereto).*
10.10(i) Form of Deferral Agreement.*
10.11(i) Receivables Purchase Agreement dated as of June 1,
1990, among Georgia-Pacific Corporation, as the Seller,
and Asset Securitization Cooperative Corporation,
Corporate Asset Funding Company, Inc., Falcon Asset
Securitization Corporation and Matterhorn Capital
Corporation, as the Purchasers, and Canadian Imperial
Bank of Commerce, as the Administrative Agent, as
amended (Filed as Exhibit 10.9(ii) to the Corporation's
Annual Report on Form 10-K for the year ended December
31, 1996, and incorporated herein by this reference
thereto).
10.11(ii) Receivables Purchase Agreement dated as of June 1,
1990, among Georgia-Pacific Corporation, as the Seller,
and Canadian Imperial Bank of Commerce, Citibank, N.A.
and The First National Bank of Chicago, as the
Secondary Purchasers, and Matterhorn Capital
Corporation and Canadian Imperial Bank of Commerce, as
the Administrative Agent (Filed as Exhibit 10.9(iii) to
the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1996, and incorporated herein
by this reference thereto).
10.12(i) Georgia-Pacific Corporation/Georgia-Pacific Group
1997 Long-Term Incentive Plan (Filed as Exhibit
10.10(i) to the Corporation's Amendment No. 2 to
Registration Statement on Form S-4 as filed with the
Commission on November 7, 1997, and incorporated herein
by this reference thereto).*
10.12(ii) Form of Georgia-Pacific Group 1997 Long-Term Incentive
Plan Option.*
10.12(iii)Form of Special Georgia-Pacific Group 1997 Long-
Term Incentive Plan Option.*
*Management contract or compensatory plan or arrangement required to be filed
pursuant to Item 14(c) of this Annual Report on Form 10-K.
10.13(i) Georgia-Pacific Corporation/Timber Group 1997
Long-Term Incentive Plan (Filed as Exhibit 10.10(ii) to
the Corporation's Amendment No. 2 to Registration
Statement on Form S-4 as filed with the Commission on
November 7, 1997, and incorporated herein by this
reference thereto).*
10.13(ii) Amended Form of Timber Group 1997 Long-Term Incentive
Plan Option.*
12 Statements of Computation of Ratio of Earnings to Fixed
Charges.
13 Portions of Georgia-Pacific Corporation's 1997 Annual
Report to Shareholders. Such Report is not deemed to
be filed with the Commission as part of this Annual
Report on Form 10-K, except for the portions thereof
expressly incorporated by reference.
21 Subsidiaries.
23 Consent of Independent Public Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Corporation filed a Current Report on Form 8-K dated December 17,
1997, in which it reported under Item 5 - "Other Events."
*Management contract or compensatory plan or arrangement required to be filed
pursuant to Item 14(c) of this Annual Report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
GEORGIA-PACIFIC CORPORATION
(Registrant)
By: /s/ A. D. Correll
(A. D. Correll,
Chairman, Chief Executive
Officer and President)
Date: March 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
As Officers or Directors of GEORGIA-PACIFIC CORPORATION
/s/ A. D. Correll Director, Chairman, Chief March 25, 1998
Executive Officer and President
- --------------------- (Principal Executive Officer)
(A. D. Correll)
/s /John F. McGovern Executive Vice President - Finance March 25, 1998
and Chief Financial Officer
- --------------------- (Principal Financial Officer)
(John F. McGovern)
/s/ James E. Terrell Vice President and Controller March 25, 1998
(Principal Accounting Officer)
- ---------------------
(James E. Terrell)
* Director March 25, 1998
(Robert Carswell)
* Director March 25, 1998
(Jane Evans)
* Director March 25, 1998
(Donald V. Fites)
* Director March 25, 1998
(Harvey C. Fruehauf, Jr.)
* Director March 25, 1998
(Richard V. Giordano)
* Director March 25, 1998
(David R. Goode)
* Director March 25, 1998
(T. Marshall Hahn, Jr.)
* Director March 25, 1998
(M. Douglas Ivester)
* Director March 25, 1998
(Francis Jungers)
* Director March 25, 1998
(Louis W. Sullivan)
* Director March 25, 1998
(James B. Williams)
*By/s/ James F. Kelley
(James F. Kelley)
*As Attorney-in-Fact for the Directors or Officers by whose names an asterisk
appears.
Report of Independent Public Accountants as to Schedule
To Georgia-Pacific Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Georgia-Pacific Corporation and
subsidiaries incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 6, 1998. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. Schedule
II is the responsibility of the Corporation's management and is presented for
the purpose of complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. This schedule has been subjected
to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/S/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 6, 1998
Report of Independent Public Accountants as to Schedule
To Georgia-Pacific Corporation:
We have audited in accordance with generally accepted auditing standards, the
combined financial statements of Georgia-Pacific Group incorporated by reference
in this Form 10-K, and have issued our report thereon dated February 6, 1998.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. Schedule II is the responsibility of the
Corporation's management and is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/S/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 6, 1998
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Millions)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance
beginning costs and Other at end of
Description of period expenses Accounts* Deductions** period
- ----------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Year ended
December 31,
1997
- -------------
Allowance for
doubtful
accounts $ 10 $ 15 $ 1 $(13) $ 13
------- ------- ------- ------- -------
Year ended
December 31,
1996
- -------------
Allowance for
doubtful
accounts $ 25 $(10) $ 2 $ (7) $ 10
------- -------- ------- ------- -------
Year ended
December 31,
1994
- -------------
Allowance for
doubtful
accounts $ 28 $ 3 $ 1 $ (7) $ 25
------- ------- ------- ------- -------
</TABLE>
*Recoveries of accounts previously written off.
**Accounts written off.
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Millions)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance
beginning costs and Other at end of
Description of period expenses Accounts* Deductions** period
- ----------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Year ended
December 31,
1997
- -------------
Allowance for
doubtful
accounts $ 10 $ 15 $ 1 $(13) $ 13
------- ------- ------- ------- -------
Year ended
December 31,
1996
- -------------
Allowance for
doubtful
accounts $ 25 $(10) $ 2 $ (7) $ 10
------- -------- ------- ------- -------
Year ended
December 31,
1994
- -------------
Allowance for
doubtful
accounts $ 28 $ 3 $ 1 $ (7) $ 25
------- ------- ------- ------- -------
</TABLE>
*Recoveries of accounts previously written off.
**Accounts written off.
GEORGIA-PACIFIC CORPORATION
INDEX TO EXHIBITS
FILED WITH THE ANNUAL REPORT
ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1997
NUMBER DESCRIPTION
3.1 Articles of Incorporation, restated as of December 16, 1997 (Filed as
Exhibit 4.1 to the Corporation's Registration Statement on Form S-8 as
filed with the Commission on December 18, 1997, and incorporated
herein by this reference thereto).
3.3 Bylaws as amended to date (Filed as Exhibit 3 to the Corporation's
Registration Statement on Form 8-A as filed with the Commission on
November 26, 1997, and incorporated herein by this reference thereto).
4.1 Credit Agreement, dated as of December 23, 1996, among Georgia-Pacific
Corporation, as borrower, the lenders named therein, and Bank of
America National Trust and Savings Association, as agent (Filed as
Exhibit 4.1(i) to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1996, and incorporated herein by this
reference thereto).
4.2 In reliance upon Item 601(b)(4)(iii) of Regulation S-K, various
instruments defining the rights of holders of long-term debt of the
Corporation are not being filed herewith because the total of
securities authorized under each such instrument does not exceed 10%
of the total assets of the Corporation. The Corporation hereby agrees
to furnish a copy of any such instrument to the Commission upon
request.
4.3 Restated Rights Agreement, dated as of December 16, 1997, between
Georgia-Pacific Corporation and First Chicago Trust Company of New
York, with form of Georgia-Pacific Group Rights Certificate attached
as Exhibit A-1, form of Timber Group Rights Certificate attached as
Exhibit A-2, Series B Preferred Stock Designation attached as Exhibit
B-1 and Series C Preferred Stock Designation attached as Exhibit B-2
(Filed as Exhibit 8 to the Corporation's Registration Statement on
Form 8-A as filed with the Commission on November 26, 1997, and
incorporated herein by this reference thereto).
4.4(i) Indenture, dated as of March 1, 1983, between Georgia-Pacific
Corporation and The Chase Manhattan Bank (National Association),
Trustee (Filed as Exhibit 4.4(i) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1996, and incorporated
herein by this reference thereto).
4.4(ii) First Supplemental Indenture, dated as of July 27, 1988, among
Georgia-Pacific Corporation, The Chase Manhattan Bank (National
Association), Trustee, and Morgan Guaranty Trust Company of New York
(Filed as Exhibit 4.4(ii) to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1996, and incorporated herein by
this reference thereto).
4.4(iii) Agreement of Resignation, Appointment and Acceptance, dated as of
January 31, 1992 by and among Georgia-Pacific Corporation, Morgan
Guaranty Trust Company of New York and The Bank of New York, as
Successor Trustee (Filed as Exhibit 4.4(iii) to the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1996, and
incorporated herein by this reference thereto).
10.1 Directors Group Life Insurance Program (Filed as Exhibit 10.1 to the
Corporation's Annual Report on Form 10-K for the year ended December
31, 1993, and incorporated herein by this reference thereto).
10.2(i) Executive Retirement Agreement (Officers Retirement Plan) (Filed
as Exhibit 10.2(i) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1996, and incorporated herein by this
reference thereto).
10.2(ii) Amendment No. 1 to Executive Retirement Agreement (Officers
Retirement Plan) (Filed as Exhibit 10.2(ii) to the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1996, and
incorporated herein by this reference thereto).
10.2(iii) Executive Retirement Agreement (Officers Retirement Plan), as amended,
as in effect after January 1, 1992 (Filed as Exhibit 10.2(iii) to the
Corporation's Annual Report on Form 10-K for the year ended December
31, 1996, and incorporated herein by this reference thereto).
10.2(iv) Executive Retirement Agreement of James F. Kelley (entered into
December 6, 1993). (Filed as Exhibit 10.2(v) to the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1994, and
incorporated herein by this reference thereto).
10.3(i) Key Salaried Employees Group Insurance Plan - Pre-1987 Group (As
Amended and Restated Effective January 1, 1987) (Filed as Exhibit
10.3(i) to the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1996, and incorporated herein by this reference
thereto).
10.3(ii) Amendment No. 1 (Effective January 1, 1991) to the Key Salaried
Employees Group Insurance Plan - Pre-1987 Group (As Amended and
Effective January 1, 1987) (Filed as Exhibit 10.3(ii) to the
Corporation's Annual Report on Form 10-K for the year ended December
31,
1996, and incorporated herein by this reference thereto).
10.3(iii) Key Salaried Employees Group Insurance Plan - Post-1986 Group
(Effective January 1, 1987) (Filed as Exhibit 10.3(iii) to the
Corporation's Annual Report on Form 10-K for the year ended December
31, 1996, and incorporated herein by this reference thereto).
10.3(iv) Amendment No. 1 (Effective January 1, 1991) to the Key Salaried
Employees Group Insurance Plan - Post-1986 Group (Effective January 1,
1987) (Filed as Exhibit 10.3(iv) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1996, and incorporated
herein by this reference thereto).
10.3(v) Amendment No. 2 to the Key Salaried Employees Group Insurance
Plan - Post-1986 Group (effective January 1, 1987) (Filed as Exhibit
10.3(v) to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993, and incorporated herein by this
reference thereto).
10.3(vi) Amendment No. 3 to the Key Salaried Employees Group Insurance
Plan - Post-1986 Group (effective August 1, 1994) (Filed as Exhibit
10.3(vi) to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994, and incorporated herein by this reference
thereto).
10.4(i) 1990 Long-Term Incentive Plan (Filed as Exhibit 10.5(i) to the
Corporation's Annual Report on Form 10-K for the year ended December
31, 1996, and incorporated herein by this reference thereto).
10.4(ii) Amendment No. 1 to 1990 Long-Term Incentive Plan (Filed as
Exhibit 10.5(ii) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1996, and incorporated herein by this
reference thereto).
10.4(iii) Amendment No. 2 to the 1990 Long-Term Incentive Plan (Filed as Exhibit
10.8(iii) to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, and incorporated herein by this
reference thereto).
10.5(i) 1993 Employee Stock Option Plan (Filed as Exhibit 4.3 to the
Corporation's Form S-8 filed with the Commission on February 23, 1993,
and incorporated herein by this reference thereto).
10.5(ii) Form of Replacement Option Under the 1993 Employee Stock Option
Plan (Georgia-Pacific Group Stock) (Filed as Exhibit 99.5 to the
Corporation's Form S-8 as filed with the Commission on December 18,
1997, and incorporated herein by this reference thereto).
10.5(iii) Form of Replacement Option Under the 1993 Employee Stock Option Plan
(Timber Group Stock) (Filed as Exhibit 99.6 to the Corporation's Form
S-8 as filed with the Commission on December 18, 1997, and
incorporated herein by this reference thereto).
10.6(i) 1994 Employee Stock Option Plan (Filed as Exhibit 4.3 to the
Corporation's S-8 as filed with the Commission on March 25, 1994, and
incorporated herein by this reference thereto).
10.6(ii) Form of Replacement Option Under the 1994 Employee Stock Option
Plan (Georgia-Pacific Group Stock)(Filed as Exhibit 99.8 to the
Corporation's Form S-8 as filed with the Commission on December 18,
1997, and incorporated herein by this reference thereto).
10.6(iii) Form of Replacement Option Under the 1994 Employee Stock Option Plan
(Timber Group Stock)(Filed as Exhibit 99.9 to the Corporation's Form
S-8 as filed with the Commission on December 18, 1997, and
incorporated herein by this reference thereto).
10.7 1995 Economic Value Incentive Plan (Filed as Exhibit 10.10 to the
Corporation's Annual Report on Form 10-K for the year ended December
31, 1994, and incorporated herein by this reference thereto).
10.8(i) 1995 Shareholder Value Incentive Plan, as Amended and Restated
effective December 16, 1997 (Filed as Exhibit 10.8(iv) to the
Corporation's Amendment No. 2 to Registration Statement on Form S-4 as
filed with the Commission on November 7, 1997, and incorporated herein
by this reference thereto).
10.8(ii) Form of Replacement Option Under the 1995 Shareholder Value
Incentive Plan (Georgia-Pacific Group Stock)(1995 Grant) (Filed as
Exhibit 99.11 to the Corporation's Registration Statement on Form S-8
as filed with the Commission on December 18, 1997, and incorporated
herein by this reference thereto).
10.8(iii) Form of Replacement Option Under the 1995 Shareholder Value Incentive
Plan (Timber Group Stock) (1995 Grant) (Filed as Exhibit 99.12 to the
Corporation's Registration Statement on Form S-8 as filed with the
Commission on December 18, 1997, and incorporated herein by this
reference thereto).
10.8(iv) Form of Replacement Option Under the 1995 Shareholder Value
Incentive Plan (Georgia-Pacific Group Stock) (1996 Grant) (Filed as
Exhibit 99.13 to the Corporation's Registration Statement on Form S-8
as filed with the Commission on December 18, 1997, and incorporated
herein by this reference thereto).
10.8(v) Form of Replacement Option Under the 1995 Shareholder Value
Incentive Plan (Timber Group Stock) (1996 Grant) (Filed as Exhibit
99.14 to the Corporation's Registration Statement on Form S-8 as filed
with the Commission on December 18, 1997, and incorporated herein by
this reference thereto).
10.8(vi) Form of Replacement Option Under the 1995 Shareholder Value
Incentive Plan (Georgia-Pacific Group Stock) (1997 Grant) (Filed as
Exhibit 99.15 to the Corporation's Registration Statement on Form S-8
as filed with the Commission on December 18, 1997, and incorporated
herein by this reference thereto).
10.8(vii) Form of Replacement Option Under the 1995 Shareholder Value Incentive
Plan (Timber Group Stock) (1997 Grant) (Filed as Exhibit 99.16 to the
Corporation's Registration Statement on Form S-8 as filed with the
Commission on December 18, 1997, and incorporated herein by this
reference thereto).
10.8(viii)Form of Special Replacement Option Under the 1995 Shareholder
Value Incentive Plan (Georgia-Pacific Group Stock) (1997 Grant) (Filed
as Exhibit 99.17 to the Corporation's Registration Statement on Form
S-8 as filed with the Commission on December 18, 1997, and
incorporated herein by this reference thereto).
10.8(ix) Form of Special Replacement Option Under the 1995 Shareholder
Value Incentive Plan (Timber Group Stock) (1997 Grant) (Filed as
Exhibit 99.18 to the Corporation's Registration Statement on Form S-8
as filed with the Commission on December 18, 1997, and incorporated
herein by this reference thereto).
10.9(i) Outside Directors Stock Plan, adopted March 17, 1995 (Filed as
Exhibit 10.12 to the Corporation's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995, and incorporated herein by this
reference thereto).
10.9(ii) Amendment No. 1 to Outside Directors Stock Plan, effective May 6,
1997 (Filed as Exhibit 10.11 to the Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, and incorporated herein
by this reference thereto).
10.10 Form of Deferral Agreement. (1)
10.11(i) Receivables Purchase Agreement dated as of June 1, 1990, among
Georgia-Pacific Corporation, as the Seller, and Asset Securitization
Cooperative Corporation, Corporate Asset Funding Company, Inc., Falcon
Asset Securitization Corporation and Matterhorn Capital Corporation,
as the Purchasers, and Canadian Imperial Bank of Commerce, as the
Administrative Agent, as amended (Filed as Exhibit 10.9(ii) to the
Corporation's Annual Report on Form 10-K for the year ended December
31, 1996, and incorporated herein by this reference thereto).
10.11(ii) Receivables Purchase Agreement dated as of June 1, 1990, among
Georgia-Pacific Corporation, as the Seller, and Canadian Imperial Bank
of Commerce, Citibank, N.A. and The First National Bank of Chicago, as
the Secondary Purchasers, and Matterhorn Capital Corporation and
Canadian Imperial Bank of Commerce, as the Administrative Agent (Filed
as Exhibit 10.9(iii) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1996, and incorporated herein by this
reference thereto).
10.12(i) Georgia-Pacific Corporation/Georgia-Pacific Group 1997 Long-Term
Incentive Plan (Filed as Exhibit 10.10(i) to the Corporation's
Amendment No. 2 to Registration Statement on Form S-4 as filed with
the Commission on November 7, 1997, and incorporated herein by this
reference thereto).
10.12(ii) Form of Georgia-Pacific Group 1997 Long-Term Incentive Plan Option.(1)
10.12(iii) Form of Special Georgia-Pacific Group 1997 Long-Term Incentive
Plan Option. (1)
10.13(i) Amended Form Georgia-Pacific Corporation/Timber Group 1997 Long-
Term Incentive Plan Option (1).
10.13(ii) Form of Timber Group 1997 Long-Term Incentive Plan Option (Filed as
Exhibit 99.21 to the Corporation's Registration Statement on Form S-8
as filed with the Commission on December 18, 1997, and incorporated
herein by this reference thereto).
12 Statements of Computation of Ratio of Earnings to Fixed Charges. (1)
13 Portions of Georgia-Pacific Corporation's 1997 Annual Report to
Shareholders. Such Report is not deemed to be filed with the
Commission as part of this Annual Report on Form 10-K, except for the
portions thereof expressly incorporated by reference. (1)
21 Subsidiaries. (1)
23 Consent of Independent Public Accountants. (1)
24 Powers of Attorney. (1)
27 Financial Data Schedule. (1)
(1) Filed via EDGAR.
EXHIBIT 10.10
FORM OF DEFERRAL AGREEMENT
AGREEMENT, dated as of _______, 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 calendar
year of 19__;
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 upon
delivery of the completed and executed Agreement to the Secretary of G-P no
later than December 31, 19__ and the approval of the entire Board at its next
regularly scheduled meeting.
2. Election to Defer Fees. 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 January 1, 19__ and ending on December 31,
19__.
___ % 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 and such percentage of each payment of Fees for
services during the period covered by this Agreement shall be deferred.
3. 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 common stock of
Georgia-Pacific Corporation, par value $.80 per share (including, without
limitation, Georgia-Pacific Corporation/Georgia-Pacific Group Common Stock and
Georgia-Pacific Corporation/Timber Group Common Stock; the "Common Stock"), as
provided in Section 5 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 6 of this Agreement.
4. Election of Method of Payment of Deferred Fees to Director. Director
hereby irrevocably elects to have the deferred Fees paid, as provided in Section
7 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 7
of this Agreement) of the number of units of Common Stock
credited to Director's unit account (as defined in Section 5
of this Agreement) on the day next preceding the date of
payment of the installment, or the amount credited to
Director's interest account (as defined in Section 6 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 5 or Section 6 of this Agreement, during the
period that Director is receiving such installment payments.
5. 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
then outstanding class of Common Stock obtained by dividing the dollar amount of
such deferred Fees by the sum of Market Value Per Share, as defined below, of
Georgia-Pacific Group Common Stock and Timber Group Common 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 Common Stock shall be
credited to the 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) 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 the affected class of Common Stock equal to
the number of units (including fractions) of such class of Common
Stock then credited to the unit account divided by
(ii) the Market Value Per Share of the appropriate class of Common
Stock on the date such dividend is paid.
From time to time additional units 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 with respect to a particular class of Common Stock Director
had been the owner of record of a number of shares of that class of Common Stock
equal to the number of units (including fractions) of such class of Common Stock
then credited to the unit account. The unit account shall also be appropriately
adjusted for any change in either class of Common Stock by reason of any
recapitalization, reorganization, merger, consolidation, split-up, or any
similar change affecting such class of 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 affected class of Common Stock as reported on the
composite tape on such date (or, if such date shall not 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.
6. 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 an 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.
7. 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 determined by (i) multiplying (a) the number of units of
each class of Common Stock with respect to which a payment is to be made by (b)
the Market Value Per Share of such class of Common Stock on the day next
preceding the date of such payment and (ii) adding the products for each class
of Common 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.
8. 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 9 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 9 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.
9. 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 5 or Section 6 above, as the case may be, an amount equal to the
unpaid portion of the deferred Fees, as adjusted as provided in Section 5 or
Section 6 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.
10. 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.
11. No Interest as a Stockholder. The crediting of units of Common Stock
to the unit account under Section 5 of this Agreement, if applicable, shall not
be deemed to create for Director any interest in any class of equity securities
of G-P.
12. 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.
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.
The provisions of this Agreement shall enure to the benefit of Director's
designated beneficiaries, heirs, executors, administrators and successors in
interest.
13. 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.
14. Assignment; Successors in Interest. The rights and benefits of
Director under this Agreement are personal to Director, 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.
15. Governing Law. This Agreement shall be construed in accordance with
and be governed by the laws of the State of Georgia.
16. 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: , 19__ ____________________________
Director:
GEORGIA-PACIFIC CORPORATION
Dated: , 19 By: ________________________
Chairman, Chief Executive Officer
and President
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 Common Stock.
3. The election on page 2 as to the manner of payment.
INITIAL DESIGNATION OF BENEFICIARY(IES):
1. Name:
Address:
Social Security No:
2. Name:
Address:
Social Security No:
Signature
Date:
----------------------------
SCHEDULE TO FORM OF DEFERRAL AGREEMENT
Pursuant to Regulation S-K, Item 601, this schedule sets forth the material
details in which the Deferral Agreements of the Corporation differ from the form
which is filed as an exhibit hereto.
The Deferral Agreements are available to each director as an alternative payment
arrangement for all or a portion of the director's fees for services as a member
of the Corporation's Board of Directors for a specific calendar year.
Material details include:
A. Dates of the agreements: The original documents indicate the specific
calendar year for which the agreement is applicable.
B. Classes of stock: Agreements from 1987-1997 allowed deferred fees to be
treated as if invested in common stock of Georgia-Pacific Corporation, par
value $.80 per share. The 1998 Deferral Agreement allows the fees to be
treated as if invested in substantially equal numbers of shares of Georgia-
Pacific Group Common Stock and Timber Group Common Stock, each with a par
value $.80 per share.
C. Directors participating:
1987-1991 Deferral Agreements - Robert Carswell
1992 Deferral Agreement - Robert Carswell and James B. Williams
1993-1997 Deferral Agreements - David R. Goode, M. Douglas Ivester and
James B. Williams
1998 Deferral Agreement - Donald V. Fites, David R. Goode, M. Douglas
GEORGIA-PACIFIC CORPORATION/GEORGIA-PACIFIC GROUP
1997 LONG-TERM INCENTIVE PLAN
EMPLOYEE STOCK OPTION
THIS AGREEMENT, dated January 29, 1998, by and between GEORGIA-
PACIFIC CORPORATION, a Georgia corporation (hereinafter called the
"Corporation"), and (hereinafter called "Optionee");
W I T N E S S E T H:
WHEREAS, the Optionee is now employed by the Corporation or a
Subsidiary in a key capacity and the Corporation desires to have him/her remain
in the employment of the Corporation or a Subsidiary and to afford him/her the
opportunity to acquire or enlarge his/her stock ownership in the Corporation by
granting him/her options to purchase from the Corporation up to, but not
exceeding in the aggregate, _____ shares of the Corporation's Georgia-
Pacific Group Stock, the exercise of which is subject to vesting and other terms
and conditions as hereinafter more specifically provided, so that he/she may
have a direct proprietary interest in the success of the Corporation and, in
particular, of its business segment known as the "Georgia-Pacific Group"; and
WHEREAS, the options described in this Agreement have been granted
pursuant to, and are governed by, the Georgia-Pacific Corporation/Georgia-
Pacific Group 1997 Long-Term Incentive Plan adopted by the Corporation's Board
of Directors on September 17, 1997 and approved by the shareholders of the
Corporation on December 16, 1997 (the "Plan");
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereto do hereby mutually agree as
follows:
1. OPTION GRANT. Subject to the terms and conditions set forth
herein, the Corporation hereby grants to the Optionee during the period
commencing on the date hereof (the "Grant Date") and ending on January 28,
2008, the option to purchase from the Corporation, from time to time, as
hereinafter more specifically stated, at a price of $56.41 per share, up to but
not exceeding in the aggregate, the number of shares of the Corporation's
Georgia-Pacific Group Stock as set forth in the introduction of this Agreement
(or such portion of such shares as may be vested and exercisable), which option
may be exercised, in whole or in part, from time to time, commencing on the
applicable Vesting Date as determined in accordance with Section 2 (but only as
to the portion then becoming exercisable) and for the exercise period beginning
on such Vesting Date and continuing to the end of the applicable exercise period
specified in this Agreement. Notwithstanding anything to the contrary in this
Agreement (but subject to the exercise limitations specified in this Agreement),
if the Optionee is on a leave of absence or is absent on military or government
service as of the date of this Agreement, the Optionee may not exercise all or
any part of the options granted hereby prior to the later of (i) the date the
Optionee returns to active employment with the Corporation or a Subsidiary or
(ii) the Vesting Date for all or any portion of this option grant (but only as
to the portion then becoming exercisable). If the Optionee is not on leave of
absence or absent on military or government service at the date of this
Agreement or returns to active employment with the Corporation or a Subsidiary
thereafter, the options described in this Agreement shall be immediately
effective (subject to the exercise limitations provided in Section 2) and may
become exercisable and may be exercised during a subsequent leave of absence or
absence for military or government service.
2. VESTING. This option grant shall vest in accordance with the
following schedule:
VESTING DATE PERCENTAGE OF
ORIGINALLY
GRANTED SHARES VESTING 1
January 29, 1999 34%
January 29, 2000 33%
January 29, 2001 33%
Note 1: The actual number of shares vesting on any Vesting
Date will be determined by multiplying the original grant
under this Option Agreement by the specified percentage and
by rounding the result up to the nearest whole share,
provided that the total shares vesting under this Agreement
may not exceed the number originally granted.
Notwithstanding the vesting schedule specified in the chart above, this option
grant shall become 100% vested upon retirement (as defined in Section 3), death
or disability (as defined in Section 3) of the Optionee. Vesting of this option
grant under this Section 2 is subject in all cases to the
restrictions/forfeiture rules in Sections 4 and 5. Subject to those rules and
the provisions of Section 3, if this option grant vests pursuant to this Section
2, it may be exercised at any time on or after the Vesting Date and prior to the
10th anniversary of the Grant Date.
3. TERMINATION OF OPTION. The option hereby granted shall terminate
and be of no force or effect upon the happening of the first to occur of the
following events:
(a) The expiration of the time allowed for exercise of this option as
specified in Section 2 of this Agreement.
(b) Subject to the provisions of Section 2, the expiration of ninety
days after the date of the termination (whether voluntary or
involuntary) of the Optionee's employment with the Corporation
and all Subsidiaries (other than as a result of his death or
permanent disability while in the Corporation's employment or his
retirement). During such ninety-day period, the Optionee shall
have the right to exercise this option only with respect to any
or all shares which were available for purchase by him on the
date of such termination of employment. In the event of
Optionee's death or permanent disability after termination of
employment and during such ninety-day period, such deceased
Optionee's estate, personal representative or beneficiary or such
disabled Optionee's duly authorized legal guardian or
representative (if any), as the case may be, may exercise this
option within such period with respect to any or all shares which
were available for purchase by the Optionee on the date of his
death or permanent disability and which had not been purchased by
him prior to his death or permanent disability.
(c) Subject to the provisions of Section 2, the expiration of 36
calendar months after the date of the Optionee's retirement
(commencing with the first full calendar month after such date)
immediately following a period of continuous employment by the
Corporation. During such period, the Optionee shall have the
right to exercise this option with respect to any or all shares
which were available for purchase by him on the date of such
retirement (taking into account the accelerated vesting
provisions in Section 2 applicable upon retirement and the
forfeiture provisions of Section 5). In the event of Optionee's
death or permanent disability after retirement and during such
period, such deceased Optionee's estate, personal representative
or beneficiary, or such disabled Optionee's duly authorized legal
guardian or representative (if any), as the case may be, may
exercise this option within such period with respect to any or
all shares which were available for purchase by the Optionee on
the date of his death or permanent disability and which had not
been purchased by him prior to his death or permanent disability.
(d) Subject to the provisions of Section 2, the expiration of 36
calendar months after the date of permanent disability of the
Optionee during a period of continuous employment by the
Corporation (commencing with the first full calendar month after
such date). During such period, such disabled Optionee or the
Optionee's legal guardian or representative, as the case may be,
may exercise this option with respect to any or all shares which
were available for purchase by the Optionee on the date of his
death or permanent disability (taking into account the
accelerated vesting provisions in Section 2 applicable upon death
or disability and the forfeiture provisions of Section 5). In
the event of Optionee's death while permanently disabled under
this Agreement and during such period, such deceased Optionee's
estate, personal representative or beneficiary, as the case may
be, may exercise this option within such period with respect to
any or all shares which were available for purchase by the
Optionee on the date of his death and which had not been
purchased by him prior to his death.
(e) Subject to the provisions of Section 2, the expiration of 12
calendar months after the date of death of the Optionee during a
period of continuous employment by the Corporation (commencing
with the first full calendar month after such date). During such
period, such deceased Optionee's estate, personal representative
or beneficiary, as the case may be, may exercise this option with
respect to any or all shares which were available for purchase by
the Optionee on the date of his death (taking into account the
accelerated vesting provisions in Section 2 applicable upon death
or disability and the forfeiture provisions of Section 5).
Except in the case of disability, Optionee's date of termination
or retirement shall be deemed to be his last day worked. For purposes of this
Agreement, "retirement" shall mean voluntary or involuntary (other than for
Cause) termination of employment with the Corporation and all Subsidiaries after
having attained age 65 or having attained age 55 and having accrued 10 years of
service for vesting purposes under the Corporation's salaried retirement plans.
The Optionee's date of permanent disability shall be the last day of his salary
continuation period under the Corporation's policy providing for salary
continuation for salaried employees who are medically unable to work because of
illness or injury, and Optionee shall be deemed "permanently disabled" on that
date only if he would be "totally disabled" pursuant to the standards set forth
in the Georgia-Pacific Corporation Long-Term Disability Plan, whether or not
Optionee is covered under that plan.
The Plan Administrator (as hereinafter defined) shall have
absolute and uncontrolled discretion to determine whether any authorized leave
of absence or absence on military or government service taken by the Optionee
shall constitute a termination of employment for the purposes of this Agreement.
4. RESTRICTIONS/FORFEITURE RULES. This option grant will be
subject to the following restrictions and forfeiture rules:
(a) Subject to Section 3, if the Optionee's employment with the
Corporation and its Subsidiaries is terminated for any reason
prior to the Vesting Date for this option grant (or any portion
thereof), the Optionee shall forfeit all rights with respect to
this option grant, and this Agreement shall be null, void and
of no effect as of the date his/her employment terminates.
(b) This option grant shall be nontransferable and may not be sold,
hypothecated or otherwise assigned or conveyed by the Optionee
to any party; provided that in the event of the incapacity (as
determined by the Plan Administrator) or death of the Optionee,
his/her attorney-in-fact pursuant to a valid power of attorney
giving general or specific authority to make elections with
respect to this option grant, 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 option grant that the
Participant could have exercised if he/she were still alive or
not incapacitated. No assignment or transfer of this option or
the rights represented thereby, 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 herein whatsoever, and
immediately upon any attempt to assign or transfer this option,
this option shall terminate and be of no force or effect.
Notwithstanding anything in this subsection (b) to the
contrary, an Optionee may designate a person or persons to
receive, in the event of his death, any rights to which he
would be entitled under this Option Agreement. Such a
designation shall be filed with the Corporation or its delegate
in accordance with uniform procedures specified by the
Corporation. A beneficiary designation may be changed or
revoked by an Optionee at any time by filing a written
statement of such change or revocation with the Corporation or
its delegate in accordance with uniform procedures specified by
the Corporation. No beneficiary designation or change of
beneficiary designation will be effective until notice thereof
is actually received by the Corporation in accordance with the
procedures specified for such purpose. If an Optionee fails to
designate a beneficiary (or the beneficiary predeceases the
Optionee), this subsection (b) will apply without regard to the
provisions relating to the designation of a beneficiary.
(c) The Optionee shall not be deemed to be a shareholder of the
Corporation - and shall have no rights as a stockholder - with
respect to the shares covered by this option grant until the
date (i) such shares have been issued or transferred to him/her
and (ii) payment in full for such shares has been received by
the Corporation as provided in this Agreement. No adjustment
shall be made for dividends or other rights for which the
record date is prior to the date of such issuance or transfer.
(d) To the extent that this option grant is vested, but not
exercised during the period provided for its exercise under
this Agreement, the Participant shall forfeit all rights with
respect to this option grant and this Agreement shall expire as
of the close of the last day of the prescribed exercise period.
5. TERMINATION FOR CAUSE. Notwithstanding anything in this Option
Agreement to the contrary, if the Optionee is terminated for Cause, this option
grant shall terminate as of such date of termination regardless whether a
Vesting Date has occurred or would otherwise occur on or prior to his/her date
of termination unless and to the extent that the Committee determines (after
taking into account the provisions of Section 16) that such forfeiture in a
given case would violate applicable law.
6. EXERCISE OF OPTION. The option hereby granted shall be exercised
by the delivery to the Corporation or its delegate, from time to time, of notice
specifying the number of shares the Optionee then desires to purchase, together
with cash, certified check, bank draft or postal or express money order to the
order of the Corporation for an amount in United States dollars equal to the sum
of: (a) the option price of such shares and (b) an amount sufficient to pay all
state and federal withholding taxes (including, without limitation, FICA) with
respect to the exercise (the total of (a) and (b) shall be referred to as the
"Exercise Amount"). In the alternative, the Optionee may tender payment for
the option shares in the form of shares of Georgia-Pacific Group Stock having a
Fair Market Value on the date of exercise equal to the Exercise Amount or a
combination of (i) shares of Georgia-Pacific Group Stock and (ii) cash,
certified check, bank draft or postal or express money order to the order of the
Corporation in an amount in United States dollars equal to the difference
between the Exercise Amount and the Fair Market Value of the tendered shares of
Georgia-Pacific Group Stock on the date of exercise. If shares of Georgia-
Pacific Group Stock are tendered in payment of the exercise price of options
hereunder and such shares were acquired upon exercise of a stock option, such
shares must have been held by the Optionee for at least six months. Such
notices shall in all cases be given in accordance with uniform procedures
specified by the Corporation or its delegate and shall not be effective until
filed and received by the Corporation or its delegate for such purposes. In
each case, the date of receipt shall be considered the date of exercise of the
option by the Optionee. An exercise of stock options granted under this
Agreement will generate compensation subject to federal and state tax
withholding (including, without limitation, FICA withholding) in the calendar
year of each exercise, and all such withholding taxes shall be the
responsibility of the Optionee. The Committee may also authorize alternative
procedures for exercising options under this Agreement. Within thirty (30)
business days after any such exercise of the option in whole or in part by the
Optionee, the Corporation shall make available to the Optionee a certificate or
certificates representing the aggregate number of shares with respect to which
such option shall be so exercised, registered in the Optionee's name. The
Optionee shall not have the right, in lieu of the exercise of the option, to
surrender the option granted hereby, or any portion thereof, in order to receive
shares covered by this option grant.
7. DATE OF TERMINATION. Except to the extent otherwise provided in
subsections (a) through (c) of this Section 7, for purposes of this Agreement,
the Optionee's date of termination shall be deemed to be his/her last day
worked:
(a) The Optionee's employment by the Corporation shall be deemed to
continue during such periods as he/she is employed by a
Subsidiary. If the Optionee shall be transferred from the
Corporation to a Subsidiary or from a Subsidiary to the
Corporation or from a Subsidiary to another Subsidiary, his/her
employment shall not be deemed to be terminated by reason of such
transfer. If, while the Optionee is employed by a Subsidiary,
such Subsidiary shall cease to be a Subsidiary and the Optionee
is not thereupon transferred to and employed by the Corporation
or another Subsidiary, the date that the Optionee's employer
ceases to be a Subsidiary shall be deemed to be a termination of
employment.
(b) The Optionee's date of termination on account of total disability
shall be the last day of his/her salary continuation period under
the Corporation's policy providing for salary continuation for
salaried employees who are medically unable to work because of
illness or injury or, if later, the date any personal leave of
absence he/she may be granted under the policies of the
Corporation immediately following such period of salary
continuation terminates in accordance with such policies.
(c) The Plan Administrator (as hereinafter defined) shall have
absolute and uncontrolled discretion to determine whether any
authorized leave of absence or absence on military or government
service taken by the Optionee shall constitute a termination of
employment for the purposes of this Agreement.
8. NO BAR TO CORPORATE RESTRUCTURING. The existence of this option
shall not affect in any way the right or power of the Corporation or its
stockholders to make or authorize any and all adjustments, recapitalizations,
reorganizations or other changes in the Corporation's capital structure or its
business, or any merger or consolidation of the Corporation, or any issue of
bonds, debentures, preferred or preference stocks ahead of or affecting Georgia-
Pacific Group Stock or the rights thereof, or the dissolution or liquidation of
the Corporation, or any sale or transfer of all or part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
9. CAPITAL READJUSTMENTS/STOCK OPTION MODIFICATIONS. The option
grant under this Plan will be made in Georgia-Pacific Group Stock as
constituted on the Grant Date for this option grant. In the event of any
merger, reorganization, consolidation, recapitalization, stock dividend, stock
split, or extraordinary distribution with respect to Georgia-Pacific Group
Stock or other change in corporate structure affecting Georgia-Pacific Group
Stock, the Plan Administrator shall have the authority to make such
substitution or adjustments in the number, kind and option price of shares
subject to this option grant and/or such other equitable substitution or
adjustments as it may determine in its sole discretion to be appropriate to
ensure that all similarly situated optionees under the Plan are treated
equitably as a result of any such event; provided, however, that the number of
shares subject to any option grant shall always be a whole number. In the
event any adjustment to this option grant pursuant to this Agreement would
otherwise result in the creation of a fractional share interest, the number of
shares under this option grant shall be rounded to the nearest whole share
(with 0.5 share rounded to the next higher whole number).
10. CHANGE OF CONTROL. Notwithstanding any other provision of
this Agreement to the contrary, in the event of a Change of Control of the
Corporation (as defined in this Section 10), this option grant, if then
outstanding and not yet vested, shall vest as of the effective date of such
Change of Control. If this option grant vests pursuant to this Section 10, it
may be exercised at any time from and after the effective date of the Change
of Control (which shall be considered the applicable Vesting Date) and prior
to the 10th anniversary of its Grant Date. For the purposes of this Agreement,
a "Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of the
combined voting power of the then outstanding voting securities
of the Corporation entitled to vote generally in the election
of directors (the "Outstanding Voting Securities"); provided,
however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change of
Control: (i) any acquisition by a Person who on the effective
date of the Original Plan was the beneficial owner of 20% or
more of the Outstanding Voting Securities; (ii) any acquisition
directly from the Corporation, including without limitation a
public offering of securities; (iii) any acquisition by the
Corporation, (iv) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Corporation
or any of its Subsidiaries or (v) any acquisition by any
corporation pursuant to a transaction which complies with
clauses (i), (ii), and (iii) of subsection (c) of this Section
10; or
(b) Individuals who, as of the effective date of the Original Plan,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the effective date of the Original Plan whose
election, or nomination for election by the Corporation's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board or actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(c) Consummation of a reorganization, merger or consolidation to
which the Corporation is a party or sale or other disposition
of all or substantially all of the assets of the Corporation (a
"Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Stock and Outstanding Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of the
combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation,
a corporation which as a result of such transaction owns the
Corporation or all or substantially all of the Corporation's
assets either directly or through one or more subsidiaries)
(the "Successor Entity") in substantially the same proportions
as their ownership, immediately prior to such Business
Combination, of Outstanding Voting Securities and (ii) no
Person (excluding any Successor Entity or any employee benefit
plan, or related trust, of the Corporation or such Successor
Entity) beneficially owns, directly or indirectly, 20% or more
of, respectively, the combined voting power of the then
outstanding voting securities of the Successor Entity, except
to the extent that such ownership existed prior to the Business
Combination and (iii) at least a majority of the members of the
board of directors of the Successor Entity were members of the
Incumbent Board (including persons deemed to be members of the
Incumbent Board by reason of the proviso to subsection (c) of
this Section 10) at the time of the execution of the initial
agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
11. LEGAL IMPEDIMENTS TO EXERCISE. Anything in this Agreement to the
contrary notwithstanding, if, at any time specified herein for the exercise of
this option or the delivery of shares to the Optionee, any law or regulations of
any governmental authority having jurisdiction in the matter shall require
either the Corporation or the Optionee to take any action or refrain from action
in connection therewith or to delay such exercise, then the delivery of such
shares on such exercise shall be deferred until such action shall have been
taken or such restriction on action shall have been removed.
12. AUTHORITY OF PLAN ADMINISTRATOR. As conditions precedent to the
granting of the option and all other rights provided hereunder, the Optionee and
any other person who acquires any rights hereunder agrees that any dispute or
disagreement which shall arise under, or as a result of, or pursuant to, this
Agreement may be determined by the Plan Administrator constituted under the Plan
(the "Plan Administrator") in the Plan Administrator's absolute and uncontrolled
discretion; and that any such determination or interpretation of the terms of
this Agreement or the Plan or any other determination by either such Plan
Administrator shall be final, binding and conclusive on all persons affected
thereby. The Plan Administrator shall have the authority to administer the
Plan, make all determinations with respect to the construction and application
of the Plan, the Board resolutions establishing the Plan and this Agreement,
adopt and revise rules and regulations relating to the Plan and make any other
determinations which it believes necessary or advisable for the administration
of the Plan (subject to the provisions of the Plan regarding Plan
administration). Questions regarding the options granted under this Agreement
and the administration of the Plan may be addressed to the Corporation or its
delegate for such purposes.
13. NOT INCENTIVE STOCK OPTIONS. Anything in this Agreement to the
contrary notwithstanding, the Corporation and Optionee acknowledge and agree
that the Plan was not intended to provide for the issuance of "incentive stock
options" as defined in Section 422 of the Internal Revenue Code of 1986, as
amended, and that the options granted pursuant to this Agreement are not
"incentive stock options" as so defined.
14. CONTINUED EMPLOYMENT. This Agreement shall not be deemed to
limit or restrict the right of the Corporation or any Subsidiary to terminate
the Optionee's employment at any time, for any reason, with or without cause, or
to limit or restrict the right of the Optionee to terminate his employment with
the Corporation or any Subsidiary at any time. In the event of termination of
the Optionee's employment with the Corporation and all Subsidiaries, such
employee shall be eligible to exercise (to the extent provided under Section 3)
only options on the number of shares that have vested on or prior to his/her
date of termination (subject, however, to the provisions of Section 5).
Optionee's services shall be subject to the direction of the Board of Directors
of the Corporation or such Subsidiary or such officer or officers as the
respective Boards may designate from time to time and shall be rendered at such
locations as the respective Boards or any such officer may determine.
15. AMENDMENT OR TERMINATION. This Agreement may be amended or
terminated prior to the expiration dates set forth herein only with the mutual
agreement and consent of the Optionee and the Corporation, and then only to the
extent permitted under the Plan.
16. GOVERNING LAW. This Agreement shall be construed and its
provisions enforced and administered in accordance with the laws of the State
of Georgia and, where applicable, federal law.
17. INTERPRETATION. This Agreement shall at all times be
interpreted so as to be consistent with the intent, purposes and specific
language of the Plan.
18. SEVERABILITY. If any provision of this Agreement should be
held illegal or invalid for any reason, such determination shall not affect
the other provisions of this Agreement, but instead the Agreement shall be
construed as if such provisions had never been included herein.
19. HEADINGS/GENDER. Headings contained in this Agreement are for
convenience only and shall in no event be construed as part of this Agreement.
Any reference to the masculine, feminine or neuter gender shall be a reference
to other genders as appropriate.
20. NOTICES. Any notice which either party hereto may be required or
permitted to give to the other shall be in writing (unless otherwise specified
in this Agreement or in other writing to the Optionee), and may be delivered
personally or by mail, postage prepaid, addressed as follows: (i) to the
Corporation, 133 Peachtree Street, N. E., Atlanta, GA 30303, ATTN: Compensation
Department, or at such other address as the Corporation, by notice to the
Optionee, may designate in writing from time to time; (ii) to the Optionee at
the address indicated in the Optionee's then current personnel records, or at
such other address as the Optionee, by notice to the Corporation or its delegate
for such purposes at the above-referenced address, may designate in writing from
time to time. Such notices shall be deemed given upon receipt.
21. DEFINITIONS. For purposes of this Agreement, the following terms
shall be defined as follows (certain other definitions are found in the premises
to this Option Agreement):
(a) "Cause" for the purposes of this Agreement shall mean any of the
following: (i) the willful failure of the Optionee to perform
satisfactorily the duties consistent with his title and position
reasonably required of him by the Board or supervising management
(other than by reason of incapacity due to physical or mental
illness); (ii) the commission by the Optionee of a felony, or the
perpetration by the Optionee of a dishonest act or common law
fraud against the Corporation or any of its Subsidiaries; or
(iii) any other willful act or omission (including without
limitation the violation of any corporate policy or regulation)
which could reasonably be expected to expose the Corporation to
civil liability under the law of the applicable jurisdiction or
causes or may reasonably be expected to cause significant injury
to the financial condition or business reputation of the
Corporation or any of its Subsidiaries.
(b) "Corporation" shall mean Georgia-Pacific Corporation, a Georgia
corporation, its successors and assigns.
(c) "Committee" shall mean the Compensation Committee of the Board
of Directors of the Corporation, as constituted from time to
time, or such subcommittee of that body as the Compensation
Committee shall specify to act for the Compensation Committee
with respect to the options granted under the Plan, provided
however that any such subcommittee shall have at least two
members and shall consist entirely of `outside directors'' as
that term is defined pursuant to Section 162(m) of the Internal
Revenue Code of 1986, as amended from time to time, or any
statute which is a successor or replacement for such statute (and
applicable regulations promulgated thereunder).
(d) "Fair Market Value" shall mean, with respect to Georgia-Pacific
Group Stock on any date, the mean between the high and low sales
prices of a share of Georgia-Pacific Group Stock on that date as
reported in The Wall Street Journal, New York Stock Exchange -
Composite Transactions, or as reported in any successor quotation
system adopted prospectively for this purpose by the Committee,
in its discretion. The Fair Market Value of the Stock shall be
rounded to the nearest whole cent (with 0.5 cent being rounded to
the next higher whole cent).
(e) "Grant Date" shall mean the date upon which the Original Option
was granted under the Original Plan.
(f) "Plan" shall mean the Georgia-Pacific Corporation/Georgia-
Pacific Group 1997 Long-Term Incentive Plan as adopted by the
Corporation's Board of Directors on September 17, 1997, and
approved by its shareholders on December 16, 1997 (and as amended
from time to time thereafter)
(g) "Plan Administrator" shall mean the person or entity having
administrative authority under the Plan, as specified in Section
7 of the Plan.
(h) "Subsidiary" shall mean any corporation (other than the
Corporation) in any unbroken chain of corporations beginning with
the Corporation if, at the time of reference, each of the
corporations other than the last corporation in the unbroken
chain owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the
other corporations in such chain.
(i) "Georgia-Pacific Group Stock" shall mean the class of the
Corporation's common stock which is intended to reflect the
business and operations of the forest resources segment of the
Corporation's business, the par value of which is $0.80 per share
and which is designated "Georgia-Pacific Corporation--Georgia-
Pacific Group Common Stock".
(j) "Vesting Date" shall mean the date upon which options granted
under this Agreement first become exercisable in accordance with
the provisions of Sections 2 or 10.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers, under its corporate seal, and the
Optionee has executed this Agreement, as of this day and year first above
written.
GEORGIA-PACIFIC CORPORATION
By:
----------------------------
A. D. Correll
Chairman, Chief Executive Officer,
and President
ATTEST:
______________________
W. Edwin Frazier, III
Assistant Secretary
OPTIONEE
NOTE: PLEASE COMPLETE THE ATTACHED ACKNOWLEDGMENT OF RECEIPT
AND BENEFICIARY DESIGNATION FORM AND RETURN THEM TO:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
GEORGIA-PACIFIC STOCK OPTION PLAN
"PERSONAL AND CONFIDENTIAL"
SUITE 4717
525 WASHINGTON BLVD.
JERSEY CITY, NJ 07310
ACKNOWLEDGMENT OF RECEIPT AND BENEFICIARY DESIGNATION FORM
Under the terms of the Georgia-Pacific Corporation/Georgia-Pacific Group
1997 Long-Term Incentive Plan ("1997 Georgia-Pacific Group LTIP"), you have
the right to designate a beneficiary to exercise certain rights that may arise
under those grants in the event of your death. IF YOU DO NOT DESIGNATE A
BENEFICIARY IN WRITING, THESE RIGHTS WILL PASS TO YOUR ESTATE UPON YOUR DEATH.
In order to allow you to decide affirmatively which outcome you desire and, in
the event you prefer to designate a beneficiary or beneficiaries other than your
estate, to name that beneficiary or those beneficiaries, the Corporation has
provided this form, which you may use to designate in writing the
beneficiary(ies) you desire. Of course, you may revoke and change your
beneficiary designations at any time by notifying the First Chicago Trust
Company in writing at the address indicated below.
PLEASE TAKE TIME TO FILL OUT THIS FORM AND RETURN IT TO THE FIRST CHICAGO
TRUST COMPANY AT THE FOLLOWING ADDRESS: FIRST CHICAGO TRUST COMPANY OF NEW
YORK, GEORGIA-PACIFIC STOCK OPTION PLAN, "PERSONAL AND CONFIDENTIAL", SUITE
4717, 525 WASHINGTON BLVD., JERSEY CITY, NJ 07310. BENEFICIARY DESIGNATIONS OR
MODIFICATIONS OF BENEFICIARY DESIGNATIONS SENT TO ANY OTHER ADDRESS WILL NOT BE
EFFECTIVE UNTIL ACTUALLY RECEIVED BY FIRST CHICAGO TRUST COMPANY. THE
CORPORATION HAS NO RESPONSIBILITY FOR BENEFICIARY DESIGNATION FORMS WHICH ARE
NOT SUBMITTED AS INDICATED ABOVE.
NOTE: You may designate multiple beneficiaries, in which case those living at
the time of your death will equally share the rights accorded to a beneficiary
for the particular grant(s) in question.
/ / I designate my estate as my beneficiary under my 1998 grants under the 1997
--
Georgia-Pacific Group LTIP.
/ / I designate the following person(s) as my beneficiary(ies) under my 1998
--
grants under the 1997 Georgia-Pacific Group LTIP:
NAME ADDRESS RELATIONSHIP TO SOCIAL SECURITY
YOU NUMBER (IF
KNOWN)
I ACKNOWLEDGE RECEIPT OF THE EXECUTED OPTION AGREEMENT EVIDENCING MY JANUARY 29,
1998 OPTION GRANT UNDER THE GEORGIA-PACIFIC CORPORATION/GEORGIA-PACIFIC GROUP
1997 LONG-TERM INCENTIVE PLAN AND CONFIRM THAT THE BENEFICIARY(IES) DESIGNATED
ABOVE HAVE BEEN SELECTED BY ME IN FREE EXERCISE OF MY OWN DISCRETION.
Signature: Printed Name:
---------------------- ----------------------
GEORGIA-PACIFIC CORPORATION/GEORGIA-PACIFIC GROUP
1997 LONG-TERM INCENTIVE PLAN
SPECIAL EMPLOYEE STOCK OPTION
THIS AGREEMENT, dated January 29, 1998, by and between GEORGIA-
PACIFIC CORPORATION, a Georgia corporation (hereinafter called the
"Corporation"), and (hereinafter called "Optionee");
W I T N E S S E T H:
WHEREAS, the Optionee is now employed by the Corporation or a
Subsidiary in a key capacity and the Corporation desires to have him/her remain
in the employment of the Corporation or a Subsidiary and to afford him/her the
opportunity to acquire or enlarge his/her stock ownership in the Corporation by
granting him/her options to purchase from the Corporation up to, but not
exceeding in the aggregate, fifty thousand (50,000) shares of the Corporation's
Georgia-Pacific Group Stock, the exercise of which is subject to vesting and
other terms and conditions as hereinafter more specifically provided, so that
he/she may have a direct proprietary interest in the success of the Corporation
and, in particular, of its business segment known as the "Georgia-Pacific
Group"; and
WHEREAS, the options described in this Agreement have been granted
pursuant to, and are governed by, the Georgia-Pacific Corporation/Georgia-
Pacific Group 1997 Long-Term Incentive Plan adopted by the Corporation's Board
of Directors on September 17, 1997 and approved by the shareholders of the
Corporation on December 16, 1997 (the "Plan");
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereto do hereby mutually agree as
follows:
1. OPTION GRANT. Subject to the terms and conditions set forth
herein, the Corporation hereby grants to the Optionee during the period
commencing on the date hereof (the "Grant Date") and ending on January 28,
2003, the option to purchase from the Corporation, from time to time, as
hereinafter more specifically stated, at a price of $56.41 per share, up to but
not exceeding in the aggregate, the number of shares of the Corporation's
Georgia-Pacific Group Stock as set forth in the introduction of this Agreement
(or such portion of such shares as may be vested and exercisable), which option
may be exercised, in whole or in part, from time to time, commencing on the
applicable Vesting Date as determined in accordance with Section 2 (but only as
to the portion then becoming exercisable) and for the exercise period beginning
on such Vesting Date and continuing to the end of the applicable exercise period
specified in this Agreement. Notwithstanding anything to the contrary in this
Agreement (but subject to the exercise limitations specified in this Agreement),
if the Optionee is on a leave of absence or is absent on military or government
service as of the date of this Agreement, the Optionee may not exercise all or
any part of the options granted hereby prior to the later of (i) the date the
Optionee returns to active employment with the Corporation or a Subsidiary or
(ii) the Vesting Date for all or any portion of this option grant (but only as
to the portion then becoming exercisable). If the Optionee is not on leave of
absence or absent on military or government service at the date of this
Agreement or returns to active employment with the Corporation or a Subsidiary
thereafter, the options described in this Agreement shall be immediately
effective (subject to the exercise limitations provided in Section 2) and may
become exercisable and may be exercised during a subsequent leave of absence or
absence for military or government service.
2. VESTING. This option grant shall vest in accordance with the
following schedule:
VESTING DATE PERCENTAGE OF
ORIGINALLY
GRANTED SHARES
VESTING 1
January 29, 1999 34%
January 29, 2000 33%
January 29, 2001 33%
Note 1: The actual number of shares vesting on any Vesting
Date will be determined by multiplying the original grant
under this Option Agreement by the specified percentage and
by rounding the result up to the nearest whole share,
provided that the total shares vesting under this Agreement
may not exceed the number originally granted.
Notwithstanding the vesting schedule specified in the chart above, this option
grant shall become 100% vested upon retirement (as defined in Section 3), death
or disability (as defined in Section 3) of the Optionee. Vesting of this option
grant under this Section 2 is subject in all cases to the
restrictions/forfeiture rules in Sections 4 and 5. Subject to those rules and
the provisions of Section 3, if this option grant vests pursuant to this Section
2, it may be exercised at any time on or after the Vesting Date and prior to the
5th anniversary of the Grant Date.
3. TERMINATION OF OPTION. The option hereby granted shall terminate
and be of no force or effect upon the happening of the first to occur of the
following events:
(a) The expiration of the time allowed for exercise of this option as
specified in Section 2 of this Agreement.
(b) Subject to the provisions of Section 2, the expiration of ninety
days after the date of the termination (whether voluntary or
involuntary) of the Optionee's employment with the Corporation
and all Subsidiaries (other than as a result of his death or
permanent disability while in the Corporation's employment or his
retirement). During such ninety-day period, the Optionee shall
have the right to exercise this option only with respect to any
or all shares which were available for purchase by him on the
date of such termination of employment. In the event of
Optionee's death or permanent disability after termination of
employment and during such ninety-day period, such deceased
Optionee's estate, personal representative or beneficiary or such
disabled Optionee's duly authorized legal guardian or
representative (if any), as the case may be, may exercise this
option within such period with respect to any or all shares which
were available for purchase by the Optionee on the date of his
death or permanent disability and which had not been purchased by
him prior to his death or permanent disability.
(c) Subject to the provisions of Section 2, the expiration of 36
calendar months after the date of the Optionee's retirement
(commencing with the first full calendar month after such date)
immediately following a period of continuous employment by the
Corporation. During such period, the Optionee shall have the
right to exercise this option with respect to any or all shares
which were available for purchase by him on the date of such
retirement (taking into account the accelerated vesting
provisions in Section 2 applicable upon retirement and the
forfeiture provisions of Section 5). In the event of Optionee's
death or permanent disability after retirement and during such
period, such deceased Optionee's estate, personal representative
or beneficiary, or such disabled Optionee's duly authorized legal
guardian or representative (if any), as the case may be, may
exercise this option within such period with respect to any or
all shares which were available for purchase by the Optionee on
the date of his death or permanent disability and which had not
been purchased by him prior to his death or permanent disability.
(d) Subject to the provisions of Section 2, the expiration of 36
calendar months after the date of permanent disability of the
Optionee during a period of continuous employment by the
Corporation (commencing with the first full calendar month after
such date). During such period, such disabled Optionee or the
Optionee's legal guardian or representative, as the case may be,
may exercise this option with respect to any or all shares which
were available for purchase by the Optionee on the date of his
death or permanent disability (taking into account the
accelerated vesting provisions in Section 2 applicable upon death
or disability and the forfeiture provisions of Section 5). In
the event of Optionee's death while permanently disabled under
this Agreement and during such period, such deceased Optionee's
estate, personal representative or beneficiary, as the case may
be, may exercise this option within such period with respect to
any or all shares which were available for purchase by the
Optionee on the date of his death and which had not been
purchased by him prior to his death.
(e) Subject to the provisions of Section 2, the expiration of 12
calendar months after the date of death of the Optionee during a
period of continuous employment by the Corporation (commencing
with the first full calendar month after such date). During such
period, such deceased Optionee's estate, personal representative
or beneficiary, as the case may be, may exercise this option with
respect to any or all shares which were available for purchase by
the Optionee on the date of his death (taking into account the
accelerated vesting provisions in Section 2 applicable upon death
or disability and the forfeiture provisions of Section 5).
Except in the case of disability, Optionee's date of termination
or retirement shall be deemed to be his last day worked. For purposes of this
Agreement, "retirement" shall mean voluntary or involuntary (other than for
Cause) termination of employment with the Corporation and all Subsidiaries after
having attained age 65 or having attained age 55 and having accrued 10 years of
service for vesting purposes under the Corporation's salaried retirement plans.
The Optionee's date of permanent disability shall be the last day of his salary
continuation period under the Corporation's policy providing for salary
continuation for salaried employees who are medically unable to work because of
illness or injury, and Optionee shall be deemed "permanently disabled" on that
date only if he would be "totally disabled" pursuant to the standards set
forth in the Georgia-Pacific Corporation Long-Term Disability Plan, whether or
not Optionee is covered under that plan.
The Plan Administrator (as hereinafter defined) shall have
absolute and uncontrolled discretion to determine whether any authorized leave
of absence or absence on military or government service taken by the Optionee
shall constitute a termination of employment for the purposes of this Agreement.
4. RESTRICTIONS/FORFEITURE RULES. This option grant will be
subject to the following restrictions and forfeiture rules:
(a) Subject to Section 3, if the Optionee's employment with the
Corporation and its Subsidiaries is terminated for any reason
prior to the Vesting Date for this option grant (or any portion
thereof), the Optionee shall forfeit all rights with respect to
this option grant, and this Agreement shall be null, void and
of no effect as of the date his/her employment terminates.
(b) This option grant shall be nontransferable and may not be sold,
hypothecated or otherwise assigned or conveyed by the Optionee
to any party; provided that in the event of the incapacity (as
determined by the Plan Administrator) or death of the Optionee,
his/her attorney-in-fact pursuant to a valid power of attorney
giving general or specific authority to make elections with
respect to this option grant, 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 option grant that the
Participant could have exercised if he/she were still alive or
not incapacitated. No assignment or transfer of this option or
the rights represented thereby, 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 herein whatsoever, and
immediately upon any attempt to assign or transfer this option,
this option shall terminate and be of no force or effect.
Notwithstanding anything in this subsection (b) to the
contrary, an Optionee may designate a person or persons to
receive, in the event of his death, any rights to which he
would be entitled under this Option Agreement. Such a
designation shall be filed with the Corporation or its delegate
in accordance with uniform procedures specified by the
Corporation. A beneficiary designation may be changed or
revoked by an Optionee at any time by filing a written
statement of such change or revocation with the Corporation or
its delegate in accordance with uniform procedures specified by
the Corporation. No beneficiary designation or change of
beneficiary designation will be effective until notice thereof
is actually received by the Corporation in accordance with the
procedures specified for such purpose. If an Optionee fails to
designate a beneficiary (or the beneficiary predeceases the
Optionee), this subsection (b) will apply without regard to the
provisions relating to the designation of a beneficiary.
(c) The Optionee shall not be deemed to be a shareholder of the
Corporation - and shall have no rights as a stockholder - with
respect to the shares covered by this option grant until the
date (i) such shares have been issued or transferred to him/her
and (ii) payment in full for such shares has been received by
the Corporation as provided in this Agreement. No adjustment
shall be made for dividends or other rights for which the
record date is prior to the date of such issuance or transfer.
(d) To the extent that this option grant is vested, but not
exercised during the period provided for its exercise under
this Agreement, the Participant shall forfeit all rights with
respect to this option grant and this Agreement shall expire as
of the close of the last day of the prescribed exercise period.
5. TERMINATION FOR CAUSE. Notwithstanding anything in this Option
Agreement to the contrary, if the Optionee is terminated for Cause, this option
grant shall terminate as of such date of termination regardless whether a
Vesting Date has occurred on or prior to his/her date of termination unless and
to the extent that the Committee determines (after taking into account the
provisions of Section 16) that such forfeiture in a given case would violate
applicable law.
6. EXERCISE OF OPTION. The option hereby granted shall be exercised
by the delivery to the Corporation or its delegate, from time to time, of notice
specifying the number of shares the Optionee then desires to purchase, together
with cash, certified check, bank draft or postal or express money order to the
order of the Corporation for an amount in United States dollars equal to the sum
of: (a) the option price of such shares and (b) an amount sufficient to pay all
state and federal withholding taxes (including, without limitation, FICA) with
respect to the exercise (the total of (a) and (b) shall be referred to as the
"Exercise Amount"). In the alternative, the Optionee may tender payment for
the option shares in the form of shares of Georgia-Pacific Group Stock having a
Fair Market Value on the date of exercise equal to the Exercise Amount or a
combination of (i) shares of Georgia-Pacific Group Stock and (ii) cash,
certified check, bank draft or postal or express money order to the order of the
Corporation in an amount in United States dollars equal to the difference
between the Exercise Amount and the Fair Market Value of the tendered shares of
Georgia-Pacific Group Stock on the date of exercise. If shares of Georgia-
Pacific Group Stock are tendered in payment of the exercise price of options
hereunder and such shares were acquired upon exercise of a stock option, such
shares must have been held by the Optionee for at least six months. Such
notices shall in all cases be given in accordance with uniform procedures
specified by the Corporation or its delegate and shall not be effective until
filed and received by the Corporation or its delegate for such purposes. In
each case, the date of receipt shall be considered the date of exercise of the
option by the Optionee. An exercise of stock options granted under this
Agreement will generate compensation subject to federal and state tax
withholding (including, without limitation, FICA withholding) in the calendar
year of each exercise, and all such withholding taxes shall be the
responsibility of the Optionee. The Committee may also authorize alternative
procedures for exercising options under this Agreement. Within thirty (30)
business days after any such exercise of the option in whole or in part by the
Optionee, the Corporation shall make available to the Optionee a certificate or
certificates representing the aggregate number of shares with respect to which
such option shall be so exercised, registered in the Optionee's name. The
Optionee shall not have the right, in lieu of the exercise of the option, to
surrender the option granted hereby, or any portion thereof, in order to receive
shares covered by this option grant.
7. DATE OF TERMINATION. Except to the extent otherwise provided in
subsections (a) through (c) of this Section 7, for purposes of this Agreement,
the Optionee's date of termination shall be deemed to be his/her last day
worked:
(a) The Optionee's employment by the Corporation shall be deemed to
continue during such periods as he/she is employed by a
Subsidiary. If the Optionee shall be transferred from the
Corporation to a Subsidiary or from a Subsidiary to the
Corporation or from a Subsidiary to another Subsidiary, his/her
employment shall not be deemed to be terminated by reason of such
transfer. If, while the Optionee is employed by a Subsidiary,
such Subsidiary shall cease to be a Subsidiary and the Optionee
is not thereupon transferred to and employed by the Corporation
or another Subsidiary, the date that the Optionee's employer
ceases to be a Subsidiary shall be deemed to be a termination of
employment.
(b) The Optionee's date of termination on account of total disability
shall be the last day of his/her salary continuation period under
the Corporation's policy providing for salary continuation for
salaried employees who are medically unable to work because of
illness or injury or, if later, the date any personal leave of
absence he/she may be granted under the policies of the
Corporation immediately following such period of salary
continuation terminates in accordance with such policies.
(c) The Plan Administrator (as hereinafter defined) shall have
absolute and uncontrolled discretion to determine whether any
authorized leave of absence or absence on military or government
service taken by the Optionee shall constitute a termination of
employment for the purposes of this Agreement.
8. NO BAR TO CORPORATE RESTRUCTURING. The existence of this option
shall not affect in any way the right or power of the Corporation or its
stockholders to make or authorize any and all adjustments, recapitalizations,
reorganizations or other changes in the Corporation's capital structure or its
business, or any merger or consolidation of the Corporation, or any issue of
bonds, debentures, preferred or preference stocks ahead of or affecting Georgia-
Pacific Group Stock or the rights thereof, or the dissolution or liquidation of
the Corporation, or any sale or transfer of all or part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
9. CAPITAL READJUSTMENTS/STOCK OPTION MODIFICATIONS. The option
grant under this Plan will be made in Georgia-Pacific Group Stock as
constituted on the Grant Date for this option grant. In the event of any
merger, reorganization, consolidation, recapitalization, stock dividend, stock
split, or extraordinary distribution with respect to Georgia-Pacific Group
Stock or other change in corporate structure affecting Georgia-Pacific Group
Stock, the Plan Administrator shall have the authority to make such
substitution or adjustments in the number, kind and option price of shares
subject to this option grant and/or such other equitable substitution or
adjustments as it may determine in its sole discretion to be appropriate to
ensure that all similarly situated optionees under the Plan are treated
equitably as a result of any such event; provided, however, that the number of
shares subject to any option grant shall always be a whole number. In the
event any adjustment to this option grant pursuant to this Agreement would
otherwise result in the creation of a fractional share interest, the number of
shares under this option grant shall be rounded to the nearest whole share
(with 0.5 share rounded to the next higher whole number).
10. CHANGE OF CONTROL. Notwithstanding any other provision of
this Agreement to the contrary, in the event of a Change of Control of the
Corporation (as defined in this Section 10), this option grant, if then
outstanding and not yet vested, shall vest as of the effective date of such
Change of Control. If this option grant vests pursuant to this Section 10, it
may be exercised at any time from and after the effective date of the Change
of Control (which shall be considered the applicable Vesting Date) and prior
to the 5th anniversary of its Grant Date. For the purposes of this Agreement,
a "Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of the
combined voting power of the then outstanding voting securities
of the Corporation entitled to vote generally in the election
of directors (the "Outstanding Voting Securities"); provided,
however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change of
Control: (i) any acquisition by a Person who on the effective
date of the Original Plan was the beneficial owner of 20% or
more of the Outstanding Voting Securities; (ii) any acquisition
directly from the Corporation, including without limitation a
public offering of securities; (iii) any acquisition by the
Corporation, (iv) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Corporation
or any of its Subsidiaries or (v) any acquisition by any
corporation pursuant to a transaction which complies with
clauses (i), (ii), and (iii) of subsection (c) of this Section
10; or
(b) Individuals who, as of the effective date of the Original Plan,
constitute the Board (the `Incumbent Board'') cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the effective date of the Original Plan whose
election, or nomination for election by the Corporation's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board or actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(c) Consummation of a reorganization, merger or consolidation to
which the Corporation is a party or sale or other disposition
of all or substantially all of the assets of the Corporation (a
`Business Combination''), in each case, unless, following such
Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Stock and Outstanding Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of the
combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation,
a corporation which as a result of such transaction owns the
Corporation or all or substantially all of the Corporation's
assets either directly or through one or more subsidiaries)
(the "Successor Entity") in substantially the same proportions
as their ownership, immediately prior to such Business
Combination, of Outstanding Voting Securities and (ii) no
Person (excluding any Successor Entity or any employee benefit
plan, or related trust, of the Corporation or such Successor
Entity) beneficially owns, directly or indirectly, 20% or more
of, respectively, the combined voting power of the then
outstanding voting securities of the Successor Entity, except
to the extent that such ownership existed prior to the Business
Combination and (iii) at least a majority of the members of the
board of directors of the Successor Entity were members of the
Incumbent Board (including persons deemed to be members of the
Incumbent Board by reason of the proviso to subsection (c) of
this Section 10) at the time of the execution of the initial
agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
11. LEGAL IMPEDIMENTS TO EXERCISE. Anything in this Agreement to the
contrary notwithstanding, if, at any time specified herein for the exercise of
this option or the delivery of shares to the Optionee, any law or regulations of
any governmental authority having jurisdiction in the matter shall require
either the Corporation or the Optionee to take any action or refrain from action
in connection therewith or to delay such exercise, then the delivery of such
shares on such exercise shall be deferred until such action shall have been
taken or such restriction on action shall have been removed.
12. AUTHORITY OF PLAN ADMINISTRATOR. As conditions precedent to the
granting of the option and all other rights provided hereunder, the Optionee and
any other person who acquires any rights hereunder agrees that any dispute or
disagreement which shall arise under, or as a result of, or pursuant to, this
Agreement may be determined by the Plan Administrator constituted under the Plan
(the "Plan Administrator") in the Plan Administrator's absolute and uncontrolled
discretion; and that any such determination or interpretation of the terms of
this Agreement or the Plan or any other determination by either such Plan
Administrator shall be final, binding and conclusive on all persons affected
thereby. The Plan Administrator shall have the authority to administer the
Plan, make all determinations with respect to the construction and application
of the Plan, the Board resolutions establishing the Plan and this Agreement,
adopt and revise rules and regulations relating to the Plan and make any other
determinations which it believes necessary or advisable for the administration
of the Plan (subject to the provisions of the Plan regarding Plan
administration). Questions regarding the options granted under this Agreement
and the administration of the Plan may be addressed to the Corporation or its
delegate for such purposes.
13. NOT INCENTIVE STOCK OPTIONS. Anything in this Agreement to the
contrary notwithstanding, the Corporation and Optionee acknowledge and agree
that the Plan was not intended to provide for the issuance of "incentive stock
options" as defined in Section 422 of the Internal Revenue Code of 1986, as
amended, and that the options granted pursuant to this Agreement are not
"incentive stock options" as so defined.
14. CONTINUED EMPLOYMENT. This Agreement shall not be deemed to
limit or restrict the right of the Corporation or any Subsidiary to terminate
the Optionee's employment at any time, for any reason, with or without cause, or
to limit or restrict the right of the Optionee to terminate his employment with
the Corporation or any Subsidiary at any time. In the event of termination of
the Optionee's employment with the Corporation and all Subsidiaries, such
employee shall be eligible to exercise (to the extent provided under Section 3)
only options on the number of shares that have vested on or prior to his/her
date of termination (subject, however, to the provisions of Section 5).
Optionee's services shall be subject to the direction of the Board of Directors
of the Corporation or such Subsidiary or such officer or officers as the
respective Boards may designate from time to time and shall be rendered at such
locations as the respective Boards or any such officer may determine.
15. AMENDMENT OR TERMINATION. This Agreement may be amended or
terminated prior to the expiration dates set forth herein only with the mutual
agreement and consent of the Optionee and the Corporation, and then only to the
extent permitted under the Plan.
16. GOVERNING LAW. This Agreement shall be construed and its
provisions enforced and administered in accordance with the laws of the State
of Georgia and, where applicable, federal law.
17. INTERPRETATION. This Agreement shall at all times be
interpreted so as to be consistent with the intent, purposes and specific
language of the Plan.
18. SEVERABILITY. If any provision of this Agreement should be
held illegal or invalid for any reason, such determination shall not affect
the other provisions of this Agreement, but instead the Agreement shall be
construed as if such provisions had never been included herein.
19. HEADINGS/GENDER. Headings contained in this Agreement are for
convenience only and shall in no event be construed as part of this Agreement.
Any reference to the masculine, feminine or neuter gender shall be a reference
to other genders as appropriate.
20. NOTICES. Any notice which either party hereto may be required or
permitted to give to the other shall be in writing (unless otherwise specified
in this Agreement or in other writing to the Optionee), and may be delivered
personally or by mail, postage prepaid, addressed as follows: (i) to the
Corporation, 133 Peachtree Street, N. E., Atlanta, GA 30303, ATTN: Compensation
Department, or at such other address as the Corporation, by notice to the
Optionee, may designate in writing from time to time; (ii) to the Optionee at
the address indicated in the Optionee's then current personnel records, or at
such other address as the Optionee, by notice to the Corporation or its delegate
for such purposes at the above-referenced address, may designate in writing from
time to time. Such notices shall be deemed given upon receipt.
21. DEFINITIONS. For purposes of this Agreement, the following terms
shall be defined as follows (certain other definitions are found in the premises
to this Option Agreement):
(a) "Cause" for the purposes of this Agreement shall mean any of the
following: (i) the willful failure of the Optionee to perform
satisfactorily the duties consistent with his title and position
reasonably required of him by the Board or supervising management
(other than by reason of incapacity due to physical or mental
illness); (ii) the commission by the Optionee of a felony, or the
perpetration by the Optionee of a dishonest act or common law
fraud against the Corporation or any of its Subsidiaries; or
(iii) any other willful act or omission (including without
limitation the violation of any corporate policy or regulation)
which could reasonably be expected to expose the Corporation to
civil liability under the law of the applicable jurisdiction or
causes or may reasonably be expected to cause significant injury
to the financial condition or business reputation of the
Corporation or any of its Subsidiaries.
(b) "Corporation" shall mean Georgia-Pacific Corporation, a Georgia
corporation, its successors and assigns.
(c) "Committee" shall mean the Compensation Committee of the Board
of Directors of the Corporation, as constituted from time to
time, or such subcommittee of that body as the Compensation
Committee shall specify to act for the Compensation Committee
with respect to the options granted under the Plan, provided
however that any such subcommittee shall have at least two
members and shall consist entirely of "outside directors" as
that term is defined pursuant to Section 162(m) of the Internal
Revenue Code of 1986, as amended from time to time, or any
statute which is a successor or replacement for such statute (and
applicable regulations promulgated thereunder).
(d) "Fair Market Value" shall mean, with respect to Georgia-Pacific
Group Stock on any date, the mean between the high and low sales
prices of a share of Georgia-Pacific Group Stock on that date as
reported in The Wall Street Journal, New York Stock Exchange -
Composite Transactions, or as reported in any successor quotation
system adopted prospectively for this purpose by the Committee,
in its discretion. The Fair Market Value of the Stock shall be
rounded to the nearest whole cent (with 0.5 cent being rounded to
the next higher whole cent).
(e) "Grant Date" shall mean the date upon which the Original Option
was granted under the Original Plan.
(f) "Plan" shall mean the Georgia-Pacific Corporation/Georgia-
Pacific Group 1997 Long-Term Incentive Plan as adopted by the
Corporation's Board of Directors on September 17, 1997, and
approved by its shareholders on December 16, 1997 (and as amended
from time to time thereafter)
(g) "Plan Administrator" shall mean the person or entity having
administrative authority under the Plan, as specified in Article
IV of the Plan.
(h) "Subsidiary" shall mean any corporation (other than the
Corporation) in any unbroken chain of corporations beginning with
the Corporation if, at the time of reference, each of the
corporations other than the last corporation in the unbroken
chain owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the
other corporations in such chain.
(i) "Georgia-Pacific Group Stock" shall mean the class of the
Corporation's common stock which is intended to reflect the
business and operations of the forest resources segment of the
Corporation's business, the par value of which is $0.80 per share
and which is designated "Georgia-Pacific Corporation--Georgia-
Pacific Group Common Stock".
(j) "Vesting Date" shall mean the date upon which options granted
under this Agreement first become exercisable in accordance with
the provisions of Sections 2 or 10.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers, under its corporate seal, and the
Optionee has executed this Agreement, as of this day and year first above
written.
GEORGIA-PACIFIC CORPORATION
By:
------------------------
A. D. Correll
Chairman, Chief Executive Officer,
and President
ATTEST:
_________________________
W. Edwin Frazier, III,
Assistant Secretary
OPTIONEE
NOTE: PLEASE COMPLETE THE ATTACHED ACKNOWLEDGMENT OF RECEIPT
AND BENEFICIARY DESIGNATION FORM AND RETURN THEM TO:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
GEORGIA-PACIFIC STOCK OPTION PLAN
"PERSONAL AND CONFIDENTIAL"
SUITE 4717
525 WASHINGTON BLVD.
JERSEY CITY, NJ 07310
ACKNOWLEDGMENT OF RECEIPT AND BENEFICIARY DESIGNATION FORM
Under the terms of the Georgia-Pacific Corporation/Georgia-Pacific Group
1997 Long-Term Incentive Plan ("1997 Georgia-Pacific Group LTIP"), you have
the right to designate a beneficiary to exercise certain rights that may arise
under those grants in the event of your death. IF YOU DO NOT DESIGNATE A
BENEFICIARY IN WRITING, THESE RIGHTS WILL PASS TO YOUR ESTATE UPON YOUR DEATH.
In order to allow you to decide affirmatively which outcome you desire and, in
the event you prefer to designate a beneficiary or beneficiaries other than your
estate, to name that beneficiary or those beneficiaries, the Corporation has
provided this form, which you may use to designate in writing the
beneficiary(ies) you desire. Of course, you may revoke and change your
beneficiary designations at any time by notifying the First Chicago Trust
Company in writing at the address indicated below.
PLEASE TAKE TIME TO FILL OUT THIS FORM AND RETURN IT TO THE FIRST CHICAGO
TRUST COMPANY AT THE FOLLOWING ADDRESS: FIRST CHICAGO TRUST COMPANY OF NEW
YORK, GEORGIA-PACIFIC STOCK OPTION PLAN, "PERSONAL AND CONFIDENTIAL", SUITE
4717, 525 WASHINGTON BLVD., JERSEY CITY, NJ 07310. BENEFICIARY DESIGNATIONS OR
MODIFICATIONS OF BENEFICIARY DESIGNATIONS SENT TO ANY OTHER ADDRESS WILL NOT BE
EFFECTIVE UNTIL ACTUALLY RECEIVED BY FIRST CHICAGO TRUST COMPANY. THE
CORPORATION HAS NO RESPONSIBILITY FOR BENEFICIARY DESIGNATION FORMS WHICH ARE
NOT SUBMITTED AS INDICATED ABOVE.
NOTE: You may designate multiple beneficiaries, in which case those living at
the time of your death will equally share the rights accorded to a beneficiary
for the particular grant(s) in question.
/ / I designate my estate as my beneficiary under my 1998 special grant under
--
the 1997 Georgia-Pacific Group LTIP.
/ / I designate the following person(s) as my beneficiary(ies) under my 1998
--
special grant under the 1997 Georgia-Pacific Group LTIP:
NAME ADDRESS RELATIONSHIP TO SOCIAL SECURITY
YOU NUMBER (IF
KNOWN)
I ACKNOWLEDGE RECEIPT OF THE EXECUTED OPTION AGREEMENT EVIDENCING MY JANUARY 29,
1998 SPECIAL OPTION GRANT UNDER THE GEORGIA-PACIFIC CORPORATION/GEORGIA-PACIFIC
GROUP 1997 LONG-TERM INCENTIVE PLAN AND CONFIRM THAT THE BENEFICIARY(IES)
DESIGNATED ABOVE HAVE BEEN SELECTED BY ME IN FREE EXERCISE OF MY OWN DISCRETION.
Signature: Printed Name:
---------------------- ----------------------
GEORGIA-PACIFIC CORPORATION/TIMBER GROUP
1997 LONG-TERM INCENTIVE PLAN
EMPLOYEE STOCK OPTION
THIS AGREEMENT, dated December 17, 1997 by and between GEORGIA-
PACIFIC CORPORATION, a Georgia corporation (hereinafter called the
"Corporation"), and (hereinafter called "Optionee");
W I T N E S S E T H:
WHEREAS, the Optionee is now employed by the Corporation or a
Subsidiary in a key capacity and the Corporation desires to have him/her remain
in the employment of the Corporation or a Subsidiary and to afford him/her the
opportunity to acquire or enlarge his/her stock ownership in the Corporation by
granting him/her options to purchase from the Corporation up to, but not
exceeding in the aggregate, shares of the Corporation's Timber Stock,
the exercise of which is subject to vesting and other terms and conditions as
hereinafter more specifically provided, so that he/she may have a direct
proprietary interest in the success of the Corporation and, in particular, of
its business segment known as "The Timber Company"; and
WHEREAS, the options described in this Agreement have been granted
pursuant to, and are governed by, the Georgia-Pacific Corporation/Timber Group
1997 Long-Term Incentive Plan adopted by the Corporation's Board of Directors on
September 17, 1997 and approved by the shareholders of the Corporation on
December 16, 1997 (the "Plan");
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereto do hereby mutually agree as
follows:
1. OPTION GRANT. Subject to the terms and conditions set forth
herein, the Corporation hereby grants to the Optionee during the period
commencing on the date hereof (the "Grant Date") and ending on December 16,
2007, the option to purchase from the Corporation, from time to time, as
hereinafter more specifically stated, at a price of $25.13 per share, up to but
not exceeding in the aggregate, the number of shares of the Corporation's Timber
Stock as set forth in the introduction of this Agreement (or such portion of
such shares as may be vested and exercisable), which option may be exercised, in
whole or in part, from time to time, commencing on the applicable Vesting Date
as determined in accordance with Section 2 (but only as to the portion then
becoming exercisable) and for the exercise period beginning on such Vesting Date
and continuing to the end of the applicable exercise period specified in this
Agreement. Notwithstanding anything to the contrary in this Agreement (but
subject to the exercise limitations specified in this Agreement), if the
Optionee is on a leave of absence or is absent on military or government service
as of the date of this Agreement, the Optionee may not exercise all or any part
of the options granted hereby prior to the later of (i) the date the Optionee
returns to active employment with the Corporation or a Subsidiary or (ii) the
Vesting Date for all or any portion of this option grant (but only as to the
portion then becoming exercisable). If the Optionee is not on leave of absence
or absent on military or government service at the date of this Agreement or
returns to active employment with the Corporation or a Subsidiary thereafter,
the options described in this Agreement shall be immediately effective (subject
to the exercise limitations provided in Section 2) and may become exercisable
and may be exercised during a subsequent leave of absence or absence for
military or government service.
2. VESTING. This option grant shall vest in accordance with the
following schedule:
VESTING DATE PERCENTAGE OF
ORIGINALLY
GRANTED SHARES VESTING 1
December 17, 1998 25%
December 17, 1999 25%
December 17, 2000 25%
December 17, 2001 25%
Note 1: The actual number of shares vesting on any Vesting
Date will be determined by multiplying the original grant
under this Option Agreement by 0.25 and by rounding the
result up to the nearest whole share, provided that the
total shares vesting under this Agreement may not exceed the
number originally granted.
Notwithstanding the vesting schedule specified in the chart above, this option
grant shall become 100% vested upon retirement (as defined in Section 3), death
or disability (as defined in Section 3) of the Optionee. Vesting of this option
grant under this Section 2 is subject in all cases to the
restrictions/forfeiture rules in Sections 4 and 5. Subject to those rules and
the provisions of Section 3, if this option grant vests pursuant to this Section
2, it may be exercised at any time on or after the Vesting Date and prior to the
10th anniversary of the Grant Date.
3. TERMINATION OF OPTION. The option hereby granted shall terminate
and be of no force or effect upon the happening of the first to occur of the
following events:
(a) The expiration of the time allowed for exercise of this option as
specified in Section 2 of this Agreement.
(b) Subject to the provisions of Section 2, the expiration of ninety
days after the date of the termination (whether voluntary or
involuntary) of the Optionee's employment with the Corporation
and all Subsidiaries (other than as a result of his death or
permanent disability while in the Corporation's employment or his
retirement). During such ninety-day period, the Optionee shall
have the right to exercise this option only with respect to any
or all shares which were available for purchase by him on the
date of such termination of employment. In the event of
Optionee's death or permanent disability after termination of
employment and during such ninety-day period, such deceased
Optionee's estate, personal representative or beneficiary or such
disabled Optionee's duly authorized legal guardian or
representative (if any), as the case may be, may exercise this
option within such period with respect to any or all shares which
were available for purchase by the Optionee on the date of his
death or permanent disability and which had not been purchased by
him prior to his death or permanent disability.
(c) Subject to the provisions of Section 2, the expiration of 36
calendar months after the date of the Optionee's retirement
(commencing with the first full calendar month after such date)
immediately following a period of continuous employment by the
Corporation. During such period, the Optionee shall have the
right to exercise this option with respect to any or all shares
which were available for purchase by him on the date of such
retirement (taking into account the accelerated vesting
provisions in Section 2 applicable upon retirement and the
forfeiture provisions of Section 5). In the event of Optionee's
death or permanent disability after retirement and during such
period, such deceased Optionee's estate, personal representative
or beneficiary, or such disabled Optionee's duly authorized legal
guardian or representative (if any), as the case may be, may
exercise this option within such period with respect to any or
all shares which were available for purchase by the Optionee on
the date of his death or permanent disability and which had not
been purchased by him prior to his death or permanent disability.
(d) Subject to the provisions of Section 2, the expiration of 36
calendar months after the date of permanent disability of the
Optionee during a period of continuous employment by the
Corporation (commencing with the first full calendar month after
such date). During such period, such disabled Optionee or the
Optionee's legal guardian or representative, as the case may be,
may exercise this option with respect to any or all shares which
were available for purchase by the Optionee on the date of his
death or permanent disability (taking into account the
accelerated vesting provisions in Section 2 applicable upon death
or disability and the forfeiture provisions of Section 5). In
the event of Optionee's death while permanently disabled under
this Agreement and during such period, such deceased Optionee's
estate, personal representative or beneficiary, as the case may
be, may exercise this option within such period with respect to
any or all shares which were available for purchase by the
Optionee on the date of his death and which had not been
purchased by him prior to his death.
(e) Subject to the provisions of Section 2, the expiration of 12
calendar months after the date of death of the Optionee during a
period of continuous employment by the Corporation (commencing
with the first full calendar month after such date). During such
period, such deceased Optionee's estate, personal representative
or beneficiary, as the case may be, may exercise this option with
respect to any or all shares which were available for purchase by
the Optionee on the date of his death (taking into account the
accelerated vesting provisions in Section 2 applicable upon death
or disability and the forfeiture provisions of Section 5).
Except in the case of disability, Optionee's date of termination
or retirement shall be deemed to be his last day worked. For purposes of this
Agreement, "retirement" shall mean voluntary or involuntary (other than for
Cause) termination of employment with the Corporation and all Subsidiaries after
having attained age 65 or having attained age 55 and having accrued 10 years of
service for vesting purposes under the Corporation's salaried retirement plans.
The Optionee's date of permanent disability shall be the last day of his salary
continuation period under the Corporation's policy providing for salary
continuation for salaried employees who are medically unable to work because of
illness or injury, and Optionee shall be deemed "permanently disabled" on that
date only if he would be "totally disabled" pursuant to the standards set forth
in the Georgia-Pacific Corporation Long-Term Disability Plan, whether or not
Optionee is covered under that plan.
The Plan Administrator (as hereinafter defined) shall have
absolute and uncontrolled discretion to determine whether any authorized leave
of absence or absence on military or government service taken by the Optionee
shall constitute a termination of employment for the purposes of this Agreement.
4. RESTRICTIONS/FORFEITURE RULES. This option grant will be
subject to the following restrictions and forfeiture rules:
(a) Subject to Section 3, if the Optionee's employment with the
Corporation and its Subsidiaries is terminated for any reason
prior to the Vesting Date for this option grant (or any portion
thereof), the Optionee shall forfeit all rights with respect to
this option grant, and this Agreement shall be null, void and
of no effect as of the date his/her employment terminates.
(b) This option grant shall be nontransferable and may not be sold,
hypothecated or otherwise assigned or conveyed by the Optionee
to any party; provided that in the event of the incapacity (as
determined by the Plan Administrator) or death of the Optionee,
his/her attorney-in-fact pursuant to a valid power of attorney
giving general or specific authority to make elections with
respect to this option grant, 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 option grant that the
Participant could have exercised if he/she were still alive or
not incapacitated. No assignment or transfer of this option or
the rights represented thereby, 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 herein whatsoever, and
immediately upon any attempt to assign or transfer this option,
this option shall terminate and be of no force or effect.
Notwithstanding anything in this subsection (b) to the
contrary, an Optionee may designate a person or persons to
receive, in the event of his death, any rights to which he
would be entitled under this Option Agreement. Such a
designation shall be filed with the Corporation or its delegate
in accordance with uniform procedures specified by the
Corporation. A beneficiary designation may be changed or
revoked by an Optionee at any time by filing a written
statement of such change or revocation with the Corporation or
its delegate in accordance with uniform procedures specified by
the Corporation. No beneficiary designation or change of
beneficiary designation will be effective until notice thereof
is actually received by the Corporation in accordance with the
procedures specified for such purpose. If an Optionee fails to
designate a beneficiary (or the beneficiary predeceases the
Optionee), this subsection (b) will apply without regard to the
provisions relating to the designation of a beneficiary.
(c) The Optionee shall not be deemed to be a shareholder of the
Corporation - and shall have no rights as a stockholder - with
respect to the shares covered by this option grant until the
date (i) such shares have been issued or transferred to him/her
and (ii) payment in full for such shares has been received by
the Corporation as provided in this Agreement. No adjustment
shall be made for dividends or other rights for which the
record date is prior to the date of such issuance or transfer.
(d) To the extent that this option grant is vested, but not
exercised during the period provided for its exercise under
this Agreement, the Participant shall forfeit all rights with
respect to this option grant and this Agreement shall expire as
of the close of the last day of the prescribed exercise period.
5. TERMINATION FOR CAUSE. Notwithstanding anything in this Option
Agreement to the contrary, if the Optionee is terminated for Cause, this option
grant shall terminate as of such date of termination regardless whether a
Vesting Date has occurred on or prior to his/her date of termination unless and
to the extent that the Committee determines (after taking into account the
provisions of Section 16) that such forfeiture in a given case would violate
applicable law.
6. EXERCISE OF OPTION. The option hereby granted shall be exercised
by the delivery to the Corporation or its delegate, from time to time, of notice
specifying the number of shares the Optionee then desires to purchase, together
with cash, certified check, bank draft or postal or express money order to the
order of the Corporation for an amount in United States dollars equal to the sum
of: (a) the option price of such shares and (b) an amount sufficient to pay all
state and federal withholding taxes (including, without limitation, FICA) with
respect to the exercise (the total of (a) and (b) shall be referred to as the
"Exercise Amount"). In the alternative, the Optionee may tender payment for
the option shares in the form of shares of Timber Stock having a Fair Market
Value on the date of exercise equal to the Exercise Amount or a combination of
(i) shares of Timber Stock and (ii) cash, certified check, bank draft or postal
or express money order to the order of the Corporation in an amount in United
States dollars equal to the difference between the Exercise Amount and the Fair
Market Value of the tendered shares of Timber Stock on the date of exercise. If
shares of Timber Stock are tendered in payment of the exercise price of options
hereunder and such shares were acquired upon exercise of a stock option, such
shares must have been held by the Optionee for at least six months. Such
notices shall in all cases be given in accordance with uniform procedures
specified by the Corporation or its delegate and shall not be effective until
filed and received by the Corporation or its delegate for such purposes. In
each case, the date of receipt shall be considered the date of exercise of the
option by the Optionee. An exercise of stock options granted under this
Agreement will generate compensation subject to federal and state tax
withholding (including, without limitation, FICA withholding) in the calendar
year of each exercise, and all such withholding taxes shall be the
responsibility of the Optionee. The Committee may also authorize alternative
procedures for exercising options under this Agreement. Within thirty (30)
business days after any such exercise of the option in whole or in part by the
Optionee, the Corporation shall make available to the Optionee a certificate or
certificates representing the aggregate number of shares with respect to which
such option shall be so exercised, registered in the Optionee's name. The
Optionee shall not have the right, in lieu of the exercise of the option, to
surrender the option granted hereby, or any portion thereof, in order to receive
shares covered by this option grant.
7. DATE OF TERMINATION. Except to the extent otherwise provided in
subsections (a) through (c) of this Section 7, for purposes of this Agreement,
the Optionee's date of termination shall be deemed to be his/her last day
worked:
(a) The Optionee's employment by the Corporation shall be deemed to
continue during such periods as he/she is employed by a
Subsidiary. If the Optionee shall be transferred from the
Corporation to a Subsidiary or from a Subsidiary to the
Corporation or from a Subsidiary to another Subsidiary, his/her
employment shall not be deemed to be terminated by reason of such
transfer. If, while the Optionee is employed by a Subsidiary,
such Subsidiary shall cease to be a Subsidiary and the Optionee
is not thereupon transferred to and employed by the Corporation
or another Subsidiary, the date that the Optionee's employer
ceases to be a Subsidiary shall be deemed to be a termination of
employment.
(b) The Optionee's date of termination on account of total disability
shall be the last day of his/her salary continuation period under
the Corporation's policy providing for salary continuation for
salaried employees who are medically unable to work because of
illness or injury or, if later, the date any personal leave of
absence he/she may be granted under the policies of the
Corporation immediately following such period of salary
continuation terminates in accordance with such policies.
(c) The Plan Administrator (as hereinafter defined) shall have
absolute and uncontrolled discretion to determine whether any
authorized leave of absence or absence on military or government
service taken by the Optionee shall constitute a termination of
employment for the purposes of this Agreement.
8. NO BAR TO CORPORATE RESTRUCTURING. The existence of this option
shall not affect in any way the right or power of the Corporation or its
stockholders to make or authorize any and all adjustments, recapitalizations,
reorganizations or other changes in the Corporation's capital structure or its
business, or any merger or consolidation of the Corporation, or any issue of
bonds, debentures, preferred or preference stocks ahead of or affecting Timber
Stock or the rights thereof, or the dissolution or liquidation of the
Corporation, or any sale or transfer of all or part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.
9. CAPITAL READJUSTMENTS/STOCK OPTION MODIFICATIONS. The option
grant under this Plan will be made in Timber Stock as constituted on the Grant
Date for this option grant. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split, or extraordinary
distribution with respect to Timber Stock or other change in corporate
structure affecting Timber Stock, the Plan Administrator shall have the
authority to make such substitution or adjustments in the number, kind and
option price of shares subject to this option grant and/or such other
equitable substitution or adjustments as it may determine in its sole
discretion to be appropriate to ensure that all similarly situated optionees
under the Plan are treated equitably as a result of any such event; provided,
however, that the number of shares subject to any option grant shall always be
a whole number. In the event any adjustment to this option grant pursuant to
this Agreement would otherwise result in the creation of a fractional share
interest, the number of shares under this option grant shall be rounded to the
nearest whole share (with 0.5 share rounded to the next higher whole number).
10. CHANGE OF CONTROL. Notwithstanding any other provision of
this Agreement to the contrary, in the event of a Change of Control of the
Corporation (as defined in this Section 10), this option grant, if then
outstanding and not yet vested, shall vest as of the effective date of such
Change of Control. If this option grant vests pursuant to this Section 10, it
may be exercised at any time from and after the effective date of the Change
of Control (which shall be considered the applicable Vesting Date) and prior
to the 10th anniversary of its Grant Date. For the purposes of this Agreement,
a "Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of the
combined voting power of the then outstanding voting securities
of the Corporation entitled to vote generally in the election
of directors (the "Outstanding Voting Securities"); provided,
however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change of
Control: (i) any acquisition by a Person who on the effective
date of the Original Plan was the beneficial owner of 20% or
more of the Outstanding Voting Securities; (ii) any acquisition
directly from the Corporation, including without limitation a
public offering of securities; (iii) any acquisition by the
Corporation, (iv) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Corporation
or any of its Subsidiaries or (v) any acquisition by any
corporation pursuant to a transaction which complies with
clauses (i), (ii), and (iii) of subsection (c) of this Section
10; or
(b) Individuals who, as of the effective date of the Original Plan,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the effective date of the Original Plan whose
election, or nomination for election by the Corporation's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board or actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(c) Consummation of a reorganization, merger or consolidation to
which the Corporation is a party or sale or other disposition
of all or substantially all of the assets of the Corporation (a
"Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Stock and Outstanding Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of the
combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation,
a corporation which as a result of such transaction owns the
Corporation or all or substantially all of the Corporation's
assets either directly or through one or more subsidiaries)
(the "Successor Entity") in substantially the same proportions
as their ownership, immediately prior to such Business
Combination, of Outstanding Voting Securities and (ii) no
Person (excluding any Successor Entity or any employee benefit
plan, or related trust, of the Corporation or such Successor
Entity) beneficially owns, directly or indirectly, 20% or more
of, respectively, the combined voting power of the then
outstanding voting securities of the Successor Entity, except
to the extent that such ownership existed prior to the Business
Combination and (iii) at least a majority of the members of the
board of directors of the Successor Entity were members of the
Incumbent Board (including persons deemed to be members of the
Incumbent Board by reason of the proviso to subsection (c) of
this Section 10) at the time of the execution of the initial
agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
11. LEGAL IMPEDIMENTS TO EXERCISE. Anything in this Agreement to the
contrary notwithstanding, if, at any time specified herein for the exercise of
this option or the delivery of shares to the Optionee, any law or regulations of
any governmental authority having jurisdiction in the matter shall require
either the Corporation or the Optionee to take any action or refrain from action
in connection therewith or to delay such exercise, then the delivery of such
shares on such exercise shall be deferred until such action shall have been
taken or such restriction on action shall have been removed.
12. AUTHORITY OF PLAN ADMINISTRATOR. As conditions precedent to the
granting of the option and all other rights provided hereunder, the Optionee and
any other person who acquires any rights hereunder agrees that any dispute or
disagreement which shall arise under, or as a result of, or pursuant to, this
Agreement may be determined by the Plan Administrator constituted under the Plan
(the "Plan Administrator") in the Plan Administrator's absolute and uncontrolled
discretion; and that any such determination or interpretation of the terms of
this Agreement or the Plan or any other determination by either such Plan
Administrator shall be final, binding and conclusive on all persons affected
thereby. The Plan Administrator shall have the authority to administer the
Plan, make all determinations with respect to the construction and application
of the Plan, the Board resolutions establishing the Plan and this Agreement,
adopt and revise rules and regulations relating to the Plan and make any other
determinations which it believes necessary or advisable for the administration
of the Plan (subject to the provisions of the Plan regarding Plan
administration). Questions regarding the options granted under this Agreement
and the administration of the Plan may be addressed to the Corporation or its
delegate for such purposes.
13. NOT INCENTIVE STOCK OPTIONS. Anything in this Agreement to the
contrary notwithstanding, the Corporation and Optionee acknowledge and agree
that the Plan was not intended to provide for the issuance of "incentive stock
options" as defined in Section 422 of the Internal Revenue Code of 1986, as
amended, and that the options granted pursuant to this Agreement are not
"incentive stock options" as so defined.
14. CONTINUED EMPLOYMENT. This Agreement shall not be deemed to
limit or restrict the right of the Corporation or any Subsidiary to terminate
the Optionee's employment at any time, for any reason, with or without cause, or
to limit or restrict the right of the Optionee to terminate his employment with
the Corporation or any Subsidiary at any time. In the event of termination of
the Optionee's employment with the Corporation and all Subsidiaries, such
employee shall be eligible to exercise (to the extent provided under Section 3)
only options on the number of shares that have vested on or prior to his/her
date of termination (subject, however, to the provisions of Section 5).
Optionee's services shall be subject to the direction of the Board of Directors
of the Corporation or such Subsidiary or such officer or officers as the
respective Boards may designate from time to time and shall be rendered at such
locations as the respective Boards or any such officer may determine.
15. AMENDMENT OR TERMINATION. This Agreement may be amended or
terminated prior to the expiration dates set forth herein only with the mutual
agreement and consent of the Optionee and the Corporation, and then only to the
extent permitted under the Plan.
16. GOVERNING LAW. This Agreement shall be construed and its
provisions enforced and administered in accordance with the laws of the State
of Georgia and, where applicable, federal law.
17. INTERPRETATION. This Agreement shall at all times be
interpreted so as to be consistent with the intent, purposes and specific
language of the Plan.
18. SEVERABILITY. If any provision of this Agreement should be
held illegal or invalid for any reason, such determination shall not affect
the other provisions of this Agreement, but instead the Agreement shall be
construed as if such provisions had never been included herein.
19. HEADINGS/GENDER. Headings contained in this Agreement are for
convenience only and shall in no event be construed as part of this Agreement.
Any reference to the masculine, feminine or neuter gender shall be a reference
to other genders as appropriate.
20. NOTICES. Any notice which either party hereto may be required or
permitted to give to the other shall be in writing (unless otherwise specified
in this Agreement or in other writing to the Optionee), and may be delivered
personally or by mail, postage prepaid, addressed as follows: (i) to the
Corporation, 133 Peachtree Street, N. E., Atlanta, GA 30303, ATTN: Compensation
Department, or at such other address as the Corporation, by notice to the
Optionee, may designate in writing from time to time; (ii) to the Optionee at
the address indicated in the Optionee's then current personnel records, or at
such other address as the Optionee, by notice to the Corporation or its delegate
for such purposes at the above-referenced address, may designate in writing from
time to time. Such notices shall be deemed given upon receipt.
21. DEFINITIONS. For purposes of this Agreement, the following terms
shall be defined as follows (certain other definitions are found in the premises
to this Option Agreement):
(a) "Cause" for the purposes of this Agreement shall mean any of the
following: (i) the willful failure of the Optionee to perform
satisfactorily the duties consistent with his title and position
reasonably required of him by the Board or supervising management
(other than by reason of incapacity due to physical or mental
illness); (ii) the commission by the Optionee of a felony, or the
perpetration by the Optionee of a dishonest act or common law
fraud against the Corporation or any of its Subsidiaries; or
(iii) any other willful act or omission (including without
limitation the violation of any corporate policy or regulation)
which could reasonably be expected to expose the Corporation to
civil liability under the law of the applicable jurisdiction or
causes or may reasonably be expected to cause significant injury
to the financial condition or business reputation of the
Corporation or any of its Subsidiaries.
(b) "Corporation" shall mean Georgia-Pacific Corporation, a Georgia
corporation, its successors and assigns.
(c) "Committee" shall mean the Compensation Committee of the Board
of Directors of the Corporation, as constituted from time to
time, or such subcommittee of that body as the Compensation
Committee shall specify to act for the Compensation Committee
with respect to the options granted under the Plan, provided
however that any such subcommittee shall have at least two
members and shall consist entirely of `outside directors'' as
that term is defined pursuant to Section 162(m) of the Internal
Revenue Code of 1986, as amended from time to time, or any
statute which is a successor or replacement for such statute (and
applicable regulations promulgated thereunder).
(d) "Fair Market Value" shall mean, with respect to Timber Stock on
any date, the mean between the high and low sales prices of a
share of Timber Stock on that date as reported in
The Wall Street Journal, New York Stock Exchange - Composite
Transactions, or as reported in any successor quotation system
adopted prospectively for this purpose by the Committee, in its
discretion. The Fair Market Value of the Stock shall be rounded
to the nearest whole cent (with 0.5 cent being rounded to the
next higher whole cent).
(e) "Grant Date" shall mean the date upon which the Original Option
was granted under the Original Plan.
(f) "Plan" shall mean the Georgia-Pacific Corporation/Timber Group
1997 Long-Term Incentive Plan as adopted by the Corporation's
Board of Directors on September 17, 1997, and approved by its
shareholders on December 16, 1997 (and as amended from time to
time thereafter)
(g) "Plan Administrator" shall mean the person or entity having
administrative authority under the Plan, as specified in Section
7 of the Plan.
(h) "Subsidiary" shall mean any corporation (other than the
Corporation) in any unbroken chain of corporations beginning with
the Corporation if, at the time of reference, each of the
corporations other than the last corporation in the unbroken
chain owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the
other corporations in such chain.
(i) "Timber Stock" shall mean the class of the Corporation's common
stock which is intended to reflect the business and operations of
the forest resources segment of the Corporation's business, the
par value of which is $0.80 per share and which is designated
"Georgia-Pacific Corporation--Timber Group Common Stock".
(j) "Vesting Date" shall mean the date upon which options granted
under this Agreement first become exercisable in accordance with
the provisions of Sections 2 or 10.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers, under its corporate seal, and the
Optionee has executed this Agreement, as of this day and year first above
written.
GEORGIA-PACIFIC CORPORATION
By:
----------------------------
A. D. Correll
Chairman, Chief Executive Officer,
and President
ATTEST:
________________________
W. Edwin Frazier, III
Assistant Secretary
OPTIONEE
NOTE: PLEASE COMPLETE THE ATTACHED ACKNOWLEDGMENT OF RECEIPT
AND BENEFICIARY DESIGNATION FORM AND RETURN THEM TO:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
GEORGIA-PACIFIC STOCK OPTION PLAN
"PERSONAL AND CONFIDENTIAL"
SUITE 4717
525 WASHINGTON BLVD.
JERSEY CITY, NJ 07310
ACKNOWLEDGMENT OF RECEIPT AND BENEFICIARY DESIGNATION FORM
Under the terms of the Georgia-Pacific Corporation/Timber Group 1997 Long-
Term Incentive Plan ("1997 Timber Group LTIP"), you have the right to
designate a beneficiary to exercise certain rights that may arise under those
grants in the event of your death. IF YOU DO NOT DESIGNATE A BENEFICIARY IN
WRITING, THESE RIGHTS WILL PASS TO YOUR ESTATE UPON YOUR DEATH. In order to
allow you to decide affirmatively which outcome you desire and, in the event you
prefer to designate a beneficiary or beneficiaries other than your estate, to
name that beneficiary or those beneficiaries, the Corporation has provided this
form, which you may use to designate in writing the beneficiary(ies) you desire.
Of course, you may revoke and change your beneficiary designations at any time
by notifying the First Chicago Trust Company in writing at the address indicated
below.
PLEASE TAKE TIME TO FILL OUT THIS FORM AND RETURN IT TO THE FIRST CHICAGO
TRUST COMPANY AT THE FOLLOWING ADDRESS: FIRST CHICAGO TRUST COMPANY OF NEW
YORK, GEORGIA-PACIFIC STOCK OPTION PLAN, "PERSONAL AND CONFIDENTIAL", SUITE
4717, 525 WASHINGTON BLVD., JERSEY CITY, NJ 07310. BENEFICIARY DESIGNATIONS OR
MODIFICATIONS OF BENEFICIARY DESIGNATIONS SENT TO ANY OTHER ADDRESS WILL NOT BE
EFFECTIVE UNTIL ACTUALLY RECEIVED BY FIRST CHICAGO TRUST COMPANY. THE
CORPORATION HAS NO RESPONSIBILITY FOR BENEFICIARY DESIGNATION FORMS WHICH ARE
NOT SUBMITTED AS INDICATED ABOVE.
NOTE: You may designate multiple beneficiaries, in which case those living at
the time of your death will equally share the rights accorded to a beneficiary
for the particular grant(s) in question.
/ / I designate my estate as my beneficiary under my 1998 grants under the 1997
--
Timber Group LTIP.
/ / I designate the following person(s) as my beneficiary(ies) under my 1998
--
grants under the 1997 Timber Group LTIP:
NAME ADDRESS RELATIONSHIP TO SOCIAL SECURITY
YOU NUMBER (IF
KNOWN)
I ACKNOWLEDGE RECEIPT OF THE EXECUTED OPTION AGREEMENT EVIDENCING MY JANUARY 29,
1998 OPTION GRANT UNDER THE GEORGIA-PACIFIC CORPORATION/TIMBER GROUP 1997 LONG-
TERM INCENTIVE PLAN AND CONFIRM THAT THE BENEFICIARY(IES) DESIGNATED ABOVE HAVE
BEEN SELECTED BY ME IN FREE EXERCISE OF MY OWN DISCRETION.
Signature: Printed Name:
---------------------- ----------------------
EXHIBIT 12
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
STATEMENTS OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
(Dollar amounts in millions)
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Fixed charges:
Total interest costs $ 476 $ 490 $ 471
One-third of rent expense 25 23 21
----- ------ ------
Total fixed charges 501 513 492
----- ----- ------
Add (deduct):
Income before income taxes,
extraordinary item and
accounting change 235 296 1,697
Interest capitalized,
net of amortization 6 (12) (18)
------ ------ ------
241 284 1,679
------ ------ ------
Earnings for fixed charges $ 742 $ 797 $2,171
====== ====== ======
Ratio of earnings to fixed charges 1.48 1.55 4.41
====== ====== ======
</TABLE>
HIGHLIGHTS
<TABLE>
<CAPTION>
GEORGIA-PACIFIC CORPORATION
(Dollar amounts, except per share,
and shares are in millions) 1997 1996
- ------------------------------------------------------------
<S> <C> <C>
Net sales $13,094 $13,024
Income before extraordinary item and
accounting change 129 161
Basic Income per share before
extraordinary
item and accounting change 1.78
Cash provided by operations* 1,112 1,213
Property, plant & equipment investments 717 1,059
Cash dividends paid 184 183
Total assets at year end 12,950 12,818
Total debt at year end** 5,490 5,928
Total debt to capital at year end,
book basis 47.2% 50.4%
Total debt to capital at year end,
market basis 47.4%
Cash dividends paid per share of
common stock $ 2.00
Market price per share of common
stock at period end $ 72.00
Shares of common stock outstanding
at year end 91.4
- ------------------------------------------------------------
GEORGIA-PACIFIC GROUP
(Dollar amounts, except per share,
and shares are in millions) 1997 1996
- ------------------------------------------------------------
Net sales $12,968 $12,901
Income before extraordinary item and
accounting change (86) 34
Basic Income per share before extraordinary
item and accounting change (.94)
Cash provided by operations* 900 1,047
Property, plant & equipment investments 715 1,055
Cash dividends paid 92 91
Total assets at year end 11,779 11,492
Total debt at year end** 4,519 4,612
Total debt to capital at year end,
book basis 43.1% 44.2%
Total debt to capital at year end,
market basis 44.7%
Cash dividends paid per share of
common stock $ 1.00
Market price per share of common
stock at year end $ 60.75
Shares of common stock outstanding
at year end 92.2
- ------------------------------------------------------------
THE TIMBER COMPANY
(Dollar amounts, except per share,
and shares are in millions) 1997 1996
- ------------------------------------------------------------
Net sales $ 551 $ 547
Income before extraordinary item and
accounting change 215 127
Basic Income per share before extraordinary
item and accounting change 2.35
Cash provided by operations* 212 166
Property, plant & equipment investments 2 4
Cash dividends paid 92 92
Total assets at year end 1,171 1,326
Total debt at year end** 971 1,316
Total debt to capital at year end,
book basis 83.4% 99.6%
Total debt to capital at year end,
market basis 31.6%
Cash dividends paid per share of
common stock $ 1.00
Market price per share of common
stock at year end $ 22.69
Shares of common stock outstanding
at year end 92.6
- ------------------------------------------------------------
</TABLE>
* Excludes the accounts receivable sale program.
** Includes the proceeds from the accounts receivable sale program under the
assumption that at the end of the program the proceeds will be replaced by debt.
FINANCIAL STRATEGY
The common objective of Georgia-Pacific Corporation, Georgia-Pacific Group and
The Timber Company is to provide our shareholders with investment returns at
least equal to the cost of equity. The paper and forest products industry has
traditionally provided shareholders a small portion of their returns through
dividend payments. In the past, however, the industry primarily has tried to
increase equity values by reinvesting all its operating cash flows in expansion
projects and acquisitions.
The industry's stock performance suggests the returns on much of this
reinvestment have been insufficient. Although the cyclical nature of the paper
and forest products industry provides investors with opportunities to earn
handsome returns over short periods, the long-term stock performance of the
industry generally has been unimpressive.
LETTER STOCK. As part of our effort to improve the returns of our shareholders,
the Corporation issued a letter stock that separated the business and cash flows
of the Corporation's timberlands from those of its manufacturing and
distribution operations. The Corporation now has two classes of common stock,
one of which tracks the financial performance of our timber business, and the
other of which tracks the performance of the rest of its operations. The
earnings and cash flows of The Timber Company will be reinvested solely in that
business or returned to holders of The Timber Company stock in the form of
dividends or share repurchases, regardless of the cash needs of the
manufacturing business. Likewise, the earnings and cash flows of the Georgia-
Pacific Group will be reinvested solely in that business or returned to holders
of Georgia-Pacific Group stock in the form of dividends or share repurchases.
Holders of The Timber Company stock should benefit from the relatively stable
cash flows of that business and possible real growth in future timber prices.
Holders of Georgia-Pacific Group stock should benefit from the strong cash flows
of a cyclical commodity business that has reduced annual capital spending and is
committed to an aggressive share repurchase program when cash flows exceed
available positive net present value projects.
CAPITAL STRUCTURE. The Corporation tries to balance the mix of debt and equity
in a way that will benefit our shareholders by keeping our weighted average cost
of capital low, while retaining the flexibility needed to finance attractive
internal projects or acquisitions. Risk factors that contribute to the
volatility of our cash flows include economic cycles, changes in industry
capacity and additional environmental regulations. On the other hand, factors
that reduce our risk include the diversity of our manufacturing businesses and
the number, size and liquidity of our capital assets and timber holdings. Our
products are not subject to obsolescence, except over the long term.
Furthermore, we employ a high proportion of long-term, fixed-rate debt in our
capital structure.
On December 31, 1997, the Corporation's total debt was $5.5 billion,
including $280 million in proceeds from the accounts receivable sale program.
The weighted average after-tax cost of debt was 4.73 percent. About 84 percent
of our debt was long term, with an average maturity of approximately 18 years.
On a market-value basis, our debt-to-capital ratio was 42 percent. By employing
this capital structure, we believe that our weighted average cost of capital is
nearly optimized - at approximately 10 percent.
Considering Georgia-Pacific's ability to generate strong cash flows - even
at the bottom of the cycle - we believe our current debt structure is quite
manageable. In 1993, we established a target debt level of $5.5 billion. This
amount was based on our ability to cover interest on this level of debt, pay
income taxes and fund several hundred million dollars of reinvestment to
maintain our facilities - even if our pulp and paper business and our building
products business are both at the bottom of their cycles. Effective with the
approval of the letter stock transaction, the Board of Directors allocated $4.5
billion of that target debt level to the Georgia-Pacific Group and $1.0 billion
to The Timber Company. Due to the stable nature of The Timber Company's cash
flows, we concluded it could bear a greater proportion of the Corporation's
total fixed charges (interest and dividends) relative to its value. The debt
allocated to the Georgia-Pacific Group allows it to service debt in the troughs
of cycles while leaving sufficient free cash for dividends and capital spending
on maintenance. More importantly, it allows for significant share repurchases
during periods of high cash flows. The letter stock transaction does not affect
the consolidated credit of the Corporation, and so the solid investment-grade
ratings for the Corporation are unaffected.
In January 1998, the Board approved a $250 million increase in the
Corporation's target debt level to $5.75 billion, with the increase allocated
entirely to the Georgia-Pacific Group. We believe this is appropriate given the
approximately $4.2 billion in additions we have made to our manufacturing asset
base since establishing the original target debt level, as well as our major
cost reduction achievements of the last two years. The Board continually reviews
the Corporation's capital structure and could further increase the target debt
level in the future. However, given the considerable financial stress endured
following the $5.4 billion debt-financed acquisition of Great Northern Nekoosa
Corporation in 1990, any future major acquisition would likely be financed with
equity or a combination of debt and equity.
INVESTMENTS AND DIVESTITURES. The Corporation evaluates most major projects and
acquisitions by their projected rate of return of cash flows. An acceptable rate
of return for a project depends on the risks inherent in the project. Several
factors create risk, including the level of economic growth and demand in U.S.
and export markets, changes in industry capacity, changes in the cost of wood
fiber and other costs of production, and potential competition from substitute
products.
In addition to the evaluations of proposed capital projects that take place
prior to approval, we review major investments during the course of the projects
and/or after their completion. These audits compare the actual timing and amount
of expenditures, product prices, raw material costs and other critical success
factors to the assumptions made when the investments were proposed. These
reviews (which are presented periodically to the Corporation's Board) have
highlighted many of the risks inherent in making capital investments within our
industry.
During 1996, Georgia-Pacific concluded a three-year investment program that
totaled $3.2 billion, excluding timber and timberlands and an acquisition of
gypsum manufacturing plants. With the completion of these projects, the Georgia-
Pacific Group anticipates its property, plant and equipment investments will
remain around $750 million per year for the foreseeable future, excluding any
potential acquisition costs.
During 1997, The Timber Company invested $51 million in timber and
timberlands. The Timber Company is committed to maintaining annual investment in
timber and timberlands at approximately $50 million.
In a continuing effort to create shareholder value, the Corporation
routinely evaluates the performance and strategic fit of our existing
operations. Assets not considered strategic or not expected to deliver adequate
returns undergo evaluation for divestment. For example, in 1997 the Corporation
completed the sale of its nonstrategic Martell, California, timberlands and
associated building products plants.
In 1995 Georgia-Pacific implemented new performance measurement and
compensation plans based on Economic Value Added (EVA). In applying the EVA
metric, business units are compensated for their ability to improve after-tax
returns on the market value of capital employed that exceeds the cost of
capital. These plans are designed to encourage continuing process improvements,
cost reductions, and the divestiture of underperforming assets.
DIVIDENDS AND SHARE REPURCHASES. We believe a portion of our cash flows should
be paid to shareholders as regular, sustainable quarterly dividends. Effective
with the approval of the letter stock transaction, the Board allocated $.25 of
the Corporation's quarterly dividend of $.50 to each group. In the future, the
dividend rate for each group will depend on its cash flows, long-term capital
requirements and our overall capital structure.
As in past years, there likely will be periods when the Corporation
generates cash in excess of its opportunities for reinvestment and requirements
for dividends. We believe excess cash should be returned to our shareholders so
they can make their own reinvestment choices. We have used share repurchase
programs as a flexible and tax-effective way of distributing excess cash to
shareholders. We believe our long-term shareholders will benefit as their
proportionate share of the Georgia-Pacific Group or The Timber Company grows.
In August 1995, the Corporation's Board authorized management to make
purchases of the Corporation's common stock provided that total debt was below
$5.5 billion. When debt fell below that level in the fourth quarter of 1995, the
Corporation purchased 618,000 shares at a total price of $47 million. At the end
of 1995 and throughout 1996, debt remained above our target level and no shares
were purchased.
In January 1998, the Board raised the target debt level and authorized
management to repurchase shares when total Georgia-Pacific Corporation debt is
below our new overall target of $5.75 billion. Management is authorized to
repurchase shares of the Georgia-Pacific Group when total corporate debt is
below the target level and Georgia-Pacific Group debt is below $4.75 billion.
The Timber Company shares can be repurchased when total corporate debt is below
the target level and The Timber Company debt is below $1.0 billion. The Georgia-
Pacific Group has repurchased over 625,000 shares since December 17, 1997.
GEORGIA-PACIFIC GROUP
The Georgia-Pacific Group has grown through expansion and acquisitions to become
one of the world's leading manufacturers of building products and of pulp and
paper. The Group is one of the largest domestic producers of structural and
other wood panels, lumber, containerboard, communication papers and market pulp.
The Group also is the second-largest gypsum wallboard producer in North America
and operates a growing tissue products business.
The pulp and paper industry and, to a lesser extent, the building products
industry, are subject to highly cyclical earnings patterns that have become more
volatile in recent years. This is due in large measure to capital spending
patterns in these industries. Historically, Georgia-Pacific Corporation and its
competitors have tended to invest large amounts of capital to build new
manufacturing plants and to maintain and rebuild existing manufacturing
facilities. These capital investments typically have been made at or shortly
after earnings peaks. Given the long lead time required to build new facilities
and install new manufacturing equipment (generally 18-36 months), new capacity
in both the pulp and paper and the building products industries frequently came
on-line at or near the same time, thus exacerbating supply and demand imbalances
and causing the price of many of our products to fall sharply.
Furthermore, the Georgia-Pacific Group's position as one of the leading
worldwide manufacturers of several key products that are essentially commodities
further increases the volatility of earnings. Relatively minor movements in the
price of finished products cause major fluctuations in the Georgia-Pacific
Group's operating income because we produce a significant percentage of
worldwide volume.
During 1997 the Georgia-Pacific Group made substantial progress toward our
goal of reducing capital expenditures. Management adopted a more disciplined
approach to investing in an effort to reduce expenditures for property, plant
and equipment from more than $1 billion in 1996 to a normalized level of $750
million per year. After maintenance and environmental spending, we limit
investments either to businesses with higher return characteristics, such as
gypsum and tissue, or to projects that dramatically lower costs or improve
efficiency. Investments in 1997 totaled $715 million, with the pulp and paper
business accounting for $440 million of the total and the building products
business accounting for $212 million of the total.
BUILDING PRODUCTS
Georgia-Pacific is the leading manufacturer and distributor of building products
in the United States. The Group produces wood panels (including plywood,
oriented strand board and industrial panels), lumber, gypsum products, chemicals
and other products at 150 facilities in the U.S. and seven in Canada. The
building products business is affected primarily by the level of housing starts;
the level of repairs, remodeling and additions; industrial markets; commercial
building activity; the availability and cost of financing; and changes in
industry capacity. Exports for the building products segment in 1997 were $192
million. Its largest export markets are the Caribbean and Europe. In addition,
foreign building products sales offices are located in the United Kingdom, the
Netherlands and Japan.
WOOD PANELS. The largest producer of structural wood panels in the U.S., the
Georgia-Pacific Group accounts for about 20 percent of domestic capacity. The
Group's 16 softwood plywood plants and six oriented strand board (OSB) plants
can produce 7 billion square feet of panels annually. Most of these plants are
located in the Southeast in order to benefit from an ample supply of timber,
favorable weather conditions, population growth, economic growth and other
factors. OSB is a nonveneered structural panel made from strands of wood
arranged in layers and bonded with resin. OSB serves many of the same uses as
unsanded plywood, including roof decking, sidewall sheathing and floor
underlayment.
The Georgia-Pacific Group leads in production of manufactured board products
for industrial and construction applications. Twenty-one mills manufacture
hardboard, particleboard, panelboard, softboard, decorative panels and medium-
density fiberboard from logs, sawdust, shavings and chips. Applications include
furniture, cabinets, housing, fixtures and other industrial products.
LUMBER. The second-largest lumber producer in the U.S., the Georgia-Pacific
Group annually manufactures about 2.7 billion board feet, approximately 5
percent of domestic lumber production. Most of the Group's 39 lumber mills are
located in the South. Lumber products are manufactured from Southern pine, a
variety of Appalachian and Southern hardwoods, cypress, redwood, cedar, spruce,
hemlock and Douglas fir.
Demand for the Georgia-Pacific Group's engineered lumber products has
increased rapidly in recent years, primarily as a result of the reduced
availability and higher prices of conventional wide-dimension lumber. Laminated
veneer lumber and wood I-joists - made from veneer, OSB and sawn lumber - can be
designed to meet the precise performance requirements of roofing and flooring
systems.
GYPSUM PRODUCTS. The Georgia-Pacific Group's 20 gypsum board plants have an
annual capacity of 6.3 billion square feet, making us the second-largest
producer of gypsum wallboard in North America. Gypsum products include
wallboard, Dens specialty panels, fire-door cores, industrial plaster and joint
compound. In addition, the Group also operates four 100-percent-recycled gypsum
paperboard mills with a capacity of 306,000 tons per year. The Group owns gypsum
reserves of approximately 195 million recoverable tons, an estimated 42-year
supply at current production rates.
During 1997 the Georgia-Pacific Group announced plans to construct a new $65
million gypsum wallboard facility at Wheatfield, Indiana. The new plant will be
able to produce approximately 400 million square feet annually. The Northern
Indiana Public Service Company will supply it with synthetic gypsum. This plant
will double the amount of coal combustion waste recycled in the entire state of
Indiana. Operations should begin in late 1999.
CHEMICALS. The Group is the forest products industry's leading supplier of wood
resins, adhesives and specialty chemicals. We ship more than 6.0 billion pounds
of thermosetting resins, formaldehyde, and pulp and paper chemicals annually
from 34 plants to the Group's mills as well as to outside customers. The Group
also produces chemicals for use in a variety of specialty applications in other
industries.
DISTRIBUTION. The distribution division of the Georgia-Pacific Group is the
leading domestic wholesaler of building products. It sells building products to
independent dealers, industrial customers and large home improvement centers
throughout the U.S. The distribution business provides a nationwide outlet not
only for a significant portion of the Georgia-Pacific Group's building products,
but also for products purchased by the distribution division from third parties.
In 1997, third-party purchases totaled $2.4 billion and accounted for
approximately 57 percent of sales for the distribution division.
In 1995, the division began reengineering its organizational, logistical and
information systems. Implementation of these initiatives, however, has been far
more costly and difficult to complete than forecasted. As part of an aggressive
effort to reduce costs, focus on key customer needs and return the business to
profitability, management decided in late 1997 to sell or close the division's
millwork fabrication facilities and a number of distribution centers in the
Western U.S. This will allow the division to focus on sales, warehouse and
logistics functions in the geographic market areas and businesses that provide
the highest returns.
PULP AND PAPER
The Georgia-Pacific Group produces containerboard and packaging, communication
papers, market pulp, tissue and other products at 81 facilities in the U.S. and
one in Canada. Combined production capacity for pulp, paper and paperboard is
9.4 million tons. Markets for pulp and paper products are affected primarily by
changes in industry capacity and the level of economic growth in the U.S. and
export markets. Exports for the pulp and paper segment in 1997 were $876
million, consisting primarily of market pulp and containerboard. The largest
export markets are Asia, Europe and Latin America.
CONTAINERBOARD AND PACKAGING. The Georgia-Pacific Group produces containerboard,
corrugated containers and packaging, bleached paperboard and kraft paper. The
second-largest domestic producer of containerboard, the Group is the largest
supplier of containerboard to independent converters in the U.S. Annual capacity
at the Group's four containerboard mills totals 3.5 million tons, representing
about 10 percent of total U.S. capacity. The Georgia-Pacific Group's corrugated
packaging plants use approximately 65 percent of our containerboard production.
The Group sells most of the remainder to independent converters in the U.S.,
Latin America and Asia. Containerboard exports totaled 531,000 tons during 1997.
In addition to standard corrugated containers, the Group's packaging plants
manufacture many specialty packaging products. These include double- and triple-
wall boxes, bulk bins, water-resistant packaging, and high-finish and preprinted
packaging for point-of-sale displays. We also produce and sell over 250,000 tons
of kraft paper to independent converters each year, primarily for specialty
kraft and multiwall bags. The Georgia-Pacific Group's Technology and Development
Center in Norcross, Georgia, uses state-of-the-art technology to design and test
packaging for customers.
The Group also produces bleached paperboard for use in frozen food
containers, food service items and other products. In May 1997, we announced the
formation of a joint venture with Gulf States Paper Corporation to sell bleached
paperboard produced by both entities under Gulf States' established CartonMate
paperboard trademark. Of the Group's 400,000 tons of bleached paperboard
capacity, 195,000 tons will be sold by Gulf States. The remainder will be sold
to traditional markets, with some conversion to fluff pulp.
COMMUNICATION PAPERS. The Georgia-Pacific Group is the nation's second-largest
producer of communication papers. Also known as uncoated free-sheet,
communication papers are used in office copy machines and commercial printing,
business forms, stationery, tablets, books, envelopes and checks. The Group's
seven uncoated free-sheet paper mills have a combined annual capacity of 2.2
million tons, approximately 16 percent of U.S. capacity.
As part of its value-added strategy, the communication papers division
introduced additional branded products in 1997. These included a line of
technology papers called Microprint, designed to function in modern office
machines and marketed and sold through retail and commercial channels.
Also in 1997, the communication papers division adopted a systems
integration initiative that will improve business processes by investing in
information technology. This initiative will enable the Group to optimize paper
machine productivity, decrease order fulfillment time, and reduce transportation
and inventory costs.
MARKET PULP. The Georgia-Pacific Group is the world's second-largest market
pulp producer. The Group owns six mills with a combined annual capacity of 2.1
million tons, approximately 18 percent of U.S. capacity. These mills produce
Southern softwood, Southern hardwood and Northern hardwood pulps for use in the
manufacture of many paper grades. The Group also is a major supplier of fluff
pulp and other specialty pulps. Fluff pulp is used primarily in the manufacture
of disposable diapers and other sanitary items. Demand continues to grow for
these products, particularly in developing countries. The Group exports
approximately 65 percent of its market pulp, primarily to Asia, Europe and Latin
America.
The Asian financial crisis that began in October impacted the world pulp
market by year end. In response to a sharp drop in orders from Asia, the
Georgia-Pacific Group took 40,000 tons of market-related pulp downtime during
the fourth quarter and announced an additional 125,000 tons of market-related
downtime for January through April of 1998.
TISSUE. The Georgia-Pacific Group ranks fourth among U.S. producers of tissue
products, which include bath tissue, paper towels and napkins. We manufacture
these products at five primary mills and two secondary converting plants.
Capacity totals approximately 610,000 tons annually, which represents about 9
percent of total U.S. capacity. Approximately 70 percent is sold to customers
through grocery, drug and mass merchandise retailers. Consumer brand names
include Angel Soft, Sparkle, Coronet, MD and Delta. The remaining 30 percent of
production is sold primarily to commercial and industrial markets through
independent distributors, and directly to national fast food accounts. The
Group's proprietary dispensing system for the Cormatic, Ultimatic and Guardian
brands continued to expand in 1997.
In recent years, demand for the Georgia-Pacific Group's tissue products
exceeded primary, or "parent roll," production capacity. Consequently, the
Georgia-Pacific Group has converted parent rolls purchased from other
manufacturers to satisfy demand.
To increase production capacity and reduce reliance on purchased parent
rolls, the Group commenced construction of a new tissue machine and associated
converting equipment at its Crossett, Arkansas, facility. The new machine,
designed to produce about 60,000 tons of bath tissue per year, is estimated to
cost approximately $150 million and is scheduled for completion by late 1998.
THE TIMBER COMPANY
The Timber Company is engaged in the business of growing and selling timber and
wood fiber. The third-largest private owner of timberlands in the United States,
The Timber Company owns approximately 5.4 million acres in the U.S. and Canada,
and manages an additional 400,000 acres under long-term leases. These
timberlands are located in three regions: (i) the Southern region, consisting of
3.9 million acres of primarily pine forests spanning 11 states; (ii) the Western
region, with 500,000 acres of primarily Douglas fir and second- and third-growth
redwood forests in Oregon and California; and (iii) the Northern region, 1.4
million acres of hardwood and conifer forests in the northern U.S. and New
Brunswick, Canada. The Timber Company grows various commercial species of trees
and sells timber and wood fiber to the Georgia-Pacific Group and other
industrial wood users. The Timber Company's principal products are softwood
sawtimber, softwood pulpwood, hardwood sawtimber and hardwood pulpwood. In 1997
The Timber Company sold 15.6 million tons of timber, which was 4 percent below
the 1996 harvest level of 16.2 million tons.
The Timber Company plants more than 125 million conifer seedlings each year
and aggressively manages the forest to maximize growth and productivity through
the use of advanced genetics, fertilization, vegetation control, and selective
harvesting and thinning. The Timber Company does not own or operate logging
equipment or facilities that convert timber into intermediate or finished
products. Logging operations are performed by independent contractors working
for purchasers of the standing timber or, in certain circumstances, for The
Timber Company.
The Timber Company also is engaged in certain businesses related to
ownership and management of its timberlands, including managing hunting leases
and mineral reserves, seedling production and real estate development.
The Timber Company is committed to operating a high-productivity, low-
overhead business, and to aggressively managing its forestlands to maximize
long-term, sustainable cash flows. Consistent with this commitment, The Timber
Company will execute the following business strategies:
MAXIMIZE TIMBERLAND PRODUCTIVITY. The Timber Company's productivity strategy
seeks to increase forest growth rates to allow higher sustainable harvest
volumes over time. The Timber Company expects to generate increased forest
productivity by using proprietary forest growth and economic modeling techniques
on a site-by-site basis to prescribe optimal investments and time harvests that
maximize long-term, after-tax cash flows. These growth and economic modeling
techniques include (i) measuring soil site productivity potential; (ii)
determining appropriate seed sources and genetic families for planting; (iii)
prescribing specific herbicides; (iv) applying appropriate intensive soil
tillage; (v) fertilizing only economically responsive sites; (vi) evaluating
planting rates and thinning prescriptions to capture optimum site values; and
(vii) determining optimum economic harvest age. The Timber Company's
productivity modeling indicates that, even with planned increases in harvest
volumes over the next decade, standing inventory should increase by more than 10
million tons during the same period as a result of improved growth rates and the
resulting earlier maturation of stands to merchantable status. Growth rates
should continue to increase beyond 2007 through the development and use of
genetically improved seedlings, intensive fertilization, vegetation control, and
thinning and selective harvesting.
FOCUS ON COST CONTROL. The Timber Company reduced selling, general and
administrative costs by more than $5 million during 1997, and will continue to
focus on opportunities to control and reduce costs.
SELECTIVE ACQUISISTIONS AND DIVESTITURES. Private timberland ownership in the
U.S. is highly fragmented, creating opportunities for The Timber Company to
pursue a selective acquisition program. This program will focus on improving The
Timber Company's competitive position in selected timber markets, and
diversifying the product and geographic mix to address anticipated market
shifts. According to the International Wood Fiber Report, more than $5 billion
in commercial forestland, representing over 5.5 million acres in the U.S.,
changed hands in the last two years. The Timber Company believes strong cash
flows, forest management expertise and the availability of The Timber Company
stock as a targeted acquisition currency will leave it well positioned to
participate in the market for available forestlands. Additionally, The Timber
Company anticipates continuing use of tax-free, like-kind exchanges of
forestlands with other owners as a cost-effective means of strengthening its
competitive position in targeted markets. In 1997, The Timber Company effected
tax-free exchanges on over 14,000 acres valued at $15.2 million. The Timber
Company also will seek to divest underperforming or nonstrategic properties.
ENVIRONMENTAL STEWARDSHIP. The Timber Company is a recognized leader in
environmental stewardship. The Timber Company believes environmentally
sustainable forest management practices will enhance the future value of its
timberlands. The Timber Company developed and implemented an 11-point
environmental strategy to adopt certain provisions of the American Forest and
Paper Association's Sustainable Forestry Initiative in addition to The Timber
Company's own specific environmental goals. This strategy focuses on water
resources, regeneration and sustained yield objectives, harvest practices,
wildlife and fisheries, flora, special area designations, private landowner
education, and research and technical development. Among The Timber Company's
major initiatives is an agreement with the U.S. Fish and Wildlife Service to
conserve the habitat of the red-cockaded woodpecker, and an agreement with The
Nature Conservancy to cooperatively manage more than 21,000 acres of
ecologically sensitive timberlands along North Carolina's Lower Roanoke River.
INDUSTRY OVERVIEW. The key end-use products for timber and wood fiber include
pulp and paper, lumber, structural panels and engineered wood products. In the
U.S., these products are manufactured regionally in relative proximity to
available timber resources. Pulp and paper products are generally manufactured
in the Southeast and in the Great Lakes region. Lumber is made primarily in the
Northwest and South; plywood mills are concentrated in the South Central region.
Manufacturers of oriented strand board (OSB), medium-density fiberboard and
other engineered wood products are more dispersed, generally locating near
sources of low-cost pulpwood, small sawlogs and wood residues. As it is usually
inefficient to transport logs, pulpwood and wood residues farther than 150
miles, wood-using manufacturing facilities are generally built close to their
sources of timber. Even within these parameters, The Timber Company's harvests
could efficiently supply more than 1,000 industrial facilities.
SUPPLY AND DEMAND. Since 1988, the United States government has significantly
reduced its sales of timber in response to environmental and endangered species
concerns, resulting in increased prices for logs and lumber. Over the last
decade, the volume of timber sold by the U.S. Forest Service (USFS) has
decreased by over 70 percent. The USFS historically has been a major supplier of
softwood sawtimber to the domestic forest products industry, particularly in the
West. While USFS harvests have fallen, harvest levels on private timberlands in
the South and West have remained relatively stable.
Due to the reduced availability of timber from public lands, particularly in
the Pacific Northwest, utilization of timber-based manufacturing facilities in
the South has increased. Demand for timber has shifted to the South - the
location of more than 65 percent of The Timber Company's standing inventory.
Environmental and conservation pressures are present but somewhat less
restrictive in the South, primarily due to the significant and widely
distributed private ownership of Southern timberlands. Accordingly, The Timber
Company anticipates that this region will generate an increasing percentage of
future U.S. timber supply.
While the supply of timber in the U.S. has been subject to constraint,
demand has remained relatively strong, driven by economic expansion and
population increases - which in turn drive growth in housing starts, repair and
remodeling activities and industrial wood use. The Timber Company expects demand
for timber to remain strong as economies in the U.S. and abroad continue to
expand. This stable demand in the face of a constrained supply has resulted in
real price appreciation for timber. Continuing constraints on timber supply and
increasing demand are anticipated to continue to support higher real timber
prices, particularly in the South.
LOCATION OF TIMBERLANDS. The Timber Company's timberlands span 11 Southern
states, two Western states, four Northern states and New Brunswick, Canada. Of
the 3.9 million acres in the Southern timberlands, approximately 3.0 million
acres consist of softwood species, including loblolly, slash and shortleaf pines
valued as raw material for structural panels, lumber, and pulp and paper.
Approximately 900,000 acres consist of mixed hardwood species, including red
oak, yellow poplar, gum, ash and maple used in the manufacture of furniture,
flooring, structural panels, and pulp and paper. Approximately 1.6 million acres
of the Southern timberlands consist of merchantable softwood timber, and
approximately 2.3 million acres consist of mixed hardwoods and premerchantable
softwood timber.
The Western timberlands of The Timber Company consist principally of Douglas
fir in Oregon and second- and third-growth redwood in California. The Douglas
fir forest encompasses 286,000 acres in the Coast Range of Central and Southern
Oregon. Douglas fir lumber is a premium construction material noted for its
strength, stability and appearance. The redwood forest consists of 196,000 acres
in coastal Northern California. Redwood is a premium product used in decking,
decorative fencing and other special applications.
The Northern timberlands cover 1.4 million acres in four states and New
Brunswick, Canada. The West Virginia and Pennsylvania forests encompass 330,000
acres of Appalachian hardwood species such as red oak, cherry, yellow poplar and
other commercially valuable species. The high-quality lumber manufactured from
these Appalachian hardwood sawlogs is used in furniture manufacturing and
commands a premium price. Smaller-diameter trees are sold as raw material for
pulp and paper and OSB panels.
The Maine and New Brunswick, Canada, forests cover 835,000 acres. Aspen,
spruce, fir, Northern pines and mixed hardwoods are the principal species. Aspen
and mixed hardwoods are used as raw material for pulp and paper; spruce, fir and
other softwoods are used for lumber, OSB, and pulp and paper production.
The 254,000 acres in Wisconsin contain red, white and jack pine, aspen, and
various mixed hardwoods. These species are used for high-quality hardwood lumber
and veneer, softwood lumber and OSB as well as raw material for pulp and paper.
HARVEST LEVELS. The Timber Company's objective is to increase harvests of
mature timber significantly over the next 10 years, and to replace these
harvests by planting and cultivating younger, faster-growing trees. The Timber
Company prepares its harvest plans annually using information from current and
projected timber inventories. This data assumes various productivity and
harvesting scenarios; current and expected market conditions; competition;
customer requirements; the age, species and size distribution of its timber;
expected acquisitions and divestitures; access to timber; and environmental and
regulatory constraints.
INVENTORY LEVELS. The Timber Company evaluates its annual forest inventory
based on an analysis of samples collected from merchantable timber stands and
the use of proprietary growth-and-yield modeling techniques. While the Timber
Company projects hardwood inventories will remain relatively constant from 1998
through 2007, it projects softwood inventories will increase by approximately 5
percent over the same period. This reflects the expected higher growth rates
resulting from intensive forest management, particularly in the Southern
forests, and large amounts of younger timber reaching merchantable status.
Collectively, The Timber Company's harvest plans and inventory projections
reflect its objective of increasing harvest volumes while at the same time
increasing the inventory of standing timber.
The Timber Company believes it is well positioned to compete in the timber
business because of its well-distributed and strategically located timberlands,
experienced management team, low overhead costs and historically stable cash
flows. The Timber Company's business strategies focus on maximizing timberland
productivity through intensive forest management, continuing cost control,
seeking attractive acquisition and divestiture opportunities, and ensuring that
operations are environmentally sustainable.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Georgia-Pacific Corporation and Subsidiaries
Georgia-Pacific Corporation (the "Corporation") consists of two separate
operating groups, the Georgia-Pacific Group and The Timber Company. The
performance of these distinct businesses is reflected separately by two classes
of common stock: Georgia-Pacific Group stock and The Timber Company stock. The
Georgia-Pacific Group consists of all the Corporation's manufacturing mills and
plants and its building products distribution business. These facilities
manufacture and sell a wide variety of pulp and paper products (including pulp,
communication papers, containerboard, packaging and tissue) and manufactured
building products (including plywood, oriented strand board and industrial
panels, lumber, gypsum products and chemicals). The Timber Company consists of
approximately 5.8 million acres of timberlands owned or leased by the
Corporation, together with related facilities and equipment. In 1997, these
timberlands supplied approximately 25% of the overall timber and wood fiber
requirements of the Corporation's manufacturing facilities.
1997 COMPARED WITH 1996
The Corporation reported consolidated net sales of $13.1 billion and net income
of $69 million for 1997, compared with net sales of $13.0 billion and net income
of $156 million in 1996. The 1997 results included a pretax gain of $128 million
from the sale of the Corporation's Martell, California, assets and a $60 million
one-time, after-tax charge for an accounting change. The 1996 results included a
net pretax charge of $39 million primarily related to a voluntary early
retirement program, and a pretax gain of $39 million from the sale of two gypsum
wallboard facilities. An extraordinary, after-tax loss of $5 million was
recorded in 1996 for the early retirement of debt.
In 1996, the Corporation set a goal of improving its annual pretax earnings
by approximately $400 million through a three-year effort to reduce overhead
costs and improve efficiencies throughout the Corporation. The Corporation has
achieved about half of this cost reduction by eliminating work and the related
salaried positions. The Corporation also expects to realize significant
efficiencies and cost savings from cost reduction efforts at its manufacturing
facilities.
Selling, general and administrative expense (`SG&A'') was $1,180 million
for 1997, compared with $1,399 million in 1996. The cost reduction is largely a
result of a voluntary early retirement program initiated in 1996 and overhead
reduction plans implemented in 1997.
The Corporation reported pretax income of $235 million and an income tax
provision of $106 million for the year ended December 31, 1997, compared with
pretax income of $296 million and an income tax provision of $135 million for
the year ended December 31, 1996. The effective tax rate used to calculate the
provision for income taxes for both years was higher than the statutory rates
used to calculate federal and state income taxes, primarily because of
nondeductible goodwill amortization expense associated with past business
acquisitions.
In November 1997, the Financial Accounting Standards Board (`FASB'')
Emerging Issues Task Force reached a consensus on Issue No. 97-13 (`EITF 97-
13'), ``Accounting for Costs Incurred in Connection with a Consulting Contract
or an Internal Project that Combines Business Process Reengineering and
Information Technology Transformation.' The Task Force consensus requires that
the cost of business process reengineering activities, whether done internally
or by third parties, be expensed as incurred. This applies when the business
process reengineering activities are part of a project to acquire, develop or
implement internal-use software. The adoption of EITF 97-13 resulted in a one-
time, after-tax charge of $60 million in the 1997 fourth quarter.
The remaining discussion refers to the `Selected Industry Segment Data''
table below.
SELECTED INDUSTRY SEGMENT DATA
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31
---------------------
(In millions, except per share amounts) 1997 1996 1995
- -------------------------------------------------------------
<S> <C> <C> <C>
Net sales
Building products $ 7,486 $ 7,365 $ 7,301
Pulp and paper 5,556 5,609 6,962
Other 52 50 50
- --------------------------------------------------------------
Total net sales $ 13,094 $ 13,024 $14,313
==============================================================
Operating profits
Building products $ 677 $ 516 $ 669
Pulp and paper 174 390 1,611
Other 18 8 10
- --------------------------------------------------------------
Total operating profits 869 914 2,290
General corporate (169) (159) (161)
Interest expense (465) (459) (432)
Provision for income taxes (106) (135) (679)
- --------------------------------------------------------------
Income before
extraordinary item and
accounting change 129 161 1,018
Extraordinary item,
net of taxes - (5) -
Cumulative effect of
accounting change,
net of taxes (60) - -
- --------------------------------------------------------------
Net income $ 69 $ 156 $ 1,018
==============================================================
</TABLE>
BUILDING PRODUCTS. The Corporation's building products segment reported net
sales of $7.5 billion and operating profits of $677 million for 1997, compared
with net sales of $7.4 billion and operating profits of $516 million for 1996.
The 1997 results included unusual charges of $32 million primarily related to
asset write-downs, including closure of certain building products facilities, as
well as information systems write-offs. The 1997 results also included $80
million in charges associated with the restructuring of the distribution
business. The 1996 results included charges of $19 million primarily related to
a voluntary early retirement program, a pretax gain of $39 million from the sale
of two gypsum wallboard facilities and $117 million of restructuring charges in
the building products distribution division. Return on sales increased to 9.0%
from 7.0% a year ago. A 10% increase in lumber prices, combined with a 10%
increase in gypsum prices, more than offset approximately 22% lower prices for
oriented strand board and an increase in log costs.
Although the average price the Corporation has paid for timber has been
stable over the past three years, prices for softwood and hardwood sawtimber,
which the Corporation uses to make lumber and plywood, have increased. The
Corporation expects prices it pays for timber and wood fiber to increase in real
terms over the foreseeable future. The Corporation expects that in 1998 lumber
prices will decrease from 1997 levels.
Operating losses for the Corporation's building products distribution
division were $166 million for 1997, compared with losses of $207 million in
1996. The 1997 results included restructuring charges of $80 million, compared
with restructuring charges of $117 million in 1996. Sales volumes were down 4%
in 1997 compared with 1996.
Beginning in 1995 the Corporation's building products distribution division
began a restructuring program to change its organizational, logistical and
information systems to improve customer service, increase sales and reduce
costs. As part of this program, the division established two national sales
centers and built a number of large distribution triads and smaller bulk
distribution centers, while selling or closing a number of older distribution
warehouses. The division invested approximately $400 million for the acquisition
and construction of these new facilities (excluding proceeds from the sales of
older facilities and other assets) through December 31, 1997. However, sales
volumes for the division fell approximately 14% from the end of 1994 through the
end of 1997, and it incurred sharply higher operating costs. As a result, the
division incurred operating losses of $60 million, $207 million and $166 million
in 1995, 1996 and 1997, respectively. These results included restructuring
charges of $70 million, $117 million and $80 million in 1995, 1996 and 1997,
respectively.
In the fourth quarter of 1997 the distribution division finalized a further
restructuring plan to aggressively reduce its costs, focus on meeting customer
needs and return its business to profitability. As part of this plan, the
division will dispose of its millwork fabrication facilities nationwide, and a
number of distribution centers located in the Western United States. In the
fourth quarter of 1997 the Corporation recorded a $70 million restructuring
charge to provide for these actions. The distribution division is not expected
to be profitable in 1998, although it expects its operating loss to be
significantly smaller than in prior years. See Note 3 of the Notes to Financial
Statements for additional information.
Selected financial and operating data for the distribution business are
shown in the table below.
SELECTED DISTRIBUTION DIVISION DATA
<TABLE>
<CAPTION>
Year ended December 31
------------------
(In millions) 1997 1996 1995
- ------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 4,220 $ 4,407 $ 4,673
Operating (losses) (166) (207) (60)
Capital expenditures 44 224 132
Depreciation 48 45 23
- ------------------------------------------------------------
</TABLE>
PULP AND PAPER. The Corporation's pulp and paper segment reported net sales of
$5.6 billion and operating profits of $174 million for 1997, compared with net
sales of $5.6 billion and operating profits of $390 million for 1996. The 1997
results included unusual charges of $6 million for information systems write-
offs. The 1996 results included unusual expenses of $20 million primarily
related to the voluntary early retirement program referred to above. Return on
sales decreased to 3.1% for 1997 compared with 7.0% in 1996, primarily as a
result of substantially lower average prices for containerboard and packaging.
Compared with 1996, average prices were approximately 17% lower for
containerboard and approximately 12% lower for packaging. Average prices for the
other major paper grades were approximately the same as the comparable amounts
for 1996.
Prices for most of the Corporation's commodity paper products have been
declining since the fourth quarter of 1995. Some strengthening of prices in
communication papers and containerboard occurred in the fourth quarter of 1997,
but at the same time the Asian financial crisis resulted in a sharp drop in
export orders for pulp and a weakening in worldwide pulp prices. Historically,
prices for all of the Corporation's paper products have been highly volatile,
and it is expected this trend will continue.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Corporation generated cash from operations of $1,112
million during 1997. The Corporation's cash provided by operations in 1996 was
$1,213 million.
INVESTING ACTIVITIES. Property, plant and equipment investments during 1997 were
$717 million, which included $440 million in the pulp and paper segment, $214
million in the building products segment and $63 million of general corporate
investments (primarily information systems). Investments in 1996 totaled $1.1
billion. The Corporation expects to invest approximately $750 million in 1998
without considering the cost of any acquisitions.
During 1997, the Corporation received $385 million of proceeds from sales of
assets. This amount included $308 million of proceeds from the sale of the
Corporation's Martell, California, assets on March 31, 1997. The Martell assets
included 127,000 acres of timberlands, a sawmill and a particleboard plant.
In the second quarter of 1996, the Corporation purchased for $363 million
the U.S. and Canadian gypsum operations of Domtar Inc. As part of its agreement
with the U.S. Department of Justice permitting the Domtar acquisition, during
the third quarter of 1996 the Corporation sold its gypsum wallboard plants at
Buchanan, New York, and Wilmington, Delaware, for approximately $60 million.
During 1997, the Corporation invested $80 million for pollution control and
abatement. The Corporation's 1998 capital expenditure budget currently includes
approximately $115 million for environmental-related projects. Certain other
capital projects that are being undertaken for the primary reason of improving
financial returns or safety will also include expenditures for pollution
control.
The U.S. Environmental Protection Agency (the `EPA'') has announced that it
will promulgate a set of technical provisions known as the `Cluster Rule'' that
will establish new requirements for air emissions and wastewater discharges from
pulp and paper mills. The Corporation estimates that capital expenditures up to
approximately $550 million will be made over the next eight years in order to
comply with the Cluster Rule's requirements. Of that total, about $300 million
will be needed within three years of the date of promulgation of the Cluster
Rule, which is expected to be in the first quarter of 1998. One of the main
components of the Cluster Rule is that pulp and paper mills use only elemental
chlorine free (`ECF'') technology, which will require the complete substitution
of chlorine dioxide for elemental chlorine in the pulp bleaching process.
Approximately $165 million of the amounts required to be spent in the next three
years will go toward ECF conversion at mills located in Ashdown, Arkansas;
Crossett, Arkansas; Bellingham, Washington; Palatka, Florida; and Woodland,
Maine. The bulk of the remaining $135 million to be spent within the next three
years is for additional air emission controls at the Corporation's pulp and
paper facilities.
FINANCING ACTIVITES. At December 31, 1997 and 1996, the Corporation's total debt
was $5.5 billion and $5.9 billion, respectively. At December 31, 1997 and 1996,
$4.5 billion and $4.6 billion, respectively, of such total debt was Georgia-
Pacific Group's debt, and $971 million and $1.3 billion, respectively, was The
Timber Company's debt. The debt of the groups bears interest at a rate equal to
the weighted average rate of the Corporation's total debt, calculated on a
quarterly basis. The weighted average interest rate on the Corporation's total
debt at December 31, 1997 was 7.8% including outstanding interest rate exchange
agreements. In the future, each group's debt will increase or decrease by the
amount of any cash provided by or used for that group's operating activities,
investing activities, dividend payments, share repurchases or issuances and
other (nondebt-related) financing activities. See Note 1 of the Notes to
Financial Statements for further discussion of financial activities.
The amount of the Corporation's debt and accounts receivable shown on the
balance sheet at December 31, 1996 does not include $350 million of proceeds
from the accounts receivable sale program. That amount, although not reflected
on the balance sheet, was considered part of the Corporation's total debt at
December 31, 1996, under the assumption that at the end of the program the
proceeds will be replaced by debt. In the 1997 first quarter, the Corporation
adopted Statement of Financial Accounting Standards (`SFAS'') No. 125,
`Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities.' As a result, the accounts receivable sale program is accounted
for as a secured borrowing effective January 1, 1997. The $280 million of
receivables outstanding under the program at December 31, 1997 and the
corresponding debt are included as current receivables and short-term debt,
respectively, on the Corporation's balance sheet. The fees associated with the
program are included in interest expense for all years.
In conjunction with the sale of the Corporation's Martell, California,
operations and timberlands in March 1997, the Corporation received notes
receivable from the purchaser in the amount of $270 million. These notes are
included in `Other assets'' on the Corporation's balance sheet at December 31,
1997. In April 1997, the Corporation monetized these notes receivable through
the issuance of notes payable in a private placement. Proceeds from the notes
receivable will be used to fund payments required for the notes payable. The
notes payable are classified as `Other long-term liabilities'' on the
Corporation's balance sheet. Proceeds from the issuance of the notes payable and
cash from operations were used to reduce debt in the 1997 second quarter,
including $300 million of 9.85% notes that were due on June 1, 1997.
At December 31, 1997, the Corporation had outstanding borrowings of $659
million under certain industrial revenue bonds. Approximately $16 million from
the issuance of these bonds is being held by trustees and is restricted for the
construction of certain capital projects, and $15 million is held by trustees to
refund a like amount of bonds maturing on January 2, 1998. Amounts held by
trustees are classified as noncurrent assets on the accompanying balance sheets.
The Corporation has a $1.5 billion unsecured revolving credit facility that
is used for direct borrowings and as support for commercial paper and other
short-term borrowings. As of December 31, 1997, $879 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, options 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.
The Corporation does not utilize derivatives for speculative purposes.
Derivatives are transaction-specific so that a specific debt instrument,
contract or invoice 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.
The table below presents principal (or notional) amounts and related
weighted average interest rates by year of expected maturity for the
Corporation's debt obligations. For obligations with variable interest rates,
the table sets forth payout amounts based on current rates and does not attempt
to project future interest rates.
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
(In millions) 1998 1999 2000 2001
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt
Commercial paper and other
short-term notes - - - -
Average interest rates - - - -
Notes and debentures $ 817 - - -
Average interest rates 8.0% - - -
Revenue bonds $ 36 $ 9 $ 16 $ 1
Average interest rates 4.3% 4.5% 4.4% 6.5%
Other loans - - $ 13 -
Average interest rates - - 7.9% -
Accounts receivable sale program - - - -
Average interest rates - - - -
Notional principal amount of
interest rate exchange
agreements $ 320 $ 56 $ 100 -
Average interest rate paid
(fixed) 9.4% 8.8% 8.4% -
Average interest rate received
(variable) 5.8% 5.7% 5.9% -
- ------------------------------------------------------------
</TABLE>
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Fair value
December 31, 1997
(In millions) 2002 Thereafter Total
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt
Commercial paper and other
short-term notes - $ 621 $ 621 $ 621
Average interest rates - 6.4% 6.4% 6.4%
Notes and debentures $ 300 $2,600 $3,717 $4,055
Average interest rates 10.0% 8.7% 8.7% 8.7%
Revenue bonds $ 75 $ 522 $ 659 $ 637
Average interest rates 5.0% 5.0% 4.9% 4.9%
Other loans - - $ 13 $ 13
Average interest rates - - 7.9% 7.9%
Accounts receivable sale program - $ 280 $ 280 $ 280
Average interest rates - 6.1% 6.1% 6.1%
Notional principal amount of
interest rate exchange
agreements - - $ 476 $ 10
Average interest rate paid
(fixed) - - 9.0% 9.0%
Average interest rate received
(variable) - - 5.8% 5.8%
- ------------------------------------------------------------
</TABLE>
The Corporation has the intent and ability to refinance commercial paper, other
short-term notes and the accounts receivable sale program as they mature.
Therefore, maturities of these obligations are reflected as cash flows expected
to be made after 2002.
At December 31, 1997, the Corporation had interest rate exchange agreements
that effectively converted $476 million of floating rate obligations with a
weighted average interest rate of 5.8% to fixed rate obligations with an average
effective interest rate of approximately 9.0%. These agreements increased
interest expense by $16 million, $17 million and $20 million for the three years
ended December 31, 1997, 1996 and 1995, respectively. These agreements have a
weighted average maturity of approximately 1.1 years. As of December 31, 1997,
the Corporation's total floating rate debt exceeded related interest rate
exchange agreements by $1.3 billion.
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 December 31, 1997.
As of December 31, 1997, 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.
The Corporation's Board of Directors (the "Board") has adopted a policy that
earnings and cash flow generated from the businesses of the Georgia-Pacific
Group or The Timber Company will be used only for reinvestment in the business
of the group generating such earnings and related cash flows; for repayment of
its debt; or for payment of dividends on, or the repurchase of shares of, the
class of common stock reflecting such group's performance. Funds of one group
will not be loaned to or otherwise invested in the business of the other group.
In September 1997, the Board authorized management to make purchases of
Georgia-Pacific Group stock on the open market or in private transactions so
long as the Georgia-Pacific Group's total debt remains below $4.5 billion and
the Corporation's total debt remains below $5.5 billion. At the same time, the
Board also authorized management to make purchases of The Timber Company stock
on the open market or in private transactions so long as The Timber Company's
total debt remains below $1 billion and the Corporation's total debt remains
below $5.5 billion. Depending on operating and financial considerations, debt
levels of the Corporation, the Georgia-Pacific Group and The Timber Company may
from time to time be above or below these thresholds.
During the year ended December 31, 1997, the Corporation purchased 358,400
shares of Georgia-Pacific Group stock at an aggregate price of $22 million on
the open market.
In January 1998, the Board increased the share repurchase threshold to allow
purchases of Georgia-Pacific Group stock so long as the Group's total debt
remains below $4.75 billion and the Corporation's total debt remains below $5.75
billion. Repurchases of The Timber Company stock may be made so long as The
Timber Company's debt remains below $1 billion and the Corporation's debt
remains below $5.75 billion. The increase reflects growth in the Corporation's
total asset base since the original target was established.
Subsequent to year-end 1997 through February 6, 1998, the Corporation
purchased 268,000 shares of Georgia-Pacific Group stock at an aggregate price of
$16 million on the open market.
In 1998, the Corporation expects its cash flow from operations, together
with proceeds from any sales of assets and available financing sources, to be
sufficient to fund planned capital investments, pay dividends and make scheduled
debt repayments.
OTHER. The Corporation employs approximately 46,500 people. The majority are
members of unions. The Corporation considers its relationship with its employees
to be good. Forty union contracts are subject to negotiation and renewal in
1998, including four at large paper facilities.
In February 1997, the FASB issued 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.
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 in a full set of general purpose financial statements.
The Corporation will be required to adopt SFAS No. 130 in 1998.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." SFAS No. 131 requires companies to
determine reporting segments based on the manner in which 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 SFAS No. 131 in 1998; prior period
information will be restated. Management is evaluating the effect of SFAS No.
131 on reported segment information.
The Corporation expects to incur significant costs during the next two years
to address the impact of the so-called Year 2000 problem on its information
systems. The Year 2000 problem, which is common to most businesses, concerns the
inability of information systems, primarily computer software programs, to
properly recognize and process date-sensitive information on and beyond January
1, 2000. The Corporation currently believes that it will be able to modify or
replace its affected systems in time to minimize any detrimental effects on
operations. The incremental costs of the Year 2000 project are estimated to be
between $55 million and $145 million. These costs will be expensed as incurred,
unless new software is purchased that will be capitalized in accordance with the
Corporation's 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 impact on the long-term results of operations, liquidity or consolidated
financial position of the Corporation.
For a discussion of commitments and contingencies refer to Note 10 of the
Notes to Financial Statements.
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 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 realization of projected savings from the
Corporation's investments in systems, operations and cost reduction programs,
including the ability of management to return the Corporation's building
products distribution division to profitability; the Corporation's ability 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;
variations in the level of housing starts; 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 Registration
Statement No. 333-35813 dated November 7, 1997 and the Corporation's Form 8-K
dated October 17, 1996.
1996 COMPARED WITH 1995
The Corporation reported consolidated net sales of $13 billion and net income of
$156 million ($1.72 per share) in 1996, compared with net sales of $14.3 billion
and net income of $1,018 million ($11.29 per share) in 1995. The 1996 results
included net unusual pretax expenses of $117 million (79 cents per share after-
tax). The unusual items included charges of $39 million primarily related to a
voluntary early retirement program, a pretax gain of $39 million from the sale
of two gypsum wallboard facilities and $117 million of restructuring charges
resulting from a project to change and improve certain processes in the
Corporation's building products distribution division. Net income in 1996 also
included an extraordinary, after-tax loss of $5 million (6 cents per share) for
the early retirement of debt.
Costs associated with the three-year program to reduce overhead costs and
improve efficiencies throughout the Corporation were $39 million in 1996. This
amount included the cost of a voluntary early retirement program and severance
expenses for the elimination of certain salaried positions. This net $39 million
expense included expenses of $74 million in the first six months of 1996
primarily related to the accrual of additional retirement benefits, less income
of $35 million in the second half of 1996 primarily resulting from a gain
recognized upon the settlement of pension obligations to early retirees.
The Corporation reported income before income taxes of $296 million and a
tax provision of $135 million for the year ended December 31, 1996, compared
with pretax income of $1,697 million and an income tax provision of $679 million
for the year ended December 31, 1995. The effective tax rate used to calculate
the provision for income taxes for both years was higher than the statutory
rates used to calculate federal and state income taxes primarily because of
nondeductible goodwill amortization expense associated with past business
acquisitions.
BUILDING PRODUCTS. The Corporation's building products segment reported net
sales of $7.4 billion and operating profits of $516 million for 1996, compared
with net sales of $7.3 billion and operating profits of $669 million in 1995.
The 1996 results included net unusual expenses of $97 million. The unusual items
included charges of $19 million primarily related to a voluntary early
retirement program, an unusual gain of $39 million from the sale of two gypsum
wallboard facilities and $117 million of restructuring charges in the building
products distribution division, discussed above. Return on sales decreased to
7.0% in 1996 from 9.2% in 1995. Excluding unusual items, return on sales
decreased to 8.3% in 1996 from 10.1% in 1995. A 9% increase in lumber prices
combined with a 4% decrease in log costs, and increased gypsum volumes, were
more than offset by approximately 16% lower prices for structural panels.
Operating losses for the Corporation's building products distribution
division increased by $147 million from 1995. Lower operating margins accounted
for most of the decline, while costs associated with the restructuring of the
division increased to $117 million in 1996 compared with $70 million in 1995.
Selected financial and operating data are shown in the "Selected
Distribution Division Data" above.
PULP AND PAPER. The Corporation's pulp and paper segment reported net sales of
$5.6 billion and operating profits of $390 million for 1996, compared with net
sales of $7.0 billion and operating profits of $1,611 million in 1995. The 1996
results included unusual expenses of $20 million primarily related to a
voluntary early retirement program. Return on sales decreased to 7.0% in 1996
(7.3% excluding unusual expenses) compared with 23.1% in 1995, primarily as a
result of substantially lower prices for most of the Corporation's pulp and
paper products. Compared with 1995, prices were 45% lower for market pulp, 33%
lower for containerboard and 24% lower for communication papers. Tissue prices
improved approximately 6%.
REPORT ON MANAGEMENT'S RESPONSIBILITIES
Georgia-Pacific Corporation and Subsidiaries
Management of Georgia-Pacific Corporation is responsible for the
preparation, integrity and fair presentation of the consolidated financial
statements and the estimates and judgments upon which certain amounts in the
financial statements are based. Management is also responsible for preparing the
other financial information included in this annual report. In our opinion, the
financial statements on the preceding and following pages have been prepared in
conformity with generally accepted accounting principles, and the other
financial information in this annual report is consistent with the financial
statements.
Management is also responsible for establishing and maintaining a system of
internal control over financial reporting, which encompasses policies,
procedures and controls directly related to, and designed to provide reasonable
assurance as to, the reliability of the published financial statements. An
independent assessment of the system is performed by the Corporation's internal
audit staff in order to confirm that the system is adequate and operating
effectively. The Corporation's independent public accountants also consider
certain elements of the internal control system in order to determine their
auditing procedures for the purpose of expressing an opinion on the financial
statements. Management has considered any significant recommendations regarding
the internal control system that have been brought to its attention by the
internal audit staff or independent public accountants and has taken steps it
deems appropriate to maintain a cost-effective internal control system. The
Audit Committee of the Board of Directors, consisting of independent directors,
provides oversight to the financial reporting process. The Corporation's
internal auditors and independent public accountants meet regularly with the
Audit Committee to discuss financial reporting and internal control issues and
have full and free access to the Audit Committee.
There are inherent limitations in the effectiveness of any system of
internal control, including the possibility of human error and the circumvention
or overriding of controls. Accordingly, even an effective internal control
system can provide only reasonable assurance with respect to financial statement
preparation. Furthermore, the effectiveness of an internal control system can
vary over time due to changes in conditions.
Management believes that as of December 31, 1997, the internal control
system over financial reporting is adequate and effective in all material
respects.
/s/ James E. Terrell
- ---------------------
James E. Terrell
Vice President and Controller
/s/ John F. McGovern
- ---------------------
John F. McGovern
Executive Vice President - Finance
and Chief Financial Officer
/s/ A. D. Correll
- ------------------
A. D. Correll
Chairman, Chief Executive Officer and President
February 6, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Georgia-Pacific Corporation and Subsidiaries
To the Shareholders and the Board of Directors of Georgia-Pacific Corporation:
We have audited the accompanying consolidated balance sheets of Georgia-
Pacific Corporation (a Georgia corporation) and subsidiaries as of December 31,
1997 and 1996 and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Georgia-
Pacific Corporation and subsidiaries as of December 31, 1997 and 1996 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
As explained in Note 1 of the Notes to Financial Statements, effective
December 31, 1997, the Corporation changed its method of accounting for business
process reengineering costs incurred as part of a project to acquire, develop,
or implement internal-use software.
/s/ Arthur Andersen LLP
- ------------------------
Arthur Andersen LLP
Atlanta, Georgia
February 6, 1998
STATEMENTS OF INCOME
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31
---------------------
(Millions, except per
share amounts) 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Net sales $13,094 $ 13,024 $14,313
- ---------------------------------------------------------------
Costs and expenses
Cost of sales, excluding
depreciation and cost of
timber harvested shown below 10,384 9,933 9,885
Selling, general and
administrative 1,180 1,399 1,373
Depreciation and cost of timber
harvested 958 937 926
Interest 465 459 432
Other (income) (128) - -
- ---------------------------------------------------------------
Total costs and expenses 12,859 12,728 12,616
- ---------------------------------------------------------------
Income before income taxes,
extraordinary item and
accounting change 235 296 1,697
Provision for income taxes 106 135 679
- ---------------------------------------------------------------
Income before
extraordinary item and
accounting change 129 161 1,018
Extraordinary item - loss
from early retirement of
debt, net of taxes - (5) -
Cumulative effect of
accounting change,
net of taxes (60) - -
- ---------------------------------------------------------------
Net income $ 69 $ 156 $ 1,018
===============================================================
Georgia-Pacific Corporation
Basic per share:
Income before
extraordinary item $ 1.78 $ 11.29
Extraordinary item - loss
from early retirement of
debt, net of taxes (.06) -
- ---------------------------------------------------------------
Net income $ 1.72 $ 11.29
- ---------------------------------------------------------------
Diluted per share:
Income before
extraordinary item $ 1.77 $ 11.18
Extraordinary item - loss
from early retirement of
debt, net of taxes (.06) -
- ---------------------------------------------------------------
Net income $ 1.71 $ 11.18
===============================================================
Average number of shares
outstanding:
Basic 90.6 90.2
Diluted 91.1 91.1
===============================================================
Georgia-Pacific Group
Net loss $ (146)
- ---------------------------------------------------------------
Basic and diluted per share:
Loss before accounting
change $ (.94)
Cumulative effect of
accounting change, net
of taxes (.66)
- ---------------------------------------------------------------
Net loss $(1.60)
- ---------------------------------------------------------------
Average number of shares
outstanding:
Basic and diluted 91.4
===============================================================
The Timber Company
Net income $ 215
- ---------------------------------------------------------------
Basic per share:
Net income $ 2.35
Diluted per share:
Net income $ 2.33
- ---------------------------------------------------------------
Average number of shares
outstanding:
Basic 91.4
Diluted 92.1
===============================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CASH FLOWS
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31
----------------------
(Millions) 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operations
Net income $ 69 $ 156 $1,018
Adjustments to reconcile net income
to cash provided by operations:
Depreciation 789 766 707
Cost of timber harvested 169 171 219
Deferred income taxes 100 5 (33)
Amortization of goodwill 59 59 59
Stock compensation programs - 20 20
Other income (128) (39) -
Cumulative effect of accounting
change, net of taxes 60 - -
Gain on sales of assets (3) (17) (18)
Amortization of debt issue costs,
discounts and premiums 5 6 4
(Decrease) in accounts receivable
sale program - - (350)
(Increase) decrease in receivables (64) 35 (47)
(Increase) decrease in inventories 101 (3) (237)
Change in other working capital 27 52 32
Increase (decrease) in taxes
payable (45) (10) 26
Change in other assets and other
long-term liabilities (27) 12 74
- ---------------------------------------------------------------
Cash provided by operations 1,112 1,213 1,474
- ---------------------------------------------------------------
Cash flows from investing
activities
Property, plant and equipment
investments (717) (1,059) (1,259)
Timber and timberlands purchases (182) (142) (244)
Acquisition - (363) -
(Increase) decrease in cash
restricted for capital
expenditures (5) 84 (90)
Proceeds from sales of assets 385 132 59
Other (14) (11) 1
- ---------------------------------------------------------------
Cash used for investing activities (533) (1,359) (1,533)
- ---------------------------------------------------------------
Cash flows from financing
activities
Repayments of long-term debt (340) (165) (228)
Additions to long-term debt 48 125 1,004
Fees paid to issue debt (1) (4) (8)
Increase (decrease) in bank
overdrafts (28) 44 (11)
Increase (decrease) in commercial
paper and other short-term notes (94) 324 (547)
Common stock repurchased (13) - (47)
Proceeds from option plan exercises 31 4 27
Cash dividends paid (184) (183) (173)
- ---------------------------------------------------------------
Cash (used for) provided by
financing activities (581) 145 17
- ---------------------------------------------------------------
Decrease in cash (2) (1) (42)
Balance at beginning of year 10 11 53
- ---------------------------------------------------------------
Balance at end of year $ 8 $ 10 $ 11
===============================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
BALANCE SHEETS
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31
------------------
(Millions, except shares
and per share amounts) 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash $ 8 $ 10
- ---------------------------------------------------------------
Receivables, less allowances
of $13 and $10, respectively 1,371 959
- ---------------------------------------------------------------
Taxes receivable 61 -
- ---------------------------------------------------------------
Inventories
Raw materials 396 412
Finished goods 878 966
Supplies 295 295
LIFO reserve (212) (206)
- ---------------------------------------------------------------
Total inventories 1,357 1,467
- ---------------------------------------------------------------
Deferred income tax assets 67 129
- ---------------------------------------------------------------
Other current assets 52 50
- ---------------------------------------------------------------
Total current assets 2,916 2,615
- ---------------------------------------------------------------
Timber and timberlands 1,193 1,337
- ---------------------------------------------------------------
Property, plant and equipment
Land and improvements 425 408
Buildings 1,310 1,352
Machinery and equipment 12,035 11,671
Construction in progress 364 302
- ---------------------------------------------------------------
Property, plant and
equipment, at cost 14,134 13,733
Accumulated depreciation (7,837) (7,173)
- ---------------------------------------------------------------
Total property, plant and equipment, net 6,297 6,560
- ---------------------------------------------------------------
Goodwill 1,599 1,658
- ---------------------------------------------------------------
Other assets 945 648
- ---------------------------------------------------------------
Total assets $ 12,950 $12,818
===============================================================
<CAPTION>
December 31
-----------------
1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities
Bank overdrafts, net $ 223 $ 251
Commercial paper and
other short-term notes 901 645
Current portion of
long-term debt 653 311
Accounts payable 642 662
Accrued compensation 207 196
Accrued interest 83 85
Other current liabilities 311 340
- ---------------------------------------------------------------
Total current liabilities 3,020 2,490
- ---------------------------------------------------------------
Long-term debt, excluding
current portion 3,713 4,371
- ---------------------------------------------------------------
Other long-term liabilities 1,544 1,275
- ---------------------------------------------------------------
Deferred income tax liabilities 1,199 1,161
- ---------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Common stock, 74 73
Georgia-Pacific Corporation, par value $.80;
no shares and 150,000,000 shares authorized;
no shares and 91,396,000 shares issued
and outstanding at December 31, 1997
and 1996, respectively
Georgia-Pacific Group, par value $.80;
400,000,000 sahres and no shares authorized;
92,249,000 and no shares issued
and outstanding at December 31, 1997
and 1996, respectively
The Timber Company, par value $.80;
250,000,000 shares and no shares authorized;
92,607,000 and no shares issued
and outstanding at December 31, 1997
and 1996, respectively
Additional paid-in capital 1,349 1,277
Retained earnings 2,085 2,200
Long-term incentive plan
deferred compensation (5) (11)
Other (29) (18)
- ---------------------------------------------------------------
Total shareholders' equity 3,474 3,521
- ---------------------------------------------------------------
Total liabilities and
shareholders' equity $ 12,950 $12,818
===============================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF SHAREHOLDERS' EQUITY
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------
1997 1996 1995
(In millions, except shares and per share amounts)
- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common stock
Beginning balance $ 73 $ 73 $ 72
Common stock issued:
Employee Stock Purchase Plans 1 - 1
- --------------------------------------------------------------------
Ending balance 74 73 73
- --------------------------------------------------------------------
Additional paid-in capital
Beginning balance 1,277 1,267 1,220
Common stock issued:
Stock option plans
and directors plan 35 6 41
Employee Stock Purchase Plans 56 1 56
Long-term incentive plan 3 2 (3)
Common stock repurchased (22) - (47)
Other - 1 -
- --------------------------------------------------------------------
Ending balance 1,349 1,277 1,267
- --------------------------------------------------------------------
Retained Earnings
Beginning balance 2,200 2,227 1,382
Net income 69 156 1,018
Cash dividends declared
($2.00, $2.00 and $1.90
per common share,
resepctively) (184) (183) (173)
- --------------------------------------------------------------------
Ending balance 2,085 2,200 2,227
- --------------------------------------------------------------------
Long-term incentive plan deferred compensation
Beginning balance (11) (24) (39)
Common stock issued under long-
term incentive plan 6 13 15
- --------------------------------------------------------------------
Ending balance (5) (11) (24)
- --------------------------------------------------------------------
Other
Beginning balance (18) (24) (15)
Activity (11) 6 (9)
- --------------------------------------------------------------------
Ending balance (29) (18) (24)
- --------------------------------------------------------------------
Total shareholders' equity $ 3,474 $ 3,521 $ 3,519
====================================================================
Georgia-Pacific Corporation common stock
shares issued (in thousands):
Beginning balance 91,396 91,308 90,466
Common stock issued:
Stock option plans and
directors plan 473 84 485
Employee Stock Purchase Plans 763 19 991
Long-term incentive plan (25) (10) (16)
Common stock repurchased - - (618)
Other - (5) -
Recapitalization (December 17,
1997) (92,607) - -
- --------------------------------------------------------------------
Ending balance - 91,396 91,308
====================================================================
Georgia-Pacific Group common stock
shares issued (in thousands):
Recapitalization (December 17,
1997) 92,607
Common stock repurchased (358)
- --------------------------------------------------------------------
Ending balance 92,249
====================================================================
The Timber Company common stock
shares issued (in thousands):
Recapitalization (December 17,
1997) 92,607
- --------------------------------------------------------------------
Ending balance 92,607
====================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION.
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.
BASIS OF PRESENTATION. The Corporation, a Georgia corporation, is broadly
engaged in two lines of business: the manufacture and sale of a wide variety of
pulp and paper products (including pulp, communication papers, containerboard,
packaging and tissue products) and manufactured building products (including
plywood, oriented strand board, various industrial wood products, and softwood
and hardwood lumber as well as certain nonwood products including gypsum board
and chemicals); and the growing of timber and wood fiber on the approximately
5.8 million acres of timberlands that the Corporation owns or leases. In 1997,
these timberlands supplied approximately 25% of the overall timber and wood
fiber requirements of the Corporation's manufacturing facilities.
On December 16, 1997, shareholders of the Corporation approved the creation
of two classes of common stock intended to reflect separately the performance of
the Corporation's manufacturing and timber businesses (the "Letter Stock
Recapitalization"). The Corporation's Articles of Incorporation (the "Articles")
were amended and restated (the "Restated Articles") to (i) create a new class of
stock designated as Georgia-Pacific Corporation -Timber Group common stock, 80
cents par value per share ("The Timber Company stock"), consisting of 250
million authorized shares; (ii) redesignate each authorized share of the
Corporation's common stock, 80 cents par value per share (the "Existing Common
Stock") as, and convert each share into, one share of Georgia-Pacific
Corporation - Georgia-Pacific Group common stock, 80 cents par value per share
(the "Georgia-Pacific Group stock"); (iii) increase the number of shares of
Georgia-Pacific Group stock authorized for issuance from 150 million shares to
400 million shares; and (iv) authorize the distribution of one share of The
Timber Company stock for each outstanding share of Georgia-Pacific Group stock
(the "Distribution").
The Corporation's manufacturing and timber businesses are referred to
hereinafter as the "Georgia-Pacific Group" and "The Timber Company,"
respectively, or collectively as the "groups."
The Georgia-Pacific Group is a manufacturer and distributor of building
products as well as a producer of pulp and paper products. The Georgia-Pacific
Group includes a procurement function that is responsible for purchasing timber
and wood fiber for all of the Group's manufacturing facilities. The Timber
Company is engaged primarily in the growing and selling of timber.
The Corporation has presented financial statements of the groups at
substantially the same level of detail as those of the Corporation to allow
investors to properly evaluate the financial condition and results of operations
of each business. It is the Corporation's expectation that investors will use
the groups' combined financial information in conjunction with the Corporation's
consolidated financial information to assist them in making informed financial
decisions relative to the acquisition or disposition of shares of each class of
stock.
The financial statements of the groups compose all of the accounts included
in the corresponding consolidated financial statements of the Corporation. The
separate financial statements of the Georgia-Pacific Group and The Timber
Company have been prepared on a basis that management believes to be reasonable
and appropriate and include (i) the historical balance sheets, results of
operations and cash flows for each of the groups, with all significant
intragroup transactions and balances eliminated; (ii) in the case of The Timber
Company's financial statements, assets and liabilities of the Corporation and
related transactions identified with The Timber Company, including allocated
portions of the Corporation's debt and SG&A; and (iii) in the case of the
Georgia-Pacific Group's financial statements, all other assets and liabilities
and related transactions of the Corporation, including allocated portions of the
Corporation's debt and SG&A. Intergroup timber sales between the Georgia-Pacific
Group and The Timber Company have not been eliminated on either group's
financial statements.
Notwithstanding the allocation of assets and liabilities (including
contingent liabilities) and shareholders' equity between the Georgia-Pacific
Group and The Timber Company for the purpose of preparing the respective
financial statements of each group, holders of Georgia-Pacific Group stock and
The Timber Company stock are shareholders of the Corporation and will continue
to be subject to all of the risks associated with an investment in the
Corporation and all of its businesses, assets and liabilities. The allocation of
assets and liabilities and change in the equity structure of the Corporation
resulting from the Letter Stock Recapitalization did not result in a transfer or
spin-off of any assets or liabilities of the Corporation, or otherwise affect
ownership of any assets or responsibility for the liabilities of the Corporation
or any of its subsidiaries. As a result, the Letter Stock Recapitalization does
not affect the rights of holders of the Corporation's or any of its
subsidiaries' debt.
Holders of Georgia-Pacific Group stock and The Timber Company stock have
only the rights customarily held by common shareholders of the Corporation and
do not have any rights related to their corresponding group except as set forth
in provisions relating to dividend and liquidation rights and requirements for a
mandatory dividend, redemption or conversion upon the disposition of assets of
their corresponding group, or have any right to vote on matters as a separate
voting group other than in limited circumstances as provided under Georgia law
or by stock exchange rules. The relative voting power of Georgia-Pacific Group
stock and The Timber Company stock will fluctuate from time to time, with each
share of Georgia-Pacific Group stock having one vote and each share of The
Timber Company stock having a number of votes based upon the ratio, over a
specified period prior to any shareholder vote, of the time-weighted average
market values of one share of The Timber Company stock and of one share of
Georgia-Pacific Group stock. This formula is intended to give each class of
common stock a number of votes proportionate to its aggregate market
capitalization at the time of any vote. Accordingly, changes in the market value
of Georgia-Pacific Group stock and The Timber Company stock will affect their
relative voting rights. As of December 31, 1997, the holders of Georgia-Pacific
Group stock had a substantial majority of the voting power of the Corporation.
Financial effects arising from either group that affect the Corporation's
results of operations or financial condition could, if significant, affect the
results of operations or financial condition of the other group and the market
price of the common stock relating to the other group. Any net losses of the
Georgia-Pacific Group or The Timber Company and dividends or distributions on,
or repurchases of, Georgia-Pacific Group stock or The Timber Company stock will
reduce the assets of the Corporation legally available for payment of dividends
on both Georgia-Pacific Group stock and The Timber Company stock.
The Board may, in its sole discretion, determine to convert shares of the
class of common stock related to one group into the class of the common stock
related to the other group at any time at a 15% premium, or at a 10% premium in
the case of certain dispositions of all or substantially all of the properties
or assets of the group whose stock is being converted. Any conversion at any
premium would dilute the interests in the Corporation of the holders of the
class of common stock being issued in the conversion. In addition, any such
conversion of a class of common stock into another class of common stock would
preclude holders of both classes of common stock from retaining their investment
in a security that is intended to reflect separately the performance of the
relevant group.
The management and accounting policies applicable to the preparation of the
financial statements of the Georgia-Pacific Group and The Timber Company may be
modified or rescinded, or additional policies may be adopted, at the sole
discretion of the Board at any time without approval of the shareholders.
The groups' combined financial statements reflect the application of the
management and allocation policies adopted by the Board to various corporate
activities, as described below. The groups' combined financial statements should
be read in conjunction with the Corporation's consolidated financial statements.
FINANCIAL ACTIVITIES. At June 30, 1997, $1.0 billion of the Corporation's total
debt was allocated to The Timber Company for financial statement purposes, and
the balance of the Corporation's total debt was allocated to the Georgia-Pacific
Group. For periods ended prior to June 30, 1997, the amount of debt on the
respective balance sheets was adjusted to reflect debt repayments or additions
as reported on the accompanying statements of cash flows for the groups between
those dates and June 30, 1997. The Corporation's debt was allocated between the
groups based upon a number of factors including expected future cash flow,
volatility of earnings, and the ability to pay debt service and dividends. In
addition, the Corporation considered certain measures of creditworthiness, such
as coverage ratios and various tests of liquidity, as a means of ensuring that
each group could continue to pay debt service during a business downcycle.
Management believes that such allocation is equitable and reasonable.
At December 31, 1997, $971 million of the Corporation's debt was The Timber
Company's and $4.5 billion was the Georgia-Pacific Group's. The Corporation has
not allocated specific debt securities or instruments to either group. The debt
of each group bears interest at a rate equal to the weighted average interest
rate of all of the Corporation's debt calculated on a quarterly basis. Expenses
related to the debt are reflected in the weighted average interest rate.
Management believes that this method of allocation of the cost of debt is
equitable and provides a reasonable estimate of the cost attributable to the
groups.
Each group's debt will increase or decrease by the amount of any net cash
generated by, or required to fund, the group's operating activities, investing
activities, dividend payments, share repurchases and other financing activities.
Interest will be charged to each group in proportion to the respective amount of
each group's debt. Changes in the cost of the Corporation's debt will be
reflected in adjustments to the weighted average interest cost of such debt.
Dividend costs with respect to any preferred stock issued by the Corporation
will be charged in a similar manner.
ALLOCATION OF SHARED SERVICES. A portion of the Corporation's shared SG&A (such
as executive management, human resources, legal, accounting and auditing, tax,
treasury, strategic planning, information systems support and environmental
services) has been allocated to each group based upon identification of such
services specifically used by each group. Where determinations based on specific
usage alone have been impracticable, other methods and criteria were used that
management believes are equitable and provide a reasonable estimate of the cost
attributable to each group. These methods consisted of allocating costs based on
(i) number of employees of each group, (ii) percentage of office space of each
group and (iii) estimated percentage of staff time allocable to each group. The
total of these allocations was $346 million, $359 million and $313 million in
1997, 1996 and 1995, respectively. It is not practicable to provide a detailed
estimate of the expenses that would be recognized if either group were a
separate legal entity.
ALLOCATION OF EMPLOYEE BENEFITS. A portion of the Corporation's employee
benefit costs, including pension and postretirement health care and life
insurance benefits, has been allocated to each group. The pension cost related
to their participation in the Corporation's noncontributory defined benefit
pension plan, and other employee benefit costs related to their participation in
the Corporation's postretirement health care and life insurance plans, are
actuarially determined based on the number of their employees and an allocable
share of the plan assets and are calculated in accordance with SFAS No. 87 and
SFAS No. 106, respectively. Management believes such method of allocation is
equitable and provides a reasonable estimate of the cost attributable to each
group.
Since plan assets are not segregated into separate accounts or restricted to
providing benefits to employees of either group, assets of the Corporation's
employee benefit plans may be used to provide benefits to employees of both the
Georgia-Pacific Group and The Timber Company. Plan assets have been allocated to
the groups based on the percentage of their projected benefit obligation to the
plans' total projected benefit obligations.
ALLOCATION OF FEDERAL AND STATE INCOME TAXES. The federal income taxes of the
Corporation and the subsidiaries that own assets allocated between the groups
are determined on a consolidated basis. Consolidated federal income tax
provisions and related tax payments or refunds are allocated between the groups
based principally on the taxable income and tax credits directly attributable to
each group. Such allocations reflect each group's contribution (positive or
negative) to the Corporation's consolidated federal taxable income and the
consolidated federal tax liability and tax credit position. Tax benefits that
cannot be used by the group generating those benefits but can be used on a
consolidated basis are credited to the group that generated such benefits. Had
the groups filed separate tax returns, the provision for income taxes and net
income for each group would not have differed from the amounts reported on the
groups' statements of income for the years ended December 31, 1997, 1996 and
1995. However, the amounts of current and deferred taxes and taxes payable or
refundable allocated to each group on the historical financial statements may
differ from those that would have been allocated had the groups filed separate
income tax returns.
Depending on the tax laws of the respective jurisdictions, state and local
income taxes are calculated on either a consolidated or combined basis or on a
separate corporation basis. State income tax provisions and related tax payments
or refunds determined on a consolidated or combined basis are allocated between
the groups based on their respective contributions to such consolidated or
combined state taxable incomes. State and local income tax provisions and
related tax payments that are determined on a separate corporation basis are
allocated between the groups in a manner designed to reflect the respective
contributions of the groups to the Corporation's separate state or local taxable
income.
DIVIDENDS. For purposes of the historical financial statements of the Georgia-
Pacific Group and The Timber Company, all dividends declared and paid by the
Corporation were evenly allocated between the groups. Management believes that
such method of allocation is equitable and provides a reasonable estimate of the
dividends that would have been declared and paid in respect of each class of
common stock. The amount of earnings available for payment of dividends on the
Georgia-Pacific Group stock and on The Timber Company stock (i.e., the available
dividend amounts) on any date is the amount in excess of the minimum amount
necessary for the particular group to be able to pay its debts as they become
due in the usual course of business. Future dividends will not bear a direct
relationship to earnings and retained earnings as expressed on each group's
combined financial statements in accordance with generally accepted accounting
principles. Accordingly, a mathematical calculation of the available dividend
amount for either group cannot be made.
REVENUE RECOGNITION. The Corporation recognizes revenue when title to the goods
sold passes to the buyer, which is generally at the time of shipment. Timber
sales are recognized when legal ownership or the risk of loss passes to the
purchaser and the quantity sold is determinable.
INCOME PER SHARE. Basic earnings per share are computed based on net income
and the weighted average number of common shares outstanding. Diluted earnings
per share reflect the assumed 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. Income per share for
each group is reflected on a pro forma basis for 1997 as if the Letter Stock
Recapitalization had occurred on January 1, 1997. Amounts are computed for each
class of common stock based on the separate earnings attributed to each of the
respective businesses.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
specifies the computation, presentation and disclosure requirements for earnings
per share ("EPS"). 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
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31,
1997 1997 1996 1995
(In millions, except shares
and per share amounts)
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Georgia-Pacific The Timber Georgia-Pacific Georgia-Pacific
Group Company Corporation Corporation
Basic and diluted income (loss) available
to shareholders (numerator):
Income (loss) before extraordinary item and
accounting change $(86) $ 215 $ 161 $1,018
Extraordinary item, net of taxes - - (5) -
Accounting change, net of taxes (60) - - -
Net income (loss) $(146) $ 215 $ 156 $1,018
Shares (denominator):
Average shares outstanding 91,430,440 91,444,588 90,554,677 90,214,351
Dilutive securities:
Options -* 677,784** 598,142 633,399
Employee Stock Purchase Plans -* 4,047 -*** 214,919
Total assuming conversion 91,430,440 92,126,419 91,152,819 91,062,669
Per share amounts:
Basic
Income (loss) before
extraordinary item and
accounting change $(.94) $2.35 $1.78 $11.29
Extraordinary item,
net of taxes - - (.06) -
Accounting change,
net of taxes (.66) - - -
Net income (loss) $(1.60) $2.35 $1.72 $11.29
Diluted
Income (loss) before extraordinary item and
accounting chage $(.94) $2.33 $1.77 $11.18
Extraordinary item,
net of taxes - - (.06) -
Accounting change,
net of taxes (.66) - - -
Net income (loss) $(1.60) $2.33 $1.71 $11.18
</TABLE>
*Options to purchase 5,355,477 shares of Georgia-Pacific Group stock at various
per share amounts were outstanding during 1997, as well as shares subscribed
under the 1997 Employee Stock Purchase Plan. However, due to operating losses,
these shares are antidilutive and are not included in the calculation of diluted
EPS.
**Options to purchase 1,010,600 shares of The Timber Company stock at $25.13 per
share were issued on December 17, 1997 but were not included in the computation
of diluted EPS because the options' exercise price was greater than the average
market price of the common shares. The options, which expire on December 16,
2007, were still outstanding at the end of 1997.
***1,180,162 shares under the 1995 Employee Stock Purchase Plan were subscribed
during 1996 but were not included in the computation of diluted EPS because the
subscription price was greater than the average market price of the common
shares.
INVENTORY VALUATION. Inventories are valued at the lower of average cost or
market and include the costs of materials, labor and manufacturing overhead. The
last-in, first-out ("LIFO") dollar value pool method was used to determine the
cost of approximately 59% and 57% of inventories at December 31, 1997 and 1996,
respectively.
TIMBER AND TIMBERLANDS. The Corporation capitalizes timber and timberland
purchases and reforestation costs. The cost of timber harvested is based on the
volume of timber harvested, the capitalized cost and the total timber volume
estimated to be available over the growth cycle. Timber carrying costs are
expensed as incurred.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are recorded at
cost. Lease obligations for which the Corporation assumes or retains
substantially all the property rights and risks of ownership are capitalized.
Replacements of major units of property are capitalized, and the replaced
properties are retired. Replacements of minor components of property, and repair
and maintenance costs, are charged to expense as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Useful lives are 25 years for land
improvements, 20 to 45 years for buildings, and 3 to 20 years for machinery and
equipment. Upon retirement or disposition of assets, cost and accumulated
depreciation are removed from the related accounts and any gain or loss is
included in income.
The Corporation capitalizes incremental costs that are directly associated
with the development of software for internal use and implementation of the
related systems. Amounts are amortized over five years beginning when the assets
are placed in service. Capitalized costs were $48 million at December 31, 1997
and $121 million at December 31, 1996. Amounts are included as property, plant
and equipment on the Corporation's balance sheets.
In November 1997, the FASB Emerging Issues Task Force reached a consensus on
Issue No. 97-13 ("EITF 97-13"), "Accounting for Costs Incurred in Connection
with a Consulting Contract or an Internal Project that Combines Business Process
Reengineering and Information Technology Transformation." The Task Force
consensus requires that the cost of business process reengineering activities,
whether done internally or by third parties, be expensed as incurred. This
applies when the business process reengineering activities are part of a project
to acquire, develop or implement internal-use software. The adoption of EITF 97-
13 resulted in a one-time, after-tax charge of $60 million in the 1997 fourth
quarter.
The Corporation capitalizes interest on projects when construction takes
considerable time and entails major expenditures. Such interest is charged to
the property, plant and equipment accounts and amortized over the approximate
life of the related assets. Interest capitalized, expensed and paid were as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
(In millions) 1997 1996 1995
- -------------------------------------------------------------
<S> <C> <C> <C>
Total interest costs $ 476 $ 490 $ 471
Interest capitalized (11) (31) (39)
- -------------------------------------------------------------
Interest expense $ 465 $ 459 $ 432
=============================================================
Interest paid $ 475 $ 488 $ 470
=============================================================
</TABLE>
LANDFILLS AND LAGOONS. The Corporation accrues for landfill closure costs over
the periods that benefit from the use of the landfill and accrues for lagoon
clean-out costs over the useful period between clean-outs.
GOODWILL. The Corporation amortizes costs in excess of fair value of net assets
of businesses acquired using the straight-line method over a period not to
exceed 40 years. The Corporation reviews the recorded value of its goodwill
annually, or sooner if events or changes in circumstances indicate that the
carrying amount may exceed fair value. Recoverability is then determined by
comparing the undiscounted net cash flows of the assets to which the goodwill
applies to the net book value, including goodwill of those assets.
Amortization expense was $59 million in 1997, 1996 and 1995. Accumulated
amortization at December 31, 1997 and 1996 was $484 million and $425 million,
respectively.
ENVIRONMENTAL MATTERS. The Corporation recognizes a liability for environmental
remediation costs when it believes it is probable a liability has been incurred
and the amount can be reasonably estimated. The liabilities are developed based
on currently available information and reflect the participation of other
potentially responsible parties, depending on the parties' financial condition
and probable contribution. The accruals are recorded at undiscounted amounts and
are reflected as other liabilities on the accompanying balance sheets.
Environmental costs are generally capitalized when the costs improve the
condition of the property or the costs prevent or mitigate future contamination.
All other costs are expensed.
INVESTMENT IN REAL ESTATE HELD FOR DEVELOPMENT AND SALE. Real estate held for
development and sale is stated at the lower of cost or net realizable value, and
includes direct costs of land and land development and indirect costs, including
amenities, less amounts charged to cost of sales. These costs are allocated to
individual lots or acreage sold based on relative sales value. Direct costs are
allocated on a specific neighborhood basis, while indirect costs are allocated
over the projects. The Corporation recognizes sales of retail homesites
developed when all conditions, as set forth in SFAS No. 66, "Accounting for
Sales of Real Estate," have occurred.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements as well as reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
RECLASSIFICATIONS. Certain 1996 and 1995 amounts have been reclassified to
conform with the 1997 presentation.
NOTE 2. INDUSTRY SEGMENT INFORMATION
The Corporation is a building products and pulp and paper company. Manufactured
products in the building products segment consist primarily of wood panels
(plywood, oriented strand board, hardboard and particleboard), lumber, gypsum
products and chemicals. The Timber Company grows and sells timber and wood fiber
and is included in this segment. The distribution division of this segment sells
a wide range of building products manufactured by the Corporation or purchased
from others. This segment of the business is primarily affected by the level of
housing starts; the level of repairs, remodeling and additions; industrial
markets; commercial building activity; the availability and cost of financing;
and changes in industry capacity.
The Corporation's pulp and paper segment produces containerboard and
packaging (linerboard, medium, bleached board, kraft paper and corrugated
packaging), communication papers, market pulp and tissue. Markets for this
segment are affected primarily by changes in industry capacity, the level of
economic growth in the U.S. and export markets, and fluctuations in currency
exchange rates.
The Corporation has a large and diverse customer base, which includes some
customers located in foreign countries. Sales to foreign markets in 1997, 1996
and 1995 were 8%, 8% and 10%, respectively. These sales were primarily to
customers in Asia, Europe and Latin America. No single unaffiliated customer
accounted for more than 10% of total sales in any year during that period.
The Corporation employs approximately 46,500 people at more than 400
facilities primarily located throughout the United States and Canada. The
Corporation also controls or leases approximately 5.8 million acres of timber
and timberlands in the United States and Canada.
<TABLE>
<CAPTION>
Year ended December 31
- ---------------------------------------------------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Net sales
Building products $ 7,486 $ 7,365 $ 7,301
Pulp and paper 5,556 5,609 6,962
Other operations 52 50 50
- ---------------------------------------------------------------
Total net sales $ 13,094 $13,024 $14,313
===============================================================
Operating profits*
Building products $ 677 $ 516 $ 669
Pulp and paper 174 390 1,611
Other operations 18 8 10
- ---------------------------------------------------------------
Total operating profits 869 914 2,290
==== ==== ====
General corporate
expense (169) (159) (161)
Interest expense (465) (459) (432)
Provision for income
taxes (106) (135) (679)
- ---------------------------------------------------------------
Income before
extraordinary item and
accounting change 129 161 1,018
Extraordinary item - loss
from early retirement
of debt, net of taxes - (5) -
Cumulative effect of
accounting change,
net of taxes (60) - -
- ---------------------------------------------------------------
Net income $ 69 $ 156 $ 1,018
===============================================================
Depreciation, cost of timber harvested
and goodwill amortization
Building products $ 413 $ 404 $ 384
Pulp and paper 581 568 576
Other and general
corporate 23 24 25
- ---------------------------------------------------------------
Total depreciation, cost of timber
harvested and goodwill
amortization $ 1,017 $ 996 $ 985
===============================================================
Capital expenditures**
Building products $ 214 $ 841 $ 582
Pulp and paper 440 433 599
Timber and timberlands 182 142 244
Other and general
corporate 63 148 78
- ---------------------------------------------------------------
Total capital
expenditures $ 899 $ 1,564 $ 1,503
===============================================================
Assets
Building products $ 3,303 $ 3,403 $ 2,686
Pulp and paper 7,335 7,185 7,342
Timber and timberlands 1,193 1,337 1,374
Other and general
corporate 1,119 893 933
- ---------------------------------------------------------------
Total assets $ 12,950 $12,818 $12,335
===============================================================
</TABLE>
*Segment operating profits include expenses of $80 million in 1997, $117
million in 1996 and $70 million in 1995 for the restructuring of the
Corporation's building products distribution division; gains on major sales of
assets of $128 million in 1997 and $39 million in 1996; and $39 million net
expenses in 1996 primarily related to a voluntary early retirement program. With
the exception of distribution business restructuring charges, these items are
included in "Other income" on the accompanying statements of income. If these
amounts had been excluded from segment operating profits, building products
operating profits would have been $629 million in 1997, $613 million in 1996 and
$739 million in 1995. Pulp and paper operating profits would have been $410
million in 1996.
**Capital expenditures represent additions (at cost) to property, plant and
equipment and timber and timberlands.
NOTE 3. ACQUISITIONS, DIVESTITURES AND UNUSUAL ITEMS
ACQUISISTIONS AND DIVESTITURES. The following acquisition and divestitures were
completed during the years 1997 and 1996.
- - In March 1997, the Corporation sold its Martell, California, operations for
$308 million. Assets included in this transaction were 127,000 acres of
timberlands allocated to The Timber Company, and a sawmill and a particleboard
plant allocated to the Georgia-Pacific Group. In conjunction with the sale of
its Martell operations, the Corporation received notes receivable from the
purchaser in the amount of $270 million related to the timberlands. The
Corporation, in April 1997, monetized the notes receivable through the issuance
of notes payable in a private placement. The notes receivable are included in
"Other assets" and the notes payable are classified as "Other long-term
liabilities" on the Corporation's balance sheet. The Corporation recognized a
pretax gain of approximately $128 million on the sale ($80 million after taxes).
- - In April 1996, the Corporation completed the purchase of Domtar Inc.'s gypsum
wallboard business for $363 million in cash. Domtar's gypsum business included
nine U.S. wallboard manufacturing plants, four Canadian wallboard plants, three
joint compound plants, an industrial plaster plant and a gypsum paperboard
plant.
- - In September 1996, the Corporation completed the sale of two gypsum wallboard
facilities in Buchanan, New York, and Wilmington, Delaware. The sale resulted in
after-tax cash proceeds of approximately $39 million. The Corporation had agreed
with the U.S. Department of Justice to sell these plants in order to complete
the Domtar acquisition. The Corporation recognized a pretax gain of $39 million
($24 million after taxes).
Gains on major divestitures are recorded in "Other income" on the accompanying
statements of income.
VOLUNTARY EARLY RETIREMENT PROGRAM. The Corporation implemented a voluntary
early retirement program in 1996. Costs associated with enhanced pension
benefits related to the voluntary early retirement program were $39 million in
1996. This amount is recorded in "Other income" on the accompanying statements
of income.
DISTRIBUTION DIVISION RESTRUCTURING. In December 1997, the Corporation
finalized a restructuring plan that included disposing of its millwork
fabrication facilities nationwide as well as several distribution centers
located in the Western United States. A reserve of $70 million was recorded in
the 1997 fourth quarter for anticipated liabilities and write-down of assets
associated with the plan. It is anticipated that all aspects of the plan will be
executed in 1998. The terms of the plan include severance of approximately 1,500
employees in 1998. The employees include hourly and salaried personnel employed
in the identified millwork fabrication facilities and distribution centers and
associated sales and administrative personnel. The Corporation also has accrued
related pension, outplacement and retention expenses for these employees. The
total amount of the charge related to employee severance is $15 million and is
reflected in "Cost of sales" and "Selling, general and administrative" expenses
on the accompanying statements of income. No termination benefits were paid in
1997 related to this plan. The remaining amount of the reserve is for the write-
down to net realizable value of related inventory, equipment, accounts
receivable and software systems for assets to be sold or otherwise disposed of.
In 1995, the Corporation implemented a program to change and improve certain
processes in the Corporation's distribution division. The Corporation expensed
$10 million, $117 million and $70 million in 1997, 1996 and 1995, respectively,
related to this program. Of these amounts, $10 million, $2 million and $15
million, respectively, related to termination benefits. As a result of this
program, approximately 720, 480 and 180 employees were terminated in 1997, 1996
and 1995, respectively. Other costs related primarily to write-downs of
abandoned systems as well as write-downs of impaired assets to net realizable
value.
The following table provides a rollforward of the reserves for business
restructurings from December 31, 1996 to December 31, 1997:
<TABLE>
<CAPTION>
Type of Cost December 31, December 31,
(In millions) 1996 balance Additions Usage 1997 balance
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Employee separation $ 13 $ 25 $ (23) $ 15
Facility closing costs
and asset impairments - 55 - 55
Other 4 - (4) -
Total $ 17 $ 80 $ (27) $ 70
- ---------------------------------------------------------
</TABLE>
NOTE 4. RECEIVABLES
The Corporation has a large, diversified customer base, which includes some
customers located in foreign countries. The
Corporation closely monitors extensions of credit and has not experienced
significant losses related to its receivables. In
addition, a portion of the receivables from foreign sales is covered by
confirmed letters of credit to help ensure collectibility.
Supplemental information on the accounts receivable balances at December 31,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
December 31
------------
(In millions) 1997 1996
- -----------------------------------------
<S> <C> <C>
Receivables
Trade $1,278 $ 885
Other 106 84
- -----------------------------------------
1,384 969
Less allowances 13 10
- -----------------------------------------
Receivables, net $1,371 $ 959
=========================================
</TABLE>
The Corporation had sold fractional ownership interests in a defined pool of
trade accounts receivable for $350 million as of December 31, 1996. The sold
accounts receivable are excluded from receivables on the accompanying December
31, 1996 balance sheet. The full amount of the allowance for doubtful accounts
has been retained because the Corporation has retained substantially the same
risk of credit loss as if the receivables had not been sold. A portion of the
cost of the accounts receivable sale program is based on the purchasers' level
of investment and borrowing costs. The Corporation pays fees based on its senior
debt ratings. The total cost of the program, which was $19 million in 1997, $20
million in 1996 and $37 million in 1995, is included in interest expense on the
accompanying statements of income.
Under the accounts receivable sale agreement, the maximum amount of the
purchasers' investment is subject to change based on the level of eligible
receivables and restrictions on concentrations of receivables. During 1997, the
Corporation repurchased $70 million of receivables in order to reduce the cost
of the program, which was higher than the cost of financing from alternative
sources. The program has been extended to May 1998.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
established accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities. The Corporation adopted SFAS
No. 125 in the 1997 first quarter. At December 31, 1997, the Corporation's
accounts receivable sale program is accounted for as a secured borrowing; the
receivables and the corresponding debt are included as an asset and liability,
respectively, on the accompanying balance sheet.
NOTE 5. INDEBTEDNESS
The Corporation's indebtedness included the following:
<TABLE>
<CAPTION>
December 31
---------------
(In millions) 1997 1996
- -------------------------------------------------------
<S> <C> <C>
Debentures, 9% average rate,
payable through 2025 $ 3,200 $ 3,200
Notes, 6.7% average rate,
payable through 2006 517 817
Revenue bonds, 4.9% average rate,
payable through 2027 659 646
Other loans, 7.9% average rate,
payable through 2008 13 45
Less: unamortized discount (23) (26)
- -------------------------------------------------------
4,366 4,682
Less: long-term portion of debt 3,713 4,371
- -------------------------------------------------------
Current portion of long-term debt 653 311
Commercial paper and other
short-term notes, 6.4% average rate 621 645
Accounts receivable sale program,
6.1% average rate 280 -
Bank overdrafts, net 223 251
- -------------------------------------------------------
Total short-term debt 1,777 1,207
- -------------------------------------------------------
Total debt $ 5,490 $ 5,578
=======================================================
Georgia-Pacific Group's portion of
Corporation debt:
Short-term debt $ 1,462 $ 922
Long-term debt, excluding
current portion 3,057 3,340
- -------------------------------------------------------
Georgia-Pacific Group's total debt $ 4,519 $ 4,262
=======================================================
The Timber Company's portion of
Corporation debt:
Short-term debt $ 315 $ 285
Long-term debt, excluding
current portion 656 1,031
- -------------------------------------------------------
The Timber Company's total debt $ 971 $ 1,316
=======================================================
Weighted average interest rate on
Corporation debt at year end 7.8% 7.7%
=======================================================
</TABLE>
For additional information regarding financial instruments, see Note 6.
The scheduled maturities of the Corporation's long-term debt for the next five
years are as follows: $653 million in 1998, $9 million in 1999, $29 million in
2000, $1 million in 2001 and $375 million in 2002.
NOTES AND DEBENTURES. Subsequent to year-end 1997, the Corporation redeemed
$200 million of 9 3/4% Sinking Fund Debentures Due January 15, 2018. The
Corporation recorded an after-tax extraordinary loss of approximately $7 million
related to this redemption on January 16, 1998, of which $5.8 million will be
allocated to the Georgia-Pacific Group and $1.2 million will be allocated to The
Timber Company based on the ratio of each group's debt to the Corporation's
total debt. It is the Corporation's intent to redeem $200 million of 9 1/2%
Debentures Due February 15, 2018 on February 17, 1998. The Corporation
anticipates an after-tax extraordinary loss related to this redemption of
approximately $7 million.
During 1996, the Corporation issued $100 million of 7.2% Notes Due December
15, 2006. In 1996, the Corporation redeemed $150 million of its 9.25% Debentures
Due March 15, 2016. The Corporation recorded an after-tax extraordinary loss of
approximately $5 million (6 cents per share) related to this redemption.
REVOLVING CREDIT FACILITY. In 1996, the Corporation entered into an agreement
with Bank of America National Trust and Savings Association and 19 other
domestic and international banks that provides an unsecured revolving credit
facility of $1.5 billion. The revolving credit facility is being used for direct
borrowings and as support for commercial paper and other short-term borrowings.
The agreement will terminate in 2001. As of December 31, 1997, $879 million of
committed credit was available in excess of all short-term borrowings
outstanding under or supported by the facility.
Borrowings under the agreement bear interest, at the election of the
Corporation, at either (i) the higher of the Federal Funds Rate plus 1/2% or the
stipulated bank lending rate or (ii) LIBOR plus .2625% or (iii) fixed or
floating rates set by competitive bids. Fees associated with this revolving
credit facility include a commitment fee of .0625% per annum on the unused
portion of the commitments and a facility fee of .0625% per annum on the
aggregate commitments of the lenders. Fees and margins may be adjusted upward or
downward according to a pricing grid based on the Corporation's long-term debt
ratings. At December 31, 1997, $300 million was borrowed under the credit
agreement at a weighted average interest rate of 6.2%. Amounts outstanding under
the revolving credit facility are included in "Commercial paper and other short-
term notes" on the accompanying balance sheets.
The revolving credit agreement contains certain restrictive covenants. The
covenants include a maximum leverage ratio (funded indebtedness to operating
cash flow) of 4.5 to 1.0, which is to be maintained throughout the term of the
credit agreement. As of December 31, 1997, the leverage ratio was 3.4 to 1.0.
COMMERCIAL PAPER AND OTHER SHORT-TERM NOTES. These borrowings are classified
as current liabilities although all or a portion of them might be refinanced on
a long-term basis in 1998.
REVENUE BONDS. At December 31, 1997, the Corporation had outstanding borrowings
of approximately $659 million under certain industrial revenue bonds.
Approximately $48 million of these bonds were entered into during 1997 at fixed
interest rates, of which $38 million refunded a like amount of floating rate
instruments. Approximately $16 million from the issuance of these bonds is being
held by trustees and is restricted for the construction of certain capital
projects and $15 million is held by trustees to refund a like amount of bonds
maturing on January 2, 1998. Amounts held by trustees are classified as "Other
assets" on the accompanying balance sheets.
OTHER. At December 31, 1997, the amount of long-term debt secured by property,
plant and equipment, and by timber and timberlands was not material.
In September 1995, the Corporation sold certain assets for $354 million and
has agreed to lease the assets back from the purchaser over a period of 30
years. Under the agreement with the purchaser, the Corporation will maintain a
deposit (initially in the amount of $322 million) that together with interest
earned is expected to be sufficient to fund the Corporation's lease obligation,
including the repurchase of assets at the end of the term. This transaction is
being accounted for as a financing arrangement. At December 31, 1995, the
Corporation recorded on its balance sheets an asset for the deposit from the
sale of $305 million and a liability for the lease obligation of $302 million.
At December 31, 1997, the deposit and lease obligation balances were $349
million and $349 million, respectively. Of these amounts, approximately $17
million was recorded as a current asset and $19 million was recorded as a
current liability. The long-term portions are recorded in "Other assets" and
"Other long-term liabilities" on the accompanying balance sheets.
NOTE 6. FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of the Corporation's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- --------------------
Carrying Fair Carrying Fair
(In millions) Amount Value Amount Value
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Liabilities
Commercial paper and
other short-term notes
(Note 5) $ 621 $ 621 $ 645 $ 645
Accounts receivable sale
program (Note 4) 280 280 350 350
Notes and debentures
(Note 5) 3,717 4,055 4,017 4,215
Revenue bonds (Note 5) 659 637 646 637
Other loans (Note 5) 13 13 45 45
Interest rate exchange
agreements * 10 * 12
- ----------------------------------------------------------------
</TABLE>
* The Corporation's balance sheets at December 31, 1997 and 1996 included
accrued interest of $5 million and $6 million, respectively, related to these
agreements.
COMMERCIAL PAPER AND OTHER SHORT-TERM NOTES. The carrying amounts approximate
fair value because of the short maturity of these instruments.
NOTES AND DEBENTURES. The fair value of notes and debentures was estimated
primarily by obtaining quotes from brokers for these and similar issues. For
notes and debentures for which there are no quoted market prices, the fair value
was estimated by calculating the present value of anticipated cash flows. The
discount rate used was an estimated borrowing rate for similar debt instruments
with like maturities.
REVENUE BONDS AND OTHER LOANS. The fair value of revenue bonds and other loans
was estimated by calculating the present value of anticipated cash flows. The
discount rate used was an estimated borrowing rate for similar debt instruments
with like maturities.
INTEREST RATE AND FOREIGN CURRENCY EXCHANGE AGREEMENTS. The Corporation has used
interest rate swap and foreign currency exchange agreements in the normal course
of business to manage and reduce the risk inherent in interest rate and foreign
currency fluctuations.
The Corporation uses interest rate swap arrangements to manage its exposure
to interest rate changes. Such arrangements are considered hedges of specific
borrowings, and differences paid and received under the swap arrangements are
recognized as adjustments to interest expense. Under these agreements, the
Corporation makes payments to counterparties at fixed interest rates and in turn
receives payments at variable rates. The Corporation entered into interest rate
exchange agreements in prior years to protect against the increased cost
associated with a rise in interest rates. At December 31, 1997, the Corporation
had outstanding interest rate exchange agreements that effectively converted
$476 million of floating rate obligations with a weighted average interest rate
of 5.8% to fixed rate obligations with an average effective interest rate of
approximately 9%. These agreements increased interest expense by $16 million,
$17 million and $20 million for the years ending December 31, 1997, 1996 and
1995, respectively. These agreements have a weighted average maturity of
approximately 1.1 years. As of December 31, 1997, the Corporation's total
floating rate debt, including the accounts receivable sale program, exceeded
related interest rate exchange agreements by $1,260 million.
The estimated fair value of the Corporation's liability under interest rate
exchange agreements at December 31, 1997 and 1996 was $10 million and $12
million, respectively, and represents the estimated amount the Corporation could
have paid to terminate the agreements. The fair value at December 31, 1997 and
1996 was estimated by calculating the present value of anticipated cash flows.
The discount rate used was an estimated borrowing rate for similar debt
instruments with like maturities.
The Corporation enters into foreign currency exchange agreements, the
amounts of which were not material to the consolidated financial position of the
Corporation at December 31, 1997 and 1996.
The Corporation may be exposed to losses in the event of nonperformance of
counterparties but does not anticipate such nonperformance.
OTHER. Due to the short-term nature of current assets and current liabilities,
their carrying amounts approximate fair value.
NOTE 7. INCOME TAXES
The provision for income taxes includes income taxes currently payable and those
deferred because of temporary differences between the financial statement and
tax bases of assets and liabilities. The provision for income taxes consists of
the following:
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes:
Current $ 11 $ 111 $ 600
Deferred 80 6 (26)
State income taxes:
Current (5) 17 112
Deferred 20 1 (7)
- ---------------------------------------------------------
Provision for income taxes $ 106 $ 135 $ 679
=========================================================
Income taxes paid, net of refunds $ 51 $ 135 $ 686
=========================================================
</TABLE>
Income taxes paid during 1997 are net of refunds of approximately $45
million, primarily related to a 1996 federal overpayment.
Income taxes paid during 1996 were net of refunds of approximately $73
million, primarily related to a 1995 federal overpayment and 1991 and 1992
federal audits.
The federal statutory income tax rate was 35%. The provision for income
taxes is reconciled to the federal statutory rate as follows:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
Provision for income taxes
computed at the federal
statutory tax rate $ 82 $ 104 $ 594
State income taxes, net
of federal benefit 9 12 68
Goodwill amortization 23 23 23
Foreign sales corporation (8) (7) (9)
Other - 3 3
- ---------------------------------------------------------
Provision for income taxes $ 106 $ 135 $ 679
=========================================================
</TABLE>
The components of the net deferred income tax liabilities are as follows:
<TABLE>
<CAPTION>
December 31
------------------
(In millions) 1997 1996
- -------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Compensation related accruals $ 273 $ 333
Other accruals and reserves 84 76
Other 1 (14)
- -------------------------------------------------------------
358 395
Valuation allowance - -
- -------------------------------------------------------------
358 395
- -------------------------------------------------------------
Deferred income tax liabilities:
Property, plant and equipment (1,210) (1,215)
Timber and timberlands (236) (174)
Other (44) (38)
- -------------------------------------------------------------
(1,490) (1,427)
- -------------------------------------------------------------
Deferred income tax liabilities, net $(1,132) $ (1,032)
=============================================================
Included in the balance sheets:
Deferred income tax assets* $ 67 $ 129
Deferred income tax liabilities** (1,199) (1,161)
- -------------------------------------------------------------
Deferred income tax liabilities, net $(1,132) $ (1,032)
=============================================================
</TABLE>
* Net of current liabilities of $6 million and $4 million at December 31, 1997
and 1996, respectively.
** Net of long-term assets of $254 million and $262 million at December 31, 1997
and 1996, respectively.
NOTE 8. RETIREMENT PLANS
DEFINED BENEFIT PENSION PLANS. Most of the Corporation's employees participate
in noncontributory defined benefit pension plans. These include plans that are
administered solely by the Corporation and union-administered multiemployer
plans. The Corporation's funding policy for solely administered plans is based
on actuarial calculations and the applicable requirements of federal law.
Contributions to multiemployer plans are generally based on negotiated labor
contracts.
Benefits under the majority of the plans for hourly employees (including
multiemployer plans) are primarily related to years of service. The Corporation
has separate plans for salaried employees and officers under which benefits are
primarily related to compensation and years of service. The officers' plan is
not funded and is nonqualified for federal income tax purposes.
Plan assets consist principally of common stocks, bonds, mortgage
securities, interests in limited partnerships, cash equivalents and real estate.
At December 31, 1997 and 1996, $78 million and $64 million, respectively, of
noncurrent prepaid pension cost was included in other assets. Accrued pension
cost of $67 million and $66 million at December 31, 1997 and 1996, respectively,
was included in other long-term liabilities.
Pursuant to the provisions of SFAS No. 87, "Employers' Accounting for
Pensions," intangible assets of $2 million and $3 million were recorded as of
December 31, 1997 and 1996, respectively, in order to recognize the required
minimum liability.
The following table sets forth the funded status of the solely administered
plans and the amounts recognized on the accompanying balance sheets:
<TABLE>
<CAPTION>
December 31, 1997
------------------------------
Plans having
Plans having accumulated
assets in excess benefits in
of accumulated excess
(In millions) benefits of assets
- ----------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation
at November 30
Vested portion $1,477 $ 80
Nonvested portion 48 2
- ----------------------------------------------------------------
1,525 82
Effect of projected future
compensation levels 10 12
- ----------------------------------------------------------------
Projected benefit obligation
at November 30 1,535 94
Plan assets at fair value
at November 30 1,925 15
- ----------------------------------------------------------------
Plan assets in excess of (less
than) projected benefit obligation 390 (79)
Unrecognized net (gain) loss (374) 16
Unrecognized prior service cost 62 2
Unrecognized net asset from initial
application of FAS 87 - -
Adjustment required to recognize
minimum liability - (6)
- ----------------------------------------------------------------
Prepaid (accrued) pension cost
at December 31 $ 78 $ (67)
================================================================
<CAPTION>
December 31, 1996
------------------------------
Plans having
Plans having accumulated
assets in excess benefits in
of accumulated excess
(In millions) benefits of assets
- ----------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation
at November 30
Vested portion $1,392 $ 92
Nonvested portion 33 3
- ----------------------------------------------------------------
1,425 95
Effect of projected future
compensation levels 12 13
- ----------------------------------------------------------------
Projected benefit obligation
at November 30 1,437 108
Plan assets at fair value
at November 30 1,711 29
- ----------------------------------------------------------------
Plan assets in excess of (less
than) projected benefit obligation 274 (79)
Unrecognized net (gain) loss (243) 20
Unrecognized prior service cost 42 3
Unrecognized net asset from initial
application of FAS 87 (9) -
Adjustment required to recognize
minimum liability - (10)
- ----------------------------------------------------------------
Prepaid (accrued) pension cost
at December 31 $ 64 $ (66)
================================================================
</TABLE>
Net periodic pension cost for solely administered and union-administered pension
plans included the following:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned $ 84 $ 83 $ 75
Interest cost on projected benefit
obligation 108 106 107
Actual return on plan assets (306) (299) (311)
Net amortization and deferral 131 127 168
Contributions to multiemployer
pension plans 4 4 4
- ---------------------------------------------------------
Net periodic pension cost $ 21 $ 21 $ 43
=========================================================
</TABLE>
The following assumptions were used:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
1997 1996 1995
- --------------------------------------------------------
<S> <C> <C> <C>
Discount rate used to determine
the projected benefit obligation 7.0% 7.0% 7.0%
Rate of increase in future
compensation levels used to
determine the projected benefit
obligation 5.5 5.5 5.5
Expected long-term rate of return
on plan assets used to determine
net periodic pension cost 9.5 10.0 10.0
- --------------------------------------------------------
</TABLE>
DEFINED CONTRIBUTION PLANS. The Corporation sponsors several defined
contribution plans to provide eligible employees with additional income upon
retirement. The Corporation's contributions to the plans are based on employee
contributions and compensation. The Corporation's contributions totaled $48
million in 1997, $50 million in 1996 and $46 million in 1995.
HEALTH CARE AND LIFE INSURANCE BENEFITS. The Corporation provides certain health
care and life insurance benefits to eligible retired employees. Salaried
participants generally become eligible for retiree health care benefits after
reaching age 55 with 10 years of service or after reaching age 65. Benefits,
eligibility and cost-sharing provisions for hourly employees vary by location
and/or bargaining unit. Generally, the medical plans pay a stated percentage of
most medical expenses, reduced for any deductible and payments made by
government programs and other group coverage. Effective December 1995, the plans
were funded through a trust established for the payment of future active and
retiree benefits. The trust was funded with an initial contribution of $31
million. The Corporation will continue to contribute to the trust in the amounts
necessary to fund current obligations of the plans.
In 1991, the Corporation began transferring its share of the cost of post-
age 65 health care benefits to future salaried retirees. It is currently
anticipated that the Corporation will continue to reduce the percentage of the
cost of post-age 65 benefits that it will pay on behalf of salaried employees
who retire in each of the years 1995 through 1999 and that the Corporation will
continue to share the pre-age 65 cost with future salaried retirees but will no
longer pay any of the post-age 65 cost for salaried employees who retire after
1999.
The following table sets forth the status of the plans, reconciled to the
accrued postretirement benefit recognized on the Corporation's balance sheets at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
December 31
------------
(In millions) 1997 1996
- ----------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 277 $ 341
Fully eligible active plan
participants 26 26
Other active participants 111 164
- ----------------------------------------------
414 531
Unrecognized net gain (loss) 75 (45)
Unrecognized prior service cost (12) (13)
- ----------------------------------------------
Accrued postretirement
benefit cost $ 477 $ 473
==============================================
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
Year ended December 31
--------------------
(In millions) 1997 1996 1995
- --------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned $ 7 $ 10 $ 6
Interest cost on accumulated
postretirement benefit obligation 26 29 27
Amortization of (gain) loss (2) - (1)
- --------------------------------------------------------
Net periodic postretirement
benefit cost $ 31 $ 39 $ 32
========================================================
</TABLE>
For measuring the expected postretirement benefit obligation, a 9%, 10% and
11% annual rate of increase in the per capita claims cost was assumed for 1997,
1996 and 1995, respectively. The rate was assumed to decrease 1% per year to
5.5% in 2001 and remain at that level thereafter. The weighted average discount
rate used in determining the accumulated postretirement benefit obligation was
6.5% at December 31, 1997, 1996 and 1995.
If the annual health care cost trend rate were increased by 1%, the
accumulated postretirement benefit obligation would have increased by 9% as of
December 31, 1997 and 14% as of December 31, 1996 and 1995. The effect of this
change on the aggregate of service and interest costs would be an increase of
14% for 1997, 11% for 1996 and 15% for 1995.
NOTE 9. COMMON AND PREFERRED STOCK
The Corporation's authorized capital stock consists of (i) 10 million shares of
Preferred Stock and 25 million shares of Junior Preferred Stock, of which no
shares were issued at December 31, 1997, and (ii) 400 million shares of Georgia-
Pacific Group common stock and 250 million shares of The Timber Company common
stock. The Georgia-Pacific Group common stock has a par value of $.80 per share
and 92,249,000 shares were issued as of December 31, 1997. The Timber Company
common stock has a par value of $.80 per share and 92,607,000 shares were issued
as of December 31, 1997.
At December 31, 1997, the following authorized shares of common stock were
reserved for issue:
<TABLE>
<CAPTION>
Georgia-Pacific Group 1997
- --------------------------------------------------
<S> <C>
1997 Long-Term Incentive Plan 4,500,000
1997 Employee Stock Purchase Plan 1,141,048
1995 Outside Directors Stock Plan 174,273
1995 Shareholder Value Incentive Plan 4,568,800
1994 Employee Stock Option Plan 302,650
1993 Employee Stock Option Plan 31,650
- --------------------------------------------------
Common stock reserved 10,718,421
==================================================
The Timber Company 1997
- --------------------------------------------------
<S> <C>
1997 Long-Term Incentive Plan 2,300,000
1997 Employee Stock Purchase Plan 1,141,048
1995 Outside Directors Stock Plan 174,273
1995 Shareholder Value Incentive Plan 4,568,800
1994 Employee Stock Option Plan 302,650
1993 Employee Stock Option Plan 31,650
- --------------------------------------------------
Common stock reserved 8,518,421
==================================================
</TABLE>
1997 LONG-TERM INCENTIVE PLANS. The shareholders have approved the Georgia-
Pacific Group 1997 Long-Term Incentive Plan (the "Georgia-Pacific Group Plan")
and the Timber Group 1997 Long-Term Incentive Plan ("The Timber Company Plan").
The Georgia-Pacific Group Plan authorizes grants of stock options, restricted
stock and performance awards with respect to Georgia-Pacific Group stock. The
Timber Company Plan authorizes grants of stock options, restricted stock and
performance awards with respect to The Timber Company stock. The Corporation
does not currently intend to grant awards under the Georgia-Pacific Group Plan
to members of The Timber Company. However, certain officers and employees of the
Corporation with responsibilities involving both the Georgia-Pacific Group and
The Timber Company may be granted options, restricted stock or performance
awards under both the Georgia-Pacific Group Plan and The Timber Company Plan in
a manner that reflects their responsibilities. Initially 2,300,000 shares were
reserved for issuance under The Timber Company Plan. Options totaling 1,010,600
were granted under The Timber Company Plan on December 17, 1997. These grants
have a 10-year term and vest ratably over a four-year period. Initially
4,500,000 shares were reserved for issuance under the Georgia-Pacific Group
Plan. No grants were made under the Georgia-Pacific Group Plan in 1997.
1990 LONG-TERM INCENTIVE PLAN. The Corporation initially reserved 4,000,000
shares of Existing Common Stock for issuance under the 1990 Long-Term Incentive
Plan ("1990 Incentive Plan"), which expired March 9, 1995. Restricted stock was
awarded to employees at no cost, based on increases in average market value of
the Existing Common Stock. At the time restricted shares were awarded, the
market value of the stock was added to common stock and additional paid-in
capital and was deducted from shareholders' equity (long-term incentive plan
deferred compensation). Long-term incentive plan deferred compensation is
amortized over the vesting (restriction) period, generally five years, with
adjustments made quarterly for market price fluctuations. At the time awarded
shares become vested, the Corporation will pay on behalf of each participant a
cash bonus in the amount of the estimated income tax liability to be incurred by
the participant as a result of the award and cash bonus. Shares totaling
1,155,000 were awarded under the 1990 Incentive Plan, of which 682,520 shares
were vested as of December 31, 1997.
The Corporation recognized compensation expense of $15 million in 1997, $29
million in 1996 and $22 million in 1995 related to the 1990 Incentive Plan.
As a result of the Letter Stock Recapitalization, each share of restricted
stock held in the 1990 Incentive Plan was redesignated as Georgia-Pacific Group
stock, and an equal number of restricted shares of The Timber Company stock were
distributed. These shares will remain restricted until they vest under the terms
of the 1990 Incentive Plan. The tax gross-up provided in the 1990 Incentive Plan
will be calculated based on the aggregate market value of the two classes of
shares distributed to an individual at such time.
EMPLOYEE STOCK PURCHASE PLANS. The Corporation's 1997 Employee Stock Purchase
Plan ("1997 Purchase Plan") offered employees a right to subscribe for Existing
Common Stock at a subscription price of $78.09 per share, representing 85% of
the mean of the high and low prices of the Existing Common Stock on September 2,
1997. The subscription period for the 1997 Purchase Plan expired on November 14,
1997. A subscriber must purchase and pay for shares subscribed not later than
November 30, 1999, but prior to the time that the subscriber's last contribution
to the 1997 Purchase Plan is paid, the subscriber may obtain a refund of his/her
payments plus interest at a rate of 6% per annum in lieu of stock. In
conjunction with the Letter Stock Recapitalization, the terms of the
subscription agreements were adjusted to allow subscribers, pursuant to the
terms of the 1997 Purchase Plan, to purchase at the same subscription price a
package consisting of one share of Georgia-Pacific Group stock and one share of
The Timber Company stock in lieu of each share of Existing Common Stock for
which he/she had originally subscribed.
At December 31, 1997, the Corporation had 1,141,048 shares of Georgia-
Pacific Group stock and 1,141,048 shares of The Timber Company stock reserved
for issuance under the 1997 Purchase Plan. Approximately 8,300 subscribers
remained in the 1997 Purchase Plan at December 31, 1997.
Under the 1995 Employee Stock Purchase Plan (which expired on September 30,
1997), the Corporation issued 763,000 and 19,000 shares of Existing Common Stock
in 1997 and 1996, respectively, at a subscription price of $73.84 per share.
OUTSIDE DIRECTORS STOCK PLAN. The Outside Directors Stock Plan (the "Directors
Plan") provides for the issuance of shares of common stock to nonemployee
directors on a restricted basis. Each nonemployee director was issued 482
restricted shares of Existing Common Stock in 1997 and 193 shares in 1996. As a
result of the Letter Stock Recapitalization, each share of restricted stock held
in the Directors Plan was redesignated as Georgia-Pacific Group stock, and an
equal number of shares of The Timber Company stock (subject to the same
restrictions as the original restricted shares) were distributed. Beginning in
1998, each director's annual grant will consist of a number of shares of
Georgia-Pacific Group stock and of The Timber Company stock determined so that
(i) a substantially equal number of shares of Georgia-Pacific Group stock and
The Timber Company stock will be granted in each year and (ii) the total market
value of the shares granted in each year (based on the mean of the high and low
prices of each stock on the date of grant) is $40,000 (subject to immaterial
rounding differentials). The restrictions on the shares lapse at the time of
death, retirement from the Board or disability.
Effective May 6, 1997, accrual of additional retirement benefits under the
Directors Retirement Program ceased, and the accrued benefits of each of the
current nonemployee directors (the present value of which totaled $1,303,889 as
of May 6, 1997) were converted into a grant of an equivalent number of shares of
restricted stock under the Directors Plan. The total number of shares issued was
15,702.
EMPLOYEE STOCK OPTION PLANS. The 1995 Shareholder Value Incentive Plan ("SVIP")
provides for the granting of stock options having a term of either 5 1/2 or 10
years to officers and key employees. Under the amended and restated SVIP, no
further grants may be made under that plan. Options having a term of 10 years
become exercisable in 9 1U2 years unless certain performance targets tied to the
Corporation's common stock performance are met, in which case the holder could
exercise such options after 3, 4 or 5 years from the grant date. Options having
a term of 5 1/2 years may be exercised only if such performance targets are met
in the third, fourth or fifth year after such grant date. At the time options
are exercised, the exercise price is payable in cash or by surrender of shares
of common stock already owned by the optionee.
The 1994 Employee Stock Option Plan ("1994 Option Plan") provided for the
granting of stock options to certain nonofficer key employees. There are also
options outstanding under the 1993 Employee Stock Option Plan ("1993 Option
Plan").
Following the Letter Stock Recapitalization, each outstanding stock option
under the SVIP, 1994 Option Plan and 1993 Option Plan was converted into
separately exercisable options to acquire a number of shares of Georgia-Pacific
Group stock and The Timber Company stock, each of which equaled the number of
shares of Existing Common Stock specified in the original option. The exercise
prices for the resulting Georgia-Pacific Group stock options and The Timber
Company stock options were calculated by multiplying the exercise price under
the original option from which they were converted by a fraction, the numerator
of which is the average of the high and low price of Georgia-Pacific Group stock
or The Timber Company stock, as the case may be, on December 17, 1997 and the
denominator of which is the sum of such Georgia-Pacific Group and The Timber
Company stock prices. This was intended to ensure that the aggregate intrinsic
value of the options was preserved and the ratio of the exercise price per
option to the market value per share was not reduced. In addition, the vesting
provisions and option periods of the original grants remained the same following
such conversion.
Additional information relating to the Corporation's existing employee stock
option plans is as follows:
<TABLE>
<CAPTION>
Period ended December 16, Year ended December 31
1997* 1996 1995
- -------------------------------------------------------
Georgia-Pacific Corporation
- -------------------------------------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
at January 1 4,158,500 $74.53 2,217,000 $75.61 1,646,000 $66.77
Options granted 1,746,000 74.25 2,150,500 72.63 1,223,200 80.50
Options exercised/
surrendered (514,950) 69.94 (117,400) 57.15 (619,000) 61.63
Options cancelled (486,150) 75.05 (91,600) 75.45 (33,200) 77.64
- -------------------------------------------------------
Options outstanding
at period end 4,903,400 $74.93 4,158,500 $74.53 2,217,000 $75.61
Options available
for grant at
period end 3,531,200 4,811,000 6,895,000
- -------------------------------------------------------
Total reserved shares 8,434,600 8,969,500 9,112,000
=======================================================
Options exercisable
at period end 334,600 869,000 1,012,000
=======================================================
Option prices per share:
Granted $74 $73-$77 $81
Exercised/surrendered $59-$75 $39-$75 $39-$75
Cancelled $59-$81 $39-$81 $39-$81
=======================================================
</TABLE>
*All shares and prices reflect the Corporation's Existing Common Stock through
December 16, 1997.
<TABLE>
<CAPTION>
Year ended December 31
1997 1997
- -------------------------------------------------------
Georgia-Pacific Group The Timber Company
- -------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding
at December 17 4,903,400 $53.32 4,903,400 $21.61
Options granted - - 1,010,600 25.13
Options exercised
surrendered (300) 41.99 (300) 17.01
Options cancelled - - - -
- -------------------------------------------------------
Options outstanding
at December 31 4,903,100 $53.32 5,913,700 $22.21
Options available
for grant at
December 31 4,500,000 1,289,400
- -------------------------------------------------------
Total reserved shares 9,403,100 7,203,100
=======================================================
Options exercisable
at December 31 334,300 $52.33 334,300 $21.20
Average remaining life of
options outstanding one year one year
Option prices per share
(December 17
through December 31):
Granted $- $25
Exercised/surrendered $42 $17
Outstanding $42-$57 $17-$25
=======================================================
</TABLE>
SHAREHOLDER RIGHTS PLAN. On December 16, 1997, shareholders approved an amended
and restated Shareholder Rights Plan (the "Rights Agreement") pursuant to which
preferred stock purchase rights (the "Rights") are issued on each share of
Georgia-Pacific Group stock (a "Georgia-Pacific Group Right") which will entitle
the holders thereof to purchase shares of Series B Junior Preferred Stock under
the conditions specified in the Rights Agreement, and on each share of The
Timber Company stock (a "Timber Company Right") which will entitle the holders
thereof to purchase shares of Series C Junior Preferred Stock under the
conditions specified in the Rights Agreement.
The Rights will expire on December 31, 2007, unless earlier redeemed by the
Corporation or extended. The Rights would be exercisable only if a person or
group acquires 15% or more of the total voting rights of all then outstanding
shares of common stock of the Corporation or commences a tender offer that would
result in such person or group beneficially owning 15% or more of the total
voting rights of all then outstanding shares of common stock of the Corporation.
In such event, each Right would entitle the holder to purchase from the
Corporation (i) in the case of a Georgia-Pacific Group Right, one one-hundredth
of a share of Series B Junior Preferred Stock (a "Series B Unit") at a purchase
price of $350 (the "Series B Unit Purchase Price"), subject to adjustment, and
(ii) in the case of a Timber Company Right, one one-hundredth of a share of
Series C Junior Preferred Stock (a "Series C Unit") at a purchase price of $100
(the "Series C Unit Purchase Price"), subject to adjustment.
Thereafter, in the event one of several specified events (generally
involving transactions by an acquirer in the Corporation's common stock or a
business combination involving the Corporation) occurs, each Georgia-Pacific
Group Right and each Timber Company Right will entitle its holder to purchase,
for the Series B Unit Purchase Price and the Series C Unit Purchase Price,
respectively, a number of shares of common stock of such entity or purchaser
with a market value equal to twice the applicable purchase price. Because of the
nature of the dividend, liquidation and voting rights of each class of Junior
Preferred Stock related to the Rights, the economic value of one Series B Unit
and one Series C Unit should approximate the economic value of one share of
Georgia-Pacific Group stock and one share of The Timber Company stock,
respectively.
CAPITAL STOCK. During the year ended December 31, 1997, the Corporation
purchased 358,400 shares of Georgia-Pacific Group stock at an aggregate purchase
price of $22 million on the open market. The resolution of the Board authorizing
such repurchases provided that none would be made as long as the total debt of
the Corporation exceeded $5.5 billion.
In January 1998, the Board increased the share repurchase threshold to allow
purchases of Georgia-Pacific Group stock so long as the Group's total debt
remains below $4.75 billion and the Corporation's total debt is below $5.75
billion. Repurchases of The Timber Company stock may be made so long as The
Timber Company's debt remains below $1 billion and the Corporation's debt
remains below $5.75 billion.
OTHER. The Corporation adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," in 1996. The Corporation has elected to continue to account for
its stock-based compensation plans under APB Opinion No. 25 and disclose pro
forma effects of the plans on net income and earnings per share as provided by
SFAS No. 123. Accordingly, no compensation cost has been recognized for the
SVIP, the Georgia-Pacific Group Plan, The Timber Company Plan or the Employee
Stock Purchase Plans. Had compensation cost for these plans been determined
based on the fair value at the grant dates in 1997, 1996 or 1995 under the plan
consistent with the method of SFAS No. 123, the pro forma net income and
earnings per share would have been as follows:
<TABLE>
<CAPTION>
Year ended December 31,
(In millions, except
per share amounts) 1997 1996 1995
- --------------------------------------------------
Net Income Net Income Net Income
income (loss) Income (loss) Income (loss)
(loss) per share* (loss) per share* (loss) per share*
- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Georgia-Pacific Corporation
As reported $ 69 $ 156 $ 1.72 $ 1,018 $11.29
Pro forma $ 62 $ 144 $ 1.59 $ 1,014 $11.24
Georgia-Pacific Group
As reported $ (146) $(1.60) $ 29 $ 921
Pro forma $ (153) $(1.68) $ 17 $ 917
The Timber Company
As reported $ 215 $ 2.35 $ 127 $ 97
Pro forma $ 215 $ 2.35 $ 127 $ 97
- --------------------------------------------------
</TABLE>
*Represents basic earnings per share. Pro forma diluted income (loss) per share
was $(1.68) and $2.33 in 1997 for the Georgia-
Pacific Group and The Timber Company, respectively, and $1.58 and $11.13 for the
Corporation in 1996 and 1995, respectively.
The fair-value-based method of accounting for stock-based compensation plans
under SFAS No. 123 recognizes the value of options
granted as compensation cost over the option's vesting period and has not
been applied to options granted prior to January 1, 1995.
Accordingly, the resulting pro forma compensation cost is not representative of
what compensation cost will be in future years.
Following are the weighted average assumptions used in connection with
the Black-Scholes option pricing model to estimate the
fair value of options granted in 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
Options ESPP* Options Options ESPP*
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------
Georgia-Pacific Corporation
Risk-free interest rate 5.7% 7.4% 5.7%
Expected dividend yield 2.0% 1.6% 2.0%
Expected life 10 years 10 years 2 years
Expected volatility .30 .30 .23
Option forfeiture rate 3% 3% 28%
- -------------------------------------------------------------
Georgia-Pacific Group
Risk-free interest rate 6.6% 5.8% 5.7% 7.4% 5.7%
Expected dividend yield 2.7% 2.3% 2.0% 1.6% 2.0%
Expected life 10 years 2 years 10 years 10 years 2 years
Expected volatility .30 .37 .30 .30 .23
Option forfeiture rate 3% 28% 3% 3% 28%
- -------------------------------------------------------------
The Timber Company
Risk-free interest rate 6.4% 5.8% 5.7% 7.4% 5.7%
Expected dividend yield 3.2% 2.3% 2.0% 1.6% 2.0%
Expected life 10 years 2 years 10 years 10 years 2 years
Expected volatility .27 .29 .30 .30 .23
Option forfeiture rate 3% 28% 3% 3% 28%
- -------------------------------------------------------------
</TABLE>
*Employee Stock Purchase Plans.
The weighted average grant date fair value per share, including
modifications, of Georgia-Pacific Group options and The Timber
Company options granted during the year using the Black-Scholes option pricing
model was $23.74 and $7.54, $18.98 and $6.42, and
$26.53 and $8.98 for 1997, 1996 and 1995, respectively. The weighted average
grant date fair value per share of shares subscribed
under the 1997 and 1995 Employee Stock Purchase Plans was $17.69 and $6.52, and
$18.48 and $6.81, for the Georgia-Pacific Group and
The Timber Company, respectively. The total pro forma compensation cost
calculated under SFAS No. 123 was allocated between the
Georgia-Pacific Group and The Timber Company based on the number of employees in
each group for periods prior to December 17, 1997.
Management believes that this method of allocation is equitable and provides a
reasonable estimate of the costs attributable to each
group.
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Corporation is a party to various legal proceedings incidental to its
business and is subject to a variety of environmental and
pollution control laws and regulations in all jurisdictions in which it
operates. As is the case with other companies in similar
industries, the Corporation faces exposure from actual or potential claims and
legal proceedings involving environmental matters.
Liability insurance in effect during the last several years provides only very
limited coverage for environmental matters.
The Corporation is involved in environmental remediation activities at
approximately 208 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 28% are being
investigated, approximately 43% are being remediated and
approximately 29% 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 $53 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 defend and
settle these cases to date have been substantially
covered by product liability insurance. The Corporation is currently defending
claims of approximately 59,000 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 Corporation
has previously established financial reserves it believes to be adequate to
pay eligible claims and legal fees. However, the volume
and timing of actual claims, which under the settlement may be filed through
August 1998, could cause claims to exceed established
reserves.
In May 1997, the Corporation and nine other companies were named as
defendants in a class action suit 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 in federal courts
in California, Florida, Georgia and Wisconsin, and in
the state courts of California, Wisconsin 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. The Corporation has denied
that it has engaged in any of the illegal conduct alleged in these cases and
intends to defend itself vigorously.
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.
NOTE 11. RELATED PARTY TRANSACTIONS
For all periods in which the separate accompanying combined statements of income
of the groups are presented, timber has been
transferred from the Corporation's timberlands at prices intended to reflect
fair market prices based on prices paid by independent
purchasers and sellers for similar kinds of timber.
The Timber Company and the Georgia-Pacific Group have negotiated an
operating policy governing future sales of timber and wood
fiber by The Timber Company to the Georgia-Pacific Group with an initial term of
three years. Under this policy, the Georgia-Pacific
Group will be required to purchase in the years 1998-2000, on a take-or-pay
basis, 60% of the volume of timber and wood fiber
harvested annually from The Timber Company's Southern forests. In 1998, the
Georgia-Pacific Group has a right of first refusal to
purchase up to 90% of The Timber Company's total annual harvest from each forest
(which amount includes the 60% take-or-pay amount
described above). In 1999 and 2000, the volume subject to this right of first
refusal will decrease to 80%, and the Georgia-Pacific
Group must exercise its right not later than October 15 of the preceding year.
For 1998, the Georgia-Pacific Group has agreed to
purchase 83% of The Timber Company's total annual harvest. All quantities of
timber and wood fiber committed under the take-or-pay
arrangement described above, and all quantities as to which the Georgia-Pacific
Group exercises its right of first refusal for a
particular year, will be sold at market prices determined quarterly. Such prices
are intended to approximate prices negotiated
between unaffiliated third parties in the open market and will be based upon (i)
an average of the actual prices received by The
Timber Company during the immediately preceding quarter for sales made by it to
third parties, and prices paid by the Georgia-
Pacific Group for purchases made by it from third parties, in the same forest
region, of timber and wood fiber of the same species,
grade and size, and (ii) the benefit to the Georgia-Pacific Group of having
access to a committed quantity of high-quality timber
and wood fiber in close proximity to its mills and plants.
All quantities of timber and wood fiber harvested each year by The Timber
Company and not committed to the Georgia-Pacific Group
as described above may be sold by The Timber Company to any purchaser, including
the Georgia-Pacific Group. In such case, the
Georgia-Pacific Group may purchase such timber at negotiated prices or at prices
determined in competitive bidding. Sales to the
Georgia-Pacific Group and third parties will generally be made on a stumpage
basis, except that sales in the Western region and of
thinnings and selective harvests by The Timber Company may be made on a
delivered basis.
This policy is intended to ensure that the Georgia-Pacific Group will be
able to purchase from The Timber Company specified
amounts of timber and wood fiber, while ensuring that The Timber Company,
beginning in 1999, will be able to sell at least 20% of
its annual harvest on the open market. This policy will remain in effect through
2000. If neither party gives written notice to the
other of its desire to renegotiate or terminate the policy by October 15, 1998,
the policy will automatically be extended through
2001 and thereafter will be extended for an additional year on each January 1
until any such notice of renegotiation or termination
is received. As a result, the policy in effect has a two-year termination
clause to allow both the Georgia-Pacific Group and The
Timber Company time to find other sellers and purchasers, respectively, of
timber and wood fiber.
The Corporation is a 50% partner in a joint venture ("GA-MET") with
Metropolitan Life Insurance Company ("Metropolitan"). GA-MET
owns and operates the Corporation's main office building in Atlanta, Georgia.
The Corporation accounts for its investment in GA-MET
under the equity method.
At December 31, 1997, GA-MET had an outstanding mortgage loan payable to
Metropolitan in the amount of $150 million. The note
bears interest at 9 1/2%, requires monthly payments of principal and interest
through 2011, and is secured by the land and building
owned by the joint venture. In the event of foreclosure, each partner has
severally guaranteed payment of one-half of any shortfall
of collateral value to the outstanding secured indebtedness. Based on the
present market conditions and building occupancy, the
likelihood of any obligation to the Corporation with respect to this guarantee
is considered remote.
NOTE 12. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
First Quarter Second Quarter
----------------------------
(In millions, except
per share amounts) 1997 1996 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $3,145 $3,053 $3,326 $ 3,324
Gross profit (net sales minus
cost of sales) 669 769 690 810
Income (loss) before extraordinary
item nd accounting change 90 50 27 10
- ------------------------------------------------------------
Net income (loss) 90 50 27 5
=======================================================
Georgia-Pacific Corporation
Dividends declared per
share $ .50 $ .50 $ .50 $ .50
Basic per share:
Income before extraordinary
item .99 .55 .30 .11
- ------------------------------------------------------------
Net income .99 .55 .30 .06
- ------------------------------------------------------------
Diluted per share:
Income before extraordinary
item .99 .55 .29 .11
- ------------------------------------------------------------
Net income .99 .55 .29 .06
=======================================================
Georgia-Pacific Group
Dividends declared per
share
Basic and diluted per share:
Income (loss) before cumulative
effect of accounting change
- ------------------------------------------------------------
Net income (loss)
=======================================================
The Timber Company
Dividends declared per
share
Basic and diluted per share:
- ------------------------------------------------------------
Net income
=======================================================
Price range of common stock
Georgia-Pacific Corporation
(through December 16, 1997)
High $78.75 $75.25 $90.25 $ 78.50
Low 71.00 63.00 70.50 67.63
Georgia-Pacific Group
(December 17 - December 31, 1997)
High
Low
The Timber Company
(December 17 - December 31, 1997)
High
Low
=======================================================
<CAPTION>
Third Quarter Fourth Quarter
- ------------------------------------------------------------
(In millions, except
per share amounts) 1997 1996 1997 1996
- ------------------------------------------------------------
Net sales $3,373 $3,451 $3,250 $ 3,196
Gross profit (net sales minus
cost of sales) 794 808 557 704
Income (loss) before extraordinary
item and accounting change 86 99 (74) 2
- ------------------------------------------------------------
Net income (loss) 86 99 (134) 2
=======================================================
Georgia-Pacific Corporation
Dividends declared per
share $ .50 $ .50 $ .50
Basic per share:
Income before extraordinary
item .94 1.09 .02
- ------------------------------------------------------------
Net income .94 1.09 .02
------------------------------------------------------------
Diluted per share:
Income before extraordinary
item .94 1.09 .02
- ------------------------------------------------------------
Net income .94 1.09 .02
=======================================================
Georgia-Pacific Group
Dividends declared per
share .25
Basic and diluted per share:
Income (loss) before cumulative
effect of accounting change (1.13)
- ------------------------------------------------------------
Net income (loss) (1.78)
=======================================================
The Timber Company
Dividends declared per
share .25
Basic and diluted per share:
- ------------------------------------------------------------
Net income .33
=======================================================
Price range of common stock
Georgia-Pacific Corporation
(through December 16, 1997)
High $105.13 $79.75 $108.56 $ 81.00
Low 85.63 69.75 81.50 69.25
Georgia-Pacific Group
(December 17 - December 31, 1997)
High 64.00
Low 59.00
The Timber Company
(December 17 - December 31, 1997)
High 25.88
Low 22.50
=======================================================
</TABLE>
SELECTED FINANCIAL DATA - OPERATIONS
Georgia-Pacific Corporation and Subsidiaries
CASH DIVIDENDS TO EARNINGS
Cash dividends declared divided by net income (loss).
EARNINGS TO INTEREST
Income (loss) before income taxes, extraordinary items and accounting changes
plus interest expense divided by total interest cost (interest expense plus
capitalized interest). In the 1997, 1996, 1995, 1994, 1993, 1992, 1991 and 1990
calculations, respectively, the $19 million, $20 million, $37 million, $33
million, $29 million, $35 million, $59 million and $48 million cost of the
accounts receivable sale program was included in interest expense.
CASH FLOW TO INTEREST
Cash provided by operations plus interest expense divided by total interest cost
(interest expense plus capitalized interest). In the 1995, 1993, 1991 and 1990
calculations, respectively, cash provided by operations excludes $(350) million,
$(100) million, $(50) million and $850 million from the accounts receivable sale
program. In the 1997, 1996, 1995, 1994, 1993, 1992, 1991 and 1990 calculations,
respectively, the $19 million, $20 million, $37 million, $33 million, $29
million, $35 million, $59 million and $48 million cost of the accounts
receivable sale program was included in interest expense.
EFFECTIVE INCOME TAX RATE
Provision (benefit) for income taxes divided by income (loss) before income
taxes, extraordinary items and accounting changes.
SELECTED FINANCIAL DATA - OPERATIONS
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------
(Dollar amounts, except
per share, and shares
are in millions) 1997 1996 1995 1994
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net sales $13,094 $13,024 $14,313 $12,738
- ----------------------------------------------------------------
Costs and expenses
Cost of sales, excluding
depreciation and cost
of timber harvested
shown below 10,384 9,933 9,885 9,620
Selling, general and
administrative 1,180 1,399 1,373 1,204
Depreciation and cost
of timber harvested 958 937 926 913
Interest 465 459 432 486
Other (income) loss (128) - - (57)
- ----------------------------------------------------------------
Total costs and expenses 12,859 12,728 12,616 12,166
- ----------------------------------------------------------------
Income (loss) before unusual items,
income taxes, extraordinary
items and accounting
changes 235 296 1,697 572
Unusual items - - - -
Provision (benefit) for
income taxes 106 135 679 246
- ----------------------------------------------------------------
Income (loss) before extraordinary
items and accounting
changes 129 161 1,018 326
Extraordinary items and
accounting changes, net
of taxes (60) (5) - (16)
- ----------------------------------------------------------------
Net income (loss) $ 69 $ 156 $ 1,018 $ 310
================================================================
Cash provided by continuing
operations** $ 1,112 $ 1,213 $ 1,824 $ 1,009
================================================================
Other statistical data
Georgia-Pacific Corporation
Basic per share
Income (loss) before extraordinary
items and accounting
changes $ 1.78 $ 11.29 $ 3.66
Extraordinary items and
accounting changes,
net of taxes (.06) - (.18)
- ----------------------------------------------------------------
Net income (loss) $ 1.72 $ 11.29 $ 3.48
- ----------------------------------------------------------------
Diluted per share
Income (loss) before extraordinary
items and accounting
changes $ 1.77 $ 11.18 $ 3.63
Extraordinary items and
accounting changes,
net of taxes (.06) - (.18)
- ----------------------------------------------------------------
Net income (loss) $ 1.71 $ 11.18 $ 3.45
- ----------------------------------------------------------------
Georgia-Pacific Group
Net income (loss) $ (146)
Basic and diluted
per share
Income (loss)
before extraordinary
items and accounting
changes $ (.94)
Extraordinary items and
accounting change,
net of taxes (.66)
- ----------------------------------------------------------------
Net income (loss) $(1.60)
- ----------------------------------------------------------------
The Timber Company
Net income $ 215
Basic per share,
net income $ 2.35
Diluted per share,
net income $ 2.33
================================================================
Dividends declared per
share $ 2.00 $ 2.00 $ 1.90 $ 1.60
Average shares of common
stock outstanding
Georgia-Pacific Corporation,
basic 90.6 90.2 89.1
Georgia-Pacific Corporation,
diluted 91.2 91.1 89.7
Georgia-Pacific Group,
basic and diluted 91.4
The Timber Company, basic 91.4
The Timber Company, diluted 92.1
Cash dividends to earnings 100.0%+ 17.0% 44.5%
Earnings to interest 1.5 1.6 4.4 2.1
Cash flow to interest 3.3 3.4 4.8 3.0
Effective income tax rate 45.1% 45.6% 40.0% 43.0%
================================================================
<CAPTION>
Year ended December 31
-------------------------------------
(Dollar amounts, except per share,
and shares
are in millions) 1993 1992 1991 1990*
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net sales $12,287 $11,847 $11,524 $12,665
- ----------------------------------------------------------------
Costs and expenses
Cost of sales, excluding
depreciation and cost
of timber harvested,
shown below 9,495 9,238 9,054 9,612
Selling, general and
administrative 1,248 1,135 1,078 903
Depreciation and cost
of timber harvested 953 948 834 825
Interest 542 600 643 654
Other (income) loss 26 - (344) (48)
- ----------------------------------------------------------------
Total costs and expenses 12,264 11,921 11,265 11,946
- ----------------------------------------------------------------
Income (loss) before unusual items,
income taxes, extraordinary
items and accounting
changes 23 (74) 259 719
Unusual items - - - -
Provision (benefit) for
income taxes 41 (14) 293 354
- ----------------------------------------------------------------
Income (loss) before extraordinary
items and accounting
changes (18) (60) (34) 365
Extraordinary items and
accounting changes, net
of taxes (16) (64) (108) -
- ----------------------------------------------------------------
Net income (loss) $ (34) $ (124) $ (142) $ 365
================================================================
Cash provided by continuing
operations** $ 685 $ 1,027 $ 740 $ 1,349
================================================================
Other statistical data
Georgia-Pacific Corporation
Basic per share
Income (loss) before extraordinary
items and accounting
changes $ (.21) $ (.69) $ (.40) $ 4.28
Extraordinary items and
accounting changes,
net of taxes (.18) (.74) (1.25) -
- ----------------------------------------------------------------
Net income (loss) $ (.39) $ (1.43) $(1.65) $ 4.28
- ----------------------------------------------------------------
Diluted per share
Income (loss) before extraordinary
items and accounting
changes $ (.21) $ (.69) $ (.40) $ 4.26
Extraordinary items and
accounting changes,
net of taxes (.18) (.74) (1.25) -
- ----------------------------------------------------------------
Net income (loss) $ (.39) $(1.43) $(1.65) $ 4.26
- ----------------------------------------------------------------
Georgia-Pacific Group
Net income (loss)
Basic and diluted per share
Income (loss) before extraodinary
items and accounting changes
Extraordinary items and
accounting changes, net of taxes
- ----------------------------------------------------------------
Net income (loss)
- ----------------------------------------------------------------
The Timber Company
Net income
Basic per share, net income
Diluted per share, net income
================================================================
Dividends declared
per share $ 1.60 $ 1.60 $ 1.60 $ 1.60
Average shares of common
stock outstanding
Georgia-Pacific
Corporation, basic 87.7 86.4 85.8 85.3
Georgia-Pacific
Corporation, diluted 87.7 86.4 85.8 85.8
Georgia-Pacific Group,
basic and diluted
The Timber Company, basic
The Timber Company, diluted
Cash dividends to earnings 100%+ 100%+ 100%+ 38.1%
Earnings to interest 1.0 0.9 1.4 2.0
Cash flow to interest 2.3 2.7 2.1 2.9
Effective income tax rate 100%+ (18.9)% 100%+ 49.2%
================================================================
<CAPTION>
Year ended December 31
----------------------------
(Dollar amounts, except
per share, and shares
are in millions) 1989 1988 1987
- -------------------------------------------------------------
<S> <C> <C> <C>
Operations
Net sales $10,171 $9,509 $ 8,603
- -------------------------------------------------------------
Costs and expenses
Cost of sales, excluding
depreciation and cost
of timber harvested
shown below 7,488 7,312 6,670
Selling, general and
administrative 689 632 583
Depreciation and cost
of timber harvested 647 590 494
Interest 260 197 124
Other (income) loss - - -
- -------------------------------------------------------------
Total costs and expenses 9,084 8,731 7,871
- -------------------------------------------------------------
Income (loss) before unusual items,
income taxes, extraordinary
items and accounting
changes 1,087 778 732
Unusual items - - 66
Provision (benefit) for
income taxes 426 311 340
- -------------------------------------------------------------
Income (loss before extraordinary
items and accounting
changes 661 467 458
Extraordinary items and
accounting changes, net
of taxes - - -
- -------------------------------------------------------------
Net income (loss) $ 661 $ 467 $ 458
=============================================================
Cash provided by continuing
operations** $1,491 $1,005 $ 888
=============================================================
Other statistical data
Georgia-Pacific Corporation
Basic per share
Income (loss) before extraordinary
items and accounting
changes $ 7.42 $ 4.76 $ 4.23
Extraordinary items and
accounting changes, net of taxes - - -
- -------------------------------------------------------------
Net income (loss) $ 7.42 $ 4.76 $ 4.23
- -------------------------------------------------------------
Diluted per share
Income (loss before extraordinary
items and accounting
changes $ 7.37 $ 4.75 $ 4.21
Extraordinary items and
accounting changes, net of taxes - - -
- -------------------------------------------------------------
Net income (loss) $ 7.37 $ 4.75 $ 4.21
- -------------------------------------------------------------
Georgia-Pacific Group
Net income (loss)
Basic and diluted per share
Income (loss) before accounting
change
Extraordniary items and
accounting changes, net of taxes
- ----------------------------------------------------------------
Net income (loss)
- -------------------------------------------------------------
The Timber Company
Net income
Basic per share, net income
Diluted per share, net income
=============================================================
Dividends declared per share $ 1.45 $ 1.25 $ 1.05
Average shares of common
stock outstanding
Georgia-Pacific
Corporation, basic 89.1 98.1 107.5
Georgia-Pacific
Corporation, diluted 89.7 98.4 108.5
Georgia-Pacific Group,
basic and diluted
The Timber Company, basic
The Timber Company, diluted
Cash dividends to earnings 19.7% 26.3% 25.1%
Earnings to interest 5.0 4.4 6.9
Cash flow to interest 6.4 5.5 7.6
Effective income tax rate 39.2% 40.0% 42.6%
============================================================
</TABLE>
*The results of Great Northern Nekoosa Corporation and its subsidiaries have
been included beginning on March 9, 1990.
**Excludes the accounts receivable sale program.
SELECTED FINANCIAL DATA - FINANCIAL POSITION, END OF YEAR
Georgia-Pacific Corporation and Subsidiaries
BOOK VALUE PER COMMON SHARE
Shareholders' equity divided by shares of common stock outstanding as of the end
of the year.
TOTAL DEBT TO CAPITAL, BOOK BASIS
Total debt divided by the sum of total debt, deferred income taxes, other long-
term liabilities and shareholders' equity as of the end of the year. Total debt
includes bank overdrafts, commercial paper and short-term notes, current portion
of long-term debt, long-term debt and accounts receivable sold.
TOTAL DEBT TO CAPITAL, MARKET BASIS
Total debt divided by the sum of total debt and the market value of
shareholders' equity as of the end of the year. Total debt includes bank
overdrafts, commercial paper and short-term notes, current portion of long-term
debt, long-term debt and accounts receivable sold. The value of shareholders'
equity is the market price of common stock multiplied by the number of common
stock shares outstanding.
CURRENT RATIO
Current assets divided by current liabilities as of the end of the year.
SELECTED FINANCIAL DATA - FINANCIAL POSITION, END OF YEAR
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------
(Dollar amounts, except per share,
and shares are in millions) 1997 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial position, end of year
Current assets $2,916 $2,615 $2,595 $ 1,984
Timber and timberlands 1,193 1,337 1,374 1,363
Property, plant and
equipment 6,297 6,560 6,013 5,488
Goodwill 1,599 1,658 1,714 1,773
Other assets 945 648 639 256
- -----------------------------------------------------------------
Total assets 12,950 12,818 12,335 10,864
- -----------------------------------------------------------------
Current liabilities 3,020 2,490 1,764 2,325
Long-term debt 3,713 4,371 4,704 3,904
Other long-term liabilities 1,544 1,275 1,201 825
Deferred income taxes 1,199 1,161 1,147 1,190
- -----------------------------------------------------------------
Total liabilities 9,476 9,297 8,816 8,244
- -----------------------------------------------------------------
Shareholders' equity $3,474 $3,521 $3,519 $ 2,620
- -----------------------------------------------------------------
Working capital $(104) $ 125 $ 831 $ (341)
- -----------------------------------------------------------------
Other statistical data
Property, plant and equipment
investments (including
acquisitions) $ 717 $1,422 $1,259 $ 850
Proprty, plant and equipment
investments (excluding
acquisitions) 717 1,059 1,259 850
Timber & timberlands purchases 182 142 244 211
- -----------------------------------------------------------------
Georgia-Pacific Corporation
Per share (through
December 16, 1997)
Market price: High 108.56 81.00 95.75 79.00
Low 70.50 63.00 65.75 56.75
Period-end 85.13 72.00 68.63 71.50
Book value 38.52 38.54 28.95
Shares of stock outstanding at
year-end 91.4 91.3 90.5
- -----------------------------------------------------------------
Georgia-Pacific Group
Per share (December 17 through
December 31, 1997)
Market price: High 64.00
Low 59.00
Year-end 60.75
Book value 38.19
Shares of stock outstanding at
year-end 92.2
- -----------------------------------------------------------------
The Timber Company
Per share (December 17 through
December 31, 1997)
Market price: High 25.88
Low 22.50
Year-end 22.69
Book value (.53)
Shares of stock outstanding at
year-end 92.6
Total debt to capital,
book basis 47.2% 50.4% 49.3% 56.0%
Total debt to capital,
market basis 47.4% 47.2% 46.9%
Current ratio 1.0 1.1 1.5 .9
=================================================================
<CAPTION>
Year ended December 31
-----------------------------------
(Dollar amounts, except per share,
and shares are in millions) 1993 1992 1991 1990*
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial position, end of year
Current assets $1,646 $1,607 $1,562 $ 1,766
Timber and timberlands 1,381 1,402 1,377 1,630
Property, plant and
equipment 5,448 5,831 5,567 6,341
Goodwill 1,832 1,891 1,949 2,042
Other assets 238 181 174 284
- -----------------------------------------------------------------
Total assets 10,545 10,912 10,629 12,063
- -----------------------------------------------------------------
Current liabilities 2,064 2,452 2,722 2,535
Long-term debt 4,157 4,019 3,743 5,218
Other long-term liabilities 827 731 633 407
Deferred income taxes 1,095 1,202 795 928
- -----------------------------------------------------------------
Total liabilities 8,143 8,404 7,893 9,088
- -----------------------------------------------------------------
Shareholders' equity $2,402 $2,508 $2,736 $ 2,975
- -----------------------------------------------------------------
Working capital $(418) $(845) $(1,160)$ (769)
- -----------------------------------------------------------------
Other statistical data
Property, plant and equipment
investments (including
acquisitions) $ 421 $ 347 $ 490 $ 3,320
Property, plant and equipment
investments (excluding
acquisitions) 421 347 490 833
Timber & timberland purchases 235 196 148 595
- -----------------------------------------------------------------
Georgia-Pacific Corporation
Per share (through December 16,
1997)
Market price: High 75.00 72.00 60.25 52.13
Low 55.00 48.25 36.25 25.38
Period-end 68.75 62.38 53.63 37.25
Book value 26.60 28.47 31.30 34.31
Shares of stock outstanding at
year-end 90.3 88.1 87.4 86.7
- -----------------------------------------------------------------
Georgia-Pacific Group
Per share (December 17
through December 31)
Market price: High
Low
Year-end
Book value
Shares of stock outstanding at
year-end
- -----------------------------------------------------------------
The Timber Company
Per share (December 17
through December 31)
Market price: High
Low
Year-end
Book value
Shares of stock outstanding at
year-end
- -----------------------------------------------------------------
Total debt to capital,
book basis 57.0% 57.0% 60.1% 63.6%
Total debt to capital,
market basis 48.0% 51.7% 57.2% 69.9%
Current ratio .8 .7 .6 .7
=================================================================
<CAPTION>
Year ended December 31
-------------------------
(Dollar amounts, except
per share, and shares
are in millions) 1989 1988 1987
- -----------------------------------------------------------------
<S> <C> <C> <C>
Financial position, end of year
Current assets $1,829 $1,892 $ 1,729
Timber and timberlands, net 1,246 1,289 915
Property, plant and
equipment, net 3,691 3,723 3,048
Goodwill 91 101 92
Other assets 202 113 90
- -----------------------------------------------------------------
Total assets 7,059 1,118 5,874
- -----------------------------------------------------------------
Current liabilities 924 1,013 996
Long-term debt 2,336 2,514 1,298
Other long-term liabilities 241 168 156
Deferred income taxes 841 788 744
- -----------------------------------------------------------------
Total liabilities 4,342 4,483 3,194
- -----------------------------------------------------------------
Shareholders' equity $2,717 $2,635 $ 2,680
- -----------------------------------------------------------------
Working capital $ 905 $ 879 $ 733
- -----------------------------------------------------------------
Other statistical data
Property, plant and equipment
investments (including
acquisitions) $ 453 $1,115 $ 717
Property, plant and equipment
investments (excluding
acquisitions) 447 697 532
Timber & timberland purchases 179 577 215
- -----------------------------------------------------------------
Georgia-Pacific Corporation
Per share (through December 16, 1997)
Market price:High 62.00 42.88 52.75
Low 36.63 30.75 22.75
Period-end 48.50 36.88 34.50
Book value 31.35 27.79 25.59
Shares of stock outstanding at
year-end 86.7 94.8 104.7
- -----------------------------------------------------------------
Georgia-Pacific Group
Per share (December 17
through December 31)
Market price: High
Low
Year-end
Book value
Shares of stock outstanding at
year-end
- -----------------------------------------------------------------
The Timber Company
Per share (December 17
through December 31)
Market price: High
Low
Year-end
Book value
Shares of stock outstanding at
year-end
- -----------------------------------------------------------------
Total debt to capital,
book basis 40.1% 44.1% 31.4%
Total debt to capital,
market basis 37.7% 44.8% 31.2%
Current ratio 2.0 1.9 1.7
=================================================================
</TABLE>
* The financial position of Great Northern Nekoosa Corporation and its
subsidiaries has been included beginning March 1990.
SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------------
(In millions) 1997 1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales
Building products(2)
Wood panels $ 2,529 19%$ 2,666 21% $2,962 21% $ 3,159 25%
Lumber 2,510 19 2,398 18 2,251 16 2,556 20
Gypsum products 748 6 613 5 349 2 320 3
Chemicals 382 3 356 3 372 3 334 3
Other 1,317 10 1,332 10 1,367 9 1,192 9
- ---------------------------------------------------------------------
7,486 57 7,365 57 7,301 51 7,561 60
- ---------------------------------------------------------------------
Pulp and paper
Containerboard and
packaging 2,110 16 2,293 17 2,797 20 2,185 17
Communication
papers 1,506 12 1,521 12 1,961 14 1,310 10
Tissue 934 7 934 7 871 6 740 6
Market pulp 863 7 738 6 1,220 8 772 6
Paper distribution
and envelopes - - - - - - 35 -
Other 143 1 123 1 113 1 96 1
- ---------------------------------------------------------------------
5,556 43 5,609 43 6,962 49 5,138 40
- ---------------------------------------------------------------------
Other operations 52 - 50 - 50 - 39 -
- ---------------------------------------------------------------------
Continuing
operations $13,094 100% $13,024 100% $14,313 100% $12,738 100%
=====================================================================
Operating results(3, 4)
Building products $ 677 78% $ 516 56% $ 669 29% $ 1,013 83%
Pulp and paper 174 20 390 43 1,611 71 204 17
Other operations 18 2 8 1 10 - 10 -
- ---------------------------------------------------------------------
Continuing
operations $ 869 100%$ 914 100% $2,290 100% $ 1,227 100%
=====================================================================
<CAPTION>
Year ended December 31
---------------------------------------------------
(In millions) 1993 1992 1991 1990(1)
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales
Building products(2)
Wood panels $ 2,913 24%$ 2,543 22% $2,097 18% $ 2,296 18%
Lumber 2,672 22 2,055 17 1,819 16 1,966 16
Gypsum products 236 2 216 2 222 2 270 2
Chemicals 267 2 240 2 223 2 247 2
Other 979 8 1,058 9 1,044 9 1,144 9
- ---------------------------------------------------------------------
7,067 58 6,112 52 5,405 47 5,923 47
- ---------------------------------------------------------------------
Pulp and paper
Containerboard and
packaging 1,902 15 2,001 17 2,008 17 2,440 19
Communication
papers 1,195 10 1,070 9 1,134 10 1,360 11
Tissue 713 6 682 6 664 6 719 6
Market pulp 579 5 681 6 645 6 779 6
Paper distribution
and envelopes 748 6 1,208 10 1,218 10 1,027 8
Other 51 - 69 - 420 4 377 3
- ---------------------------------------------------------------------
5,188 42 5,711 48 6,089 53 6,702 53
- ---------------------------------------------------------------------
Other operations 32 - 24 - 30 - 40 -
- ---------------------------------------------------------------------
Continuing
operations $12,287 100% $11,847 100% $11,524 100% $12,665 100%
=====================================================================
Operating results
(3, 4)
Building products $ 973 126%$ 691 100% $ 504 47% $ 511 35%
Pulp and paper (213) (27) (8) (1) 546 51 939 64
Other operations 10 1 9 1 17 2 17 1
- ---------------------------------------------------------------------
Continuing
operations $ 770 100%$ 692 100% $1,067 100% $ 1,467 100%
=====================================================================
<CAPTION>
Year ended December 31
-----------------------------------
(In millions) 1989 1988 1987
- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales
Building products(2)
Wood panels $ 2,488 24% $ 2,442 26% $ 2,355 28%
Lumber 2,109 21 2,134 22 2,002 23
Gypsum products 299 3 305 3 361 4
Chemicals 253 3 241 2 189 2
Other 939 9 907 10 848 10
- ---------------------------------------------------------
6,088 60 6,029 63 5,755 67
- ---------------------------------------------------------
Pulp and paper
Containerboard and
packaging 1,578 15 1,433 15 1,246 15
Communication
papers 983 10 796 8 621 7
Tissue 679 7 590 6 539 6
Market pulp 728 7 533 6 314 4
Paper distribution
and envelopes - - - - - -
Other 74 1 84 1 90 1
- ---------------------------------------------------------
4,042 40 3,436 36 2,810 33
- ---------------------------------------------------------
Other operations 41 - 44 1 38 -
- ---------------------------------------------------------
Continuing
operations $10,171 100% $ 9,509 100% $ 8,603 100%
=========================================================
Operating results
(3, 4)
Building products $ 533 36% $ 428 41% $ 533 58%
Pulp and paper 917 63 616 58 383 41
Other operations 15 1 10 1 10 1
- ---------------------------------------------------------
Continuing
operations $ 1,465 100% $ 1,054 100% $ 926 100%
=========================================================
</TABLE>
(1) Sales and operating profits of Great Northern Nekoosa Corporation and its
subsidiaries have been included beginning on March 9, 1990.
(2) Building products sales include products manufactured by the Corporation
and products purchased and resold by the Corporation's distribution division.
The Timber Company's operating results are included in `Building products.''
(3) Operating results are before general corporate expenses, interest, cost of
accounts receivable sale program, income taxes, extraordinary items and
accounting changes.
(4) Segment operating results included a net $48 million pretax gain in 1997, a
net $117 million pretax expense in 1996, a net $70 million pretax expense in
1995, a net $57 million pretax gain in 1994, a net $26 million pretax loss in
1993, a net $344 million pretax gain in 1991 and a net $48 million pretax gain
in 1990 primarily resulting from asset divestitures and restructuring charges.
If these amounts had been excluded from segment operating profits, pulp and
paper operating profits would have been $410 million in 1996, $171 million in
1994, $(187) million in 1993, $362 million in 1991 and $979 million in 1990;
building products operating profits would have been $629 million in 1997, $613
million in 1996, $739 million in 1995, $989 million in 1994, $344 million in
1991 and $423 million in 1990.
OPERATING STATISTICS
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Production
As of December 31, 1997
- ---------------------------------------------------------------
Number of Annual
Facilities Capacity 1997 1996 1995
- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pulp and paper
Paper (t.tons)
Containerboard and packaging
Linerboard and medium 4 3,515 3,524 3,290 3,067
Other paperboard 6 719 582 611 576
Kraft paper 1 253 311 298 302
Communication papers 7 2,223 2,164 2,114 2,114
Tissue 5 611 580 618 616
Groundwood papers - - - - -
Market pulp,
shipments (t.tons) 6 2,070 2,177 2,029 1,871
- -------------------------------------------------------------
Total pulp and paper 29 9,391 9,338 8,960 8,546
Converting
Corrugated
packaging (t.tons) 36 2,721 2,175 2,408 2,373
Tissue (t.tons) 6 637 621 581 574
Other 11
- -------------------------------------------------------------
Total pulp, paper
and converting 82
=============================================================
Building products
Wood panels
Softwood plywood (3/8'')
(m.sq.ft.) 16 5,299 5,507 5,383 5,337
Oriented strand board
(3/8'')(m.sq.ft.) 6 1,681 1,580 1,416 1,104
Hardboard (1/8'')
(m.sq.ft.) 8 1,372 1,154 1,266 1,296
Particleboard (3/4'')
(m.sq.ft.) 8 1,198 1,078 1,276 1,145
Hardwood plywood (sm)
(m.sq.ft.) 2 630 453 433 429
Medium-density fiberboard
(3/4'')(m.sq.ft.) 3 382 323 173 84
Panelboard (1/8'')
(m.sq.ft.) 1 373 269 271 343
Softboard (1/2'')
(m.sq.ft.) 1 250 217 221 221
Lumber (m.bd.ft.) 39 2,674 2,490 2,518 2,430
Gypsum board (m.sq.ft.)** 20 6,307 5,888 4,942 2,754
Roofing-shingles
(t.squares)*** - - - - -
Formaldehyde (m.lbs.) 16 2,390 2,112 2,068 1,985
Thermosetting resins
(m.lbs.) 18 3,638 3,363 3,164 2,866
Other 19
- -------------------------------------------------------------
Total building products 157
- -------------------------------------------------------------
Other operations 2
- -------------------------------------------------------------
Total manufacturing 241
=============================================================
Distribution centers 73
=============================================================
Resources (as of December 31)
North American timberlands (t.acres)
Owned 5,459 5,682 5,663
Controlled 375 412 417
=============================================================
<CAPTION>
Production
1994 1993 1992 1991
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
Pulp and paper
Paper (t.tons)
Containerboard and packaging
Linerboard and medium 3,105 3,030 2,889 2,936
Other paperboard 614 567 526 522
Kraft paper 345 343 377 358
Communication papers 2,064 2,119 2,002 1,994
Tissue 586 594 576 556
Groundwood papers - - - 603
Market pulp,
shipments (t.tons) 1,977 1,940 1,829 1,793
- -------------------------------------------------------------
Total pulp and paper 8,691 8,593 8,199 8,762
Converting
Corrugated packaging
(t.tons) 2,327 2,065 1,917 1,816
Tissue (t.tons) 544 543 521 491
Other
- -------------------------------------------------------------
Total pulp, paper
and converting
=============================================================
Building products
Wood panels
Softwood plywood (3/8'')
(m.sq.ft.) 5,445 5,463 5,133 4,968
Oriented strand board (3/8'')
(m.sq.ft.) 1,028 1,045 1,011 851
Hardboard (1/8'')
(m.sq.ft.) 1,365 1,388 1,330 1,202
Particleboard (3/4'')
(m.sq.ft.) 1,190 1,089 977 932
Hardwood plywood (sm)
(m.sq.ft.) 448 477 458 424
Medium-density fiberboard
(3/4'')(m.sq.ft.) 95 98 92 79
Panelboard (1/8'')
(m.sq.ft.) 378 366 365 332
Softboard (1/2'') (m.sq.ft.) 241 247 234 237
Lumber (m.bd.ft.) 2,561 2,580 2,568 2,570
Gypsum board (m.sq.ft.)** 2,786 2,409 2,112 1,955
Roofing-shingles
(t.squares)*** 959 7,274 7,447 7,775
Formaldehyde (m.lbs.) 2,006 1,809 1,614 1,540
Thermosetting resins (m.lbs.) 2,926 2,761 2,571 2,377
Other
- -------------------------------------------------------------
Total building products
Other operations
- -------------------------------------------------------------
Total manufacturing
=============================================================
Distribution centers
=============================================================
Resources (as of December 31)
North American timberlands (t.acres)
Owned 5,732 5,821 5,942 5,969
Controlled 681 681 707 922
=============================================================
<CAPTION>
Production
1990* 1989 1988 1987
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
Pulp and paper
Paper (t.tons)
Containerboard and packaging
Linerboard and medium 3,139 1,419 1,297 1,318
Other paperboard 544 555 458 393
Kraft paper 354 350 356 348
Communication papers 1,780 1,161 970 868
Tissue 553 519 511 490
Groundwood papers 531 - - -
Market pulp,
shipments (t.tons) 1,667 1,194 870 718
- -------------------------------------------------------------
Total pulp and paper 8,568 5,198 4,462 4,135
Converting
Corrugated packaging
(t.tons) 2,225 1,258 1,270 1,205
Tissue (t.tons) 497 467 462 446
Other
- -------------------------------------------------------------
Total pulp, paper
and converting
=============================================================
Building products
Wood panels
Softwood plywood (3/8'')
(m.sq.ft.) 5,395 5,341 5,545 5,050
Oriented strand board
(3/8'')(m.sq.ft.) 969 873 793 652
Hardboard (1/8'') (m.sq.ft.) 1,203 1,203 1,198 1,159
Particleboard (3/4'')
(m.sq.ft.) 984 1,062 1,004 695
Hardwood plywood (sm)
(m.sq.ft.) 437 420 456 357
Medium-density fiberboard
(3/4'')(m.sq.ft.) 88 74 62 59
Panelboard (1/8'')
(m.sq.ft.) 344 318 330 295
Softboard (1/2'') (m.sq.ft.) 252 242 238 231
Lumber (m.bd.ft.) 2,674 2,426 2,324 1,956
Gypsum board (m.sq.ft.)** 2,309 2,403 2,406 2,620
Roofing-shingles
(t.squares)*** 7,674 8,106 7,155 6,976
Formaldehyde (m.lbs.) 1,547 1,454 1,394 1,309
Thermosetting resins (m.lbs.) 2,470 2,372 2,362 2,136
Other
- -------------------------------------------------------------
Total building products
Other operations
- -------------------------------------------------------------
Total manufacturing
=============================================================
Distribution centers
=============================================================
Resources (as of December 31)
North American timberlands (t.acres)
Owned 8,203**** 5,430 5,480 4,910
Controlled 1,047**** 670 1,010 670
=============================================================
</TABLE>
sm = surface measure basis
t = thousands
m = millions
The Corporation has 233 manufacturing facilities in the United States and eight
in Canada.
* The production of Great Northern Nekoosa facilities has been included
beginning on March 9, 1990.
** Domtar facilities production has been included beginning in April 1996.
*** Roofing operations were sold in February 1994.
**** Excludes 540,000 fee acres and 98,000 controlled acres of timberland sold
in January 1991.
INVESTOR INFORMATION
Georgia-Pacific Corporation and Subsidiaries
CORPORATE HEADQUARTERS
Georgia-Pacific Corporation
Georgia-Pacific Center, 133 Peachtree Street, N.E.,
Atlanta, Georgia 30303
The Timber Company
Post Office Box 105210
Atlanta, Georgia 30303
STOCK EXCHANGES AND SYMBOLS
Georgia-Pacific Group common stock and The Timber Company common stock are
listed on the New York Stock Exchange ("NYSE").
The Corporation's NYSE symbol for Georgia-Pacific Group common stock is
"GP"; the symbol for The Timber Comoany common stock is `TGP.''
G-P options are traded on the Philadelphia Stock Exchange.
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York
Post Office Box 2500
Jersey City, New Jersey 07303-2500
(800) 519-3111
SHAREHOLDER INFORMATION
For shareholder information, contact the Transfer Agent and Registrar, First
Chicago Trust Company of New York, at Post Office Box 2500, Jersey City, New
Jersey 07303-2500, or telephone (800) 519-3111.
Registered Georgia-Pacific Group and The Timber Company shareholders are
eligible to participate in the Georgia-Pacific Group Dividend Reinvestment Plan
and the Timber Group Dividend Reinvestment Plan, respectively. For information
on the Plans, contact the Plans' agent, First Chicago Trust Company of New York,
Post Office Box 2500, Jersey City, New Jersey 07303-2500, or by telephone at
(800) 414-6280.
Number of shareholders of record at December 31, 1997: 39,550. Number of The
Timber Company shareholders of record at December 31, 1997 is: 39,562
FINANCIAL INFORMATION
A copy of the Georgia-Pacific 1997 Annual Report to the Securities and Exchange
Commission on Form 10-K will be supplied without charge. Annual statistical
updates are also available. For current quarterly financial call (800) 340-2384.
Copies of corporate news releases are available through fax-on-demand by
telephoning (800) 758-5804, extension 357498. All other requests for financial
information should be directed to: Investor Relations, Georgia-Pacific
Corporation, P.O. Box 105605, Atlanta, Georgia 30348, or telephone (404) 652-
5555. Information concerning the company can also be found on the Internet at
http://www.gp.com.
Georgia-Pacific is an equal opportunity employer.
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
GEORGIA-PACIFIC GROUP
The Georgia-Pacific Group (the "Group") consists of all of Georgia-Pacific
Corporation's (the "Corporation") manufacturing mills and plants and its
building products distribution business. These include 81 facilities in the
United States and one in Canada manufacturing containerboard and packaging
materials, communication papers, market pulp, tissue and other products; 150
facilities in the United States and seven in Canada that manufacture lumber,
wood panels such as plywood, oriented strand board and industrial panels, gypsum
products, chemicals and other products; and a distribution organization that
operates a network of 73 sales centers, large distribution centers and smaller
local distribution centers throughout the United States. The accompanying
financial statements present the historical results of operations and financial
condition of the operations that compose the Group. The results of operations of
the Group have historically been, and are expected to continue to be, subject to
highly cyclical earnings patterns.
The Group also includes a procurement function that is responsible for
purchasing timber and wood fiber for all of the Group's manufacturing
facilities. Historically, approximately 25% of the Group's timber requirements
have been supplied by the Corporation's own timberlands, which now constitute
The Timber Company, and the remaining 75% have been supplied by unaffiliated
third parties.
As more fully described in Note 12 of the Notes to Combined Financial
Statements, the Group and The Timber Company have negotiated an operating policy
governing future sales of timber and wood fiber by The Timber Company to the
Group.
1997 COMPARED WITH 1996
The Georgia-Pacific Group reported net sales of $13.0 billion and a net loss of
$146 million for 1997, compared with net sales of $12.9 billion and net income
of $29 million in 1996. The 1997 results included a pretax gain of $14 million
from the sale of the Group's Martell, California, assets that included a sawmill
and a particleboard plant, and a $60 million one-time, after-tax charge for an
accounting change. The 1996 results included a net pretax charge of $39 million
primarily related to a voluntary early retirement program, and a pretax gain of
$39 million from the sale of two gypsum wallboard facilities. An extraordinary,
after-tax loss of $5 million was recorded in 1996 for the early retirement of
debt.
In 1996, the Corporation set a goal of improving its annual pretax earnings
by approximately $400 million through a three-year effort to reduce overhead
costs and improve efficiencies throughout the Corporation. The Group has
achieved about half of this cost reduction by eliminating work and the related
salaried positions. The Georgia-Pacific Group also expects to realize
significant efficiencies and cost savings from cost reduction efforts at its
manufacturing facilities.
Selling, general and administrative expense ("SG&A") was $1,137 million for
1997, compared with $1,354 million in 1996. The cost reduction is largely a
result of a voluntary early retirement program initiated in 1996 and overhead
reduction plans implemented in 1997.
The Georgia-Pacific Group reported a pretax loss of $118 million and an
income tax benefit of $32 million for the year ended December 31, 1997, compared
with pretax income of $88 million and an income tax provision of $54 million for
the year ended December 31, 1996. The effective tax rate used to calculate the
provision for income taxes for both years was higher than the statutory rates
used to calculate federal and state income taxes primarily because of
nondeductible goodwill amortization expense associated with past business
acquisitions.
In November 1997, the Financial Accounting Standards Board ("FASB") Emerging
Issues Task Force reached a consensus on Issue No. 97-13 ("EITF 97-13"),
"Accounting for Costs Incurred in Connection with a Consulting Contract or an
Internal Project that Combines Business Process Reengineering and Information
Technology Transformation." The Task Force consensus requires that the cost of
business process reengineering activities, whether done internally or by third
parties, be expensed as incurred. This applies when the business process
reengineering activities are part of a project to acquire, develop or implement
internal-use software. The adoption of EITF 97-13 resulted in a one-time, after-
tax charge of $60 million in the 1997 fourth quarter.
The remaining discussion refers to the "Selected Industry Segment Data"
table below.
SELECTED INDUSTRY SEGMENT DATA
<TABLE>
<CAPTION>
Year ended December 31
In millions, ---------------------
except per share amounts) 1997 1996 1995
- -------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
Building products $ 7,375 $ 7,260 $ 7,196
Pulp and paper 5,556 5,609 6,962
Other 37 32 37
- --------------------------------------------------------------
Total net sales $ 12,968 $ 12,901 $14,195
==============================================================
Operating Profits
Building products $ 238 $ 201 $ 395
Pulp and paper 174 390 1,611
Other 15 5 8
- --------------------------------------------------------------
Total operating profits 427 596 2,014
General corporate (164) (154) (156)
Interest expense (381) (354) (321)
(Provision) benefit
for income taxes 32 (54) (616)
- --------------------------------------------------------------
Income (loss) before
extraordinary item and
accounting change (86) 34 921
Extraordinary item,
net of taxes - (5) -
Cumulative effect of
accounting change,
net of taxes (60) - -
- --------------------------------------------------------------
Net income (loss) $ (146) $ 29 $ 921
==============================================================
</TABLE>
BUILDING PRODUCTS. The Georgia-Pacific Group's building products segment
reported net sales of $7.4 billion and operating profits of $238 million for
1997, compared with net sales of $7.3 billion and operating profits of $201
million for 1996. The 1997 results included unusual charges of $32 million
primarily related to asset write-downs, including closure of certain building
products facilities, as well as information systems write-offs. The 1997 results
also included $80 million in charges associated with the restructuring of the
distribution business. The 1996 results included charges of $19 million
primarily related to a voluntary early retirement program, a pretax gain of $39
million from the sale of two gypsum wallboard production facilities and $117
million of restructuring charges in the building products distribution division.
Return on sales increased to 3.2% in 1997 from 2.8% a year ago. A 10% increase
in lumber prices, combined with a 10% increase in gypsum prices, more than
offset approximately 22% lower prices for oriented strand board and an increase
in log costs.
Although the average price the Group has paid for timber has been stable
over the past three years, prices for softwood and hardwood sawtimber, which the
Group uses to make lumber and plywood, have increased. The Group expects prices
it pays for timber and wood fiber to increase in real terms over the foreseeable
future. The Group expects that in 1998 lumber prices will decrease from 1997
levels.
Operating losses for the Group's building products distribution division
were $166 million for 1997, compared with losses of $207 million in 1996. The
1997 results included restructuring charges of $80 million, compared with
restructuring charges of $117 million in 1996. Sales volumes were down 4% in
1997 compared with 1996.
Beginning in 1995 the Group's building products distribution division began
a restructuring program to change its organizational, logistical and information
systems to improve customer service, increase sales and reduce costs. As part of
this program, the division established two national sales centers and built a
number of large distribution triads and smaller bulk distribution centers, while
selling or closing a number of older distribution warehouses. The division
invested approximately $400 million for the acquisition and construction of
these new facilities (excluding proceeds from the sales of older facilities and
other assets) through December 31, 1997. However, sales volumes for the division
fell approximately 14% from the end of 1994 through the end of 1997, and it
incurred sharply higher operating costs. As a result, the division incurred
operating losses of $60 million, $207 million and $166 million in 1995, 1996 and
1997, respectively. These results included restructuring charges of $70 million,
$117 million and $80 million in 1995, 1996 and 1997, respectively.
In the fourth quarter of 1997 the distribution division finalized a further
restructuring plan to aggressively reduce its costs, focus on meeting customer
needs and return its business to profitability. As part of this plan, the
division will dispose of its millwork fabrication facilities nationwide, and a
number of distribution centers located in the Western United States. In the
fourth quarter of 1997 the Corporation recorded a $70 million restructuring
charge to provide for these actions. The distribution division is not expected
to be profitable in 1998, although it expects its operating loss to be
significantly smaller than in prior years. See Note 4 of the Notes to Combined
Financial Statements for additional information.
Selected financial and operating data for the building products distribution
business are shown in the table below.
SELECTED DISTRIBUTION DIVISION DATA
<TABLE>
<CAPTION>
Year ended December 31
------------------
(In millions) 1997 1996 1995
- ------------------------------------------------------------
<S> <C> <C> <C>
Sales $4,220 $4,407 $4,673
Operating loss (166) (207) (60)
Capital expenditures 44 224 132
Depreciation 48 45 23
- ------------------------------------------------------------
</TABLE>
PULP AND PAPER. The Georgia-Pacific Group's pulp and paper segment reported net
sales of $5.6 billion and operating profits of $174 million for 1997, compared
with net sales of $5.6 billion and operating profits of $390 million for 1996.
The 1997 results included unusual charges of $6 million for information systems
write-offs. The 1996 results included unusual expenses of $20 million primarily
related to the voluntary early retirement program referred to above. Return on
sales decreased to 3.1% for 1997 compared with 7.0% in 1996, primarily as a
result of substantially lower average prices for containerboard and packaging.
Compared with 1996, average prices were approximately 17% lower for
containerboard and approximately 12% lower for packaging. Average prices for the
other major paper grades were approximately the same as the comparable amounts
for 1996.
Prices for most of the Group's commodity paper products have been declining
since the fourth quarter of 1995. Some strengthening of prices in communication
papers and containerboard occurred in the fourth quarter of 1997, but at the
same time the Asian financial crisis resulted in a sharp drop in export orders
for pulp and a weakening in worldwide pulp prices. Historically, prices for all
of the Group's paper products have been highly volatile, and it is expected this
trend will continue.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Georgia-Pacific Group generated cash from operations
of $900 million during 1997. The Group's cash provided by operations in 1996 was
$1,047 million. The reduction is due primarily to lower net income in 1997.
INVESTING ACTIVITIES. Property, plant and equipment investments during 1997 were
$715 million, which included $440 million in the pulp and paper segment, $212
million in the building products segment and $63 million of general corporate
investments (primarily information systems). Investments in 1996 totaled $1.1
billion. The Georgia-Pacific Group expects to invest approximately $750 million
in 1998 without considering the cost of any acquisitions.
During 1997, the Georgia-Pacific Group received $107 million of proceeds
from sales of assets. This amount included $38 million of proceeds from the sale
of its Martell, California, assets on March 31, 1997. These Martell assets
included a sawmill and a particleboard plant. The Group also received proceeds
of approximately $45 million from the sale of distribution facilities and
equipment.
In the second quarter of 1996, the Georgia-Pacific Group purchased for $363
million the U.S. and Canadian gypsum operations of Domtar Inc. As part of its
agreement with the U.S. Department of Justice permitting the Domtar acquisition,
during the third quarter of 1996 the Group sold its gypsum wallboard plants at
Buchanan, New York, and Wilmington, Delaware, for approximately $60 million.
During 1997, the Georgia-Pacific Group invested $80 million for pollution
control and abatement. The Group's 1998 capital expenditure budget currently
includes approximately $115 million for environmental-related projects. Certain
other capital projects that are being undertaken for the primary reason of
improving financial returns or safety will also include expenditures for
pollution control.
The U.S. Environmental Protection Agency (the "EPA") has announced that it
will promulgate a set of technical provisions known as the "Cluster Rule" that
will establish new requirements for air emissions and wastewater discharges from
pulp and paper mills. The Georgia-Pacific Group estimates that capital
expenditures up to approximately $550 million will be made over the next eight
years in order to comply with the Cluster Rule's requirements. Of that total,
about $300 million will be needed within three years of the date of promulgation
of the Cluster Rule, which is expected to be in the first quarter of 1998. One
of the main components of the Cluster Rule is that pulp and paper mills use only
elemental chlorine free ("ECF") technology, which will require the complete
substitution of chlorine dioxide for elemental chlorine in the pulp bleaching
process. Approximately $165 million of the amounts required to be spent in the
next three years will go toward ECF conversion at mills located in Ashdown,
Arkansas; Crossett, Arkansas; Bellingham, Washington; Palatka, Florida; and
Woodland, Maine. The bulk of the remaining $135 million to be spent within the
next three years is for additional air emission controls at the Georgia-Pacific
Group's pulp and paper facilities.
FINANCING ACTIVITIES. At December 31, 1997 and 1996, the Corporation's total
debt was $5.5 billion and $5.9 billion, respectively. At December 31, 1997 and
1996, $4.5 billion and $4.6 billion, respectively, of such total debt was
Georgia-Pacific Group's debt, and $971 million and $1.3 billion, respectively,
was The Timber Company's debt. The debt of the Georgia-Pacific Group bears
interest at a rate equal to the weighted average rate of the Corporation's total
debt, calculated on a quarterly basis. The weighted average interest rate on the
Corporation's total debt at December 31, 1997 was 7.8% including outstanding
interest rate exchange agreements. In the future, the Georgia-Pacific Group's
debt will increase or decrease by the amount of any cash provided by or used for
its operating activities, investing activities, dividend payments, share
repurchases or issuances and other (nondebt-related) financing activities. See
Note 1 of the Notes to Combined Financial Statements for further discussion of
financial activities.
The amount of the Georgia-Pacific Group's debt and accounts receivable shown on
the balance sheet at December 31, 1996 does not include $350 million of proceeds
from the Group's accounts receivable sale program. That amount, although not
reflected on the balance sheet, was considered part of the Georgia-Pacific
Group's total debt at December 31, 1996, under the assumption that at the end of
the program the proceeds will be replaced by debt. In the 1997 first quarter,
the Georgia-Pacific Group adopted Statement of Financial Accounting Standards
("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." As a result, the Georgia-Pacific Group's
accounts receivable sale program is accounted for as a secured borrowing
effective January 1, 1997. The $280 million of receivables outstanding under the
program at December 31, 1997 and the corresponding debt are included as current
receivables and short-term debt, respectively, on the Georgia-Pacific Group's
balance sheet. The fees associated with the program are included in interest
expense for all years.
In conjunction with the sale of the Corporation's Martell, California,
operations and timberlands in March 1997, the Corporation received notes
receivable from the purchaser in the amount of $270 million. These notes are
included in "Other assets" on the Georgia-Pacific Group's balance sheet at
December 31, 1997. In April 1997, the Corporation monetized these notes
receivable through the issuance of notes payable in a private placement.
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
Georgia-Pacific Group's balance sheet.
At December 31, 1997, the Corporation had outstanding borrowings of $659 million
under certain industrial revenue bonds. Approximately $16 million from the
issuance of these bonds is being held by trustees and is restricted for the
construction of certain Georgia-Pacific Group capital projects, and $15 million
is held by trustees to refund a like amount of bonds maturing on January 2,
1998. Amounts held by trustees are classified as noncurrent assets on the
accompanying balance sheets.
The Corporation has a $1.5 billion unsecured revolving credit facility that
is used for direct borrowings and as support for commercial paper and other
short-term borrowings. As of December 31, 1997, $879 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, options 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.
The Corporation does not utilize derivatives for speculative purposes.
Derivatives are transaction-specific so that a specific debt instrument,
contract or invoice 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.
The table below presents principal (or notional) amounts and related
weighted average interest rates by year of expected maturity for the
Corporation's debt obligations. For obligations with variable interest rates,
the table sets forth payout amounts based on current rates and does not attempt
to project future interest rates.
<TABLE>
<CAPTION>
(In millions) 1998 1999 2000 2001
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt
Commercial paper and other
short-term notes - - - -
Average interest rates - - - -
Notes and debentures $ 817 - - -
Average interest rates 8.0% - - -
Revenue bonds $ 36 $ 9 $ 16 $ 1
Average interest rates 4.3% 4.5% 4.4% 6.5%
Other loans - - $ 13 -
Average interest rates - - 7.9% -
Accounts receivable sale program - - - -
Average interest rates - - - -
Notional principal amount of
interest rate exchange
agreements $ 320 $ 56 $ 100 -
Average interest rate paid
(fixed) 9.4% 8.8% 8.4% -
Average interest rate received
(variable) 5.8% 5.7% 5.9% -
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Fair value
December 31,
(In millions) 2002 Thereafter Total 1997
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt
Commercial paper and other
short-term notes - $ 621 $ 621 $ 621
Average interest rates - 6.4% 6.4% 6.4%
Notes and debentures $ 300 $2,600 $3,717 $4,055
Average interest rates 10.0% 8.7% 8.7% 8.7%
Revenue bonds $ 75 $ 522 $ 659 $ 637
Average interest rates 5.0% 5.0% 4.9% 4.9%
Other loans - - $ 13 $ 13
Average interest rates - - 7.9% 7.9%
Accounts receivable sale program - $ 280 $ 280 $ 280
Average interest rates - 6.1% 6.1% 6.1%
Notional principal amount of
interest rate exchange
agreements - - $ 476 $ 10
Average interest rate paid
(fixed) - - 9.0% 9.0%
Average interest rate received
(variable) - - 5.8% 5.8%
- ------------------------------------------------------------
</TABLE>
The Corporation has the intent and ability to refinance commercial paper, other
short-term notes and the accounts receivable sale program as they mature.
Therefore, maturities of these obligations are reflected as cash flows expected
to be made after 2002.
At December 31, 1997, the Corporation had interest rate exchange agreements
that effectively converted $476 million of floating rate obligations with a
weighted average interest rate of 5.8% to fixed rate obligations with an average
effective interest rate of approximately 9.0%. These agreements increased
interest expense by $16 million, $17 million and $20 million for the three years
ended December 31, 1997, 1996 and 1995, respectively. These agreements have a
weighted average maturity of approximately 1.1 years. As of December 31, 1997,
the Corporation's total floating rate debt exceeded related interest rate
exchange agreements by $1.3 billion.
The Corporation also enters into foreign currency exchange agreements, the
amounts of which were not material to the financial position of the Group at
December 31, 1997.
As of December 31, 1997, 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.
The Corporation's Board of Directors (the "Board") has adopted a policy that
earnings and cash flow generated from the businesses of the Georgia-Pacific
Group or The Timber Company will be used only for reinvestment in the business
of the group generating such earnings and related cash flows; for repayment of
its debt; or for payment of dividends on, or the repurchase of shares of, the
class of common stock reflecting such group's performance. Funds of one group
will not be loaned to or otherwise invested in the business of the other group.
In September 1997, the Board authorized management to make purchases of
Georgia-Pacific Group stock on the open market or in private transactions so
long as the Georgia-Pacific Group's total debt remains below $4.5 billion and
the Corporation's total debt remains below $5.5 billion. Depending on operating
and financial considerations, debt levels of the Corporation and the Georgia-
Pacific Group may from time to time be above or below these thresholds.
During the year ended December 31, 1997, the Corporation purchased 358,400
shares of Georgia-Pacific Group stock at an aggregate price of $22 million on
the open market.
In January 1998, the Board increased the share repurchase threshold to allow
purchases of Georgia-Pacific Group stock so long as the Group's total debt
remains below $4.75 billion and the Corporation's total debt remains below $5.75
billion. The increase reflects growth in the Group's total asset base since the
original target was established.
Subsequent to year-end 1997 through February 6, 1998, the Corporation
purchased 268,000 shares of Georgia-Pacific Group stock at an aggregate price of
$16 million on the open market.
In 1998, the Georgia-Pacific Group expects its cash flow from operations,
together with proceeds from any sales of assets and available financing sources,
to be sufficient to fund planned capital investments, pay dividends and make
scheduled debt repayments.
OTHER. The Georgia-Pacific Group employs approximately 46,000 people. The
majority are members of unions. The Georgia-Pacific Group considers its
relationship with its employees to be good. Forty union contracts are subject to
negotiation and renewal in 1998, including four at large paper facilities.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
specifies the computation, presentation and disclosure requirements for earnings
per share. The Georgia-Pacific Group adopted SFAS No. 128 in the 1997 fourth
quarter. The per share amounts reported under SFAS No. 128 are not materially
different from those calculated and presented under APB Opinion No. 15.
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 in a full set of general purpose financial statements.
The Georgia-Pacific Group will be required to adopt SFAS No. 130 in 1998.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." SFAS No. 131 requires companies to
determine reporting segments based on the manner in which 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 Georgia-Pacific Group will be required to adopt SFAS No. 131 in 1998; prior
period information will be restated. Management is evaluating the effect of SFAS
No. 131 on reported segment information.
The Georgia-Pacific Group expects to incur significant costs during the next
two years to address the impact of the so-called Year 2000 problem on its
information systems. The Year 2000 problem, which is common to most businesses,
concerns the inability of information systems, primarily computer software
programs, to properly recognize and process date-sensitive information on and
beyond January 1, 2000. The 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 operations. The incremental costs of the Year 2000
project are estimated to be between $55 million and $145 million. These costs
will be expensed as incurred, unless new software is purchased that will be
capitalized in accordance with the Corporation's policy. Such costs may be
material to the Group's results of operations in one or more fiscal quarters or
years, but will not have a material adverse impact on the long-term results of
operations, liquidity or financial position of the Georgia-Pacific Group.
For a discussion of commitments and contingencies refer to Note 11 of the
Notes to Combined Financial Statements.
Refer to the "Cautionary Statement for Purposes of the 'Safe Harbor' Provisions
of the Private Securities Litigation Reform Act of 1995" on page 36 of this
annual report.
1996 COMPARED WITH 1995
The Georgia-Pacific Group reported net sales of $12.9 billion and net income of
$29 million for 1996, compared with net sales of $14.2 billion and net income of
$921 million in 1995. The 1996 results included net unusual pretax expenses of
$117 million. The unusual items included charges of $39 million primarily
related to a voluntary early retirement program, a pretax gain of $39 million
from the sale of two gypsum wallboard facilities and $117 million of
restructuring charges resulting from a project to change and improve certain
processes in the Group's building products distribution division. Net income in
1996 also included an extraordinary, after-tax loss of $5 million for the early
retirement of debt.
Costs associated with the three-year program to reduce overhead costs and
improve efficiencies throughout the Georgia-Pacific Group were $39 million in
1996. This amount included the cost of a voluntary early retirement program and
severance expenses for the elimination of certain salaried positions. This net
$39 million expense included expenses of $74 million in the first six months of
1996 primarily related to the accrual of additional retirement benefits, less
income of $35 million in the second half of 1996 primarily resulting from a gain
recognized upon the settlement of pension obligations to early retirees.
The Georgia-Pacific Group reported income before income taxes of $88 million
and a tax provision of $54 million for the year ended December 31, 1996,
compared with pretax income of $1,537 million and an income tax provision of
$616 million for the year ended December 31, 1995. The effective tax rate used
to calculate the provision for income taxes for both years was higher than the
statutory rates used to calculate federal and state income taxes primarily
because of nondeductible goodwill amortization expense associated with past
business acquisitions.
BUILDING PRODUCTS. The Georgia-Pacific Group's building products segment
reported net sales of $7.3 billion and operating profits of $201 million for
1996, compared with net sales of $7.2 billion and operating profits of $395
million in 1995. The 1996 results included net unusual expenses of $97 million.
The unusual items included charges of $19 million primarily related to a
voluntary early retirement program, an unusual pretax gain of $39 million from
the sale of two gypsum wallboard facilities and $117 million of restructuring
charges in the building products distribution division, discussed above. Return
on sales decreased to 2.8% in 1996 from 5.5% in 1995. Excluding unusual items,
return on sales decreased to 4.1% in 1996 from 6.5% in 1995. A 9% increase in
lumber prices combined with a 4% decrease in log costs, and increased gypsum
volumes, were more than offset by approximately 16% lower prices for structural
panels.
Operating losses for the Georgia-Pacific Group's building products
distribution division increased by $147 million from 1995. Lower operating
margins accounted for most of the decline, while costs associated with the
restructuring of the division increased to $117 million in 1996 compared with
$70 million in 1995.
Selected financial and operating data for the division are shown in the
"Selected Distribution Division Data" table above.
PULP AND PAPER. The Georgia-Pacific Group's pulp and paper segment reported net
sales of $5.6 billion and operating profits of $390 million for 1996, compared
with net sales of $7.0 billion and operating profits of $1,611 million in 1995.
The 1996 results included unusual expenses of $20 million primarily related to a
voluntary early retirement program. Return on sales decreased to 7.0% in 1996
(7.3% excluding unusual expenses) compared with 23.1% in 1995, primarily as a
result of substantially lower prices for most of the Group's pulp and paper
products. Compared with 1995, prices were 45% lower for market pulp, 33% lower
for containerboard and 24% lower for communication papers. Tissue prices
improved approximately 6%.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of
Directors of Georgia-Pacific Corporation:
We have audited the accompanying combined balance sheets of the Georgia-
Pacific Corporation - Georgia-Pacific Group (as described in Note 1) as of
December 31, 1997 and 1996 and the related combined statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Georgia-Pacific
Corporation - Georgia-Pacific Group as of December 31, 1997 and 1996 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
As explained in Note 1 of the Notes to Combined Financial Statements,
effective December 31, 1997, the Georgia-Pacific Group changed its method of
accounting for business process reengineering costs incurred as part of a
project to acquire, develop, or implement internal-use software.
Arthur Andersen LLP
Atlanta, Georgia
February 6, 1998
COMBINED STATEMENTS OF INCOME
Georgia-Pacific Corporation--Georgia-Pacific Group
<TABLE>
<CAPTION>
Year ended December 31
---------------------
(In millions, except per
share amounts) 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Net sales $12,968 $ 12,901 $14,195
- ---------------------------------------------------------------
Costs and Expenses
Cost of sales, excluding
depreciation and cost of
timber harvested shown below
The Timber Company 425 424 375
Third parties 10,247 9,801 9,763
- ---------------------------------------------------------------
Total cost of sales 10,672 10,225 10,138
- ---------------------------------------------------------------
Selling, general and
administrative 1,137 1,354 1,328
Depreciation and cost of timber
harvested 910 880 871
Interest 381 354 321
Other (income) (14) - -
- ---------------------------------------------------------------
Total costs and expenses 13,086 12,813 12,658
- ---------------------------------------------------------------
Income (loss) before income taxes,
extraordinary item and
accounting change (118) 88 1,537
Provision (benefit)
for income taxes (32) 54 616
- ---------------------------------------------------------------
Income (loss) before
extraordinary item and
accounting change (86) 34 921
Extraordinary item - loss
from early retirement of
debt, net of taxes - (5) -
Cumulative effect of
accounting change,
net of taxes (60) - -
- ---------------------------------------------------------------
Net income (loss) $ (146) $ 29 $ 921
===============================================================
Basic and diluted per share:
Loss before accounting change $ (.94)
Cumulative effect of
accounting change,
net of taxes (.66)
- ---------------------------------------------------------------
Net loss $(1.60)
===============================================================
Average number of shares
outstanding, basic and
diluted 91.4
===============================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
COMBINED STATEMENTS OF CASH FLOWS
Georgia-Pacific Corporation--Georgia-Pacific Group
<TABLE>
<CAPTION>
Year ended December 31
----------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating
activities
Net income (loss) $(146) $ 29 $ 921
Adjustments to reconcile net income
to cash provided by operations:
Depreciation 785 761 702
Cost of timber harvested 125 119 169
Deferred income taxes 34 11 35
Amortization of goodwill 59 59 59
Stock compensation programs - 20 20
Other income (14) (39) -
Cumulative effect of
accounting change, net
of taxes 60 - -
(Gain) loss on sales of assets 9 (1) (6)
Change in other working capital 18 75 (575)
Change in other assets and other
long-term liabilities (30) 13 80
- ---------------------------------------------------------------
Cash provided by operations 900 1,047 1,335
- ---------------------------------------------------------------
Cash flows from investing
activities
Property, plant and equipment
investments (715) (1,055) (1,253)
Timber contract purchases (131) (94) (182)
Acquisition - (363) -
(Increase) decrease in cash
restricted for capital
expenditures (5) 84 (90)
Proceeds from sales of assets 107 105 35
Other (14) (11) 1
- ---------------------------------------------------------------
Cash used for investing activities (758) (1,334) (1,489)
- ---------------------------------------------------------------
Cash flows from financing
activities
(Repayments of)
additions to debt (70) 373 218
Cash dividends paid (92) (91) (86)
Other 18 4 (20)
- ---------------------------------------------------------------
Cash (used for) provided by
financing activities (144) 286 112
- ---------------------------------------------------------------
Decrease in cash (2) (1) (42)
Balance at beginning of year 10 11 53
- ---------------------------------------------------------------
Balance at end of year $ 8 $ 10 $ 11
===============================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
COMBINED BALANCE SHEETS
Georgia-Pacific Corporation--Georgia-Pacific Group
<TABLE>
<CAPTION>
December 31
------------------
(In millions) 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash $ 8 $ 10
- ---------------------------------------------------------------
Receivables, less allowances
of $13 and $10, respectively 1,368 957
- ---------------------------------------------------------------
Taxes receivable 61 -
- ---------------------------------------------------------------
Inventories
Raw materials 396 412
Finished goods 878 966
Supplies 293 293
LIFO reserve (212) (206)
- ---------------------------------------------------------------
Total inventories 1,355 1,465
- ---------------------------------------------------------------
Deferred income tax assets 67 129
- ---------------------------------------------------------------
Other current assets 52 50
- ---------------------------------------------------------------
Total current assets 2,911 2,611
- ---------------------------------------------------------------
Timber contracts 71 58
- ---------------------------------------------------------------
Property, plant and equipment
Land and improvements 425 408
Buildings 1,310 1,352
Machinery and equipment 11,973 11,601
Construction in progress 364 302
- ---------------------------------------------------------------
Property, plant and
equipment, at cost 14,072 13,663
Accumulated depreciation (7,795) (7,128)
- ---------------------------------------------------------------
Total property, plant and
equipment, net 6,277 6,535
- ---------------------------------------------------------------
Goodwill 1,599 1,658
- ---------------------------------------------------------------
Other assets 921 630
- ---------------------------------------------------------------
Total assets $ 11,779 $11,492
===============================================================
<CAPTION>
December 31
-----------------
1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities
Short-term debt $ 1,462 $ 922
Accounts payable 639 661
Accrued compensation 207 196
Accrued interest 83 85
Other current liabilities 307 336
- ---------------------------------------------------------------
Total current liabilities 2,698 2,200
- ---------------------------------------------------------------
Long-term debt, excluding
current portion 3,057 3,340
- ---------------------------------------------------------------
Other long-term liabilities 1,542 1,272
- ---------------------------------------------------------------
Deferred income tax liabilities 959 987
- ---------------------------------------------------------------
Commitments and contingencies
Shareholders' equity 3,523 3,693
- ---------------------------------------------------------------
Total liabilities
and shareholders' equity $ 11,779 $11,492
===============================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
Georgia-Pacific Corporation--Georgia-Pacific Group
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Shareholders' equity balance,
beginning of year $3,693 $3,726 $2,837
Net income (loss) (146) 29 921
Cash dividends paid (92) (91) (86)
Other 68 29 54
- ---------------------------------------------------------------
Shareholders' equity balance,
end of year $3,523 $3,693 $3,726
===============================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. Georgia-Pacific Corporation, a Georgia corporation (the
"Corporation"), is broadly engaged in two lines of business: the manufacture and
sale of a wide variety of pulp and paper products (including pulp, communication
papers, containerboard, packaging and tissue products) and manufactured building
products (including plywood, oriented strand board, various industrial wood
products, and softwood and hardwood lumber as well as certain nonwood products
including gypsum board and chemicals); and the growing of timber and wood fiber
on the approximately 5.8 million acres of timberlands that the Corporation owns
or leases. In 1997, these timberlands supplied approximately 25% of the overall
timber and wood fiber requirements of the Corporation's manufacturing
facilities.
On December 16, 1997, shareholders of the Corporation approved the creation
of two classes of common stock intended to reflect separately the performance of
the Corporation's manufacturing and timber businesses (the "Letter Stock
Recapitalization"). The Corporation's Articles of Incorporation (the "Articles")
were amended and restated (the "Restated Articles") to (i) create a new class of
stock designated as Georgia-Pacific Corporation -Timber Group common stock, 80
cents par value per share ("The Timber Company stock"), consisting of 250
million authorized shares; (ii) redesignate each authorized share of the
Corporation's common stock, 80 cents par value per share (the "Existing Common
Stock") as, and convert each share into, one share of Georgia-Pacific
Corporation - Georgia-Pacific Group common stock, 80 cents par value per share
(the "Georgia-Pacific Group stock"); (iii) increase the number of shares of
Georgia-Pacific Group stock authorized for issuance from 150 million shares to
400 million shares; and (iv) authorize the distribution of one share of The
Timber Company stock for each outstanding share of Georgia-Pacific Group stock
(the "Distribution").
The Corporation's manufacturing and timber businesses are referred to
hereinafter as the "Georgia-Pacific Group" and "The Timber Company,"
respectively, or collectively as the "groups."
The Georgia-Pacific Group is a manufacturer and distributor of building
products as well as a producer of pulp and paper products. The Georgia-Pacific
Group includes a procurement function that is responsible for purchasing timber
and wood fiber for all of the Group's manufacturing facilities. The Timber
Company is engaged primarily in the growing and selling of timber.
The Corporation has presented financial statements of the groups at
substantially the same level of detail as those of the Corporation to allow
investors to properly evaluate the financial condition and results of operations
of each business. It is the Corporation's expectation that investors will use
the groups' combined financial information in conjunction with the Corporation's
consolidated financial information to assist them in making informed financial
decisions relative to the acquisition or disposition of shares of each class of
stock.
The financial statements of the groups compose all of the accounts included
in the corresponding consolidated financial statements of the Corporation. The
separate financial statements of the Georgia-Pacific Group and The Timber
Company have been prepared on a basis that management believes to be reasonable
and appropriate and include (i) the historical balance sheets, results of
operations and cash flows for each of the groups, with all significant
intragroup transactions and balances eliminated; (ii) in the case of The Timber
Company's financial statements, assets and liabilities of the Corporation and
related transactions identified with The Timber Company, including allocated
portions of the Corporation's debt and SG&A; and (iii) in the case of the
Georgia-Pacific Group's financial statements, all other assets and liabilities
and related transactions of the Corporation, including allocated portions of the
Corporation's debt and SG&A. Intergroup timber sales between the Georgia-Pacific
Group and The Timber Company have not been eliminated in either group's
financial statements.
Notwithstanding the allocation of assets and liabilities (including
contingent liabilities) and shareholders' equity between the Georgia-Pacific
Group and The Timber Company for the purpose of preparing the respective
financial statements of each group, holders of Georgia-Pacific Group stock and
The Timber Company stock are shareholders of the Corporation and will continue
to be subject to all of the risks associated with an investment in the
Corporation and all of its businesses, assets and liabilities. The allocation of
assets and liabilities and change in the equity structure of the Corporation
resulting from the Letter Stock Recapitalization did not result in a transfer or
spin-off of any assets or liabilities of the Corporation, or otherwise affect
ownership of any assets or responsibility for the liabilities of the Corporation
or any of its subsidiaries. As a result, the Letter Stock Recapitalization does
not affect the rights of holders of the Corporation's or any of its
subsidiaries' debt.
Holders of Georgia-Pacific Group stock and The Timber Company stock have
only the rights customarily held by common shareholders of the Corporation and
do not have any rights related to their corresponding group except as set forth
in provisions relating to dividend and liquidation rights and requirements for a
mandatory dividend, redemption or conversion upon the disposition of assets of
their corresponding group, or have any right to vote on matters as a separate
voting group other than in limited circumstances as provided under Georgia law
or by stock exchange rules. The relative voting power of Georgia-Pacific Group
stock and The Timber Company stock will fluctuate from time to time, with each
share of Georgia-Pacific Group stock having one vote and each share of The
Timber Company stock having a number of votes based upon the ratio, over a
specified period prior to any shareholder vote, of the time-weighted average
market values of one share of The Timber Company stock and of one share of
Georgia-Pacific Group stock. This formula is intended to give each class of
common stock a number of votes proportionate to its aggregate market
capitalization at the time of any vote. Accordingly, changes in the market value
of Georgia-Pacific Group stock and The Timber Company stock will affect their
relative voting rights. As of December 31, 1997, the holders of Georgia-Pacific
Group stock had a substantial majority of the voting power of the Corporation.
Financial effects arising from either group that affect the Corporation's
results of operations or financial condition could, if significant, affect the
results of operations or financial condition of the other group and the market
price of the common stock relating to the other group. Any net losses of the
Georgia-Pacific Group or The Timber Company and dividends or distributions on,
or repurchases of, Georgia-Pacific Group stock or The Timber Company stock will
reduce the assets of the Corporation legally available for payment of dividends
on both Georgia-Pacific Group stock and The Timber Company stock.
The Board may, in its sole discretion, determine to convert shares of the
class of common stock related to one group into the class of the common stock
related to the other group at any time at a 15% premium, or at a 10% premium in
the case of certain dispositions of all or substantially all of the properties
or assets of the group whose stock is being converted. Any conversion at any
premium would dilute the interests in the Corporation of the holders of the
class of common stock being issued in the conversion. In addition, any such
conversion of a class of common stock into another class of common stock would
preclude holders of both classes of common stock from retaining their investment
in a security that is intended to reflect separately the performance of the
relevant group.
The management and accounting policies applicable to the preparation of the
financial statements of the Georgia-Pacific Group and The Timber Company may be
modified or rescinded, or additional policies may be adopted, at the sole
discretion of the Board at any time without approval of the shareholders.
The Georgia-Pacific Group's combined financial statements reflect the
application of the management and allocation policies adopted by the Board to
various corporate activities, as described below. 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.
FINANCIAL ACTIVITIES. At June 30, 1997, $1.0 billion of the Corporation's total
debt was allocated to The Timber Company for financial statement purposes, and
the balance of the Corporation's total debt was allocated to the Georgia-Pacific
Group. For periods ended prior to June 30, 1997, the amount of debt on the
respective balance sheets was adjusted to reflect debt repayments or additions
as reported on the accompanying statements of cash flows for the groups between
those dates and June 30, 1997. The Corporation's debt was allocated between the
groups based upon a number of factors including expected future cash flow,
volatility of earnings, and the ability to pay debt service and dividends. In
addition, the Corporation considered certain measures of creditworthiness, such
as coverage ratios and various tests of liquidity, as a means of ensuring that
each group could continue to pay debt service during a business downcycle.
Management believes that such allocation is equitable and reasonable.
At December 31, 1997, $971 million of the Corporation's debt was The Timber
Company's and $4.5 billion was the Georgia-Pacific Group's. The Corporation has
not allocated specific debt securities or instruments to either group. The debt
of each group bears interest at a rate equal to the weighted average interest
rate of all of the Corporation's debt calculated on a quarterly basis. Expenses
related to the debt are reflected in the weighted average interest rate.
Management believes that this method of allocation of the cost of debt is
equitable and provides a reasonable estimate of the cost attributable to the
groups.
Each group's debt will increase or decrease by the amount of any net cash
generated by, or required to fund, the group's operating activities, investing
activities, dividend payments, share repurchases and other financing activities.
Interest will be charged to each group in proportion to the respective amount of
each group's debt. Changes in the cost of the Corporation's debt will be
reflected in adjustments to the weighted average interest cost of such debt.
Dividend costs with respect to any preferred stock issued by the Corporation
will be charged in a similar manner.
ALLOCATION OF SHARED SERVICES. A portion of the Corporation's shared SG&A (such
as executive management, human resources, legal, accounting and auditing, tax,
treasury, strategic planning, information systems support and environmental
services) has been allocated to the Georgia-Pacific Group based upon
identification of such services specifically used by the Georgia-Pacific Group.
Where determinations based on specific usage alone have been impracticable,
other methods and criteria were used that management believes are equitable and
provide a reasonable estimate of the cost attributable to the Georgia-Pacific
Group. These methods consisted of allocating costs based on (i) number of
employees of each group, (ii) percentage of office space of each group and (iii)
estimated percentage of staff time allocable to each group. The total of these
allocations was $339 million, $352 million and $307 million in 1997, 1996 and
1995, respectively. It is not practicable to provide a detailed estimate of the
expenses that would be recognized if the Georgia-Pacific Group were a separate
legal entity.
ALLOCATION OF EMPLOYEE BENEFITS. A portion of the Corporation's employee
benefit costs, including pension and postretirement health care and life
insurance benefits, has been allocated to the Georgia-Pacific Group. The
Georgia-Pacific Group's pension cost related to its participation in the
Corporation's noncontributory defined benefit pension plan, and other employee
benefit costs related to its participation in the Corporation's postretirement
health care and life insurance plans, are actuarially determined based on the
number of its employees and an allocable share of the plan assets and are
calculated in accordance with SFAS No. 87 and SFAS No. 106, respectively.
Management believes such method of allocation is equitable and provides a
reasonable estimate of the cost attributable to the Georgia-Pacific Group.
Since plan assets are not segregated into separate accounts or restricted to
providing benefits to employees of the Georgia-Pacific Group, assets of the
Corporation's employee benefit plans may be used to provide benefits to
employees of both the Georgia-Pacific Group and The Timber Company. Plan assets
have been allocated to the Georgia-Pacific Group based on the percentage of its
projected benefit obligation to the plans' total projected benefit obligations.
The discussion of the Georgia-Pacific Group's retirement plans (Note 9 of
the Notes to Combined Financial Statements) should be read in conjunction with
the Corporation's consolidated financial statements and notes thereto.
ALLOCATION OF FEDERAL AND STATE INCOME TAXES. The federal income taxes of the
Corporation and the subsidiaries that own assets allocated between the groups
are determined on a consolidated basis. Consolidated federal income tax
provisions and related tax payments or refunds are allocated between the groups
based principally on the taxable income and tax credits directly attributable to
each group. Such allocations reflect each group's contribution (positive or
negative) to the Corporation's consolidated federal taxable income and the
consolidated federal tax liability and tax credit position. Tax benefits that
cannot be used by the group generating those benefits but can be used on a
consolidated basis are credited to the group that generated such benefits. Had
the groups filed separate tax returns, the provision for income taxes and net
income for each group would not have differed from the amounts reported on the
groups' statements of income for the years ended December 31, 1997, 1996 and
1995. However, the amounts of current and deferred taxes and taxes payable or
refundable allocated to each group on the historical financial statements may
differ from those that would have been allocated had the groups filed separate
income tax returns.
Depending on the tax laws of the respective jurisdictions, state and local
income taxes are calculated on either a consolidated or combined basis or on a
separate corporation basis. State income tax provisions and related tax payments
or refunds determined on a consolidated or combined basis are allocated between
the groups based on their respective contributions to such consolidated or
combined state taxable incomes. State and local income tax provisions and
related tax payments that are determined on a separate corporation basis are
allocated between the groups in a manner designed to reflect the respective
contributions of the groups to the Corporation's separate state or local taxable
income.
The discussion of the Georgia-Pacific Group's income taxes (Note 8 of the
Notes to Combined Financial Statements) should be read in conjunction with the
Corporation's consolidated financial statements and notes thereto.
DIVIDENDS. For purposes of the historical financial statements of the Georgia-
Pacific Group and The Timber Company, all dividends declared and paid by the
Corporation were evenly allocated between the groups. Management believes that
such method of allocation is equitable and provides a reasonable estimate of the
dividends that would have been declared and paid in respect of each class of
common stock. The amount of earnings available for payment of dividends on the
Georgia-Pacific Group stock and on The Timber Company stock (i.e., the available
dividend amounts) on any date is the amount in excess of the minimum amount
necessary for the particular group to be able to pay its debts as they become
due in the usual course of business. Future dividends will not bear a direct
relationship to earnings and retained earnings as expressed on each group's
combined financial statements in accordance with generally accepted accounting
principles. Accordingly, a mathematical calculation of the available dividend
amount for either group cannot be made.
REVENUE RECOGNITION. The Georgia-Pacific Group recognizes revenue when title to
the goods sold passes to the buyer, which is generally at the time of shipment.
INCOME PER SHARE. Basic earnings per share are computed based on net income and
the weighted average number of common shares outstanding. Diluted earnings per
share reflect the assumed 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. Income per share for each group is
reflected on a pro forma basis for 1997 as if the Letter Stock Recapitalization
had occurred on January 1, 1997. Amounts are computed for each class of common
stock based on the separate earnings attributed to each of the respective
businesses. Income per share is omitted from the statements of income for the
years ended December 31, 1996 and 1995 because the Georgia-Pacific Group stock
was not part of the capital structure of the Corporation.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
specifies the computation, presentation and disclosure requirements for earnings
per share ("EPS"). The Georgia-Pacific Group adopted SFAS No. 128 in the 1997
fourth quarter. The per share amounts reported under SFAS No. 128 are not
materially different from those calculated and presented under APB Opinion No.
15.
Georgia-Pacific Corporation--Georgia-Pacific Group
<TABLE>
<CAPTION>
(In millions, Year ended December 31,
except shares and per share amounts) 1997
- ---------------------------------------------------------------
<S> <C>
Basic and diluted income (loss) available
to shareholders (numerator):
Income (loss) before accounting change $(86)
Accounting change, net of taxes (60)
- ---------------------------------------------------------------
Net income (loss) $(146)
===============================================================
Shares (denominator):
Average shares outstanding 91,430,440
Dilutive securities:
Options -*
Employee Stock Purchase Plans -*
- ---------------------------------------------------------------
Total assuming conversion 91,430,440
===============================================================
Per share amounts:
Basic and diluted
Income (loss) before accounting change $(.94)
Accounting change, net of taxes (.66)
- ---------------------------------------------------------------
Net income (loss) $(1.60)
===============================================================
</TABLE>
*Options to purchase 5,355,477 shares of Georgia-Pacific Group stock at various
per share amounts were outstanding during 1997, as well as shares subscribed
under the 1997 Employee Stock Purchase Plan. However, due to operating losses,
these shares are antidilutive and are not included in the calculation of diluted
EPS.
INVENTORY VALUATION. Inventories are valued at the lower of average cost or
market and include the costs of materials, labor and manufacturing overhead. The
last-in, first-out ("LIFO") dollar value pool method was used to determine the
cost of approximately 59% and 57% of inventories at December 31, 1997 and 1996,
respectively.
TIMBER CONTRACTS. The Georgia-Pacific Group capitalizes purchases of standing
timber related to its timber and wood fiber procurement function, and does not
purchase timberland. The cost of timber harvested is calculated by individual
tract and is based on the volume of timber harvested and the capitalized cost.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are recorded at
cost. Lease obligations for which the Georgia-Pacific Group assumes or retains
substantially all the property rights and risks of ownership are capitalized.
Replacements of major units of property are capitalized, and the replaced
properties are retired. Replacements of minor components of property, and repair
and maintenance costs, are charged to expense as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Useful lives are 25 years for land
improvements, 20 to 45 years for buildings, and 3 to 20 years for machinery and
equipment. Upon retirement or disposition of assets, cost and accumulated
depreciation are removed from the related accounts and any gain or loss is
included in income.
The Georgia-Pacific Group capitalizes incremental costs that are directly
associated with the development of software for internal use and implementation
of the related systems. Amounts are amortized over five years beginning when the
assets are placed in service. Capitalized costs were $48 million at December 31,
1997 and $121 million at December 31, 1996. Amounts are included as property,
plant and equipment on the Georgia-Pacific Group's accompanying balance sheets.
In November 1997, the FASB Emerging Issues Task Force reached a consensus on
Issue No. 97-13 ("EITF 97-13"), "Accounting for Costs Incurred in Connection
with a Consulting Contract or an Internal Project that Combines Business Process
Reengineering and Information Technology Transformation." The Task Force
consensus requires that the cost of business process reengineering activities,
whether done internally or by third parties, be expensed as incurred. This
applies when the business process reengineering activities are part of a project
to acquire, develop or implement internal-use software. The adoption of EITF 97-
13 resulted in a one-time, after-tax charge of $60 million in the 1997 fourth
quarter.
The Georgia-Pacific Group capitalizes interest on projects when construction
takes considerable time and entails major expenditures. Such interest is charged
to the property, plant and equipment accounts and amortized over the approximate
life of the related assets. Interest capitalized, expensed and paid was as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
(In millions) 1997 1996 1995
- -------------------------------------------------------------
<S> <C> <C> <C>
Total interest costs $ 392 $ 385 $ 360
Interest capitalized (11) (31) (39)
- -------------------------------------------------------------
Interest expense $ 381 $ 354 $ 321
=============================================================
Interest paid by the Corporation $ 475 $ 488 $ 470
=============================================================
Portion of interest paid
charged to the
Georgia-Pacific Group $ 391 $ 383 $ 359
=============================================================
</TABLE>
LANDFILLS AND LAGOONS. The Georgia-Pacific Group accrues for landfill closure
costs over the periods that benefit from the use of the landfill and accrues for
lagoon clean-out costs over the useful period between clean-outs.
GOODWILL. The Georgia-Pacific Group amortizes costs in excess of fair value of
net assets of businesses acquired using the straight-line method over a period
not to exceed 40 years. The Georgia-Pacific Group reviews the recorded value of
its goodwill annually, or sooner if events or changes in circumstances indicate
that the carrying amount may exceed fair value. Recoverability is then
determined by comparing the undiscounted net cash flows of the assets to which
the goodwill applies to the net book value, including goodwill of those assets.
Amortization expense was $59 million in 1997, 1996 and 1995. Accumulated
amortization at December 31, 1997 and 1996 was $484 million and $425 million,
respectively.
ENVIRONMENTAL MATTERS. The Georgia-Pacific Group recognizes a liability for
environmental remediation costs when it believes it is probable a liability has
been incurred and the amount can be reasonably estimated. The liabilities are
developed based on currently available information and reflect the participation
of other potentially responsible parties, depending on the parties' financial
condition and probable contribution. The accruals are recorded at undiscounted
amounts and are reflected as other liabilities on the accompanying balance
sheets.
Environmental costs are generally capitalized when the costs improve the
condition of the property or the costs prevent or mitigate future contamination.
All other costs are expensed.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements as well as reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
NOTE 2. FACTORS AFFECTING THE GEORGIA-PACIFIC GROUP'S BUSINESS
CYCLICALITY AND VOLATILITY OF EARNINGS. The pulp and paper industry and, to a
lesser extent, the building products industry are subject to highly cyclical
earnings patterns, which in recent years have become more volatile. This
cyclicality is attributed in large measure to capital spending patterns in these
industries. Historically, the Corporation and its competitors have tended to
invest large amounts of capital in building new manufacturing plants and in
maintaining and rebuilding existing manufacturing facilities. These capital
investments typically have been made at or shortly after earnings peaks. Given
the long periods of time required to build new facilities and install new
manufacturing equipment (generally 18-36 months), new manufacturing capacity in
both the pulp and paper and the building products industries has frequently come
on-line at times when prices for these products are falling, thus exacerbating
supply and demand imbalances and causing the prices of many of the Corporation's
products to fall sharply. Furthermore, the Georgia-Pacific Group's position as
one of the leading worldwide manufacturers of several key products that are
essentially commodities has further exacerbated the volatility of the
Corporation's earnings. This increased volatility results from the fact that
relatively minor movements in the price of finished products cause major
fluctuations in the Georgia-Pacific Group's operating income due to the
significant percentage of worldwide volume produced by it. There can be no
assurance that the cyclicality that has characterized the pulp and paper and the
building products industries in the past will not continue or increase in future
years.
RAW MATERIALS. The Georgia-Pacific Group relies on supplies of timber and wood
fiber to manufacture its wood products and pulp, the latter of which it
processes further in the production of a variety of paper products and tissue.
Historically, the Georgia-Pacific Group has purchased approximately 25% of its
timber and wood fiber needs from its own timberlands, and the remainder from a
large number of other suppliers. Under the operating policy governing future
sales of timber and wood fiber by The Timber Company to the Georgia-Pacific
Group, The Timber Company will continue to supply a portion of the Georgia-
Pacific Group's needs for these raw materials. For a discussion of this
operating policy, see Note 12 of the Notes to Combined Financial Statements.
Because the Georgia-Pacific Group is highly dependent on supplies of timber
and wood fiber, risk factors associated with suppliers' operations and the
forest industry in general, including harvesting limitations, competition and
environmental regulation, could affect the Georgia-Pacific Group's results of
operations.
COMPETITION. The Georgia-Pacific Group experiences competition in virtually all
of its product lines from both large and small producers. Because most of its
products are essentially commodities, it competes principally on the basis of
price. Competition is intense, particularly in periods of excess supply.
Increased competitive pressures could have a material adverse effect on the net
sales, operating income and cash flows of the Georgia-Pacific Group.
ENVIRONMENTAL REGULATION. The Georgia-Pacific Group's key businesses also are
subject to extensive environmental regulation that has resulted and in the next
few years will result in major capital expenditures and modifications to
production processes to ensure compliance. Among these requirements are the
Clean Air Act, the Clean Water Act and the so-called "Cluster Rule." If the
Cluster Rule is enacted as currently proposed, the Georgia-Pacific Group
estimates that capital expenditures of approximately $550 million will be
required over the next eight years to comply with the Cluster Rule's
requirements. Of such amount, expenditures of approximately $300 million will be
required within three years of the Cluster Rule's effective date, which is
expected to be in the first quarter of 1998. The Georgia-Pacific Group is also
subject to other federal and state laws, including the Resource Conservation and
Recovery Act and the Comprehensive Environmental Response, Compensation and
Liability Act. There can be no assurance that such laws or future legislation or
administrative or judicial action with respect to protection of the environment
will not have a material adverse effect on net sales, operating income or cash
flows of the Georgia-Pacific Group.
NOTE 3. INDUSTRY SEGMENT INFORMATION
The Georgia-Pacific Group is a building products and pulp and paper company.
Manufactured products in the building products segment consist primarily of wood
panels (plywood, oriented strand board, hardboard and particleboard), lumber,
gypsum products and chemicals. The distribution division of this segment sells a
wide range of building products manufactured by the Georgia-Pacific Group or
purchased from others. This segment of the business is primarily affected by the
level of housing starts; the level of repairs, remodeling and additions;
industrial markets; commercial building activity; the availability and cost of
financing; and changes in industry capacity.
The Georgia-Pacific Group's pulp and paper segment produces containerboard
and packaging (linerboard, medium, bleached board, kraft paper and corrugated
packaging), communication papers, market pulp and tissue. Markets for this
segment are affected primarily by changes in industry capacity, the level of
economic growth in the U.S. and export markets, and fluctuations in currency
exchange rates.
The Georgia-Pacific Group has a large and diverse customer base, which
includes some customers located in foreign countries. Sales to foreign markets
in 1997, 1996 and 1995 were 8%, 8% and 10%, respectively. These sales were
primarily to customers in Asia, Europe and Latin America. No single unaffiliated
customer accounted for more than 10% of total sales in any year during that
period.
The Georgia-Pacific Group employs approximately 46,000 people at more than
400 facilities primarily located throughout the United States and Canada.
<TABLE>
<CAPTION>
Year ended December 31
- ---------------------------------------------------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales
Building products $ 7,375 57% $ 7,260 56% $ 7,196 51%
Pulp and paper 5,556 43 5,609 44 6,962 49
Other operations 37 - 32 - 37 -
- ---------------------------------------------------------------
Total net sales $ 12,968 100% $12,901 100% $14,195 100%
===============================================================
Operating profits*
Building products $ 238 56% $ 201 34% $ 395 20%
Pulp and paper 174 41 390 65 1,611 80
Other operations 15 3 5 1 8 -
- ---------------------------------------------------------------
Total operating profits 427 100% 596 100% 2,014 100%
==== ==== ====
General corporate
expense (164) (154) (156)
Interest expense (381) (354) (321)
(Provision) benefit for income
taxes 32 (54) (616)
- ---------------------------------------------------------------
Income (loss) before
extraordinary item and
accounting change (86) 34 921
Extraordinary item - loss
from early retirement
of debt, net of taxes - (5) -
Cumulative effect of
accounting change,
net of taxes (60) - -
- ---------------------------------------------------------------
Net income (loss) $ (146) $ 29 $ 921
===============================================================
Depreciation, cost of
timber harvested and
goodwill amortization
Building products $ 365 38% $ 347 37% $ 329 35%
Pulp and paper 581 60 568 60 576 62
Other and general
corporate 23 2 24 3 25 3
- ---------------------------------------------------------------
Total depreciation,
cost of timber
harvested and goodwill
amortization $ 969 100% $ 939 100% $ 930 100%
===============================================================
Capital expenditures**
Building products $ 212 25% $ 837 55% $ 576 40%
Pulp and paper 440 52 433 29 599 42
Timber contracts 131 15 94 6 182 13
Other and general
corporate 63 8 148 10 78 5
- ---------------------------------------------------------------
Total capital
expenditures $ 846 100% $ 1,512 100% $ 1,435 100%
===============================================================
Assets
Building products $ 3,254 28% $ 3,356 29% $ 2,631 24%
Pulp and paper 7,335 62 7,185 62 7,342 67
Timber contracts 71 1 58 1 81 1
Other and general
corporate 1,119 9 893 8 933 8
- ---------------------------------------------------------------
Total assets $ 11,779 100% $11,492 100% $10,987 100%
===============================================================
</TABLE>
* Segment operating profits include expenses of $80 million in 1997, $117
million in 1996 and $70 million in 1995 for the restructuring of the Georgia-
Pacific Group's building products distribution division; gains on major sales of
assets of $14 million in 1997 and $39 million in 1996; and $39 million of net
expenses in 1996 primarily related to a voluntary early retirement program. With
the exception of distribution business restructuring charges, these items are
included in "Other income" on the accompanying statements of income. If these
amounts had been excluded from segment operating profits, building products
operating profits would have been $304 million in 1997, $298 million in 1996 and
$465 million in 1995. Pulp and paper operating profits would have been $410
million in 1996.
** Capital expenditures represent additions (at cost) to property, plant and
equipment and timber contracts.
NOTE 4. ACQUISITIONS, DIVESTITURES AND UNUSUAL ITEMS
ACQUISITIONS AND DIVESTITURES. The following acquisition and divestitures were
completed during the years 1997 and 1996:
- - In March 1997, the Corporation sold its Martell, California, operations for
$308 million. Assets included in this transaction were 127,000 acres of
timberlands allocated to The Timber Company, and a sawmill and a particleboard
plant allocated to the Georgia-Pacific Group. In conjunction with the sale of
its Martell operations, the Corporation received notes receivable from the
purchaser in the amount of $270 million related to the timberlands. The
Corporation, in April 1997, monetized the notes receivable through the issuance
of notes payable in a private placement. The proceeds of this transaction were
credited to The Timber Company through the intergroup account. The notes
receivable are included in "Other assets" and the notes payable are classified
as "Other long-term liabilities" on the Georgia-Pacific Group's balance sheet.
The Georgia-Pacific Group recognized a pretax gain of approximately $14 million
($9 million after taxes) on the portion of the sale allocated to the sawmill and
the particleboard plant.
- - In April 1996, the Georgia-Pacific Group completed the purchase of Domtar
Inc.'s gypsum wallboard business for $363 million in cash. Domtar's gypsum
business included nine U.S. wallboard manufacturing plants, four Canadian
wallboard plants, three joint compound plants, an industrial plaster plant and a
gypsum paperboard plant.
- - In September 1996, the Georgia-Pacific Group completed the sale of two gypsum
wallboard facilities in Buchanan, New York, and Wilmington, Delaware. The sale
resulted in after-tax cash proceeds of approximately $39 million. The Georgia-
Pacific Group had agreed with the U.S. Department of Justice to sell these
plants in order to complete the Domtar acquisition. The Georgia-Pacific Group
recognized a pretax gain of $39 million ($24 million after taxes).
Gains on major divestitures are recorded in "Other income" on the
accompanying statements of income.
VOLUNTARY EARLY RETIREMENT PROGRAM. The Corporation implemented a voluntary
early retirement program in 1996. Costs associated with enhanced pension
benefits related to the voluntary early retirement program were $39 million in
1996. This amount is recorded in "Other income" on the accompanying statements
of income.
DISTRIBUTION DIVISION RESTRUCTURING. In December 1997, the Georgia-Pacific Group
finalized a restructuring plan that included disposing of its millwork
fabrication facilities nationwide as well as several distribution centers
located in the Western United States. A reserve of $70 million was recorded in
the 1997 fourth quarter for anticipated liabilities and write-down of assets
associated with the plan. It is anticipated that all aspects of the plan will be
executed in 1998. The terms of the plan include severance of approximately 1,500
employees in 1998. The employees include hourly and salaried personnel employed
in the identified millwork fabrication facilities and distribution centers and
associated sales and administrative personnel. The Group also has accrued
related pension, outplacement and retention expenses for these employees. The
total amount of the charge related to employee severance is $15 million and is
reflected in "Cost of sales" and "Selling, general and administrative" expenses
on the accompanying statements of income. No termination benefits were paid in
1997 related to this plan. The remaining amount of the reserve is for the write-
down to net realizable value of related inventory, equipment, accounts
receivable and software systems for assets to be sold or otherwise disposed of.
In 1995, the Georgia-Pacific Group implemented a program to change and
improve certain processes in the distribution division. The Group expensed $10
million, $117 million and $70 million in 1997, 1996 and 1995, respectively,
related to this program. Of these amounts, $10 million, $2 million and $15
million, respectively, related to termination benefits. As a result of this
program, approximately 720, 480 and 180 employees were terminated in 1997, 1996
and 1995, respectively. Other costs related primarily to write-downs of
abandoned systems as well as write-downs of impaired assets to net realizable
value.
The following table provides a rollforward of the reserves for business
restructurings from December 31, 1996 to December 31, 1997:
<TABLE>
<CAPTION>
Type of Cost December 31, December 31,
(In millions) 1996 balance Additions Usage 1997 balance
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Employee separation $ 13 $ 25 $ (23) $ 15
Facility closing costs
and asset impairments - 55 - 55
Other 4 - (4) -
- ---------------------------------------------------------
Total $ 17 $ 80 $ (27) $ 70
===============================================================
</TABLE>
NOTE 5. RECEIVABLES
The Georgia-Pacific Group has a large, diversified customer base, which includes
some customers located in foreign countries. The
Georgia-Pacific Group closely monitors extensions of credit and has not
experienced significant losses related to its receivables.
In addition, a portion of the receivables from foreign sales is covered by
confirmed letters of credit to help ensure
collectibility.
Supplemental information on the accounts receivable balances at December
31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
December 31
------------
(In millions) 1997 1996
- -----------------------------------------
<S> <C> <C>
Receivables
Trade $1,277 $ 883
Other 104 84
- -----------------------------------------
1,381 967
Less allowances 13 10
- -----------------------------------------
Receivables, net $1,368 $ 957
=========================================
</TABLE>
The Georgia-Pacific Group had sold fractional ownership interests in a
defined pool of trade accounts receivable for $350 million as of December 31,
1996. The sold accounts receivable are excluded from receivables on the
accompanying December 31, 1996 balance sheet. The full amount of the allowance
for doubtful accounts has been retained because the Georgia-Pacific Group has
retained substantially the same risk of credit loss as if the receivables had
not been sold. A portion of the cost of the accounts receivable sale program is
based on the purchasers' level of investment and borrowing costs. The Georgia-
Pacific Group pays fees based on the Corporation's senior debt ratings. The
total cost of the program, which was $19 million in 1997, $20 million in 1996
and $37 million in 1995, is included in interest expense on the accompanying
statements of income.
Under the accounts receivable sale agreement, the maximum amount of the
purchasers' investment is subject to change based on the level of eligible
receivables and restrictions on concentrations of receivables. During 1997, the
Georgia-Pacific Group repurchased $70 million of receivables in order to reduce
the cost of the program, which was higher than the cost of financing from
alternative sources. The program has been extended to May 1998.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
established accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities. The Georgia-Pacific Group
adopted SFAS No. 125 in the 1997 first quarter. At December 31, 1997, the
Georgia-Pacific Group's accounts receivable sale program is accounted for as a
secured borrowing; the receivables and the corresponding debt are included as an
asset and liability, respectively, on the accompanying balance sheet.
NOTE 6. INDEBTEDNESS
The Corporation's indebtedness included the following:
<TABLE>
<CAPTION>
December 31
---------------
(Inn millions) 1997 1996
- -------------------------------------------------------
<S> <C> <C>
Debentures, 9% average rate,
payable through 2025 $ 3,200 $ 3,200
Notes, 6.7% average rate,
payable through 2006 517 817
Revenue bonds, 4.9% average rate,
payable through 2027 659 646
Other loans,7.9% average rate,
payable through 2008 13 45
- -------------------------------------------------------
Less: unamortized discount (23) (26)
- -------------------------------------------------------
4,366 4,682
Less: long-term portion
of debt 3,713 4,371
- -------------------------------------------------------
Current portion of
long-term-debt 653 311
Commercial paper and
other short-term notes,
6.4% average rate 621 645
Accounts receivable sale
program, 6.1% average rate 280 -
Bank overdrafts, net 223 251
- -------------------------------------------------------
Total short-term debt 1,777 1,207
- -------------------------------------------------------
Total debt $ 5,490 $ 5,578
=======================================================
Georgia-Pacific Group's
portion of Corporation debt:
Short-term debt $ 1,462 $ 922
Long-term debt,
excluding current portion 3,057 3,340
- -------------------------------------------------------
Georgia-Pacific Group's
total debt $ 4,519 $ 4,262
=======================================================
The Timber Company's
portion of Corporation debt:
Short-term debt $ 315 $ 285
Long-term debt,
excluding current portion 656 1,031
- -------------------------------------------------------
The Timber Company's total debt $ 971 $ 1,316
=======================================================
Weighted average interest
rate on Corporation debt
at year end 7.8% 7.7%
=======================================================
</TABLE>
For additional information regarding financial instruments, see Note 7.
The scheduled maturities of the Corporation's long-term debt for the next
five years are as follows: $653 million in 1998, $9 million in 1999, $29 million
in 2000, $1 million in 2001 and $375 million in 2002.
NOTES AND DEBENTURES. Subsequent to year-end 1997, the Corporation redeemed
$200 million of 9 3/4% Sinking Fund Debentures Due January 15, 2018. The
Corporation recorded an after-tax extraordinary loss of approximately $7 million
related to this redemption on January 16, 1998, of which $5.8 million will be
allocated to the Group based on the ratio of the Group's debt to the
Corporation's total debt. It is the Corporation's intent to redeem $200 million
of 9 1/2% Debentures Due February 15, 2018 on February 17, 1998. The Corporation
anticipates an after-tax extraordinary loss related to this redemption of
approximately $7 million.
During 1996, the Corporation issued $100 million of 7.2% Notes Due December
15, 2006. In 1996, the Corporation redeemed $150 million of its 9.25% Debentures
Due March 15, 2016. The Corporation recorded an after-tax extraordinary loss of
approximately $5 million related to this redemption, which was recognized in the
Georgia-Pacific Group's results of operations.
REVOLVING CREDIT FACILITY. In 1996, the Corporation entered into an agreement
with Bank of America National Trust and Savings Association and 19 other
domestic and international banks that provides an unsecured revolving credit
facility of $1.5 billion. The revolving credit facility is being used for direct
borrowings and as support for commercial paper and other short-term borrowings.
The agreement will terminate in 2001. As of December 31, 1997, $879 million of
committed credit was available in excess of all short-term borrowings
outstanding under or supported by the facility.
Borrowings under the agreement bear interest, at the election of the
Corporation, at either (i) the higher of the Federal Funds Rate plus 1/2% or the
stipulated bank lending rate or (ii) LIBOR plus .2625% or (iii) fixed or
floating rates set by competitive bids. Fees associated with this revolving
credit facility include a commitment fee of .0625% per annum on the unused
portion of the commitments and a facility fee of .0625% per annum on the
aggregate commitments of the lenders. Fees and margins may be adjusted upward or
downward according to a pricing grid based on the Corporation's long-term debt
ratings. At December 31, 1997, $300 million was borrowed under the credit
agreement at a weighted average interest rate of 6.2%. Amounts outstanding under
the revolving credit facility are included in "Short-term debt" on the
accompanying balance sheets.
The revolving credit agreement contains certain restrictive covenants. The
covenants include a maximum leverage ratio (funded indebtedness to operating
cash flow) of 4.5 to 1.0, which is to be maintained by the Corporation
throughout the term of the credit agreement. As of December 31, 1997, the
Corporation's leverage ratio was 3.4 to 1.0.
COMMERCIAL PAPER AND OTHER SHORT TERM NOTES. These borrowings are classified
by the Corporation as current liabilities, although all or a portion of them
might be refinanced on a long-term basis in 1998.
REVENUE BONDS. At December 31, 1997, the Corporation had outstanding borrowings
of approximately $659 million under certain industrial revenue bonds.
Approximately $48 million of these bonds were entered into during 1997 at fixed
interest rates, of which $38 million refunded a like amount of floating rate
instruments. Approximately $16 million from the issuance of these bonds is being
held by trustees for the Corporation and is restricted for the construction of
certain capital projects of the Georgia-Pacific Group and $15 million is held by
trustees to refund a like amount of bonds maturing on January 2, 1998. Amounts
held by trustees are classified as "Other assets" on the accompanying balance
sheets.
OTHER. At December 31, 1997, the amount of long-term debt secured by property,
plant and equipment and timber and timberlands was not material.
In September 1995, the Corporation sold certain assets of the Georgia-
Pacific Group for $354 million and has agreed to lease the assets back from the
purchaser over a period of 30 years. Under the agreement with the purchaser, the
Corporation will maintain a deposit (initially in the amount of $322 million)
that together with interest earned is expected to be sufficient to fund the
Corporation's lease obligation, including the repurchase of assets at the end of
the term. This transaction is being accounted for as a financing arrangement. At
December 31, 1995, the Georgia-Pacific Group recorded on its balance sheet an
asset for the deposit from the sale of $305 million and a liability for the
lease obligation of $302 million.
At December 31, 1997, the deposit and lease obligation balances were $349
million and $349 million, respectively. Of these amounts, approximately $17
million was recorded as a current asset and approximately $19 million was
recorded as a current liability. The long-term portions are recorded in "Other
assets" and "Other long-term liabilities" on the accompanying balance sheets.
NOTE 7. FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of the Corporation's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
Carrying Fair Carrying Fair
(In millions) Amount Value Amount Value
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Liabilities:
Commercial paper and
other short-term notes
(Note 6) $ 621 $ 621 $ 645 $ 645
Accounts receivable sale
program (Note 5) 280 280 350 350
Notes and debentures
(Note 6) 3,717 4,055 4,017 4,215
Revenue bonds (Note 6) 659 637 646 637
Other loans (Note 6) 13 13 45 45
Interest rate exchange
agreements * 10 * 12
- ----------------------------------------------------------------
</TABLE>
*The Corporation's consolidated balance sheets at December 31, 1997 and 1996
included accrued interest of $5 million and $6 million, respectively, related to
these agreements.
COMMERCIAL PAPER AND OTHER SHORT-TERM NOTES. The carrying amounts approximate
fair value because of the short maturities of these instruments.
NOTES AND DEBENTURES. The fair value of notes and debentures was estimated
primarily by obtaining quotes from brokers for these and similar issues. For
notes and debentures for which there are no quoted market prices, the fair value
was estimated by calculating the present value of anticipated cash flows. The
discount rate used was an estimated borrowing rate for similar debt instruments
with like maturities.
REVENUE BONDS AND OTHER LOANS. The fair value of revenue bonds and other loans
was estimated by calculating the present value of anticipated cash flows. The
discount rate used was an estimated borrowing rate for similar debt instruments
with like maturities.
INTEREST RATE AND FOREIGN CURRENCY EXCHANGE AGREEMENTS. The Corporation has used
interest rate swap and foreign currency exchange agreements in the normal course
of business to manage and reduce the risk inherent in interest rate and foreign
currency fluctuations.
The Corporation uses interest rate swap arrangements to manage its exposure
to interest rate changes. Such arrangements are considered hedges of specific
borrowings, and differences paid and received under the swap arrangements are
recognized as adjustments to interest expense. Under these agreements, the
Corporation makes payments to counterparties at fixed interest rates and in turn
receives payments at variable rates. The Corporation entered into interest rate
exchange agreements in prior years to protect against the increased cost
associated with a rise in interest rates. At December 31, 1997, the Corporation
had outstanding interest rate exchange agreements that effectively converted
$476 million of floating rate obligations with a weighted average interest rate
of 5.8% to fixed rate obligations with an average effective interest rate of
approximately 9%. These agreements increased interest expense by $16 million,
$17 million and $20 million for the years ending December 31, 1997, 1996 and
1995, respectively. These agreements have a weighted average maturity of
approximately 1.1 years. As of December 31, 1997, the Corporation's total
floating rate debt, including the accounts receivable sale program, exceeded
related interest rate exchange agreements by $1,260 million.
The estimated fair value of the Corporation's liability under interest rate
exchange agreements at December 31, 1997 and 1996 was $10 million and $12
million, respectively, and represents the estimated amount the Corporation could
have paid to terminate the agreements. The fair value at December 31, 1997 and
1996 was estimated by calculating the present value of anticipated cash flows.
The discount rate used was an estimated borrowing rate for similar debt
instruments with like maturities.
The Corporation enters into foreign currency exchange agreements, the
amounts of which were not material to the consolidated financial position of the
Corporation at December 31, 1997 and 1996.
The Corporation may be exposed to losses in the event of nonperformance of
counterparties but does not anticipate such nonperformance.
OTHER. Due to the short-term nature of current assets and current liabilities,
their carrying amounts approximate fair value.
NOTE 8. INCOME TAXES
The provision for income taxes includes the Georgia-Pacific Group's allocated
portion of income taxes currently payable and those deferred because of
temporary differences between the financial statement and tax bases of assets
and liabilities. The Georgia-Pacific Group's provision for income taxes consists
of the following:
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes:
Current $(50) $ 37 $ 549
Deferred 24 11 (28)
State income taxes:
Current (16) 4 102
Deferred 10 2 (7)
- ---------------------------------------------------------
Provision (benefit)
for income taxes $ (32) $ 54 $ 616
=========================================================
Income taxes paid by the
Corporation, net of refunds $ 51 $ 135 $ 686
=========================================================
Georgia-Pacific Group's
portion of income taxes
paid, net of refunds $(21) $ 48 $ 625
</TABLE>
Income taxes paid by the Corporation during 1997 are net of refunds of
approximately $45 million, primarily related to a 1996 federal overpayment.
Income taxes paid by the Corporation during 1996 were net of refunds of
approximately $73 million, primarily related to a 1995 federal overpayment and
1991 and 1992 federal audits that related solely to taxes of the Georgia-Pacific
Group.
The federal statutory income tax rate was 35%. The Georgia-Pacific Group's
provision for income taxes is reconciled to the federal statutory rate as
follows:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
Provision for income taxes
computed at the federal
statutory tax rate $(42) $ 31 $ 537
State income taxes, net
of federal benefit (5) 4 62
Goodwill amortization 23 23 23
Foreign sales corporation (8) (7) (9)
Other - 3 3
- ---------------------------------------------------------
Provision (benefit)
for income taxes $ (32) $ 54 $ 616
=========================================================
</TABLE>
The components of the Georgia-Pacific Group's net deferred income tax
liabilities are as follows:
<TABLE>
<CAPTION>
December 31
------------------
(In millions) 1997 1996
- -------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Compensation related accruals $ 273 $ 333
Other accruals and reserves 84 76
Other 3 (16)
- -------------------------------------------------------------
360 393
Valuation allowance - -
- -------------------------------------------------------------
360 393
- -------------------------------------------------------------
Deferred income tax liabilities:
Property, plant and equipment (1,206) (1,211)
Timber contracts (2) (2)
Other (44) (38)
- -------------------------------------------------------------
(1,252) (1,251)
- -------------------------------------------------------------
Deferred income tax
liabilities, net $ (892) $ (858)
=============================================================
Included in the balance sheets:
Deferred income tax assets* $ 67 $ 129
Deferred income tax liabilities** (959) (987)
- -------------------------------------------------------------
Deferred income tax
liabilities, net $ (892) $ (858)
=============================================================
</TABLE>
* Net of current liabilities of $6 million and $4 million at December 31, 1997
and 1996, respectively.
** Net of long-term assets of $256 million and $260 million at December 31, 1997
and 1996, respectively.
NOTE 9. RETIREMENT PLANS
DEFINED BENEFIT PENSION PLANS. Most of the Georgia-Pacific Group's employees
participate in noncontributory defined benefit pension plans. These include
plans that are administered solely by the Corporation and union-administered
multiemployer plans. The Corporation's funding policy for solely administered
plans is based on actuarial calculations and the applicable requirements of
federal law. Contributions to multiemployer plans are generally based on
negotiated labor contracts.
Benefits under the majority of plans for hourly employees (including
multiemployer plans) are primarily related to years of service. The Corporation
has separate plans for salaried employees and officers under which benefits are
primarily related to compensation and years of service. The officers' plan is
not funded and is nonqualified for federal income tax purposes.
For the Georgia-Pacific Group, plan assets consist principally of common
stocks, bonds, mortgage securities, interests in limited partnerships, cash
equivalents and real estate. At December 31, 1997 and 1996, $79 million and $65
million, respectively, of noncurrent prepaid pension cost was included in other
assets. Accrued pension cost of $67 million and $66 million at December 31, 1997
and 1996, respectively, was included in other long-term liabilities.
Pursuant to the provisions of SFAS No. 87, "Employers' Accounting for
Pensions," intangible assets of $2 million and $3 million were recorded as of
December 31, 1997 and 1996, respectively, in order to recognize the required
minimum liability.
The following table sets forth the Georgia-Pacific Group's actuarially
determined share of the funded status of the solely administered plans and the
amounts recognized on the accompanying balance sheets.
<TABLE>
<CAPTION>
December 31, 1997
------------------------------
Plans having
Plans having accumulated
assets in excess benefits in
of accumulated excess
(In millions) benefits of assets
- ----------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation
at November 30
Vested portion $1,463 $ 80
Nonvested portion 47 2
- ----------------------------------------------------------------
1,510 82
Effect of projected future
compensation levels 10 12
- ----------------------------------------------------------------
Projected benefit obligation
at November 30 1,520 94
Plan assets at fair value
at November 30 1,905 15
- ----------------------------------------------------------------
Plan assets in excess of (less
than) projected benefit obligation 385 (79)
Unrecognized net (gain) loss (368) 16
Unrecognized prior service cost 62 2
Unrecognized net asset from initial
application of FAS 87 - -
Adjustment required to recognize
minimum liability - (6)
- ----------------------------------------------------------------
Prepaid (accrued) pension cost
at December 31 $ 79 $ (67)
================================================================
<CAPTION>
December 31, 1996
------------------------------
Plans having
Plans having accumulated
assets in excess benefits in
of accumulated excess
(In millions) benefits of assets
- ----------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation
at November 30
Vested portion $1,378 $ 92
Nonvested portion 33 3
- ----------------------------------------------------------------
1,411 95
Effect of projected future
compensation levels 12 13
- ----------------------------------------------------------------
Projected benefit obligation
at November 30 1,423 108
Plan assets at fair value
at November 30 1,694 29
- ----------------------------------------------------------------
Plan assets in excess of (less
than) projected benefit obligation 271 (79)
Unrecognized net (gain) loss (239) 20
Unrecognized prior service cost 42 3
Unrecognized net asset from initial
application of FAS 87 (9) -
Adjustment required to recognize
minimum liability - (10)
- ----------------------------------------------------------------
Prepaid (accrued) pension cost
at December 31 $ 65 $ (66)
================================================================
</TABLE>
The Georgia-Pacific Group's share of the net periodic pension cost for solely
administered and union-administered pension plans included the following:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned $ 83 $ 82 $ 74
Interest cost on projected
benefit obligation 107 105 106
Actual return on plan assets (303) (296) (308)
Net amortization and deferral 130 126 166
Contributions to multiemployer
pension plans 4 4 4
- ---------------------------------------------------------
Net periodic pension cost $ 21 $ 21 $ 42
=========================================================
</TABLE>
The following assumptions were used:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
1997 1996 1995
- --------------------------------------------------------
<S> <C> <C> <C>
Discount rate used to determine
the projected benefit obligation 7.0% 7.0% 7.0%
Rate of increase in future
compensation levels used to
determine the projected benefit
obligation 5.5 5.5 5.5
Expected long-term rate of return
on plan assets used to determine
net periodic pension cost 9.5 10.0 10.0
- --------------------------------------------------------
</TABLE>
DEFINED CONTRIBUTION PLANS. The Corporation sponsors several defined
contribution plans to provide eligible employees with additional income upon
retirement. The Corporation's contributions to the plans are based on employee
contributions and compensation. The allocated portion of the Corporation's
contributions related to the Georgia-Pacific Group totaled $47 million in 1997,
$49 million in 1996 and $45 million in 1995.
HEALTH CARE AND LIFE INSURANCE BENEFITS. The Corporation provides certain health
care and life insurance benefits to eligible retired employees. Salaried
participants generally become eligible for retiree health care benefits after
reaching age 55 with 10 years of service or after reaching age 65. Benefits,
eligibility and cost-sharing provisions for hourly employees vary by location
and/or bargaining unit. Generally, the medical plans pay a stated percentage of
most medical expenses, reduced for any deductible and payments made by
government programs and other group coverage. Effective December 1995, the plans
were funded through a trust established for the payment of future active and
retiree benefits. The trust was funded with an initial contribution of which $31
million was allocated to the Georgia-Pacific Group. The Corporation will
continue to contribute to the trust in the amounts necessary to fund current
obligations of the plans.
In 1991, the Corporation began transferring its share of the cost of post-
age 65 health care benefits to future salaried retirees. It is currently
anticipated that the Corporation will continue to reduce the percentage of the
cost of post-age 65 benefits that it will pay on behalf of salaried employees
who retire in each of the years 1995 through 1999 and that the Corporation will
continue to share the pre-age 65 cost with future salaried retirees but will no
longer pay any of the post-age 65 cost for salaried employees who retire after
1999.
The following table sets forth the status of the plans, reconciled to the
accrued postretirement benefit recognized on the Georgia-Pacific Group's balance
sheets at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
December 31
------------
(In millions) 1997 1996
- ----------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 277 $ 340
Fully eligible active plan
participants 25 26
Other active participants 111 164
- ----------------------------------------------
413 530
- ----------------------------------------------
Unrecognized net gain (loss) 75 (45)
Unrecognized prior service cost (12) (13)
- ----------------------------------------------
Accrued postretirement
benefit cost $ 476 $ 472
==============================================
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
Year ended December 31
--------------------
(In millions) 1997 1996 1995
- --------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned $ 7 $ 10 $ 6
Interest cost on accumulated
postretirement benefit obligation 26 29 27
Amortization of (gain) loss (2) - (1)
- --------------------------------------------------------
Net periodic postretirement
benefit cost $ 31 $ 39 $ 32
========================================================
</TABLE>
For measuring the expected postretirement benefit obligation, a 9%, 10% and
11% annual rate of increase in the per capita claims cost was assumed for 1997,
1996 and 1995, respectively. The rate was assumed to decrease 1% per year to
5.5% in 2001 and remain at that level thereafter. The weighted average discount
rate used in determining the accumulated postretirement benefit obligation was
6.5% at December 31, 1997, 1996 and 1995.
If the annual health care cost trend rate were increased by 1%, the
accumulated postretirement benefit obligation would have increased by 9% as of
December 31, 1997 and 14% as of December 31, 1996 and 1995. The effect of this
change on the aggregate of service and interest costs would be an increase of
14% for 1997, 11% for 1996 and 15% for 1995.
NOTE 10. STOCK INCENTIVE PLANS
The Corporation's authorized capital stock consists of (I) 10 million shares of
Junior Preferred Stock, of which no shares were issued at December 31, 1997, and
(ii) 400 million shares of Georgia-Pacific Group common stock and 250 million
shares of The Timber Company common stock. The Georgia-Pacific Group common
stock has a par value of $.80 per share and 92,249,000 shares were issued as of
December 31, 1997. The Timber Company common stock has a par value of $.80 per
share and 92,607,000 shares were issued as of December 31, 1997.
At December 31, 1997, the following authorized shares of common stock were
reserved for issue:
<TABLE>
<CAPTION>
Georgia-Pacific Group 1997
- --------------------------------------------------
<S> <C>
1997 Long-Term Incentive Plan 4,500,000
1997 Employee Stock Purchase Plan 1,141,048
1995 Outside Directors Stock Plan 174,273
1995 Shareholder Value Incentive Plan 4,568,800
1994 Employee Stock Option Plan 302,650
1993 Employee Stock Option Plan 31,650
- --------------------------------------------------
Common stock reserved 10,718,421
==================================================
The Timber Company 1997
- --------------------------------------------------
<S> <C>
1997 Long-Term Incentive Plan 2,300,000
1997 Employee Stock Purchase Plan 1,141,048
1995 Outside Directors Stock Plan 174,273
1995 Shareholder Value Incentive Plan 4,568,800
1994 Employee Stock Option Plan 302,650
1993 Employee Stock Option Plan 31,650
- --------------------------------------------------
Common stock reserved 8,518,421
==================================================
</TABLE>
1997 LONG-TERM INCENTIVE PLANS. The shareholders have approved the Georgia-
Pacific Group 1997 Long-Term Incentive Plan (the "Georgia-Pacific Group Plan")
and the Timber Group 1997 Long-Term Incentive Plan ("The Timber Company Plan").
The Georgia-Pacific Group Plan authorizes grants of stock options, restricted
stock and performance awards with respect to Georgia-Pacific Group stock. The
Timber Company Plan authorizes grants of stock options, restricted stock and
performance awards with respect to The Timber Company stock. The Corporation
does not currently intend to grant awards under the Georgia-Pacific Group Plan
to members of The Timber Company. However, certain officers and employees of the
Corporation with responsibilities involving both the Georgia-Pacific Group and
The Timber Company may be granted options, restricted stock or performance
awards under both the Georgia-Pacific Group Plan and The Timber Company Plan in
a manner that reflects their responsibilities. Initially 2,300,000 shares were
reserved for issuance under The Timber Company Plan. Options totaling 1,010,600
were granted under the Timber Group Plan on December 17, 1997. These grants have
a 10-year term and vest ratably over a four-year period. Initially 4,500,000
shares were reserved for issuance under the Georgia-Pacific Group Plan. No
grants were made under the Georgia-Pacific Group Plan in 1997.
1990 LONG-TERM INCENTIVE PLAN. The Corporation initially reserved 4,000,000
shares of Existing Common Stock for issuance under the 1990 Long-Term Incentive
Plan ("1990 Incentive Plan"), which expired March 9, 1995. Restricted stock was
awarded to employees at no cost, based on increases in average market value of
the Corporation's Existing Common Stock. At the time restricted shares were
awarded, the market value of the stock was added to common stock and additional
paid-in capital and was deducted from shareholders' equity (long-term incentive
plan deferred compensation) in the Corporation's consolidated financial
statements. Long-term incentive plan deferred compensation is amortized over the
vesting (restriction) period, generally five years, with adjustments made
quarterly for market price fluctuations. At the time awarded shares become
vested, the Corporation will pay on behalf of each participant a cash bonus in
the amount of the estimated income tax liability to be incurred by the
participant as a result of the award and cash bonus. Shares totaling 1,155,000
were awarded under the 1990 Incentive Plan, of which 682,520 shares were vested
as of December 31, 1997.
Compensation expense allocated to the Georgia-Pacific Group was $15 million
in 1997, $28 million in 1996 and $21 million in 1995 related to the 1990
Incentive Plan.
As a result of the Letter Stock Recapitalization, each share of restricted
stock held in the 1990 Incentive Plan was redesignated as Georgia-Pacific Group
stock, and an equal number of restricted shares of The Timber Company stock were
distributed. These shares will remain restricted until they vest under the terms
of the 1990 Incentive Plan. The tax gross-up provided in the 1990 Incentive Plan
will be calculated based on the aggregate market value of the two classes of
shares distributed to an individual at such time.
EMPLOYEE STOCK PURCHASE PLANS. The Corporation's 1997 Employee Stock Purchase
Plan ("1997 Purchase Plan") offered employees a right to subscribe for Existing
Common Stock at a subscription price of $78.09 per share, representing 85% of
the mean of the high and low prices of the Corporation's Existing Common Stock
on September 2, 1997. The subscription period for the 1997 Purchase Plan expired
on November 14, 1997. A subscriber must purchase and pay for shares subscribed
not later than November 30, 1999, but prior to the time that the subscriber's
last contribution to the 1997 Purchase Plan is paid, the subscriber may obtain a
refund of his/her payments plus interest at a rate of 6% per annum in lieu of
stock. In conjunction with the Letter Stock Recapitalization, the terms of the
subscription agreements were adjusted to allow subscribers, pursuant to the
terms of the 1997 Purchase Plan, to purchase at the same subscription price a
package consisting of one share of Georgia-Pacific Group stock and one share of
The Timber Company stock in lieu of each share of Existing Common Stock for
which he/she had originally subscribed.
At December 31, 1997, the Corporation had 1,141,048 shares of Georgia-
Pacific Group stock and 1,141,048 shares of The Timber Company stock reserved
for issuance under the 1997 Purchase Plan. Approximately 8,300 subscribers
remained in the 1997 Purchase Plan at December 31, 1997.
Under the 1995 Employee Stock Purchase Plan (which expired on September 30,
1997), the Corporation issued 763,000 and 19,000 shares of Existing Common Stock
in 1997 and 1996, respectively, at a subscription price of $73.84 per share.
OUTSIDE DIRECTORS STOCK PLAN. The Outside Directors Stock Plan (the "Directors
Plan") provides for the issuance of shares of common stock to nonemployee
directors on a restricted basis. Each nonemployee director was issued 482
restricted shares of Existing Common Stock in 1997 and 193 shares in 1996. As a
result of the Letter Stock Recapitalization, each share of restricted stock held
in the Directors Plan was redesignated as Georgia-Pacific Group stock, and an
equal number of shares of The Timber Company stock (subject to the same
restrictions as the original restricted shares) were distributed. Beginning in
1998, each director's annual grant will consist of a number of shares of
Georgia-Pacific Group stock and of The Timber Company stock determined so that
(i) a substantially equal number of shares of Georgia-Pacific Group stock and
The Timber Company stock will be granted for each year and (ii) the total market
value of the shares granted in each year (based on the mean of the high and low
prices of each stock on the date of grant) is $40,000 (subject to immaterial
rounding differentials). The restrictions on the shares lapse at the time of
death, retirement from the Board or disability.
Effective May 6, 1997, accrual of additional retirement benefits under the
Directors Retirement Program ceased, and the accrued benefits of each of the
current nonemployee directors (the present value of which totaled $1,303,889 as
of May 6, 1997) were converted into a grant of an equivalent number of shares of
restricted stock under the Directors Plan. The total number of shares issued was
15,702.
EMPLOYEE STOCK OPTION PLANS. The 1995 Shareholder Value Incentive Plan ("SVIP")
provides for the granting of stock options having a term of either 5 1/2 or 10
years to officers and key employees. Under the amended and restated SVIP, no
further grants may be made under that plan. Options having a term of 10 years
become exercisable in 9 1/2 years unless certain performance targets tied to the
Corporation's common stock performance are met, in which case the holder could
exercise such options after 3, 4 or 5 years from the grant date. Options having
a term of 5 1/2 years may be exercised only if such performance targets are met
in the third, fourth or fifth year after such grant date. At the time options
are exercised, the exercise price is payable in cash or by surrender of shares
of common stock already owned by the optionee.
The 1994 Employee Stock Option Plan ("1994 Option Plan") provided for the
granting of stock options to certain nonofficer key employees. There are also
options outstanding under the 1993 Employee Stock Option Plan ("1993 Option
Plan").
Following the Letter Stock Recapitalization, each outstanding stock option
under the SVIP, 1994 Option Plan and 1993 Option Plan was converted into
separately exercisable options to acquire a number of shares of Georgia-Pacific
Group stock and The Timber Company stock, each of which equaled the number of
shares of Existing Common Stock specified in the original option. The exercise
prices for the resulting Georgia-Pacific Group stock options and The Timber
Company stock options were calculated by multiplying the exercise price under
the original option from which they were converted by a fraction, the numerator
of which is the average of the high and low price of Georgia-Pacific Group stock
or The Timber Company stock, as the case may be, on December 17, 1997 and the
denominator of which is the sum of such Georgia-Pacific Group and The Timber
Company stock prices. This was intended to ensure that the aggregate intrinsic
value of the options was preserved, and the ratio of the exercise price per
option to the market value per share was not reduced. In addition, the vesting
provisions and option periods of the original grants remained the same following
such conversion.
Additional information relating to the Corporation's existing employee stock
option plans is as follows:
<TABLE>
<CAPTION>
Period ended December 16, Year ended December 31
1997* 1996 1995
- -------------------------------------------------------
Georgia-Pacific Corporation
- -------------------------------------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
at January 1 4,158,500 $74.53 2,217,000 $75.61 1,646,000 $66.77
Options granted 1,746,000 74.25 2,150,500 72.63 1,223,200 80.50
Options exercised
surrendered (514,950) 69.94 (117,400) 57.15 (619,000) 61.63
Options cancelled (486,150) 75.05 (91,600) 75.45 (33,200) 77.64
- -------------------------------------------------------
Options outstanding
at period end 4,903,400 $74.93 4,158,500 $74.53 2,217,000 $75.61
Options available
for grant at
period end 3,531,200 4,811,000 6,895,000
- -------------------------------------------------------
Total reserved shares 8,434,600 8,969,500 9,112,000
=======================================================
Options exercisable
at period end 334,600 869,000 1,012,000
=======================================================
Option prices per share:
Granted $74 $73-$77 $81
Exercised/surrendered $59-$75 $39-$75 $39-$75
Cancelled $59-$81 $39-$81 $39-$81
=======================================================
</TABLE>
*All shares and prices reflect the Corporation's Existing Common Stock through
December 16, 1997.
<TABLE>
<CAPTION>
1997 1997
- -------------------------------------------------------
Georgia-Pacific Group The Timber Company
- -------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding
at December 17 4,903,400 $53.32 4,903,400 $21.61
Options granted - - 1,010,600 25.13
Options exercised
surrendered (300) 41.99 (300) 17.01
Options cancelled - - - -
- -------------------------------------------------------
Options outstanding
at December 31 4,903,100 $53.32 5,913,700 $22.21
Options available
for grant at
December 31 4,500,000 1,289,400
- -------------------------------------------------------
Total reserved shares 9,403,100 7,203,100
=======================================================
Options exercisable
at December 31 334,300 $52.33 334,300 $21.20
Average remaining life of
options outstanding one year one year
Option prices per share:
Granted $- $25
Exercised/surrendered $42 $17
Outstanding $42-$57 $17-$25
=======================================================
</TABLE>
SHAREHOLDER RIGHTS PLAN. On December 16, 1997, shareholders approved an amended
and restated Shareholder Rights Plan (the "Rights Agreement") pursuant to which
preferred stock purchase rights (the "Rights") are issued on each share of
Georgia-Pacific Group stock (a "Georgia-Pacific Group Right"), which will
entitle the holders thereof to purchase shares of Series B Junior Preferred
Stock under the conditions specified in the Rights Agreement, and on each share
of The Timber Company stock (a "Timber Company Right"), which will entitle the
holders thereof to purchase shares of Series C Junior Preferred Stock under the
conditions specified in the Rights Agreement.
The Rights will expire on December 31, 2007, unless earlier redeemed by the
Corporation or extended. The Rights would be exercisable only if a person or
group acquires 15% or more of the total voting rights of all then outstanding
shares of common stock of the Corporation or commences a tender offer that would
result in such person or group beneficially owning 15% or more of the total
voting rights of all then outstanding shares of common stock of the Corporation.
In such event, each Right would entitle the holder to purchase from the
Corporation (i) in the case of a Georgia-Pacific Group Right, one one-hundredth
of a share of Series B Junior Preferred Stock (a "Series B Unit") at a purchase
price of $350 (the "Series B Unit Purchase Price"), subject to adjustment, and
(ii) in the case of a Timber Company Right, one one-hundredth of a share of
Series C Junior Preferred Stock (a "Series C Unit") at a purchase price of $100
(the "Series C Unit Purchase Price"), subject to adjustment.
Thereafter, in the event one of several specified events (generally
involving transactions by an acquirer of the Corporation's common stock or a
business combination involving the Corporation) occurs, each Georgia-Pacific
Group Right and each Timber Company Right will entitle its holder to purchase,
for the Series B Unit Purchase Price and the Series C Unit Purchase Price,
respectively, a number of shares of common stock of such entity or purchaser
with a market value equal to twice the applicable purchase price. Because of the
nature of the dividend, liquidation and voting rights of each class of Junior
Preferred Stock related to the Rights, the economic value of one Series B Unit
and one Series C Unit should approximate the economic value of one share of
Georgia-Pacific Group stock and one share of The Timber Company stock,
respectively.
CAPITAL STOCK. During the year ended December 31, 1997, the Corporation
purchased 358,400 shares of Georgia-Pacific Group stock at an aggregate purchase
price of $22 million on the open market. The resolution of the Board authorizing
such repurchases provided that none would be made as long as the total debt of
the Corporation exceeded $5.5 billion.
In January 1998, the Board increased the share repurchase threshold to allow
purchases of Georgia-Pacific Group stock so long as the Group's total debt
remains below $4.75 billion and the Corporation's total debt is below $5.75
billion. Repurchases of The Timber Company stock may be made so long as The
Timber Company's debt remains below $1 billion and the Corporation's debt
remains below $5.75 billion.
OTHER. The Georgia-Pacific Group adopted SFAS No. 123, "Accounting for Stock-
Based Compensation," in 1996. The Group has elected to continue to account for
its stock-based compensation plans under APB Opinion No. 25 and disclose pro
forma effects of the plans on net income and earnings per share as provided by
SFAS No. 123. Accordingly, no compensation cost has been recognized for the
SVIP, the Georgia-Pacific Group Plan, The Timber Company Plan or the Employee
Stock Purchase Plans. Had compensation cost for these plans been determined
based on the fair value at the grant dates in 1997, 1996 or 1995 under the plan
consistent with the method of SFAS No. 123, the pro forma net income and
earnings per share would have been as follows:
<TABLE>
<CAPTION>
(In millions, Year ended December 31,
except per share amounts) 1997 1996 1995
- --------------------------------------------------
Net Income Net Income Net Income
Income (loss) income (loss) income (loss)
(loss) per (loss) per (loss) per
share* share* share*
- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Georgia-Pacific Corporation
As reported $ 69 $ 156 $ 1.72 $ 1,018 $11.29
Pro forma $ 62 $ 144 $ 1.59 $ 1,014 $11.24
Georgia-Pacific Group
As reported $ (146) $(1.60) $ 29 $ 921
Pro forma $ (153) $(1.68) $ 17 $ 917
The Timber Company
As reported $ 215 $ 2.35 $ 127 $ 97
Pro forma $ 215 $ 2.35 $ 127 $ 97
- --------------------------------------------------
</TABLE>
*Represents basic earnings per share. Pro forma diluted income (loss) per share
was $(1.68) and $2.33 in 1997 for the Georgia-
Pacific Group and The Timber Company, respectively, and $1.58 and $11.13 for the
Corporation in 1996 and 1995, respectively.
The fair-value-based method of accounting for stock-based compensation plans
under SFAS No. 123 recognizes the value of options
granted as compensation cost over the option's vesting period and has not
been applied to options granted prior to January 1, 1995.
Accordingly, the resulting pro forma compensation cost is not representative of
what compensation cost will be in future years.
Following are the weighted average assumptions used in connection with the
Black-Scholes option pricing model to estimate the
fair value of options granted in 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1997 1996 1995 1995
Options ESPP* Options Options ESPP*
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------
Georgia-Pacific Corporation
Risk-free interest rate 5.7% 7.4% 5.7%
Expected dividend yield 2.0% 1.6% 2.0%
Expected life 10 years 10 years 2 years
Expected volatility .30 .30 .23
Option forfeiture rate 3% 3% 28%
- -------------------------------------------------------------
Georgia-Pacific Group
Risk-free interest rate 6.6% 5.8% 5.7% 7.4% 5.7%
Expected dividend yield 2.7% 2.3% 2.0% 1.6% 2.0%
Expected life 10 years 2 years 10 years 10 years 2 years
Expected volatility .30 .37 .30 .30 .23
Option forfeiture rate 3% 28% 3% 3% 28%
- -------------------------------------------------------------
The Timber Company
Risk-free interest rate 6.4% 5.8% 5.7% 7.4% 5.7%
Expected dividend yield 3.2% 2.3% 2.0% 1.6% 2.0%
Expected life 10 years 2 years 10 years 10 years 2 years
Expected volatility .27 .29 .30 .30 .23
Option forfeiture rate 3% 28% 3% 3% 28%
- -------------------------------------------------------------
</TABLE>
* Employee Stock Purchase Plans.
The weighted average grant date fair value per share, including
modifications, of Georgia-Pacific Group options and The Timber
Company options granted during the year using the Black-Scholes option pricing
model was $23.74 and $7.54, $18.98 and $6.42, and
$26.53 and $8.98 for 1997, 1996 and 1995, respectively. The weighted average
grant date fair value per share of shares subscribed
under the 1997 and 1995 Employee Stock Purchase Plans was $17.69 and $6.52,
and $18.48 and $6.81, for the Georgia-Pacific Group and
The Timber Company, respectively. The total pro forma compensation cost
calculated under SFAS No. 123 was allocated between the
Georgia-Pacific Group and The Timber Company based on the number of
employees in each group for periods prior to December 17, 1997.
Management believes that this method of allocation is equitable and provides
a reasonable estimate of the costs attributable to each
group.
NOTE 11. 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 208 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 28% are being
investigated, approximately 43% are being remediated and
approximately 29% 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 $53 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 defend
and settle these cases to date have been substantially
covered by product liability insurance. The Corporation is currently
defending claims of approximately 59,000 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 Corporation
has previously established financial reserves it believes to be adequate
to pay eligible claims and legal fees. However, the volume
and timing of actual claims, which under the settlement may be filed
through August 1998, could cause claims to exceed established
reserves.
In May 1997, the Corporation and nine other companies were named as
defendants in a class action suit 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 in federal courts
in California, Florida, Georgia and Wisconsin, and in
the state courts of California, Wisconsin 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. The Corporation has denied
that it has engaged in any of the illegal conduct alleged in these cases
and intends to defend itself vigorously.
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.
NOTE 12. RELATED PARTY TRANSACTIONS
For all periods in which the separate accompanying combined
statements of income of the groups are presented, timber has been
transferred from the Corporation's timberlands at prices intended
to reflect fair market prices based on prices paid by independent
purchasers and sellers for similar kinds of timber.
The Timber Company and the Georgia-Pacific Group have negotiated
an operating policy governing future sales of timber and wood
fiber by The Timber Company to the Georgia-Pacific Group with an
initial term of three years. Under this policy, the Georgia-Pacific
Group will be required to purchase in the years 1998-2000, on a take-or-pay
basis, 60% of the volume of timber and wood fiber
harvested annually from The Timber Company's Southern forests. In 1998,
the Georgia-Pacific Group has a right of first refusal to
purchase up to 90% of The Timber Company's total annual harvest from
each forest (which amount includes the 60% take-or-pay amount
described above). In 1999 and 2000, the volume subject to this right
of first refusal will decrease to 80%, and the Georgia-Pacific
Group must exercise its right not later than October 15 of the
preceding year. For 1998, the Georgia-Pacific Group has agreed to
purchase 83% of The Timber Company's total annual harvest. All
quantities of timber and wood fiber committed under the take-or-pay
arrangement described above, and all quantities as to which the
Georgia-Pacific Group exercises its right of first refusal for a
particular year, will be sold at market prices determined quarterly.
Such prices are intended to approximate prices negotiated
between unaffiliated third parties in the open market and will
be based upon (i) an average of the actual prices received by The
Timber Company during the immediately preceding quarter for sales
made by it to third parties, and prices paid by the Georgia-
Pacific Group for purchases made by it from third parties, in
the same forest region, of timber and wood fiber of the same species,
grade and size, and (ii) the benefit to the Georgia-Pacific Group of
having access to a committed quantity of high-quality timber
and wood fiber in close proximity to its mills and plants.
All quantities of timber and wood fiber harvested each year
by The Timber Company and not committed to the Georgia-Pacific
Group as described above may be sold by The Timber Company to
any purchaser, including the Georgia-Pacific Group. In such case, the
Georgia-Pacific Group may purchase such timber at negotiated prices or
at prices determined in competitive bidding. Sales to the
Georgia-Pacific Group and third parties will generally be made
on a stumpage basis, except that sales in the Western region and of
thinnings and selective harvests by The Timber Company may be made
on a delivered basis.
This policy is intended to ensure that the Georgia-Pacific Group
will be able to purchase from The Timber Company specified
amounts of timber and wood fiber, while ensuring that The Timber
Company, beginning in 1999, will be able to sell at least 20% of
its annual harvest on the open market. This policy will remain in
effect through 2000. If neither party gives written notice to the
other of its desire to renegotiate or terminate the policy by
October 15, 1998, the policy will automatically be extended through
2001 and thereafter will be extended for an additional year on each
January 1 until any such notice of renegotiation or termination
is received. As a result, the policy in effect has a two-year
termination clause to allow both the Georgia-Pacific Group and The
Timber Company time to find other sellers and purchasers, respectively,
of timber and wood fiber.
The Corporation is a 50% partner in a joint venture ("GA-MET")
with Metropolitan Life Insurance Company ("Metropolitan"). GA-MET
owns and operates the Corporation's main office building in Atlanta,
Georgia. The Corporation accounts for its investment in GA-MET
under the equity method, which is included on the Georgia-Pacific
Group's financial statements.
At December 31, 1997, GA-MET had an outstanding mortgage
loan payable to Metropolitan in the amount of $150 million. The note
bears interest at 9 1/2%, requires monthly payments of principal and
interest through 2011, and is secured by the land and building
owned by the joint venture. In the event of foreclosure, each partner has
severally guaranteed payment of one-half of any shortfall
of collateral value to the outstanding secured indebtedness. Based on the
present market conditions and building occupancy, the
likelihood of any obligation to the Georgia-Pacific Group or The Timber
Company with respect to this guarantee is considered remote.
NOTE 13. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
Georgia-Pacific Corporation--Georgia-Pacific Group
<TABLE>
<CAPTION>
First Quarter Second Quarter
----------------------------
(In millions, except
per share amounts) 1997 1996 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $3,120 $3,024 $3,297 $ 3,296
Gross profit (net sales
minus
cost of sales) 566 690 587 715
Income (loss) before
extraordinary
item and accounting change (13) 30 (10) (14)
Net income (loss) (13) 30 (10) (19)
Dividends declared per
share .25 .25 .25 .25
Basic and diluted income
(loss)
per common share before
accounting change
Basic and diluted income
(loss)
per common share
Price range of stock
(December 17 -
December 31, 1997)
High
Low
- ------------------------------------------------------------
Third Quarter Fourth Quarter
- ------------------------------------------------------------
(In millions, except
per share amounts) 1997 1996 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $3,330 $3,416 $3,221 $ 3,165
Gross profit (net
sales minus
cost of sales) 682 701 461 570
Income (loss) before
extraordinary
item and accounting change 41 63 (104) (45)
Net income (loss) 41 63 (164) (45)
Dividends declared per
share .25 .25 .25 .25
Basic and diluted income
(loss)
per common share before
accounting change (1.13)
Basic and diluted net
income (loss)
per common share (1.78)
Price range of stock
(December 17 -
December 31, 1997)
High 64.00
Low 59.00
- ------------------------------------------------------------
</TABLE>
SELECTED FINANCIAL DATA - OPERATIONS
Georgia-Pacific Corporation--Georgia-Pacific Group
CASH DIVIDENDS TO EARNINGS
Cash dividends declared divided by net income (loss).
EARNINGS TO INTEREST
Income (loss) before income taxes, extraordinary items and accounting changes
plus interest expense divided by total interest cost (interest expense plus
capitalized interest). In the 1997, 1996, 1995, 1994, and 1993 calculations,
respectively, the $19 million, $20 million, $37 million, $33 million and $29
million cost of the accounts receivable sale program was included in interest
expense.
CASH FLOW TO INTEREST
Cash provided by operations plus interest expense divided by total interest cost
(interest expense plus capitalized interest). In the 1995 and 1993
calculations, respectively, cash provided by operations excludes $(350) million
and $(100) million from the accounts receivable sale program. In the 1997,
1996, 1995, 1994 and 1993 calculations, respectively, the $19 million, $20
million, $37 million, $33 million and $29 million cost of the accounts
receivable sale program was included in interest expense.
EFFECTIVE INCOME TAX RATE
Provision (benefit) for income taxes divided by income (loss) before income
taxes, extraordinary items and accounting changes.
SELECTED FINANCIAL DATA - OPERATIONS
Georgia-Pacific Corporation--Georgia-Pacific Group
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------
(Dollar amounts, except
per share, and shares
are in millions) 1997 1996 1995 1994
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net sales $12,968 $12,901 $14,195 $12,624
- ----------------------------------------------------------------
Costs and expenses
Cost of sales, excluding
depreciation and cost
of timber harvested
shown below 10,672 10,225 10,138 9,812
Selling, general and
administrative 1,137 1,354 1,328 1,157
Depreciation and cost
of timber harvested 910 880 871 868
Interest 381 354 321 372
Other (income) loss (14) - - (57)
- ----------------------------------------------------------------
Total costs and expenses 13,086 12,813 12,658 12,152
- ----------------------------------------------------------------
Income (loss) before income
taxes, extraordinary
items and accounting
changes (118) 88 1,537 472
Provision (benefit) for
income taxes (32) 54 616 207
- ----------------------------------------------------------------
Income (loss) before
extraordinary items
and accounting changes (86) 34 921 265
Extraordinary items and
accounting changes, net
of taxes (60) (5) - (16)
- ----------------------------------------------------------------
Net income (loss) $ (146) $ 29 $ 921 $ 249
================================================================
Cash provided by
operations* $ 900 $ 1,047 $ 1,685 $ 921
================================================================
Other statistical data
Basic and diluted per share
Income (loss) before
extraordinary items and
accounting changes $ (.94)
Extraordinary items and
accounting changes, net of
taxes (.66)
- ----------------------------------------------------------------
Net income (loss) $(1.60)
================================================================
Dividends declared
per share $ 1.00 $ 1.00 $ .95 $ .80
Average shares of stock
outstanding, basic and
diluted 91.4
Cash dividends to earnings (63.0)% 100%+ 9.3% 28.9%
Earnings to interest .7 1.2 5.0 2.2
Cash flow to interest 3.3 3.6 5.6 3.4
Effective income tax rate 27.1% 61.4% 40.1% 43.9%
================================================================
Year ended December 31
-------------------------------------
(Dollar amounts,
except per share,
and shares
are in millions) 1993
- ----------------------------------------------------------------
<S> <C>
Operations
Net sales $12,157
- ----------------------------------------------------------------
Costs and expenses
Cost of sales, excluding
depreciation and cost
of timber harvested,
shown below 9,626
Selling, general and
administrative 1,212
Depreciation and cost
of timber harvested 911
Interest 429
Other (income) loss 26
- ----------------------------------------------------------------
Total costs and expenses 12,204
- ----------------------------------------------------------------
Income (loss) before income
taxes, extraordinary items
and accounting changes (47)
Provision (benefit) for
income taxes 14
- ----------------------------------------------------------------
Income (loss) before
extraordinary items
and accounting changes (61)
Extraordinary items and
accounting changes, net
of taxes (16)
- ----------------------------------------------------------------
Net income (loss) $ (77)
================================================================
Cash provided by
operations* $ 498
================================================================
Other statistical data
Basic and diluted per share
Income (loss) before
extraordinary items and
accounting changes
Extraordinary items and
accounting changes, net of
taxes
- ----------------------------------------------------------------
Net income (loss)
================================================================
Dividends declared
per share $ .80
Average shares of stock
outstanding, basic and diluted
Cash dividends to earnings (92.2)%
Earnings to interest .9
Cash flow to interest 2.4
Effective income tax rate (29.8)%
================================================================
</TABLE>
* Excludes the accounts receivable sale program.
SELECTED FINANCIAL DATA - FINANCIAL POSITION, END OF YEAR
Georgia-Pacific Corporation--Georgia-Pacific Group
BOOK VALUE PER COMMON SHARE
Shareholders' equity divided by shares of stock outstanding as of the end of the
year.
TOTAL DEBT TO CAPITAL, BOOK BASIS
Total debt divided by the sum of total debt, deferred income taxes, other long-
term liabilities and shareholders' equity as of the end of the year. Total debt
includes bank overdrafts, commercial paper and short-term notes, current portion
of long-term debt, long-term debt and accounts receivable sold.
TOTAL DEBT TO CAPITAL, MARKET BASIS
Total debt divided by the sum of total debt and the market value of
shareholders' equity as of the end of the year. Total debt includes bank
overdrafts, commercial paper and short-term notes, current portion of long-term
debt, long-term debt and accounts receivable sold. The value of shareholders'
equity is the market price of common stock multiplied by the number of common
stock shares outstanding.
CURRENT RATIO
Current assets divided by current liabilities as of the end of the year.
SELECTED FINANCIAL DATA - FINANCIAL POSITION, END OF YEAR
Georgia-Pacific Corporation--Georgia-Pacific Group
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------
(Dollar amounts, except per share,
and shares are in millions) 1997 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial position, end of year
Current assets $2,911 $2,611 $2,589 $ 1,979
Timber contracts 71 58 81 71
Property, plant and
equipment 6,277 6,535 5,986 5,464
Goodwill 1,599 1,658 1,714 1,773
Other assets 921 630 617 233
- -----------------------------------------------------------------
Total assets 11,779 11,492 10,987 9,520
- -----------------------------------------------------------------
Current liabilities 2,698 2,200 1,616 2,012
Long-term debt 3,057 3,340 3,479 2,836
Other long-term liabilities 1,542 1,272 1,199 823
Deferred income taxes 959 987 967 1,012
- -----------------------------------------------------------------
Total liabilities 8,256 7,799 7,261 6,683
- -----------------------------------------------------------------
Shareholders' equity $3,523 $3,693 $3,726 $ 2,837
- -----------------------------------------------------------------
Working capital $ 213 $ 411 $ 973 $ (33)
- -----------------------------------------------------------------
Other statistical data
Property, plant and equipment
investments (including
acquisitions) $ 715 $1,418 $1,253 $ 843
Proprty, plant and equipment
investments (excluding
acquisitions) 715 1,055 1,253 843
Timber & timberland purchases 131 94 182 174
Per share (December 17 through
(December 31)
Market price: High 64.00
Low 59.00
Year-end 60.75
Book value 38.19
Shares of stock outstanding at
year end 92.2
Total debt to capital,
book basis 43.1% 44.2% 42.3% 48.9%
Total debt to capital,
market basis 44.7%
Current ratio 1.1 1.2 1.6 1.0
================================================================
Year ended December 31
-----------------------------------
(Dollar amounts,
except per share,
and shares are in millions) 1993
- -----------------------------------------------------------------
<S> <C>
Financial position, end of year
Current assets $1,640
Timber contracts 79
Property, plant and
equipment 5,427
Goodwill 1,832
Other assets 216
- -----------------------------------------------------------------
Total assets 9,194
- -----------------------------------------------------------------
Current liabilities 1,815
Long-term debt 3,025
Other long-term liabilities 826
Deferred income taxes 921
- -----------------------------------------------------------------
Total liabilities 6,587
- -----------------------------------------------------------------
Shareholders' equity $2,607
- -----------------------------------------------------------------
Working capital $(175)
- -----------------------------------------------------------------
Other statistical data
Property, plant and equipment
investments (including
acquisitions) $ 414
Property, plant and equipment
investments (excluding
acquisitions) 414
Timber & timberland purchases 204
Per share (December 17 through
December 31)
Market price: High
Low
Year-end
Book value
Total debt to capital,
book basis 50.1%
Total debt to capital,
market basis
Current ratio .9
=================================================================
</TABLE>
GEORGIA PACIFIC CORPORATION-THE TIMBER COMPANY-ANNUAL REPORT
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE TIMBER COMPANY
The Timber Company consists of approximately 5.8 million acres of timberlands
owned or leased by Georgia-Pacific Corporation (the "Corporation"), together
with related facilities and equipment. The accompanying financial statements
present the historical results of operations and financial condition of the
timberlands and operations that compose The Timber Company. Historically, The
Timber Company grew and sold timber and wood fiber, substantially all of which
was sold to the Corporation's manufacturing facilities which now constitute the
Georgia-Pacific Group. As more fully described in Note 10 of The Timber
Company's Notes to Combined Financial Statements, The Timber Company and the
Georgia-Pacific Group have negotiated an operating policy governing future sales
of timber and wood fiber.
The Timber Company's harvest volumes in 1996 and 1997 were above initial
plan levels and actual 1995 harvest levels predominantly due to accelerated
harvests in the mid-South Central United States. This was a result of the
Corporation's strategy to ensure continuous mill operations during abnormally
wet weather conditions, which impaired open market wood availability and mill
inventories, as well as continued strong lumber prices. In the near term,
harvests are expected to decline from levels experienced in 1996 and 1997, but
should remain approximately 5-10% above 1995 levels.
The operations of The Timber Company, and its financial results, are
affected by a number of factors, including prices for timber and wood fiber
generally; selling prices for manufactured wood products, including lumber,
structural panels and other wood products; supplies of timber and wood fiber
from other wood sources in the United States and competition for these raw
materials; and seasonal factors such as weather. The demand for lumber and other
wood products is in turn affected by demand for residential housing construction
and, to a lesser extent, home remodeling activity. Environmental concerns,
particularly in the Western United States, have significantly reduced the
availability of timber, especially from government-owned lands, and raised
prices because of higher costs of managing and harvesting timberlands.
Increasing environmental concerns could lead to further tightening of timber
supplies in the foreseeable future.
Selected financial data for The Timber Company is shown in the table below.
SELECTED SALES DATA
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
Year ended December 31
------------------
(In millions) 1997 1996 1995
- ------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
Southern softwood
sawtimber $ 281 $ 251 $ 195
Western softwood
sawtimber 118 144 176
Softwood pulpwood 77 88 68
Hardwood sawtimber 20 14 10
Hardwood pulpwood 29 23 22
Other 26 27 22
- ------------------------------------------------------------
Total net sales $ 551 $ 547 $ 493
==============================================================
Volume (in thousand tons)
Southern softwood
sawtimber $ 5,986 $ 6,003 $ 4,430
Western softwood
sawtimber 1,539 1,891 2,096
Softwood pulpwood 5,118 5,492 4,804
Hardwood sawtimber 397 415 320
Hardwood pulpwood 2,572 2,359 2,147
- ------------------------------------------------------------
Total volume $15,612 $16,160 $13,797
==============================================================
Selling prices (per ton)
Southern softwood
sawtimber $ 47 $ 42 $ 44
Western softwood
sawtimber 77 76 84
Softwood pulpwood 15 16 14
Hardwood sawtimber 50 34 31
Hardwood pulpwood 11 10 10
- ------------------------------------------------------------
Weighted average price $ 34 $ 32 $ 34
==============================================================
</TABLE>
The Timber Company also is engaged in certain businesses related to the
ownership and management of timberlands, including real estate development, the
sale of minerals and mineral rights, and the sale of hunting leases. Revenues
from those activities are presented in the table below.
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
Year ended December 31
------------------
(In millions) 1997 1996 1995
- ------------------------------------------------------------
<S> <C> <C> <C>
Other Net Sales
Hunting leases $ 11 $ 9 $ 9
Real estate 8 10 7
Minerals 6 7 6
Other 1 1 -
- ------------------------------------------------------------
Total $ 26 $ 27 $ 22
==============================================================
</TABLE>
1997 COMPARED WITH 1996
The Timber Company reported net sales of $551 million and net income of $215
million in 1997, compared with net sales of $547 million and net income of $127
million in 1996. The 1997 results included a $114 million pretax gain from the
sale of 127,000 acres of timberlands located near Martell, California. As a
percentage of The Timber Company's total net sales, sales from the Martell
timberlands were 6% in 1996 and 1995. There were no sales from the Martell
timberlands in 1997, and the operating profits from those timberlands were not
significant for any of the years presented on the financial statements.
Harvesting from the timberlands in 1997 continued to be consistent with the
relatively high levels experienced in 1996. However, harvests trailed off
slightly during the fourth quarter, particularly for Southern softwood
sawtimber, which is used principally in making plywood and lumber. Unusually wet
weather in the early part of the year reduced the accessibility of other
suppliers' timber, thus increasing the demand for timber from The Timber
Company.
Excluding the gain on the Martell sale, earnings before interest and taxes
increased $10 million to $323 million in 1997, compared with $313 million in
1996. The increase is primarily the result of a 12% increase in Southern
sawtimber prices. Other prices remained stable throughout the year with the
exception of hardwood sawtimber, which increased due in large part to the mix of
hardwood sawtimber harvested (e.g., a higher proportion of more expensive, high-
grade sawtimber being harvested).
Selling, general and administrative expense ("SG&A") was $43 million in 1997
(including an unusual charge of $3 million related to information systems write-
offs), compared with $45 million in 1996. The Timber Company conducted an
extensive review of its overhead and administrative activities during late 1996
and early 1997. As a result, The Timber Company's annual direct and indirect
overhead declined by approximately $5 million during 1997.
Interest expense declined 20% to $84 million in 1997, compared with $105
million in 1996. The primary reason for the decline was a lower level of debt,
which resulted from applying the $270 million proceeds from the sale of the
Martell timberlands.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Timber Company generated cash from operations of $212
million during 1997. The Timber Company's cash provided by operations in 1996
was $166 million.
INVESTING ACTIVITIES. Timber and timberland investments during 1997 were $51
million. Investments in 1996 totaled $48 million. The Timber Company expects to
invest approximately $50 million in 1998 without considering the cost of any
acquisitions.
During 1997, The Timber Company received $278 million of proceeds from sales
of assets. This amount included $270 million of proceeds from the sale of the
Martell timberlands on March 31, 1997. The timberlands were sold following a
determination that they no longer fit The Timber Company's long-term strategy.
FINANCING ACTIVITIES. After the payment of dividends of $92 million in 1997,
the remaining cash flow of $345 million in 1997 was applied to reduce The Timber
Company's debt.
At December 31, 1997 and 1996, the Corporation's total debt was $5.5 billion
and $5.9 billion, respectively. At December 31, 1997 and 1996, $4.5 billion and
$4.6 billion, respectively, of such total debt was Georgia-Pacific Group's debt,
and $971 million and $1.3 billion, respectively, was The Timber Company's debt.
The decrease was primarily attributable to the proceeds received from the sale
of the Martell timberlands. The debt of The Timber Company bears interest at a
rate equal to the weighted average rate of the Corporation's total debt,
calculated on a quarterly basis. The weighted average interest rate on the
Corporation's total debt at December 31, 1997 was 7.8% including outstanding
interest rate exchange agreements. In the future, The Timber Company's debt will
increase or decrease by the amount of any cash provided by or used for its
operating activities, investing activities, dividend payments, share repurchases
or issuances and other (nondebt-related) financing activities. See Note 1 of the
Notes to Combined Financial Statements for further discussion of financial
activities.
The amount of the Corporation's debt and accounts receivable shown on the
balance sheet at December 31, 1996 does not include $350 million of proceeds
from the accounts receivable sale program. That amount, although not reflected
on the balance sheet, was considered part of the Corporation's total debt at
December 31, 1996, under the assumption that at the end of the program the
proceeds will be replaced by debt. In the 1997 first quarter, the Corporation
adopted Statement of Financial Accounting Standards ("SFAS") No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." As a result, the accounts receivable sale program is accounted
for as a secured borrowing effective January 1, 1997. The $280 million of
receivables outstanding under the program at December 31, 1997 and the
corresponding debt are included as current receivables and short-term debt,
respectively, on the Corporation's balance sheet. The fees associated with the
program are included in interest expense for all years.
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. These notes are included in "Other assets" on the Corporation's balance
sheet at December 31, 1997. 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 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
sheet. These transactions with respect to The Timber Company are reflected as
"Proceeds from sales of assets" on the statements of cash flows of The Timber
Company.
At December 31, 1997, the Corporation had outstanding borrowings of $659
million under certain industrial revenue bonds. Approximately $16 million from
the issuance of these bonds is being held by trustees and is restricted for the
construction of Georgia-Pacific Group capital projects, and $15 million is held
by trustees to refund a like amount of bonds maturing on January 2, 1998.
Amounts held by trustees are classified as noncurrent assets on the
Corporation's balance sheets.
The Corporation has a $1.5 billion unsecured revolving credit facility that
is used for direct borrowings and as support for commercial paper and other
short-term borrowings. As of December 31, 1997, $879 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, options 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.
The Corporation does not utilize derivatives for speculative purposes.
Derivatives are transaction-specific so that a specific debt instrument,
contract or invoice 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.
The table below presents principal (or notional) amounts and related
weighted average interest rates by year of expected maturity for the
Corporation's debt obligations. For obligations with variable interest rates,
the table sets forth payout amounts based on current rates and does not attempt
to project future interest rates.
<TABLE>
<CAPTION>
(In millions) 1998 1999 2000 2001
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt
Commercial paper and other
short-term notes - - - -
Average interest rates - - - -
Notes and debentures $ 817 - - -
Average interest rates 8.0% - - -
Revenue bonds $ 36 $ 9 $ 16 $ 1
Average interest rates 4.3% 4.5% 4.4% 6.5%
Other loans - - $ 13 -
Average interest rates - - 7.9% -
Accounts receivable sale program - - - -
Average interest rates - - - -
Notional principal amount of
interest rate exchange
agreements $ 320 $ 56 $ 100 -
Average interest rate paid
(fixed) 9.4% 8.8% 8.4% -
Average interest rate received
(variable) 5.8% 5.7% 5.9% -
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Fair value
December 31,
(In millions) 2002 Thereafter Total 1997
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt
Commercial paper and other
short-term notes - $ 621 $ 621 $ 621
Average interest rates - 6.4% 6.4% 6.4%
Notes and debentures $ 300 $2,600 $3,717 $4,055
Average interest rates 10.0% 8.7% 8.7% 8.7%
Revenue bonds $ 75 $ 522 $ 659 $ 637
Average interest rates 5.0% 5.0% 4.9% 4.9%
Other loans - - $ 13 $ 13
Average interest rates - - 7.9% 7.9%
Accounts receivable sale program - $ 280 $ 280 $ 280
Average interest rates - 6.1% 6.1% 6.1%
Notional principal amount of
interest rate exchange
agreements - - $ 476 $ 10
Average interest rate paid
(fixed) - - 9.0% 9.0%
Average interest rate received
(variable) - - 5.8% 5.8%
- ------------------------------------------------------------
</TABLE>
The Corporation has the intent and ability to refinance commercial paper, other
short-term notes and the accounts receivable sale program as they mature.
Therefore, maturities of these obligations are reflected as cash flows expected
to be made after 2002.
At December 31, 1997, the Corporation had interest rate exchange agreements that
effectively converted $476 million of floating rate obligations with a weighted
average interest rate of 5.8% to fixed rate obligations with an average
effective interest rate of approximately 9.0%. These agreements increased
interest expense by $16 million, $17 million and $20 million for the three years
ended December 31, 1997, 1996 and 1995, respectively. These agreements have a
weighted average maturity of approximately 1.1 years. As of December 31, 1997,
the Corporation's total floating rate debt exceeded related interest rate
exchange agreements by $1.3 billion.
The Corporation also enters into foreign currency exchange agreements, the
amounts of which were not material to the financial position of The Timber
Company at December 31, 1997.
As of December 31, 1997, 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.
The Corporation's Board of Directors (the "Board") has adopted a policy that
earnings and cash flow generated from the businesses of the Georgia-Pacific
Group or The Timber Company will be used only for reinvestment in the business
of the group generating such earnings and related cash flows; for repayment of
its debt; or for payment of dividends on, or the repurchase of shares of, the
class of common stock reflecting such group's performance. Funds of one group
will not be loaned to or otherwise invested in the business of the other group.
The Timber Company expects to buy and sell timberlands as part of a
continuing effort to improve its competitive position. It is also expected that
proceeds from sales of timberlands by The Timber Company will be used by it
either to fund the purchase of other timberlands that, due to location or
species mix, are more desirable, or to reduce debt or return cash to holders of
The Timber Company stock, in the form of either dividends or stock repurchases.
The cost of timberland purchases or the proceeds from timberland sales could be
material to the results of operations and financial condition reported for The
Timber Company in a particular quarter or year.
In January 1998, the Board authorized management to make purchases of The
Timber Company stock on the open market or in private transactions so long as
The Timber Company's total debt remains below $1.0 billion and the Corporation's
debt remains below $5.75 billion. Depending on operating and financial
considerations, debt levels of the Corporation and of The Timber Company may
from time to time be above or below these thresholds. No share repurchases of
The Timber Company stock were made in 1997.
In 1998, The Timber Company expects its cash flow from operations, together
with proceeds from any sales of assets and available financing sources, to be
sufficient to fund planned capital investments, pay dividends and make scheduled
debt repayments.
OTHER. The Timber Company employs approximately 500 people of which there is
not a significant number of union employees.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share," which specifies the computation,
presentation and disclosure requirements for earnings per share. The Timber
Company adopted SFAS No. 128 in the 1997 fourth quarter. The per share amounts
reported under SFAS No. 128 are not materially different from those calculated
and presented under APB Opinion No. 15.
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 in a full set of general purpose financial statements.
The Timber Company will be required to adopt SFAS No. 130 in 1998.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." SFAS No. 131 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.
The Timber Company does not expect to incur significant costs during the
next two years to address the impact of the so-called Year 2000 problem on its
information systems. The Year 2000 problem, which is common to most businesses,
concerns the inability of information systems, primarily computer software
programs, to properly recognize and process date-sensitive information on and
beyond January 1, 2000.
For a discussion of commitments and contingencies, see Note 9 of the Notes
to Combined Financial Statements.
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 The Timber
Company's projections concerning harvest plans and timber prices, and its
expectations regarding future demand for timber, levels of environmental
regulation and the effects thereof on future timber supplies and prices, 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: acquisitions or divestitures
of material timberland acreage by The Timber Company; management's ability to
realize present expectations for future timber growth and product yield
responses to various forestry practices; 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; and other risks, uncertainties and assumptions
discussed in 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.
1996 COMPARED WITH 1995
The Timber Company reported net sales of $547 million and net income of $127
million for 1996, compared with net sales of $493 million and net income of $97
million in 1995.
Earnings before interest and taxes increased $42 million to $313 million in
1996, compared with $271 million in 1995. Increased sales and net income were
primarily a result of a 17% increase in harvest volumes, partially offset by a
5% decline in prices for Southern softwood sawtimber. Volumes of principal
grades of timber sold increased sharply in 1996 compared to 1995 as the
Corporation elected to harvest larger amounts of all principal wood types from
its own timberlands, as opposed to purchasing them from third parties. Harvest
volumes in 1996 were above initial plan levels and actual 1995 harvest levels
predominantly due to accelerated harvests in late 1996 in the mid-South Central
United States.
Other revenue in 1996 exceeded 1995 by $5 million, as a result of a $5
million bulk sale of property at the Dunes West real estate development. Cost of
sales, excluding depreciation and cost of timber harvested, increased by $10
million, up 8% from 1995, as a result of increased silviculture activity.
Interest expense declined by $6 million from 1995, due to lower debt levels and
interest rates.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of
Directors of Georgia-Pacific Corporation:
We have audited the accompanying combined balance sheets of the Georgia-
Pacific Corporation -The Timber Company (as described in Note 1) as of December
31, 1997 and 1996 and the related combined statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Georgia-Pacific
Corporation -The Timber Company as of December 31, 1997 and 1996 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Atlanta, Georgia
February 6, 1998
COMBINED STATEMENTS OF INCOME
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
Year ended December 31
---------------------
(In millions, except per
share amounts) 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Net sales
Timber--Georgia-Pacific Group $ 425 $ 424 $ 375
Timber--third parties
Delivered 87 89 89
Stumpage 13 7 7
Other 26 27 22
- ---------------------------------------------------------------
Total net sales 551 547 493
- ---------------------------------------------------------------
Costs and expenses
Cost of sales, excluding
depreciation and cost of
timber harvested shown below 137 132 122
Selling, general and
administrative 43 45 45
Depreciation and cost of timber
harvested 48 57 55
Interest 84 105 111
Other (income)--Martell sale (114) - -
- ---------------------------------------------------------------
Total costs and expenses 198 339 333
- ---------------------------------------------------------------
Income before income taxes 353 208 160
Provision for income taxes 138 81 63
- ---------------------------------------------------------------
Net income $ 215 $ 127 $ 97
===============================================================
Basic per share:
Net income $2.35
Diluted per share:
Net income $2.33
===============================================================
Average number of shares
outstanding
Basic 91.4
Diluted 92.1
===============================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
COMBINED STATEMENTS OF CASH FLOWS
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
Year ended December 31
----------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating
activities
Net income $ 215 $ 127 $ 97
Adjustments to reconcile net income
to cash provided by operations:
Depreciation and
cost of timber harvested 48 57 55
Deferred income taxes 66 (6) 2
Other income (114) - -
Gain on sales of assets (12) (16) (12)
Change in other working capital 1 (1) (1)
Other 8 5 (2)
- ---------------------------------------------------------------
Cash provided by operations 212 166 139
- ---------------------------------------------------------------
Cash flows from investing
activities
Machinery and equipment
investments (2) (4) (6)
Timber and timberland investments (51) (48) (62)
Proceeds from sales of assets 278 27 24
- ---------------------------------------------------------------
Cash provided by(used for)
investing activities 225 (25) (44)
- ---------------------------------------------------------------
Cash flows from financing activities
(Repayments of) additions to debt (345) (49) (8)
Cash dividends paid (92) (92) (87)
- ---------------------------------------------------------------
Cash (used for) financing activities (437) (141) (95)
- ---------------------------------------------------------------
Increase (decrease) in cash - - -
Balance at beginning of year - - -
- ---------------------------------------------------------------
Balance at end of year $ - $ - $ -
===============================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
COMBINED BALANCE SHEETS
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
December 31
------------------
(In millions, except shares
and per share amounts) 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Assets
Timber and timberlands
Timberlands $ 302 $ 307
Fee Timber 608 772
Reforestation 182 154
Other 30 46
- ---------------------------------------------------------------
Total timber and
timberlands 1,122 1,279
- ---------------------------------------------------------------
Machinery and equipment,
less accumulated depreciation
of $42 and $45, respectively 20 25
Investment in real estate
held for development
and sale 22 17
Other Assets 7 5
- ---------------------------------------------------------------
Total Assets $1,171 $ 1,326
===============================================================
December 31
-----------------
1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Liabilities and shareholders' equity
Debt $ 971 $ 1,316
Other liabilities 9 8
Deferred income
tax liabilities 240 174
- ---------------------------------------------------------------
Total liabilities 1,220 1,498
- ---------------------------------------------------------------
Commitments and contingencies
Shareholders' equity (49) (172)
- ---------------------------------------------------------------
Total liabilities
and shareholders' equity $1,171 $ 1,326
===============================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
Year ended December 31
----------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Shareholders' equity balance,
beginning of year $(172) $(207) $(217)
Net income 215 127 97
Cash dividends paid (92) (92) (87)
- ---------------------------------------------------------------
Shareholders' equity balance,
end of year $ (49) $(172) $(207)
===============================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
GEORGIA-PACIFIC CORPORATION-THE TIMBER COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. Georgia-Pacific Corporation, a Georgia corporation (the
"Corporation"), is broadly engaged in two lines of business: the manufacture and
sale of a wide variety of pulp and paper products (including pulp, communication
papers, containerboard, packaging and tissue products) and manufactured building
products (including plywood, oriented strand board, various industrial wood
products, and softwood and hardwood lumber as well as certain nonwood products
including gypsum board and chemicals); and the growing of timber and wood fiber
on approximately 5.8 million acres of timberlands that the Corporation owns or
leases. In 1997, these timberlands supplied approximately 25% of the overall
timber and wood fiber requirements of the Corporation's manufacturing
facilities.
On December 16, 1997, shareholders of the Corporation approved the creation
of two classes of common stock intended to reflect separately the performance of
the Corporation's manufacturing and timber businesses (the "Letter Stock
Recapitalization"). The Corporation's Articles of Incorporation (the "Articles")
were amended and restated (the "Restated Articles") to (i) create a new class of
stock designated as Georgia-Pacific Corporation -Timber Group common stock, 80
cents par value per share ("The Timber Company stock"), consisting of 250
million authorized shares; (ii) redesignate each authorized share of the
Corporation's common stock, 80 cents par value per share (the "Existing Common
Stock") as, and convert each share into, one share of Georgia-Pacific
Corporation - Georgia-Pacific Group common stock, 80 cents par value per share
(the "Georgia-Pacific Group stock"); (iii) increase the number of shares of
Georgia-Pacific Group stock authorized for issuance from 150 million shares to
400 million shares; and (iv) authorize the distribution of one share of The
Timber Company stock for each outstanding share of Georgia-Pacific Group stock
(the "Distribution").
The Corporation's manufacturing and timber businesses are referred to
hereinafter as the "Georgia-Pacific Group" and "The Timber Company,"
respectively, or collectively as the "groups."
The Georgia-Pacific Group is a manufacturer and distributor of building
products as well as a producer of pulp and paper products. The Georgia-Pacific
Group includes a procurement function that is responsible for purchasing timber
and wood fiber for all of the Group's manufacturing facilities. The Timber
Company is engaged primarily in the growing and selling of timber.
The Corporation has presented financial statements of the groups at
substantially the same level of detail as those of the Corporation to allow
investors to properly evaluate the financial condition and results of operations
of each business. It is the Corporation's expectation that investors will use
the groups' combined financial information in conjunction with the Corporation's
consolidated financial information to assist them in making informed financial
decisions relative to the acquisition or disposition of shares of each class of
stock.
The financial statements of the groups compose all of the accounts included
in the corresponding consolidated financial statements of the Corporation. The
separate financial statements of the Georgia-Pacific Group and The Timber
Company have been prepared on a basis that management believes to be reasonable
and appropriate and include (i) the historical balance sheets, results of
operations and cash flows for each of the groups, with all significant
intragroup transactions and balances eliminated; (ii) in the case of The Timber
Company's financial statements, assets and liabilities of the Corporation and
related transactions identified with The Timber Company, including allocated
portions of the Corporation's debt and SG&A; and (iii) in the case of the
Georgia-Pacific Group's financial statements, all other assets and liabilities
and related transactions of the Corporation, including allocated portions of the
Corporation's debt and SG&A. Intergroup timber sales between the Georgia-Pacific
Group and The Timber Company have not been eliminated on either group's
financial statements.
Notwithstanding the allocation of assets and liabilities (including
contingent liabilities) and shareholders' equity between the Georgia-Pacific
Group and The Timber Company for the purpose of preparing the respective
financial statements of each group, holders of Georgia-Pacific Group stock and
The Timber Company stock are shareholders of the Corporation and will continue
to be subject to all of the risks associated with an investment in the
Corporation and all of its businesses, assets and liabilities. The allocation of
assets and liabilities and change in the equity structure of the Corporation
resulting from the Letter Stock Recapitalization did not result in a transfer or
spin-off of any assets or liabilities of the Corporation, or otherwise affect
ownership of any assets or responsibility for the liabilities of the Corporation
or any of its subsidiaries. As a result, the Letter Stock Recapitalization does
not affect the rights of holders of the Corporation's or any of its
subsidiaries' debt.
Holders of Georgia-Pacific Group stock and The Timber Company stock have
only the rights customarily held by common shareholders of the Corporation and
do not have any rights related to their corresponding group except as set forth
in provisions relating to dividend and liquidation rights and requirements for a
mandatory dividend, redemption or conversion upon the disposition of assets of
their corresponding group, or have any right to vote on matters as a separate
voting group other than in limited circumstances as provided under Georgia law
or by stock exchange rules. The relative voting power of Georgia-Pacific Group
stock and The Timber Company stock will fluctuate from time to time, with each
share of Georgia-Pacific Group stock having one vote and each share of The
Timber Company stock having a number of votes based upon the ratio, over a
specified period prior to any shareholder vote, of the time-weighted average
market values of one share of The Timber Company stock and of one share of
Georgia-Pacific Group stock. This formula is intended to give each class of
common stock a number of votes proportionate to its aggregate market
capitalization at the time of any vote. Accordingly, changes in the market value
of Georgia-Pacific Group stock and The Timber Company stock will affect their
relative voting rights. As of December 31, 1997, the holders of Georgia-Pacific
Group stock had a substantial majority of the voting power of the Corporation.
Financial effects arising from either group that affect the Corporation's
results of operations or financial condition could, if significant, affect the
results of operations or financial condition of the other group and the market
price of the common stock relating to the other group. Any net losses of the
Georgia-Pacific Group or The Timber Company and dividends or distributions on,
or repurchases of, Georgia-Pacific Group stock or The Timber Company stock will
reduce the assets of the Corporation legally available for payment of dividends
on both Georgia-Pacific Group stock and The Timber Company stock.
The Board may, in its sole discretion, determine to convert shares of the
class of common stock related to one group into the class of the common stock
related to the other group at any time at a 15% premium, or at a 10% premium in
the case of certain dispositions of all or substantially all of the properties
or assets of the group whose stock is being converted. Any conversion at any
premium would dilute the interests in the Corporation of the holders of the
class of common stock being issued in the conversion. In addition, any such
conversion of a class of common stock into another class of common stock would
preclude holders of both classes of common stock from retaining their investment
in a security that is intended to reflect separately the performance of the
relevant group.
The management and accounting policies applicable to the preparation of the
financial statements of the Georgia-Pacific Group and The Timber Company may be
modified or rescinded, or additional policies may be adopted, at the sole
discretion of the Board at any time without approval of the shareholders.
The Timber Company's combined financial statements reflect the application
of the management and allocation policies adopted by the Board to various
corporate activities, as described below. The Timber Company's combined
financial statements should be read in conjunction with the Corporation's
consolidated financial statements and the Georgia-Pacific Group's combined
financial statements.
FINANCIAL ACTIVITIES. At June 30, 1997, $1.0 billion of the Corporation's total
debt was allocated to The Timber Company for financial statement purposes, and
the balance of the Corporation's total debt was allocated to the Georgia-Pacific
Group. For periods ended prior to June 30, 1997, the amount of debt on the
respective balance sheets was adjusted to reflect debt repayments or additions
as reported in the accompanying statements of cash flows for the groups between
those dates and June 30, 1997. The Corporation's debt was allocated between the
groups based upon a number of factors including expected future cash flow,
volatility of earnings, and the ability to pay debt service and dividends. In
addition, the Corporation considered certain measures of creditworthiness, such
as coverage ratios and various tests of liquidity, as a means of ensuring that
each group could continue to pay debt service during a business downcycle.
Management believes that such allocation is equitable and reasonable.
At December 31, 1997, $971 million of the Corporation's debt was The Timber
Company's and $4.5 billion was the Georgia-Pacific Group's. The Corporation has
not allocated specific debt securities or instruments to either group. The debt
of each group bears interest at a rate equal to the weighted average interest
rate of all of the Corporation's debt calculated on a quarterly basis. Expenses
related to the debt are reflected in the weighted average interest rate.
Management believes that this method of allocation of the cost of debt is
equitable and provides a reasonable estimate of the cost attributable to the
groups.
Each group's debt will increase or decrease by the amount of any net cash
generated by, or required to fund, the group's operating activities, investing
activities, dividend payments, share repurchases and other financing activities.
Interest will be charged to each group in proportion to the respective amount of
each group's debt. Changes in the cost of the Corporation's debt will be
reflected in adjustments to the weighted average interest cost of such debt.
Dividend costs with respect to any preferred stock issued by the Corporation
will be charged in a similar manner.
ALLOCATION OF SHARED SERVICES. A portion of the Corporation's shared SG&A (such
as executive management, human resources, legal, accounting and auditing, tax,
treasury, strategic planning, information systems support and environmental
services) has been allocated to The Timber Company based upon identification of
such services specifically used by The Timber Company. Where determinations
based on specific usage alone have been impracticable, other methods and
criteria were used that management believes are equitable and provide a
reasonable estimate of the cost attributable to The Timber Company. These
methods consisted of allocating costs based on (i) number of employees of each
group, (ii) percentage of office space of each group and (iii) estimated
percentage of staff time allocable to each group. The total of these allocations
was $7 million, $7 million and $6 million in 1997, 1996 and 1995, respectively.
It is not practicable to provide a detailed estimate of the expenses that would
be recognized if The Timber Company were a separate legal entity.
ALLOCATION OF EMPLOYEE BENEFITS. A portion of the Corporation's employee
benefit costs, including pension and postretirement health care and life
insurance benefits, has been allocated to The Timber Company. The Timber
Company's pension cost related to its participation in the Corporation's
noncontributory defined benefit pension plan, and other employee benefit costs
related to its participation in the Corporation's postretirement health care and
life insurance plans, are actuarially determined based on the number of its
employees and an allocable share of the plan assets and are calculated in
accordance with SFAS No. 87 and SFAS No. 106, respectively. Management believes
such method of allocation is equitable and provides a reasonable estimate of the
cost attributable to The Timber Company.
Since plan assets are not segregated into separate accounts or restricted to
providing benefits to employees of The Timber Company, assets of the
Corporation's employee benefit plans may be used to provide benefits to
employees of both the Georgia-Pacific Group and The Timber Company. Plan assets
have been allocated to The Timber Company based on the percentage of its
projected benefit obligation to the plans' total projected benefit obligations.
The discussion of The Timber Company's retirement plans (Note 7 of the Notes
to Combined Financial Statements) should be read in conjunction with the
Corporation's consolidated financial statements and notes thereto.
ALLOCATION OF FEDERAL AND STATE INCOME TAXES. The federal income taxes of the
Corporation and the subsidiaries that own assets allocated between the groups
are determined on a consolidated basis. Consolidated federal income tax
provisions and related tax payments or refunds are allocated between the groups
based principally on the taxable income and tax credits directly attributable to
each group. Such allocations reflect each group's contribution (positive or
negative) to the Corporation's consolidated federal taxable income and the
consolidated federal tax liability and tax credit position. Tax benefits that
cannot be used by the group generating those benefits but can be used on a
consolidated basis are credited to the group that generated such benefits. Had
the groups filed separate tax returns, the provision for income taxes and net
income for each group would not have differed from the amounts reported on the
groups' statements of income for the years ended December 31, 1997, 1996 and
1995. However, the amounts of current and deferred taxes and taxes payable or
refundable allocated to each group on the historical financial statements may
differ from those that would have been allocated had the groups filed separate
income tax returns.
Depending on the tax laws of the respective jurisdictions, state and local
income taxes are calculated on either a consolidated or combined basis or on a
separate corporation basis. State income tax provisions and related tax payments
or refunds determined on a consolidated or combined basis are allocated between
the groups based on their respective contributions to such consolidated or
combined state taxable incomes. State and local income tax provisions and
related tax payments that are determined on a separate corporation basis are
allocated between the groups in a manner designed to reflect the respective
contributions of the groups to the Corporation's separate state or local taxable
income.
The discussion of The Timber Company's income taxes (Note 6 of the Notes to
Combined Financial Statements) should be read in conjunction with the
Corporation's consolidated financial statements and the notes thereto.
DIVIDENDS. For purposes of the historical financial statements of The Timber
Company and the Georgia-Pacific Group, all dividends declared and paid by the
Corporation were evenly allocated between the groups. Management believes such
method of allocation is equitable and provides a reasonable estimate of the
dividends that would have been declared and paid in respect of each class of
common stock. The amount of earnings available for the payment of dividends on
the Georgia-Pacific Group stock and on The Timber Company stock (i.e., the
available dividend amounts) on any date is the amount in excess of the minimum
amount necessary for the particular group to be able to pay its debts as they
become due in the usual course of business. Future dividends will not bear a
direct relationship to earnings and retained earnings as expressed on each
group's combined financial statements in accordance with generally accepted
accounting principles. Accordingly, a mathematical calculation of the available
dividend amount for either group cannot be made.
REVENUE RECOGNITION. Timber sales are recognized when legal ownership or the
risk of loss passes to the purchaser and the quantity sold is determinable. This
occurs when a purchaser acquires stumpage or standing timber, or when a
purchaser receives logs on a delivered sale agreement. There are two types of
stumpage agreements. A timber deed agreement is one in which the purchaser takes
title to all timber on a tract of land. When title passes, revenue is recognized
for the full value of all timber on the tract. A cutting contract agreement is
one in which the purchaser acquires the right to harvest all stumpage on a tract
at an agreed-to price per unit for all products on the tract. The sale is
recognized when the purchaser harvests the tract. For delivered sales, the risk
of loss passes when the timber is delivered to the customer. Revenues are
determined by multiplying actual harvest volumes by contractually agreed-upon
prices negotiated with the purchasers, including the Georgia-Pacific Group.
Other sales are recognized when earned.
INCOME PER SHARE. Basic earnings per share are computed based on net income and
the weighted average number of common shares outstanding. Diluted earnings per
share reflect the assumed 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. Income per share for each group is
reflected on a pro forma basis for 1997 as if the Letter Stock Recapitalization
had occurred on January 1, 1997. Amounts are computed for each class of common
stock based on the separate earnings attributed to each of the respective
businesses. Income per share is omitted from the statements of income for the
years 1996 and 1995 because The Timber Company stock was not part of the capital
structure of the Corporation.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
specifies the computation, presentation and disclosure requirements for earnings
per share ("EPS"). The Corporation adopted SFAS No. 128 in the 1997 fourth
quarter. The per share amounts reported under SFAS No. 128 are not materially
different from those calculated and presented under APB Opinion No. 15.
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
(In millions, Year ended December 31,
except shares and
per share amounts) 1997
- ---------------------------------------------------------------
<S> <C>
The Timber
Company
Basic and diluted income available
to shareholders (numerator):
Net income $ 215
===============================================================
Shares (denominator):
Average shares outstanding 91,444,588
Dilutive securities:
Options 677,784
Employee Stock Purchase Plans 4,047
- ---------------------------------------------------------------
Total assuming conversion 92,126,419
===============================================================
Per share amounts:
Basic
Net income $2.35
Diluted
Net income $2.33
===============================================================
</TABLE>
Options to purchase 1,010,600 shares of The Timber Company stock at $25.13 per
share were issued on December 17, 1997 but were not included in the computation
of diluted EPS because the options' exercise price was greater than the average
market price of the common shares. The options, which expire on December 16,
2007, were still outstanding at the end of 1997.
TIMBER AND TIMBERLANDS. The Timber Company capitalizes timber and timberland
purchases and reforestation costs. The cost of timber harvested is based on the
volume of timber harvested, the capitalized cost and the total timber volume
estimated to be available over the growth cycle. Timber carrying costs are
expensed as incurred.
MACHINERY AND EQUIPMENT. Machinery and equipment are recorded at cost. Lease
obligations for which The Timber Company assumes or retains substantially all
the property rights and risks of ownership are capitalized. Replacements of
major units of property are capitalized, and the replaced properties are
retired. Replacements of minor components of property, and repair and
maintenance costs, are charged to expense as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Useful lives generally range from 3 to 20
years. Upon retirement or disposition of assets, cost and accumulated
depreciation are removed from the related accounts and any gain or loss is
included in income.
INVESTMENT IN REAL ESTATE HELD FOR DEVELOPMENT AND SALE. Real estate held for
development and sale is stated at the lower of cost or net realizable value, and
includes direct costs of land and land development and indirect costs, including
amenities, less amounts charged to cost of sales. These costs are allocated to
individual lots or acreage sold based on relative sales value. Direct costs are
allocated on a specific neighborhood basis, while indirect costs are allocated
over the projects. The Timber Company recognizes sales of retail homesites
developed when all conditions, as set forth in SFAS No. 66, "Accounting for
Sales of Real Estate," have occurred.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements as well as reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
NOTE 2. FACTORS AFFECTING THE TIMBER GROUP'S BUSINESS
FACTORS AFFECTING SUPPLY AND DEMAND. The results of operations of The Timber
Company are and will continue to be affected by cyclical supply and demand
factors related to the forest products industry. The supply of timber is
significantly affected by land use management policies of the U.S. government,
which in recent years have limited, and are likely to continue to limit, the
amount of timber offered for sale by certain U.S. government agencies. Such
government agencies historically have been major suppliers of timber to the U.S.
forest products industry, but timber sales by such government agencies currently
are at historically low levels. Any reversal of government land use management
policies that substantially increases sales of timber by U.S. government
agencies could significantly reduce prices for logs, lumber and other forest
products. The demand for logs and manufactured wood products also has been, and
in the future can be expected to be, subject to cyclical fluctuations. The
demand for logs and manufactured wood products is primarily affected by the
level of housing starts, repair and remodeling activity, industrial wood product
use, competition from nonwood products, and the demand for pulp and paper
products. These factors are subject to fluctuations due to changes in economic
conditions, interest rates, population growth, weather conditions, competitive
pressures and other factors. Any decrease in the level of industry demand for
logs and wood products generally can be expected to result in lower net sales,
operating income and cash flow of The Timber Company.
HARVESTING LIMITATIONS. Net sales, operating income and cash flow of The Timber
Company are dependent to a significant extent on the continued ability of
purchasers of standing timber and, to a lesser extent, The Timber Company to
harvest timber at adequate levels. Weather conditions, timber growth cycles,
access limitations and regulatory requirements associated with the protection of
wildlife and water resources may restrict harvesting of The Timber Company's
timberlands. From time to time, proposals have been made in state legislatures
that would regulate the level of timber harvesting. Timber harvests also may be
affected by various natural factors, including damage by fire, insect
infestation, disease, prolonged drought, severe weather conditions and other
causes. The effects of such natural disasters may be particularly damaging to
young timber. Although damage from such natural causes usually is localized and
affects only a limited percentage of the timber, there can be no assurance that
any damage affecting The Timber Company's timberlands will in fact be so
limited. Consistent with industry practice, The Timber Company does not maintain
insurance coverage with respect to damage to its timberlands. Any of the above
factors that materially limits the ability of purchasers or The Timber Company
to harvest timber could have a significant adverse impact on the net sales,
operating income and cash flow of The Timber Company.
COMMITTED PRODUCT PURCHASES BY GEORGIA-PACIFIC GROUP; POSSIBLE INABILITY TO
DEVELOP NEW MARKETS. During 1997, The Timber Company derived approximately 77%
of its net sales from sales of timber and wood fiber directly to the Georgia-
Pacific Group. For a description of the terms of sales of timber and wood fiber
by The Timber Company to Georgia-Pacific Group see Note 10, "Related-Party
Transactions." While management of The Timber Company believes that there is
significant demand for The Timber Company's timber and wood fiber products from
users other than the Georgia-Pacific Group, no assurance can be given that such
demand exists, that The Timber Company will be able to develop new customers on
a timely basis, if at all, or that it will be able to sell its products to third
parties at market prices. Any excess supply of timber and wood fiber that
results from the inability of The Timber Company to sell its products to users
other than the Georgia-Pacific Group could result in lower prices for The Timber
Company's products, which could have a material adverse effect on the net sales,
operating income and cash flow of The Timber Company.
ENVIRONMENTAL REGULATION. The Timber Company is subject to extensive and
changing federal, state and local environmental laws and regulations, the
provisions and enforcement of which are expected to become more stringent in the
future. The Timber Company's operations generate air emissions, discharge
industrial wastewater and stormwater, and generate and dispose of both hazardous
and nonhazardous wastes. The Timber Company is subject to regulation under the
Endangered Species Act (the "ESA"), the Clean Water Act, the Clean Air Act, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Federal Insecticide,
Fungicide and Rodenticide Act and the Toxic Substances Control Act as well as
similar state laws and regulations. Violations of various statutory and
regulatory programs that apply to The Timber Company's operations can result in
civil penalties, remediation expenses, natural resource damages, potential
injunctions, cease and desist orders and criminal penalties. Some environmental
statutes impose strict liability, rendering a person liable for environmental
damage without regard to negligence or fault on the part of such person. There
can be no assurance that such laws or future legislation or administrative or
judicial action with respect to protection of the environment will not adversely
affect The Timber Company.
The ESA and counterpart state legislation protect species threatened with
possible extinction. A number of species indigenous to The Timber Company's
timberlands have been and in the future may be protected under these laws,
including the northern spotted owl, marbled murrelet, gray wolf, grizzly bear,
mountain caribou, bald eagle, red-cockaded woodpecker and various other species.
Protection of endangered and threatened species may include restrictions on
timber harvesting, road building and other silviculture activities on private,
federal and state land containing the affected species.
POTENTIAL ACQUISITION RISKS. The Timber Company intends to pursue acquisitions
as part of its strategy in order to increase cash flow and returns to its
shareholders. There can be no guarantee, however, that The Timber Company will
be able to identify any assets for acquisition on terms that are economically
feasible. Additionally, any acquisition strategy involves numerous risks,
including difficulties inherent in the integration of systems, operations and
personnel; diversion of management attention away from other business concerns;
and the need to potentially secure additional financing to consummate such
acquisitions.
NOTE 3. DIVESTITURES
On March 31, 1997, the Corporation sold 127,000 acres of timberlands located in
Martell, California, for $270 million. In conjunction with the sale of its
Martell timberlands, the Corporation received notes receivable from the
purchaser in the amount of $270 million related to the timberlands. The
Corporation, in April 1997, monetized the notes receivable through the issuance
of notes payable in a private placement. The proceeds of this transaction were
credited to The Timber Company through the intergroup account. The notes
receivable are included in other assets and the notes payable are classified as
other long-term liabilities on the Corporation's balance sheet. The Timber
Company recognized a pretax gain of $114 million on the sale of the timberlands
($71 million after taxes), which is included in "Other income - Martell sale" on
the accompanying statements of income.
NOTE 4. INDEBTEDNESS
The Corporation's indebtedness included the following:
<TABLE>
<CAPTION>
December 31
---------------
(In millions) 1997 1996
- -------------------------------------------------------
<S> <C> <C>
Debentures, 9% average rate,
payable through 2025 $ 3,200 $ 3,200
Notes, 6.7% average rate,
payable through 2006 517 817
Revenue bonds, 4.9% average rate,
payable through 2027 659 646
Other loans, 7.9% average rate,
payable through 2008 13 45
Less: unamortized discount (23) (26)
- -------------------------------------------------------
4,366 4,682
Less: long-term portion of debt 3,713 4,371
- -------------------------------------------------------
Current portion of long-term debt 653 311
Commercial paper and other
short-term notes,
6.4% average rate 621 645
Accounts receivable sale program,
6.1% average rate 280 -
Bank overdrafts, net 223 251
- -------------------------------------------------------
Total short-term debt 1,777 1,207
- -------------------------------------------------------
Total debt $ 5,490 $ 5,578
=======================================================
Georgia-Pacific Group's portion of
Corporation debt:
Short-term debt $ 1,462 $ 922
Long-term debt, excluding
current portion 3,057 3,340
- -------------------------------------------------------
Georgia-Pacific Group's total debt $ 4,519 $ 4,262
=======================================================
The Timber Company's portion of
Corporation debt:
Short-term debt $ 315 $ 285
Long-term debt, excluding
current portion 656 1,031
- -------------------------------------------------------
The Timber Company's total debt $ 971 $ 1,316
=======================================================
Weighted average interest rate on
Corporation debt at year end 7.8% 7.7%
=======================================================
</TABLE>
For additional information regarding financial instruments, see Note 5.
The scheduled maturities of the Corporation's long-term debt for the next
five years are as follows: $653 million in 1998, $9 million in 1999, $29 million
in 2000, $1 million in 2001 and $375 million in 2002.
NOTES AND DEBENTURES. Subsequent to year-end 1997, the Corporation redeemed
$200 million of 9 3/4% Sinking Fund Debentures Due January 15, 2018. The
Corporation recorded an after-tax extraordinary loss of approximately $7 million
related to this redemption on January 16, 1998 of which $1.2 million will be
allocated to The Timber Company based on the ratio of The Timber Company's debt
to the Corporation's total debt. It is the Corporation's intent to redeem $200
million of 9 1/2% Debentures Due February 15, 2018 on February 17, 1998. The
Corporation anticipates an after-tax extraordinary loss related to this
redemption of approximately $7 million,.
During 1996, the Corporation issued $100 million of 7.2% Notes Due December
15, 2006. In 1996, the Corporation redeemed $150 million of its 9.25% Debentures
Due March 15, 2016. The Corporation recorded an after-tax extraordinary loss of
approximately $5 million related to this redemption, which was recognized in the
Georgia-Pacific Group's results of operations.
REVOLVING CREDIT FACILITY. In 1996, the Corporation entered into an agreement
with Bank of America National Trust and Savings Association and 19 other
domestic and international banks that provides an unsecured revolving credit
facility of $1.5 billion. The revolving credit facility is being used for direct
borrowings and as support for commercial paper and other short-term borrowings.
The agreement will terminate in 2001. As of December 31, 1997, $879 million of
committed credit was available in excess of all short-term borrowings
outstanding under or supported by the facility.
Borrowings under the agreement bear interest, at the election of the
Corporation, at either (i) the higher of the Federal Funds Rate plus 1/2% or the
stipulated bank lending rate or (ii) LIBOR plus .2625% or (iii) fixed or
floating rates set by competitive bids. Fees associated with this revolving
credit facility include a commitment fee of .0625% per annum on the unused
portion of the commitments and a facility fee of .0625% per annum on the
aggregate commitments of the lenders. Fees and margins may be adjusted upward or
downward according to a pricing grid based on the Corporation's long-term debt
ratings. At December 31, 1997, $300 million was borrowed under the credit
agreement at a weighted average interest rate of 6.2%. Amounts outstanding under
the revolving credit facility are included in "Debt" on the accompanying balance
sheets.
The revolving credit agreement contains certain restrictive covenants. The
covenants include a maximum leverage ratio (funded indebtedness to operating
cash flow) of 4.5 to 1.0, which is to be maintained by the Corporation
throughout the term of the credit agreement. As of December 31, 1997, the
Corporation's leverage ratio was 3.4 to 1.0.
COMMERCIAL PAPER AND OTHER SHORT-TERM NOTES. These borrowings are classified by
the Corporation as current liabilities, although all or a portion of them might
be refinanced on a long-term basis in 1998.
REVENUE BONDS. At December 31, 1997, the Corporation had outstanding borrowings
of approximately $659 million under certain industrial revenue bonds,
approximately $48 million of these bonds were entered into during 1997 at fixed
interest rates, of which $38 million refunded a like amount of floating rate
instruments. Approximately $16 million from the issuance of these bonds is being
held by trustees for the Corporation and is restricted for the construction of
certain capital projects of the Georgia-Pacific Group and $15 million is held by
trustees to refund a like amount of bonds maturing on January 2, 1998.
OTHER. At December 31, 1997, the amount of long-term debt secured by machinery
and equipment and timber and timberlands was not material.
In September 1995, the Corporation sold certain assets of the Georgia-
Pacific Group for $354 million and has agreed to lease the assets back from the
purchaser over a period of 30 years. Under the agreement with the purchaser, the
Corporation will maintain a deposit (initially in the amount of $322 million)
that, together with interest earned, is expected to be sufficient to fund the
Corporation's lease obligation, including the repurchase of assets at the end of
the term. This transaction is being accounted for as a financing arrangement. At
December 31, 1995, the Georgia-Pacific Group recorded on its balance sheet an
asset for the deposit from the sale of $305 million and a liability for the
lease obligation of $302 million.
At December 31, 1997, the deposit and lease obligation balances were $349
million and $349 million, respectively. Of these amounts, approximately $17
million was recorded as a current asset and $19 million was recorded as a
current liability. The long-term portions are recorded in "Other assets" and
"Other long-term liabilities" on the Corporation's balance sheets.
INTEREST PAID. The Corporation paid interest of $475 million, $488 million and
$470 million in 1997, 1996 and 1995, respectively, of which $84 million, $105
million and $111 million, respectively, was charged to The Timber Company.
NOTE 5. FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- --------------------
Carrying Fair Carrying Fair
(In millions) Amount Value Amount Value
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial paper and
other short-term notes
(Note 5) $ 621 $ 621 $ 645 $ 645
Accounts receivable sale
program (Note 4) 280 280 350 350
Notes and debentures
(Note 5) 3,717 4,055 4,017 4,215
Revenue bonds (Note 5) 659 637 646 637
Other loans (Note 5) 13 13 45 45
Interest rate exchange
agreements * 10 * 12
- ----------------------------------------------------------------
</TABLE>
*The Company's consolidated balance sheets at December 31, 1996 and 1995
included accrued interest of $5 million and $6 million, respectively, related to
these agreements.
COMMERCIAL PAPER AND OTHER SHORT-TERM NOTES. The carrying amounts approximate
fair value because of the short maturity of these instruments.
NOTES AND DEBENTURES. The fair value of notes and debentures was estimated
primarily by obtaining quotes from brokers for these and similar issues. For
notes and debentures for which there are no quoted market prices, the fair value
was estimated by calculating the present value of anticipated cash flows. The
discount rate used was an estimated borrowing rate for similar debt instruments
with like maturities.
REVENUE BONDS AND OTHER LOANS. The fair value of revenue bonds and other loans
was estimated by calculating the present value of anticipated cash flows. The
discount rate used was an estimated borrowing rate for similar debt instruments
with like maturities.
INTEREST RATE AND FOREIGN CURRENCY EXCHANGE AGREEMENTS. The Corporation has
used interest rate swap and foreign currency exchange agreements in the normal
course of business to manage and reduce the risk inherent in interest rate and
foreign currency fluctuations.
The Corporation uses interest rate swap arrangements to manage its exposure
to interest rate changes. Such arrangements are considered hedges of specific
borrowings, and differences paid and received under the swap arrangements are
recognized as adjustments to interest expense. Under these agreements, the
Corporation makes payments to counterparties at fixed interest rates and in turn
receives payments at variable rates. The Corporation entered into interest rate
exchange agreements in prior years to protect against the increased cost
associated with a rise in interest rates. At December 31, 1997, the Corporation
had outstanding interest rate exchange agreements that effectively converted
$476 million of floating rate obligations with a weighted average interest rate
of 5.8% to fixed rate obligations with an average effective interest rate of
approximately 9%. These agreements increased interest expense by $16 million,
$17 million and $20 million for the years ending December 31, 1997, 1996 and
1995, respectively. These agreements have a weighted average maturity of
approximately 1.1 years. As of December 31, 1997, the Corporation's total
floating rate debt, including the accounts receivable sale program, exceeded
related interest rate exchange agreements by $1,260 million.
The estimated fair value of the Corporation's liability under interest rate
exchange agreements at December 31, 1997 and 1996 was $10 million and $12
million, respectively, and represents the estimated amount the Corporation could
have paid to terminate the agreements. The fair value at December 31, 1997 and
1996 was estimated by calculating the present value of anticipated cash flows.
The discount rate used was an estimated borrowing rate for similar debt
instruments with like maturities.
The Corporation enters into foreign currency exchange agreements, the
amounts of which were not material to the consolidated financial position of the
Corporation at December 31, 1997 and 1996.
The Corporation may be exposed to losses in the event of nonperformance of
counterparties but does not anticipate such nonperformance.
OTHER. Due to the short-term nature of current assets and current liabilities,
their carrying amounts approximate fair value.
NOTE 6. INCOME TAXES
The provision for income taxes includes The Timber Company's allocated portion
of income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities. The Timber Company's provision for income taxes consists of the
following:
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes:
Current $ 61 $ 74 $ 51
Deferred 56 (5) (2)
State income taxes:
Current 11 13 10
Deferred 10 (1) -
- ---------------------------------------------------------
Provision for income taxes $ 138 $ 81 $ 63
=========================================================
Income taxes paid by the corporation,
net of refunds $ 51 $ 135 $ 686
=========================================================
The Timber Company's portion
of income taxes paid $ 72 $ 87 $ 61
=========================================================
</TABLE>
The federal statutory income tax rate was 35%. The Timber Group's provision for
income taxes is reconciled to the federal statutory rate as follows:
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
Year ended December 31
----------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
Provision for income taxes
computed at the federal
statutory tax rate $ 124 $ 73 $ 57
State income taxes, net
of federal benefit 14 8 6
- ---------------------------------------------------------
Provision for income taxes $ 138 $ 81 $ 63
=========================================================
</TABLE>
The components of The Timber Company's net deferred income tax liabilities are
as follows:
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
December 31
------------------
(In millions) 1997 1996
- -------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Other (2) 2
- -------------------------------------------------------------
(2) 2
Valuation allowance - -
- -------------------------------------------------------------
(2) 2
- -------------------------------------------------------------
Deferred income tax liabilities:
Machinery and equipment (4) (4)
Timber and timberlands (234) (172)
- -------------------------------------------------------------
(238) (176)
- -------------------------------------------------------------
Deferred income tax liabilities, net $ (240) $ (174)
=============================================================
</TABLE>
NOTE 7. RETIREMENT PLANS
DEFINED BENEFIT PENSION PLANS. Most of The Timber Company's employees
participate in noncontributory defined benefit pension plans. These employees
are covered by plans that are administered solely by the Corporation. The
Corporation's funding policy for solely administered plans is based on actuarial
calculations and the applicable requirements of federal law. Contributions to
multiemployer plans are generally based on negotiated labor contracts.
Benefits under the majority of plans for hourly employees (including
multiemployer plans) are primarily related to years of service. The Corporation
has separate plans for salaried employees and officers under which benefits are
primarily related to compensation and years of service. The officers' plan is
not funded and is nonqualified for federal income tax purposes.
Plan assets consist principally of common stocks, bonds, mortgage
securities, interests in limited partnerships, cash equivalents and real estate.
The following table sets forth The Timber Company's actuarially determined
share of the funded status of the solely administered plans and the amounts
recognized on the accompanying balance sheets.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-----------------------------------
Plans having
Plans having accumulated
assets in excess benefits in
of accumulated excess
(In millions) benefits of assets
- ----------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation
at November 30
Vested portion $ 14 $ 14
Nonvested portion 1 -
- ----------------------------------------------------------------
15 14
Effect of projected future
compensation levels - -
- ----------------------------------------------------------------
Projected benefit obligation
at November 30 15 14
Plan assets at fair value
at November 30 20 17
- ----------------------------------------------------------------
Plan assets in excess of (less
than) projected benefit obligation 5 3
Unrecognized net (gain) (6) (4)
- ----------------------------------------------------------------
Prepaid (accrued) pension cost
at December 31 $ (1) $ (1)
================================================================
</TABLE>
No plans have accumulated benefits in excess of assets as of December 31, 1997
and 1996.
The Timber Company's share of the net periodic pension cost for solely
administered and union-administered pension plans included the following:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned $ 1 $ 1 $ 1
Interest cost on projected
benefit obligation 1 1 1
Actual return on plan assets (3) (3) (3)
Net amortization and deferral 1 1 2
- ---------------------------------------------------------
Net periodic pension cost $ - $ - $ 1
=========================================================
</TABLE>
The following assumptions were used:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------
<S> <C> <C> <C>
Discount rate used to determine
the projected benefit obligation 7.0% 7.0% 7.0%
Rate of increase in future
compensation levels used to
determine the projected benefit
obligation 5.5 5.5 5.5
Expected long-term rate of return
on plan assets used to determine
net periodic pension cost 9.5 10.0 10.0
- --------------------------------------------------------
</TABLE>
DEFINED CONTRIBUTION PLANS. The Corporation sponsors several defined
contribution plans to provide eligible employees with additional income upon
retirement. The Corporation's contributions to the plans are based on employee
contributions and compensation. The allocated portion of the Corporation's
contributions related to The Timber Company totaled $1 million in 1997, $1
million in 1996 and $1 million in 1995.
HEALTH CARE AND LIFE INSURANCE BENEFITS. The Corporation provides certain health
care and life insurance benefits to eligible retired employees. Salaried
participants generally become eligible for retiree health care benefits after
reaching age 55 with 10 years of service or after reaching age 65. Benefits,
eligibility and cost-sharing provisions for hourly employees vary by location
and/or bargaining unit. Generally, the medical plans pay a stated percentage of
most medical expenses, reduced for any deductible and payments made by
government programs and other group coverage. Effective December 1995, the plans
were funded through a trust established for the payment of future active and
retiree benefits. The trust was funded with an initial contribution of which an
immaterial amount was allocated to The Timber Company. The Corporation will
continue to contribute to the trust in the amounts necessary to fund current
obligations of the plans.
In 1991, the Corporation began transferring its share of the cost of post-
age 65 health care benefits to future salaried retirees. It is currently
anticipated that the Corporation will continue to reduce the percentage of the
cost of post-age 65 benefits that it will pay on behalf of salaried employees
who retire in each of the years 1995 through 1999 and that the Corporation will
continue to share the pre-age 65 cost with future salaried retirees but will no
longer pay any of the post-age 65 cost for salaried employees who retire after
1999.
The Timber Company's accumulated postretirement benefit obligation and
accrued postretirement benefit cost was approximately $1 million as of December
31, 1997 and 1996.
The Timber Company's net periodic postretirement benefit cost consists of
service cost of benefits earned, interest cost on accumulated postretirement
benefit obligation and amortization of gains and losses. Total net periodic
postretirement benefit costs were $95,031, $119,210 and $98,974 at December 31,
1997, 1996 and 1995, respectively.
For measuring the expected postretirement benefit obligation, a 9%, 10% and
11% annual rate of increase in the per capita claims cost was assumed for 1997,
1996 and 1995, respectively. The rate was assumed to decrease 1% per year to
5.5% in 2001 and remain at that level thereafter. The weighted average discount
rate used in determining the accumulated postretirement benefit obligation was
6.5% at December 31, 1997, 1996 and 1995.
If the annual health care cost trend rate were increased by 1%, the
accumulated postretirement benefit obligation would have increased by 10% as of
December 31, 1997 and 14% as of December 31, 1996 and 1995. The effect of this
change on the aggregate of service and interest costs would be an increase of
13% for 1997, 11% for 1996 and 15% for 1995.
NOTE 8. COMMON AND PREFERRED STOCK
The Corporation's authorized capital stock consists of (i) 10 million shares of
Preferred Stock and 25 million shares of Junior Preferred Stock, of which no
shares were issued at December 31, 1997, and (ii) 400 million shares of Georgia-
Pacific Group common stock and 250 million shares of The Timber Company common
stock. The Georgia-Pacific Group common stock has a par value of $.80 per share
and 92,249,000 shares were issued as of December 31, 1997. The Timber Company
common stock has a par value of $.80 per share and 92,607,000 shares were issued
as of December 31, 1997.
At December 31, 1997, the following authorized shares of common stock were
reserved for issue:
<TABLE>
<CAPTION>
Georgia-Pacific Group 1997
- --------------------------------------------------
<S> <C>
1997 Long-Term Incentive Plan 4,500,000
1997 Employee Stock Purchase Plan 1,141,048
1995 Outside Directors Stock Plan 174,273
1995 Shareholder Value Incentive Plan 4,568,800
1994 Employee Stock Option Plan 302,650
1993 Employee Stock Option Plan 31,650
- --------------------------------------------------
Common stock reserved 10,718,421
==================================================
The Timber Company 1997
- --------------------------------------------------
<S> <C>
1997 Long-Term Incentive Plan 2,300,000
1997 Employee Stock Purchase Plan 1,141,048
1995 Outside Directors Stock Plan 174,273
1995 Shareholder Value Incentive Plan 4,568,800
1994 Employee Stock Option Plan 302,650
1993 Employee Stock Option Plan 31,650
- --------------------------------------------------
Common stock reserved 8,518,421
==================================================
</TABLE>
1997 LONG-TERM INCENTIVE PLANS. The shareholders have approved the Georgia-
Pacific Group 1997 Long-Term Incentive Plan (the "Georgia-Pacific Group Plan")
and the Timber Group 1997 Long-Term Incentive Plan ("The Timber Company Plan").
The Timber Company Plan authorizes grants of stock options, restricted stock and
performance awards with respect to The Timber Company stock. The Georgia-Pacific
Group Plan authorizes grants of stock options, restricted stock and performance
awards with respect to Georgia-Pacific Group stock. The Corporation does not
currently intend to grant awards under the Georgia-Pacific Group Plan to members
of The Timber Company. However, certain officers and employees of the
Corporation with responsibilities involving both The Timber Company and the
Georgia-Pacific Group may be granted options, restricted stock or performance
awards under both The Timber Company Plan and the Georgia-Pacific Group Plan in
a manner that reflects their responsibilities. Initially 2,300,000 shares were
reserved for issuance under The Timber Company Plan. Options totaling 1,010,600
were granted under The Timber Company Plan on December 17, 1997. These grants
have a 10-year term and vest ratably over a four-year period. Initially
4,500,000 shares were reserved for issuance under the Georgia-Pacific Group
Plan. No grants were made under the Georgia-Pacific Group Plan in 1997.
1990 LONG-TERM INCENTIVE PLAN. The Corporation initially reserved 4,000,000
shares of Existing Common Stock for issuance under the 1990 Long-Term Incentive
Plan ("1990 Incentive Plan"), which expired March 9, 1995. Restricted stock was
awarded to employees at no cost, based on increases in average market value of
the Existing Common Stock. At the time restricted shares were awarded, the
market value of the stock was added to common stock and additional paid-in
capital and was deducted from shareholders' equity (long-term incentive plan
deferred compensation) on the Corporation's consolidated financial statements.
Long-term incentive plan deferred compensation is amortized over the vesting
(restriction) period, generally five years, with adjustments made quarterly for
market price fluctuations. At the time awarded shares become vested, the
Corporation will pay on behalf of each participant a cash bonus in the amount of
the estimated income tax liability to be incurred by the participant as a result
of the award and cash bonus. Shares totaling 1,155,000 were awarded under the
1990 Incentive Plan, of which 682,520 shares were vested as of December 31,
1997.
Compensation expense allocated to The Timber Company was $.4 million in
1997, $1 million in 1996 and $1 million in 1995 related to the 1990 Incentive
Plan.
As a result of the Letter Stock Recapitalization, each share of restricted
stock held in the 1990 Incentive Plan was redesignated as Georgia-Pacific Group
stock, and an equal number of restricted shares of The Timber Company stock were
distributed. These shares will remain restricted until they vest under the terms
of the 1990 Incentive Plan. The tax gross-up provided in the 1990 Incentive Plan
will be calculated based on the aggregate market value of the two classes of
shares distributed to an individual at such time.
EMPLOYEE STOCK PURCHASE PLAN. The Corporation's 1997 Employee Stock Purchase
Plan ("1997 Purchase Plan") offered employees a right to subscribe for Existing
Common Stock at a subscription price of $78.09 per share, representing 85% of
the mean of the high and low prices of the Existing Common Stock on September 2,
1997. The subscription period for the 1997 Purchase Plan expired on November 14,
1997. A subscriber must purchase and pay for shares subscribed not later than
November 30, 1999, but prior to the time that the subscriber's last contribution
to the 1997 Purchase Plan is paid, the subscriber may obtain a refund of his/her
payments plus interest at a rate of 6% per annum in lieu of stock. In
conjunction with the Letter Stock Recapitalization, the terms of the
subscription agreements were adjusted to allow subscribers, pursuant to the
terms of the 1997 Purchase Plan, to purchase at the same subscription price a
package consisting of one share of Georgia-Pacific Group stock and one share of
The Timber Company stock in lieu of each share of Existing Common Stock for
which he/she had originally subscribed.
At December 31, 1997, the Corporation had 1,141,048 shares of Georgia-
Pacific Group stock and 1,141,048 shares of The Timber Company stock reserved
for issuance under the 1997 Purchase Plan. Approximately 8,300 subscribers
remained in the 1997 Purchase Plan at December 31, 1997.
Under the 1995 Employee Stock Purchase Plan (which expired on September 30,
1997), the Corporation issued 763,000 and 19,000 shares of Existing Common Stock
in 1997 and 1996, respectively, at a subscription price of $73.84 per share.
OUTSIDE DIRECTORS STOCK PLAN. The Outside Directors Stock Plan (the "Directors
Plan") provides for the issuance of shares of common stock to nonemployee
directors on a restricted basis. Each nonemployee director was granted 482
restricted shares of Existing Common Stock in 1997 and 193 shares in 1996. As a
result of the Letter Stock Recapitalization, each share of restricted stock held
in the Directors Plan was redesignated as Georgia-Pacific Group stock, and an
equal number of shares of The Timber Company stock (subject to the same
restrictions as the original restricted shares) were distributed. Beginning in
1998, each director's annual grant will consist of a number of shares of
Georgia-Pacific Group stock and of The Timber Company stock determined so that
(i) a substantially equal number of shares of Georgia-Pacific Group stock and
The Timber Company stock will be granted for each year and (ii) the total market
value of the shares granted in each year (based on the mean of the high and low
prices of each stock on the date of grant) is $40,000 (subject to immaterial
rounding differentials). The restrictions on the shares lapse at the time of
death, retirement from the Board or disability.
Effective May 6, 1997, accrual of additional retirement benefits under the
Directors Retirement Program ceased, and the accrued benefits of each of the
current nonemployee directors (the present value of which totaled $1,303,889 as
of May 6, 1997) were converted into a grant of an equivalent number of shares of
restricted stock under the Directors Plan. The total number of shares issued was
15,702.
EMPLOYEE STOCK OPTION PLANS. The 1995 Shareholder Value Incentive Plan ("SVIP")
provides for the granting of stock options having a term of either 5 1/2 or 10
years to officers and key employees. Under the amended and restated SVIP, no
further grants may be made under that plan. Options having a term of 10 years
become exercisable in 9 1/2 years unless certain performance targets tied to the
Corporation's common stock performance are met, in which case the holder could
exercise such options after 3, 4 or 5 years from the grant date. Options having
a term of 5 1/2 years may be exercised only if such performance targets are met
in the third, fourth or fifth year after such grant date. At the time options
are exercised, the exercise price is payable in cash or by surrender of shares
of common stock already owned by the optionee.
The 1994 Employee Stock Option Plan ("1994 Option Plan") provided for the
granting of stock options to certain nonofficer key employees. There are also
options outstanding under the 1993 Employee Stock Option Plan ("1993 Option
Plan").
Following the Letter Stock Recapitalization, each outstanding stock option
under the SVIP, 1994 Option Plan and 1993 Option Plan was converted into
separately exercisable options to acquire a number of shares of Georgia-Pacific
Group stock and The Timber Company stock, each of which equaled the number of
shares of Existing Common Stock specified in the original option. The exercise
prices for the resulting Georgia-Pacific Group stock options and The Timber
Company stock options were calculated by multiplying the exercise price under
the original option from which they were converted by a fraction, the numerator
of which is the average of the high and low price of Georgia-Pacific Group stock
or The Timber Company stock, as the case may be, on December 17, 1997 and the
denominator of which is the sum of such Georgia-Pacific Group and The Timber
Company stock prices. This was intended to ensure that the aggregate intrinsic
value of the options was preserved and the ratio of the exercise price per
option to the market value per share was not reduced. In addition, the vesting
provisions and option periods of the original grants remained the same following
such conversion.
Additional information relating to the Corporation's existing employee stock
option plans is as follows:
<TABLE>
<CAPTION>
Period ended December 16, Year ended December 31,
1997* 1996 1995
- -------------------------------------------------------
Georgia-Pacific Corporation
- -------------------------------------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
at January 1 4,158,500 $74.53 2,217,000 $75.61 1,646,000 $66.77
Options granted 1,746,000 74.25 2,150,500 72.63 1,223,200 80.50
Options exercised/
surrendered (514,950) 69.94 (117,400) 57.15 (619,000) 61.63
Options cancelled (486,150) 75.05 (91,600) 75.45 (33,200) 77.64
- -------------------------------------------------------
Options outstanding
at period end 4,903,400 $74.93 4,158,500 $74.53 2,217,000 $75.61
Options available
for grant at
period end 3,531,200 4,811,000 6,895,000
- -------------------------------------------------------
Total reserved shares 8,434,600 8,969,500 9,112,000
=======================================================
Options exercisable
at period end 334,600 869,000 1,012,000
=======================================================
Option prices per share:
Granted $74 $73-$77 $81
Exercised/surrendered $59-$75 $39-$75 $39-$75
Cancelled $59-$81 $39-$81 $39-$81
=======================================================
</TABLE>
*All shares and prices reflect the Corporation's Existing Common Stock through
December 16, 1997.
<TABLE>
<CAPTION>
1997 1997
- -------------------------------------------------------
Georgia-Pacific Group The Timber Company
- -------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding
at December 17 4,903,400 $53.32 4,903,400 $21.61
Options granted - - 1,010,600 25.13
Options exercised/
surrendered (300) 41.99 (300) 17.01
Options cancelled - - - -
- -------------------------------------------------------
Options outstanding
at December 31 4,903,100 $53.32 5,913,700 $22.21
Options available
for grant at
December 31 4,500,000 1,289,400
- -------------------------------------------------------
Total reserved shares 9,403,100 7,203,100
=======================================================
Options exercisable
at December 31 334,300 $52.33 334,300 $21.20
Average remaining life of
options outstanding one year one year
Option prices per share:
Granted $- $25
Exercised/surrendered $42 $17
Outstanding $42-$57 $17-$25
=======================================================
</TABLE>
SHAREHOLDER RIGHTS PLAN. On December 16, 1997, shareholders approved an amended
and restated Shareholder Rights Plan (the "Rights Agreement") pursuant to which
preferred stock purchase rights (the "Rights") are issued on each share of
Georgia-Pacific Group stock (a "Georgia-Pacific Group Right") which will entitle
the holders thereof to purchase shares of Series B Junior Preferred Stock under
the conditions specified in the Rights Agreement, and on each share of The
Timber Company stock (a "Timber Company Right") which will entitle the holders
thereof to purchase shares of Series C Junior Preferred Stock under the
conditions specified in the Rights Agreement.
The Rights will expire on December 31, 2007, unless earlier redeemed by the
Corporation or extended. The Rights would be exercisable only if a person or
group acquires 15% or more of the total voting rights of all then outstanding
shares of common stock of the Corporation or commences a tender offer that would
result in such person or group beneficially owning 15% or more of the total
voting rights of all then outstanding shares of common stock of the Corporation.
In such event, each Right would entitle the holder to purchase from the
Corporation (i) in the case of a Georgia-Pacific Group Right, one one-hundredth
of a share of Series B Junior Preferred Stock (a "Series B Unit") at a purchase
price of $350 (the "Series B Unit Purchase Price"), subject to adjustment, and
(ii) in the case of a Timber Company Right, one one-hundredth of a share of
Series C Junior Preferred Stock (a "Series C Unit") at a purchase price of $100
(the "Series C Unit Purchase Price"), subject to adjustment.
Thereafter, in the event one of several specified events (generally
involving transactions by an acquirer in the Corporation's common stock or a
business combination involving the Corporation) occurs, each Georgia-Pacific
Group Right and each Timber Company Right will entitle its holder to purchase,
for the Series B Unit Purchase Price and the Series C Unit Purchase Price,
respectively, a number of shares of common stock of such entity or purchaser
with a market value equal to twice the applicable purchase price. Because of the
nature of the dividend, liquidation and voting rights of each class of Junior
Preferred Stock related to the Rights, the economic value of one Series B Unit
and one Series C Unit should approximate the economic value of one share of
Georgia-Pacific Group stock and one share of The Timber Company stock,
respectively.
OTHER. The Timber Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," in 1996. The Timber Company has elected to continue to account
for its stock-based compensation plans under APB Opinion No. 25 and disclose pro
forma effects of the plans on net income and earnings per share as provided by
SFAS No. 123. Accordingly, no compensation cost has been recognized for the
SVIP, the Georgia-Pacific Group Plan, The Timber Company Plan or the Employee
Stock Purchase Plans. Had compensation cost for these plans been determined
based on the fair value at the grant dates in 1997, 1996 or 1995 under the plan
consistent with the method of SFAS No. 123, the pro forma net income and
earnings per share would have been as follows:
<TABLE>
<CAPTION>
(In millions, Year ended December 31,
except per share amounts) 1997 1996 1995
- --------------------------------------------------
Net Income Net Income Net Income
income (loss) income (loss) income (loss)
(loss) per (loss) per (loss) per
share* share* share*
- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Georgia-Pacific Corporation
As reported $ 69 $ 156 $ 1.72 $ 1,018 $11.29
Pro forma $ 62 $ 144 $ 1.59 $ 1,014 $11.24
Georgia-Pacific Group
As reported $ (146) $(1.60) $ 29 $ 921
Pro forma $ (153) $(1.68) $ 17 $ 917
The Timber Company
As reported $ 215 $ 2.35 $ 127 $ 97
Pro forma $ 215 $ 2.35 $ 127 $ 97
- --------------------------------------------------
</TABLE>
*Represents basic earnings per share. Pro forma diluted income (loss) per share
was $(1.68) and $2.33 in 1997 for the Georgia-
Pacific Group and The Timber Company, respectively, and $1.58 and $11.13 for the
Corporation in 1996 and 1995, respectively.
The fair-value-based method of accounting for stock-based compensation
plans under SFAS No. 123 recognizes the value of options
granted as compensation cost over the option's vesting period and has not been
applied to options granted prior to January 1, 1995.
Accordingly, the resulting pro forma compensation cost is not representative of
what compensation cost will be in future years.
Following are the weighted average assumptions used in connection with the
Black-Scholes option pricing model to estimate the
fair value of options granted in 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1997 1996 1995 1995
Options ESPP* Options Options ESPP*
- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Georgia-Pacific Corporation
Risk-free interest rate 5.7% 7.4% 5.7%
Expected dividend yield 2.0% 1.6% 2.0%
Expected life 10 years 10 years 2 years
Expected volatility .30 .30 .23
Option forfeiture rate 3% 3% 28%
- -------------------------------------------------------------
Georgia-Pacific Group
Risk-free interest rate 6.6% 5.8% 5.7% 7.4% 5.7%
Expected dividend yield 2.7% 2.3% 2.0% 1.6% 2.0%
Expected life 10 years 2 years 10 years 10 years 2 years
Expected volatility .30 .37 .30 .30 .23
Option forfeiture rate 3% 28% 3% 3% 28%
- -------------------------------------------------------------
The Timber Company
Risk-free interest rate 6.4% 5.8% 5.7% 7.4% 5.7%
Expected dividend yield 3.2% 2.3% 2.0% 1.6% 2.0%
Expected life 10 years 2 years 10 years 10 years 2 years
Expected volatility .27 .29 .30 .30 .23
Option forfeiture rate 3% 28% 3% 3% 28%
- -------------------------------------------------------------
</TABLE>
*Employee Stock Purchase Plans.
The weighted average grant date fair value per share, including
modifications, of Georgia-Pacific Group options and The Timber
Company options granted during the year using the Black-Scholes option
pricing model was $23.74 and $7.54, $18.98 and $6.42, and
$26.53 and $8.98 for 1997, 1996 and 1995, respectively. The weighted average
grant date fair value per share of shares subscribed
under the 1997 and 1995 Employee Stock Purchase Plans was $17.69 and $6.52,
and $18.48 and $6.81 for the Georgia-Pacific Group and
The Timber Company, respectively. The total pro forma compensation cost
calculated under SFAS No. 123 was allocated between the
Georgia-Pacific Group and The Timber Company based on the number of employees
in each group for periods prior to December 17, 1997.
Management believes that this method of allocation is equitable and provides
a reasonable estimate of the costs attributable to each
group.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company 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 208 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 28% are being
investigated, approximately 43% are being remediated and
approximately 29% 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 $53 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 defend
and settle these cases to date have been substantially
covered by product liability insurance. The Corporation is currently
defending claims of approximately 59,000 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 Corporation
has previously established financial reserves it believes to be adequate to
pay eligible claims and legal fees. However, the volume
and timing of actual claims, which under the settlement may be filed through
August 1998, could cause claims to exceed established
reserves.
In May 1997, the Corporation and nine other companies were named as
defendants in a class action suit 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 in federal courts
in California, Florida, Georgia and Wisconsin, and in
the state courts of California, Wisconsin 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. The Corporation has denied
that it has engaged in any of the illegal conduct alleged in these cases
and intends to defend itself vigorously.
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.
NOTE 10. RELATED-PARTY TRANSACTIONS
For all periods in which the separate accompanying combined statements of income
of the groups are presented, timber has been
transferred from the Corporation's timberlands at prices intended to reflect
fair market prices based on prices paid by independent
purchasers and sellers for similar kinds of timber.
The Timber Company and the Georgia-Pacific Group have negotiated an
operating policy governing future sales of timber and wood
fiber by The Timber Company to the Georgia-Pacific Group with an initial
term of three years. Under this policy, the Georgia-Pacific
Group will be required to purchase in the years 1998-2000, on a take-or-pay
basis, 60% of the volume of timber and wood fiber
harvested annually from The Timber Company's Southern forests. In 1998,
the Georgia-Pacific Group has a right of first refusal to
purchase up to 90% of The Timber Company's total annual harvest from each
forest (which amount includes the 60% take-or-pay amount
described above). In 1999 and 2000, the volume subject to this right of
first refusal will decrease to 80%, and the Georgia-Pacific
Group must exercise its right not later than October 15 of the preceding
year. For 1998, the Georgia-Pacific Group has agreed to
purchase 83% of The Timber Company's total annual harvest. All quantities of
timber and wood fiber committed under the take-or-pay
arrangement described above, and all quantities as to which the
Georgia-Pacific Group exercises its right of first refusal for a
particular year, will be sold at market prices determined quarterly. Such
prices are intended to approximate prices negotiated
between unaffiliated third parties in the open market and will be based
upon (i) an average of the actual prices received by The
Timber Company during the immediately preceding quarter for sales made by it
to third parties, and prices paid by the Georgia-
Pacific Group for purchases made by it from third parties, in the same
forest region, of timber and wood fiber of the same species,
grade and size, and (ii) the benefit to the Georgia-Pacific Group of having
access to a committed quantity of high-quality timber
and wood fiber in close proximity to its mills and plants.
All quantities of timber and wood fiber harvested each year by The
Timber Company and not committed to the Georgia-Pacific Group
as described above may be sold by The Timber Company to any purchaser,
including the Georgia-Pacific Group. In such case, the
Georgia-Pacific Group may purchase such timber at negotiated prices or at
prices determined in competitive bidding. Sales to the
Georgia-Pacific Group and third parties will generally be made on a stumpage
basis, except that sales in the Western region and of
thinnings and selective harvests by The Timber Company may be made on a
delivered basis.
This operating policy is intended to ensure that the Georgia-Pacific
Group will be able to purchase from The Timber Company
specified amounts of timber and wood fiber while ensuring that The Timber
Company, beginning in 1999, will be able to sell at least
20% of its annual harvest on the open market. This policy will remain in
effect through 2000. If neither party gives written notice
to the other of its desire to renegotiate or terminate the policy by
October 15, 1998, the policy will automatically be extended
through 2001 and thereafter will be extended for an additional year on
each January 1 until any such notice of renegotiation or
termination is received. As a result, the policy in effect has a two-year
termination clause to allow both the Georgia-Pacific Group
and The Timber Company time to find other sellers and purchasers,
respectively, of timber and wood fiber.
The Corporation is a 50% partner in a joint venture ("GA-MET") with
Metropolitan Life Insurance Company ("Metropolitan"). GA-MET
owns and operates the Corporation's main office building in Atlanta,
Georgia. The Corporation accounts for its investment in GA-MET
under the equity method, which is included on the Georgia-Pacific Group's
financial statements.
At December 31, 1997, GA-MET had an outstanding mortgage loan payable to
Metropolitan in the amount of $150 million. The note
bears interest at 9 1/2%, requires monthly payments of principal and
interest through 2011, and is secured by the land and building
owned by the joint venture. In the event of foreclosure, each partner has
severally guaranteed payment of one-half of any shortfall
of collateral value to the outstanding secured indebtedness. Based on the
present market conditions and building occupancy, the
likelihood of any obligation to the Georgia-Pacific Group or The Timber
Company with respect to this guarantee is considered remote.
NOTE 11. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
First Quarter Second Quarter
----------------------------
(In millions, except
per share amounts) 1997 1996 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 137 $ 117 $ 131 $ 123
Gross profit (net sales
minus cost of sales) 103 79 103 95
Net income 103 20 37 24
Dividends declared per
share .25 .25 .25 .25
Basic and diluted
net income per share
Price range of stock
(December 17 through
December 31, 1997)
High
Low
- ------------------------------------------------------------
Third Quarter Fourth Quarter
- ------------------------------------------------------------
(In millions, except
per share amounts) 1997 1996 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 152 $ 168 $ 131 $ 139
Gross profit (net sales
minus
cost of sales) 112 107 96 134
Net income 45 36 30 47
Dividends declared per
share .25 .25 .25 .25
Basic and diluted
net income per share .33
Price range of stock
(December 17 through
December 31, 1997)
High 25.88
Low 22.50
- ------------------------------------------------------------
</TABLE>
SELECTED FINANCIAL DATA - OPERATIONS
Georgia-Pacific Corporation--The Timber Company
CASH DIVIDENDS TO EARNINGS
Cash dividends declared divided by net income (loss).
EARNINGS TO INTEREST
Income (loss) before income taxes plus interest expense divided by total
interest cost (interest expense plus capitalized interest).
CASH FLOW TO INTEREST
Cash provided by operations plus interest expense divided by total interest cost
(interest expense plus capitalized interest).
EFFECTIVE INCOME TAX RATE
Provision for income taxes divided by income before income taxes.
SELECTED FINANCIAL DATA - OPERATIONS
Georgia-Pacific Corporation--The Timber Company
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------
(Dollar amounts, except
per share, and shares
are in millions) 1997 1996 1995 1994
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net sales $ 551 $ 547 $ 493 $ 425
- ----------------------------------------------------------------
Costs and expenses
Cost of sales, excluding
depreciation and cost
of timber harvested
shown below 137 132 122 119
Selling, general and
administrative 43 45 45 47
Depreciation and cost
of timber harvested 48 57 55 45
Interest 84 105 111 114
Other (income) (114) - - -
- ----------------------------------------------------------------
Total costs and expenses 198 339 333 325
- ----------------------------------------------------------------
Income before income taxes 353 208 160 100
Provision for income
taxes 138 81 63 39
- ----------------------------------------------------------------
Net income $ 215 $ 127 $ 97 $ 61
================================================================
Cash provided by
operations $ 212 $ 166 $ 139 $ 88
================================================================
Other statistical data
Per share
Basic
Net income $ 2.35
Diluted
Net income $ 2.33
================================================================
Dividends declared
per share $ 1.00 $ 1.00 $ .95 $ .80
Average shares of
stock outstanding, basic 91.4
Average shares of stock
outstanding, diluted 92.1
Cash dividends to earnings 42.8%
Earnings to interest 5.2 3.0 2.4 1.9
Cash flow to interest 3.5 2.6 2.3 1.8
Effective income tax rate 39.1% 38.9% 39.4% 39.0%
================================================================
Year ended December 31
-------------------------------------
(Dollar amounts, except per share,
and shares
are in millions) 1993
- ----------------------------------------------------------------
<S> <C>
Operations
Net sales $ 373
- ----------------------------------------------------------------
Costs and expenses
Cost of sales, excluding
depreciation and cost
of timber harvested,
shown below 112
Selling, general and
administrative 36
Depreciation and cost
of timber harvested 42
Interest 113
Other (income) -
- ----------------------------------------------------------------
Total costs and expenses 303
- ----------------------------------------------------------------
Incomebefore income taxes 70
Provision for income taxes 27
- ----------------------------------------------------------------
Net income $ 43
================================================================
Cash provided by
operations $ 87
================================================================
Other statistical data
Per share
Basic
Net income
Diluted
Net income
================================================================
Dividends declared
per share $ .80
Average shares of
stock outstanding, basic
Average shares of
stock outstanding, diluted
Cash dividends to earnings
Earnings to interest 1.6
Cash flow to interest 1.8
Effective income tax rate 38.6%
================================================================
</TABLE>
SELECTED FINANCIAL DATA - FINANCIAL POSITION, END OF YEAR
Georgia-Pacific Corporation--The Timber Company
BOOK VALUE PER COMMON SHARE
Shareholders' equity divided by shares of common stock outstanding as of the end
of the year.
TOTAL DEBT TO CAPITAL, BOOK BASIS
Total debt divided by the sum of total debt, deferred income taxes, other
liabilities and shareholders' equity as of the end of the year.
TOTAL DEBT TO CAPITAL, MARKET BASIS
Total debt divided by the sum of total debt and the market value of
shareholders' equity as of the end of the year. The value of shareholders'
equity is the market price of common stock multiplied by the number of common
stock shares outstanding.
SELECTED FINANCIAL DATA - FINANCIAL POSITION, END OF YEAR
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------
(Dollar amounts, except per share,
and shares are in millions) 1997 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial position, end of year
Timber and timberlands $1,122 $1,279 $1,293 $ 1,292
Machinery and equipment, net 20 25 27 24
Investment in real estate held
for development and sale 22 17 20 21
Other assets 7 5 8 7
- -----------------------------------------------------------------
Total assets 1,171 1,326 1,348 1,344
- -----------------------------------------------------------------
Debt 971 1,316 1,365 1,373
Other liabilities 9 8 10 10
Deferred income tax liabilities 240 174 180 178
- -----------------------------------------------------------------
Total liabilities $1,220 $1,498 $1,555 $ 1,561
- -----------------------------------------------------------------
Shareholders' equity $ (49) $(172) $(207) $ (217)
- -----------------------------------------------------------------
Other statistical data
Machinery and equipment
investments (including
acquisitions) $ 2 $ 4 $ 6 $ 7
Machinery and equipment
investments (excluding
acquisitions) 2 4 6 7
Timber & timberland purchases 51 48 62 37
Per share (December 17 through
December 31)
Market price: High 25.88
Low 22.50
Year-end 22.69
Book value (.53)
Shares of stock outstanding
at year end 92.6
Total debt to capital,
book basis 83.4% 99.6% 100.0%+ 100.0%+
Total debt to capital,
market basis 31.6%
=================================================================
Year ended December 31
-----------------------------------
(Dollar amounts, except per share,
and shares are in millions) 1993
- -----------------------------------------------------------------
<S> <C>
Financial position, end of year
Timber and timberlands $1,302
Machinery and equipment, net 21
Investment in real estate held
for development and sale 17
Other assets 11
- -----------------------------------------------------------------
Total assets 1,351
- -----------------------------------------------------------------
Debt 1,372
Other liabilities 10
Deferred income tax liabilities 174
- -----------------------------------------------------------------
Total liabilities $1,556
- -----------------------------------------------------------------
Shareholders' equity $(205)
- -----------------------------------------------------------------
Other statistical data
Machinery and equipment
investments (including
acquisitions) $ 7
Machinery and equipment
investments (excluding
acquisitions) 7
Timber & timberland purchases 31
Per share (December 17 through
December 31)
Market price: High
Low
Year-end
Book value
Shares of stock outstanding at year end
Total debt to capital,
book basis 100.0%+
Total debt to capital,
market basis
=================================================================
</TABLE>
GEORGIA-PACIFIC CORPORATION SUBSIDIARIES
The following table lists each subsidiary of the Registrant as of March 24, 1998
indented under the name of its immediate parent, the percentage of each
subsidiary's voting securities beneficially owned by its immediate parent and
the jurisdiction under the laws of which each subsidiary was organized:
Each subsidiary is included in the consolidated financial statements of the
Registrant.
% of
Name Voting Jurisdiction
Securites
GEORGIA-PACIFIC CORPORATION - GEORGIA
A) Arkansas Louisiana & Mississippi 100 Delaware
Railroad Company
B) Ashley, Drew & Northern Railway 100 Arkansas
Company
C) Blue Rapids Railway Company 100 Kansas
D) Brunswick Pulp & Paper Company 100 Delaware
E) Brunswick Pulp Land Company, Inc. 100 Delaware
F) Fordyce and Princeton R. R. Co. 100 Arkansas
G) G-P Gypsum Corporation 100 Delaware
1) KMHC, Incorporated 100 California
H) Georgia-Pacific Development Company 100 Delaware
1) Dunes West Joint Venture, A 100 1 South
Partnership Carolina
a) Dunes West Recreation 100 Delaware
Association, Inc.
I) Georgia-Pacific Holdings, Inc. 100 Delaware
J) Georgia-Pacific Investment Company 100 Oregon
K) Georgia-Pacific Pulpwood Company 100 Delaware
L) Georgia-Pacific Resins, Inc. 100 Delaware
1) Timber, Inc. 100 Delaware
a) Timber REIT, Inc. 100 Delaware
2) Maine Timber, Inc. 100 Maine
a) Maine Timber REIT, Inc. 100 Maine
M) Georgia-Pacific Shared Services 100 Delaware
Corp.
N) Georgia-Pacific West, Inc. 100 Oregon
1) Aztec Trading Company, S.A. 100 Panama
2) Flakeboard, Inc. 100 Oregon
a) G-P Flakeboard Company 67 Nova Scotia
3) GPMF, Inc. 100 Delaware
4) G-P Canada Holdings, Limited 100 Nova Scotia
a) Beaverwood Finance Company 100 Nova Scotia
b) G-P Canada Finance Company 100 Nova Scotia
c) Georgia-Pacific Canada, Inc. 100 Ontario
i) Flakeboard Canada 100 Nova Scotia
Incorporated
5) Georgia-Pacific Asia, Inc. 100 Delaware
a) Georgia-Pacific-Asia (H. K.) 100 Hong Kong
Limited
6) Georgia-Pacific Building 100 New
Materials Sales, Ltd. Brunswick
7) Georgia-Pacific de Mexico, S. de 100 2 Mexico
R. L. de C. V.
8) Georgia-Pacific Foreign Sales 100 Barbados
Corporation
9) Georgia-Pacific Global 100 Oregon
Corporation
a) GPSP, Inc. 100 Delaware
10) Georgia-Pacific S.A. 100 Switzerland
11) Georgia-Pacific U.K. Limited 100 England
% of
Name Voting Jurisdiction
Securites
12) Georgia Steamship Company, Inc. 100 Delaware
13) St. Croix Pulpwood, Limited 100 New
Brunswick
O) Georgia Temp, Inc. 100 Delaware
P) Gloster Southern Railroad Company 100 Delaware
Q) Great Northern Nekoosa Corporation 100 Maine
1) Chattahoochee Industrial 100 Georgia
Railroad
2) Envases Industriales de Costa 33.33 Costa Rica
Rica, S.A.
3) Fipasa-Fibras, Panama, S.A. 50 Panama
4) Great Southern Paper Company 100 Georgia
5) Industria Panamena de Papel, 50 Panama
S.A.
6) Leaf River Corporation 100 Delaware
a) Leaf River Forest Products, 100 Delaware
Inc.
i) Old Augusta Railroad 100 Mississippi
Company
7) Nekoosa Packaging Corporation 100 Delaware
a) Nekoosa Packaging Mexican 100 Delaware
Paper Corporation
8) Nekoosa Papers Inc. 100 Wisconsin
a) Georgia-Pacific Britain, 100 4 Delaware
L.L.C.
R) Mill Services and Manufacturing, 100 Delaware
Inc.
S) Phoenix Athletic Club, Inc. 100 Georgia
T) Saint Croix Water Power Company, The 100 New
Brunswick
U) Southwest Millwork and Specialties, 100 Delaware
Inc.
1) Maderas Howrey S. A. de C. V. 100 5 Mexico
V) Sprague's Falls Manufacturing 100 Canada
Company (Limited), The
W) St. Croix Water Power Company 100 Maine
X) Thacker Land Company 57 West
Virginia
Y) Tomahawk Land Company 100 Delaware
Z) XRS, Inc. 100 Delaware
NOTES
1 50% of the partnership of Dunes West Joint Venture is owned by Georgia-
Pacific Development Company and 50% is owned by Georgia-Pacific Investment
Company.
2 Georgia-Pacific de Mexico, S. de R. L. de C. V. is owned by Georgia-Pacific
West, Inc. and Georgia-Pacific Investment Company.
3 99% of the stock of Georgia-Pacific Italia S.r.l. is issued to Georgia-
Pacific West, Inc. and the remaining 1% is issued to Georgia-Pacific
Holdings, Inc. Georgia-Pacific Italia S.r.l. is in liquidation effective
December 31, 1994.
4 Georgia-Pacific Britain, L.L.C. is owned by Nekoosa Papers, Inc. (90%) and
Great Northern Nekoosa Corporation (10%).
5 99.6% of Series A stock of Maderas Howrey S. A. de C. V. is issued to
Southwest Millwork and Specialties, Inc. and the remaining .4% is issued to
Georgia-Pacific Shared Services Corp., Georgia-Pacific Pulpwood Company,
Georgia-Pacific Holdings, Inc. and Georgia-Pacific West, Inc. in equal
parts. 100% of Series B stock and 100% of Series C stock of Maderas Howrey
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 6, 1998 included or incorporated by reference in this
Annual Report on Form 10-K into Georgia-Pacific Corporation's previously filed
Registration Statement No. 2-93184; Registration Statement No. 2-99381;
Registration Statement No. 2-97165; Registration Statement No. 2-99380;
Registration Statement No. 2-76072; Registration Statement No. 2-68688;
Registration Statement No. 33-5964; Registration Statement No. 33-16528;
Registration Statement No. 33-18482; Registration Statement No. 33-21018;
Registration Statement No. 33-23776; Registration Statement No. 33-25446;
Registration Statement No. 33-26985; Registration Statement No. 33-11341;
Registration Statement No. 33-37930; Registration Statement No. 33-38561;
Registration Statement No. 33-48331; Registration Statement No. 33-48329;
Registration Statement No. 33-48330; Registration Statement No. 33-34810;
Registration Statement No. 33-39693; Registration Statement No. 33-43453;
Registration Statement No. 33-45892; Registration Statement No. 33-48041;
Registration Statement No. 33-51182; Registration Statement No. 33-52815;
Registration Statement No. 33-52823; Registration Statement No. 33-62498;
Registration Statement No. 33-58664; Registration Statement No. 33-65208;
Registration Statement No. 33-48328; Post-Effective Amendment No. 1 to
Registration Statement No. 2-64516; Post-Effective Amendment No. 5 (with respect
to the 1974 Employee Stock Option Plan), Post-Effective Amendment No. 6 (with
respect to the Savings and Capital Growth Plan), and Post-Effective Amendment
No. 7 (with respect to the Savings and Capital Growth Plan) to Registration
Statement No. 2-53427; Registration Statement No. 33-59057; Registration
Statement No. 33-60933; Registration Statement No. 33-60127; Registration
Statement No. 33-64673; Registration Statement No. 333-01785; Registration
Statement No. 333-35793; Registration Statement No. 333-35813; and Registration
Statement No. 333-42597.
/s/Arthur Andersen LLP
- -------------------------------------
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 25, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director or officer, or
both, of Georgia-Pacific Corporation, a Georgia corporation (the
"Corporation"), hereby constitutes and appoints A. D. Correll, James F. Kelley
and Kenneth F. Khoury, and each of them, his or her true and lawful attorney-in-
fact and agent to sign (1) any and all amendments to, and supplements to any
prospectus contained in, the Registration Statements on Form S-3 Nos. 333-01785
and 33-64673 (related to $500,000,000 aggregate principal amount of debt
securities of the Corporation), the Registration Statement on Form S-4, No. 333-
35813, the Registration Statements on Form S-8, Nos. 2-61238, 2-68688, 2-76072,
2-93184, 33-11341, 33-26985, 33-39693, 33-62498,33-60933 and 333-35793 (related
to the 1978, 1980, 1982, 1984, 1987, 1989, 1991, 1993, 1995 and 1997 Employee
Stock Purchase Plans), Nos. 2-99380, 33-58664 and 33-52823 (related to the 1984,
1993 and 1994 Employee Stock Option Plans), No. 33-48328 (related to the
Georgia-Pacific Corporation Savings and Capital Growth Plan), No. 33-52815
(related to the Georgia-Pacific Corporation Hourly 401(k) Savings Plan), No. 33-
48329 (related to the Georgia-Pacific Corporation (GNN) Investment Plan For
Union Employees), No. 33-48330 (related to the Georgia-Pacific Corporation
Investment Plan For Certain Non-Union Hourly Employees of Butler Paper Company
and Leaf River Forest Products, Inc.), No. 33-48331 (related to the Georgia-
Pacific Corporation Supplemental Hourly 401(k) Savings Plan), No. 33-59057
(related to the 1995 Shareholder Value Incentive Plan), and No. 333-42597
(related to the Georgia-Pacific Corporation 1990 Long-Term Incentive Plan,
Georgia-Pacific Corporation 1993 Employee Stock Option Plan, Georgia-Pacific
Corporation 1994 Employee Stock Option Plan, Georgia-Pacific Corporation 1995
Shareholder Value Incentive Plan, as Amended and Restated, Georgia-Pacific
Corporation/Georgia-Pacific Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation/Timber Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation Savings and Capital Growth Plan, Georgia-Pacific Corporation Hourly
401(k) Savings Plan) filed with the Securities and Exchange Commission (the
"Commission"), and any and all instruments and documents filed as a part of or
in connection with such amendments or supplements; (2) the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997; and (3) any other
reports or registration statements to be filed by the Corporation with the
Commission and/or any national securities exchange under the Securities Exchange
Act of 1934, as amended, and any and all amendments thereto, and any and all
instruments and documents filed as part of or in connection with such reports or
registration statements or reports or amendments thereto; and in connection with
the foregoing, to do any and all acts and things and execute any and all
instruments which such attorneys-in-fact and agents may deem necessary or
advisable to enable this Corporation to comply with the securities laws of the
United States and of any State or other political subdivision thereof; hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any one
of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 26th
day of January, 1998.
/s/ Robert Carswell
------------------------
ROBERT CARSWELL
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director or officer, or
both, of Georgia-Pacific Corporation, a Georgia corporation (the
"Corporation"), hereby constitutes and appoints A. D. Correll, James F. Kelley
and Kenneth F. Khoury, and each of them, his or her true and lawful attorney-in-
fact and agent to sign (1) any and all amendments to, and supplements to any
prospectus contained in, the Registration Statements on Form S-3 Nos. 333-01785
and 33-64673 (related to $500,000,000 aggregate principal amount of debt
securities of the Corporation), the Registration Statement on Form S-4, No. 333-
35813, the Registration Statements on Form S-8, Nos. 2-61238, 2-68688, 2-76072,
2-93184, 33-11341, 33-26985, 33-39693, 33-62498,33-60933 and 333-35793 (related
to the 1978, 1980, 1982, 1984, 1987, 1989, 1991, 1993, 1995 and 1997 Employee
Stock Purchase Plans), Nos. 2-99380, 33-58664 and 33-52823 (related to the 1984,
1993 and 1994 Employee Stock Option Plans), No. 33-48328 (related to the
Georgia-Pacific Corporation Savings and Capital Growth Plan), No. 33-52815
(related to the Georgia-Pacific Corporation Hourly 401(k) Savings Plan), No. 33-
48329 (related to the Georgia-Pacific Corporation (GNN) Investment Plan For
Union Employees), No. 33-48330 (related to the Georgia-Pacific Corporation
Investment Plan For Certain Non-Union Hourly Employees of Butler Paper Company
and Leaf River Forest Products, Inc.), No. 33-48331 (related to the Georgia-
Pacific Corporation Supplemental Hourly 401(k) Savings Plan), No. 33-59057
(related to the 1995 Shareholder Value Incentive Plan), and No. 333-42597
(related to the Georgia-Pacific Corporation 1990 Long-Term Incentive Plan,
Georgia-Pacific Corporation 1993 Employee Stock Option Plan, Georgia-Pacific
Corporation 1994 Employee Stock Option Plan, Georgia-Pacific Corporation 1995
Shareholder Value Incentive Plan, as Amended and Restated, Georgia-Pacific
Corporation/Georgia-Pacific Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation/Timber Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation Savings and Capital Growth Plan, Georgia-Pacific Corporation Hourly
401(k) Savings Plan) filed with the Securities and Exchange Commission (the
"Commission"), and any and all instruments and documents filed as a part of or
in connection with such amendments or supplements; (2) the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997; and (3) any other
reports or registration statements to be filed by the Corporation with the
Commission and/or any national securities exchange under the Securities Exchange
Act of 1934, as amended, and any and all amendments thereto, and any and all
instruments and documents filed as part of or in connection with such reports or
registration statements or reports or amendments thereto; and in connection with
the foregoing, to do any and all acts and things and execute any and all
instruments which such attorneys-in-fact and agents may deem necessary or
advisable to enable this Corporation to comply with the securities laws of the
United States and of any State or other political subdivision thereof; hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any one
of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 26th
day of January, 1998.
/s/ A. D. Correll
-----------------------
A. D. CORRELL
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director or officer, or
both, of Georgia-Pacific Corporation, a Georgia corporation (the
"Corporation"), hereby constitutes and appoints A. D. Correll, James F. Kelley
and Kenneth F. Khoury, and each of them, his or her true and lawful attorney-in-
fact and agent to sign (1) any and all amendments to, and supplements to any
prospectus contained in, the Registration Statements on Form S-3 Nos. 333-01785
and 33-64673 (related to $500,000,000 aggregate principal amount of debt
securities of the Corporation), the Registration Statement on Form S-4, No. 333-
35813, the Registration Statements on Form S-8, Nos. 2-61238, 2-68688, 2-76072,
2-93184, 33-11341, 33-26985, 33-39693, 33-62498,33-60933 and 333-35793 (related
to the 1978, 1980, 1982, 1984, 1987, 1989, 1991, 1993, 1995 and 1997 Employee
Stock Purchase Plans), Nos. 2-99380, 33-58664 and 33-52823 (related to the 1984,
1993 and 1994 Employee Stock Option Plans), No. 33-48328 (related to the
Georgia-Pacific Corporation Savings and Capital Growth Plan), No. 33-52815
(related to the Georgia-Pacific Corporation Hourly 401(k) Savings Plan), No. 33-
48329 (related to the Georgia-Pacific Corporation (GNN) Investment Plan For
Union Employees), No. 33-48330 (related to the Georgia-Pacific Corporation
Investment Plan For Certain Non-Union Hourly Employees of Butler Paper Company
and Leaf River Forest Products, Inc.), No. 33-48331 (related to the Georgia-
Pacific Corporation Supplemental Hourly 401(k) Savings Plan), No. 33-59057
(related to the 1995 Shareholder Value Incentive Plan), and No. 333-42597
(related to the Georgia-Pacific Corporation 1990 Long-Term Incentive Plan,
Georgia-Pacific Corporation 1993 Employee Stock Option Plan, Georgia-Pacific
Corporation 1994 Employee Stock Option Plan, Georgia-Pacific Corporation 1995
Shareholder Value Incentive Plan, as Amended and Restated, Georgia-Pacific
Corporation/Georgia-Pacific Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation/Timber Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation Savings and Capital Growth Plan, Georgia-Pacific Corporation Hourly
401(k) Savings Plan) filed with the Securities and Exchange Commission (the
"Commission"), and any and all instruments and documents filed as a part of or
in connection with such amendments or supplements; (2) the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997; and (3) any other
reports or registration statements to be filed by the Corporation with the
Commission and/or any national securities exchange under the Securities Exchange
Act of 1934, as amended, and any and all amendments thereto, and any and all
instruments and documents filed as part of or in connection with such reports or
registration statements or reports or amendments thereto; and in connection with
the foregoing, to do any and all acts and things and execute any and all
instruments which such attorneys-in-fact and agents may deem necessary or
advisable to enable this Corporation to comply with the securities laws of the
United States and of any State or other political subdivision thereof; hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any one
of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 26th
day of January, 1998.
/s/ Jane Evans
---------------------
JANE EVANS
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director or officer, or
both, of Georgia-Pacific Corporation, a Georgia corporation (the
"Corporation"), hereby constitutes and appoints A. D. Correll, James F. Kelley
and Kenneth F. Khoury, and each of them, his or her true and lawful attorney-in-
fact and agent to sign (1) any and all amendments to, and supplements to any
prospectus contained in, the Registration Statements on Form S-3 Nos. 333-01785
and 33-64673 (related to $500,000,000 aggregate principal amount of debt
securities of the Corporation), the Registration Statement on Form S-4, No. 333-
35813, the Registration Statements on Form S-8, Nos. 2-61238, 2-68688, 2-76072,
2-93184, 33-11341, 33-26985, 33-39693, 33-62498,33-60933 and 333-35793 (related
to the 1978, 1980, 1982, 1984, 1987, 1989, 1991, 1993, 1995 and 1997 Employee
Stock Purchase Plans), Nos. 2-99380, 33-58664 and 33-52823 (related to the 1984,
1993 and 1994 Employee Stock Option Plans), No. 33-48328 (related to the
Georgia-Pacific Corporation Savings and Capital Growth Plan), No. 33-52815
(related to the Georgia-Pacific Corporation Hourly 401(k) Savings Plan), No. 33-
48329 (related to the Georgia-Pacific Corporation (GNN) Investment Plan For
Union Employees), No. 33-48330 (related to the Georgia-Pacific Corporation
Investment Plan For Certain Non-Union Hourly Employees of Butler Paper Company
and Leaf River Forest Products, Inc.), No. 33-48331 (related to the Georgia-
Pacific Corporation Supplemental Hourly 401(k) Savings Plan), No. 33-59057
(related to the 1995 Shareholder Value Incentive Plan), and No. 333-42597
(related to the Georgia-Pacific Corporation 1990 Long-Term Incentive Plan,
Georgia-Pacific Corporation 1993 Employee Stock Option Plan, Georgia-Pacific
Corporation 1994 Employee Stock Option Plan, Georgia-Pacific Corporation 1995
Shareholder Value Incentive Plan, as Amended and Restated, Georgia-Pacific
Corporation/Georgia-Pacific Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation/Timber Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation Savings and Capital Growth Plan, Georgia-Pacific Corporation Hourly
401(k) Savings Plan) filed with the Securities and Exchange Commission (the
"Commission"), and any and all instruments and documents filed as a part of or
in connection with such amendments or supplements; (2) the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997; and (3) any other
reports or registration statements to be filed by the Corporation with the
Commission and/or any national securities exchange under the Securities Exchange
Act of 1934, as amended, and any and all amendments thereto, and any and all
instruments and documents filed as part of or in connection with such reports or
registration statements or reports or amendments thereto; and in connection with
the foregoing, to do any and all acts and things and execute any and all
instruments which such attorneys-in-fact and agents may deem necessary or
advisable to enable this Corporation to comply with the securities laws of the
United States and of any State or other political subdivision thereof; hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any one
of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 26th
day of January, 1998.
/s/ Donald V. Fites
----------------------
DONALD V. FITES
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director or officer, or
both, of Georgia-Pacific Corporation, a Georgia corporation (the
"Corporation"), hereby constitutes and appoints A. D. Correll, James F. Kelley
and Kenneth F. Khoury, and each of them, his or her true and lawful attorney-in-
fact and agent to sign (1) any and all amendments to, and supplements to any
prospectus contained in, the Registration Statements on Form S-3 Nos. 333-01785
and 33-64673 (related to $500,000,000 aggregate principal amount of debt
securities of the Corporation), the Registration Statement on Form S-4, No. 333-
35813, the Registration Statements on Form S-8, Nos. 2-61238, 2-68688, 2-76072,
2-93184, 33-11341, 33-26985, 33-39693, 33-62498,33-60933 and 333-35793 (related
to the 1978, 1980, 1982, 1984, 1987, 1989, 1991, 1993, 1995 and 1997 Employee
Stock Purchase Plans), Nos. 2-99380, 33-58664 and 33-52823 (related to the 1984,
1993 and 1994 Employee Stock Option Plans), No. 33-48328 (related to the
Georgia-Pacific Corporation Savings and Capital Growth Plan), No. 33-52815
(related to the Georgia-Pacific Corporation Hourly 401(k) Savings Plan), No. 33-
48329 (related to the Georgia-Pacific Corporation (GNN) Investment Plan For
Union Employees), No. 33-48330 (related to the Georgia-Pacific Corporation
Investment Plan For Certain Non-Union Hourly Employees of Butler Paper Company
and Leaf River Forest Products, Inc.), No. 33-48331 (related to the Georgia-
Pacific Corporation Supplemental Hourly 401(k) Savings Plan), No. 33-59057
(related to the 1995 Shareholder Value Incentive Plan), and No. 333-42597
(related to the Georgia-Pacific Corporation 1990 Long-Term Incentive Plan,
Georgia-Pacific Corporation 1993 Employee Stock Option Plan, Georgia-Pacific
Corporation 1994 Employee Stock Option Plan, Georgia-Pacific Corporation 1995
Shareholder Value Incentive Plan, as Amended and Restated, Georgia-Pacific
Corporation/Georgia-Pacific Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation/Timber Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation Savings and Capital Growth Plan, Georgia-Pacific Corporation Hourly
401(k) Savings Plan) filed with the Securities and Exchange Commission (the
"Commission"), and any and all instruments and documents filed as a part of or
in connection with such amendments or supplements; (2) the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997; and (3) any other
reports or registration statements to be filed by the Corporation with the
Commission and/or any national securities exchange under the Securities Exchange
Act of 1934, as amended, and any and all amendments thereto, and any and all
instruments and documents filed as part of or in connection with such reports or
registration statements or reports or amendments thereto; and in connection with
the foregoing, to do any and all acts and things and execute any and all
instruments which such attorneys-in-fact and agents may deem necessary or
advisable to enable this Corporation to comply with the securities laws of the
United States and of any State or other political subdivision thereof; hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any one
of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 26th
day of January, 1998.
/s/ Harvey C. Fruehauf, Jr.
---------------------------
HARVEY C. FRUEHAUF, JR.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director or officer, or
both, of Georgia-Pacific Corporation, a Georgia corporation (the
"Corporation"), hereby constitutes and appoints A. D. Correll, James F. Kelley
and Kenneth F. Khoury, and each of them, his or her true and lawful attorney-in-
fact and agent to sign (1) any and all amendments to, and supplements to any
prospectus contained in, the Registration Statements on Form S-3 Nos. 333-01785
and 33-64673 (related to $500,000,000 aggregate principal amount of debt
securities of the Corporation), the Registration Statement on Form S-4, No. 333-
35813, the Registration Statements on Form S-8, Nos. 2-61238, 2-68688, 2-76072,
2-93184, 33-11341, 33-26985, 33-39693, 33-62498,33-60933 and 333-35793 (related
to the 1978, 1980, 1982, 1984, 1987, 1989, 1991, 1993, 1995 and 1997 Employee
Stock Purchase Plans), Nos. 2-99380, 33-58664 and 33-52823 (related to the 1984,
1993 and 1994 Employee Stock Option Plans), No. 33-48328 (related to the
Georgia-Pacific Corporation Savings and Capital Growth Plan), No. 33-52815
(related to the Georgia-Pacific Corporation Hourly 401(k) Savings Plan), No. 33-
48329 (related to the Georgia-Pacific Corporation (GNN) Investment Plan For
Union Employees), No. 33-48330 (related to the Georgia-Pacific Corporation
Investment Plan For Certain Non-Union Hourly Employees of Butler Paper Company
and Leaf River Forest Products, Inc.), No. 33-48331 (related to the Georgia-
Pacific Corporation Supplemental Hourly 401(k) Savings Plan), No. 33-59057
(related to the 1995 Shareholder Value Incentive Plan), and No. 333-42597
(related to the Georgia-Pacific Corporation 1990 Long-Term Incentive Plan,
Georgia-Pacific Corporation 1993 Employee Stock Option Plan, Georgia-Pacific
Corporation 1994 Employee Stock Option Plan, Georgia-Pacific Corporation 1995
Shareholder Value Incentive Plan, as Amended and Restated, Georgia-Pacific
Corporation/Georgia-Pacific Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation/Timber Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation Savings and Capital Growth Plan, Georgia-Pacific Corporation Hourly
401(k) Savings Plan) filed with the Securities and Exchange Commission (the
"Commission"), and any and all instruments and documents filed as a part of or
in connection with such amendments or supplements; (2) the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997; and (3) any other
reports or registration statements to be filed by the Corporation with the
Commission and/or any national securities exchange under the Securities Exchange
Act of 1934, as amended, and any and all amendments thereto, and any and all
instruments and documents filed as part of or in connection with such reports or
registration statements or reports or amendments thereto; and in connection with
the foregoing, to do any and all acts and things and execute any and all
instruments which such attorneys-in-fact and agents may deem necessary or
advisable to enable this Corporation to comply with the securities laws of the
United States and of any State or other political subdivision thereof; hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any one
of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 26th
day of January, 1998.
/s/ Richard V. Giordano
--------------------------
RICHARD V. GIORDANO
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director or officer, or
both, of Georgia-Pacific Corporation, a Georgia corporation (the
"Corporation"), hereby constitutes and appoints A. D. Correll, James F. Kelley
and Kenneth F. Khoury, and each of them, his or her true and lawful attorney-in-
fact and agent to sign (1) any and all amendments to, and supplements to any
prospectus contained in, the Registration Statements on Form S-3 Nos. 333-01785
and 33-64673 (related to $500,000,000 aggregate principal amount of debt
securities of the Corporation), the Registration Statement on Form S-4, No. 333-
35813, the Registration Statements on Form S-8, Nos. 2-61238, 2-68688, 2-76072,
2-93184, 33-11341, 33-26985, 33-39693, 33-62498,33-60933 and 333-35793 (related
to the 1978, 1980, 1982, 1984, 1987, 1989, 1991, 1993, 1995 and 1997 Employee
Stock Purchase Plans), Nos. 2-99380, 33-58664 and 33-52823 (related to the 1984,
1993 and 1994 Employee Stock Option Plans), No. 33-48328 (related to the
Georgia-Pacific Corporation Savings and Capital Growth Plan), No. 33-52815
(related to the Georgia-Pacific Corporation Hourly 401(k) Savings Plan), No. 33-
48329 (related to the Georgia-Pacific Corporation (GNN) Investment Plan For
Union Employees), No. 33-48330 (related to the Georgia-Pacific Corporation
Investment Plan For Certain Non-Union Hourly Employees of Butler Paper Company
and Leaf River Forest Products, Inc.), No. 33-48331 (related to the Georgia-
Pacific Corporation Supplemental Hourly 401(k) Savings Plan), No. 33-59057
(related to the 1995 Shareholder Value Incentive Plan), and No. 333-42597
(related to the Georgia-Pacific Corporation 1990 Long-Term Incentive Plan,
Georgia-Pacific Corporation 1993 Employee Stock Option Plan, Georgia-Pacific
Corporation 1994 Employee Stock Option Plan, Georgia-Pacific Corporation 1995
Shareholder Value Incentive Plan, as Amended and Restated, Georgia-Pacific
Corporation/Georgia-Pacific Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation/Timber Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation Savings and Capital Growth Plan, Georgia-Pacific Corporation Hourly
401(k) Savings Plan) filed with the Securities and Exchange Commission (the
"Commission"), and any and all instruments and documents filed as a part of or
in connection with such amendments or supplements; (2) the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997; and (3) any other
reports or registration statements to be filed by the Corporation with the
Commission and/or any national securities exchange under the Securities Exchange
Act of 1934, as amended, and any and all amendments thereto, and any and all
instruments and documents filed as part of or in connection with such reports or
registration statements or reports or amendments thereto; and in connection with
the foregoing, to do any and all acts and things and execute any and all
instruments which such attorneys-in-fact and agents may deem necessary or
advisable to enable this Corporation to comply with the securities laws of the
United States and of any State or other political subdivision thereof; hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any one
of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 26th
day of January, 1998.
/s/ David R. Goode
---------------------
DAVID R. GOODE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director or officer, or
both, of Georgia-Pacific Corporation, a Georgia corporation (the
"Corporation"), hereby constitutes and appoints A. D. Correll, James F. Kelley
and Kenneth F. Khoury, and each of them, his or her true and lawful attorney-in-
fact and agent to sign (1) any and all amendments to, and supplements to any
prospectus contained in, the Registration Statements on Form S-3 Nos. 333-01785
and 33-64673 (related to $500,000,000 aggregate principal amount of debt
securities of the Corporation), the Registration Statement on Form S-4, No. 333-
35813, the Registration Statements on Form S-8, Nos. 2-61238, 2-68688, 2-76072,
2-93184, 33-11341, 33-26985, 33-39693, 33-62498,33-60933 and 333-35793 (related
to the 1978, 1980, 1982, 1984, 1987, 1989, 1991, 1993, 1995 and 1997 Employee
Stock Purchase Plans), Nos. 2-99380, 33-58664 and 33-52823 (related to the 1984,
1993 and 1994 Employee Stock Option Plans), No. 33-48328 (related to the
Georgia-Pacific Corporation Savings and Capital Growth Plan), No. 33-52815
(related to the Georgia-Pacific Corporation Hourly 401(k) Savings Plan), No. 33-
48329 (related to the Georgia-Pacific Corporation (GNN) Investment Plan For
Union Employees), No. 33-48330 (related to the Georgia-Pacific Corporation
Investment Plan For Certain Non-Union Hourly Employees of Butler Paper Company
and Leaf River Forest Products, Inc.), No. 33-48331 (related to the Georgia-
Pacific Corporation Supplemental Hourly 401(k) Savings Plan), No. 33-59057
(related to the 1995 Shareholder Value Incentive Plan), and No. 333-42597
(related to the Georgia-Pacific Corporation 1990 Long-Term Incentive Plan,
Georgia-Pacific Corporation 1993 Employee Stock Option Plan, Georgia-Pacific
Corporation 1994 Employee Stock Option Plan, Georgia-Pacific Corporation 1995
Shareholder Value Incentive Plan, as Amended and Restated, Georgia-Pacific
Corporation/Georgia-Pacific Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation/Timber Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation Savings and Capital Growth Plan, Georgia-Pacific Corporation Hourly
401(k) Savings Plan) filed with the Securities and Exchange Commission (the
"Commission"), and any and all instruments and documents filed as a part of or
in connection with such amendments or supplements; (2) the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997; and (3) any other
reports or registration statements to be filed by the Corporation with the
Commission and/or any national securities exchange under the Securities Exchange
Act of 1934, as amended, and any and all amendments thereto, and any and all
instruments and documents filed as part of or in connection with such reports or
registration statements or reports or amendments thereto; and in connection with
the foregoing, to do any and all acts and things and execute any and all
instruments which such attorneys-in-fact and agents may deem necessary or
advisable to enable this Corporation to comply with the securities laws of the
United States and of any State or other political subdivision thereof; hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any one
of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 26th
day of January, 1998.
/s/ T. Marshall Hahn, Jr.
------------------------
T. MARSHALL HAHN, JR.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director or officer, or
both, of Georgia-Pacific Corporation, a Georgia corporation (the
"Corporation"), hereby constitutes and appoints A. D. Correll, James F. Kelley
and Kenneth F. Khoury, and each of them, his or her true and lawful attorney-in-
fact and agent to sign (1) any and all amendments to, and supplements to any
prospectus contained in, the Registration Statements on Form S-3 Nos. 333-01785
and 33-64673 (related to $500,000,000 aggregate principal amount of debt
securities of the Corporation), the Registration Statement on Form S-4, No. 333-
35813, the Registration Statements on Form S-8, Nos. 2-61238, 2-68688, 2-76072,
2-93184, 33-11341, 33-26985, 33-39693, 33-62498,33-60933 and 333-35793 (related
to the 1978, 1980, 1982, 1984, 1987, 1989, 1991, 1993, 1995 and 1997 Employee
Stock Purchase Plans), Nos. 2-99380, 33-58664 and 33-52823 (related to the 1984,
1993 and 1994 Employee Stock Option Plans), No. 33-48328 (related to the
Georgia-Pacific Corporation Savings and Capital Growth Plan), No. 33-52815
(related to the Georgia-Pacific Corporation Hourly 401(k) Savings Plan), No. 33-
48329 (related to the Georgia-Pacific Corporation (GNN) Investment Plan For
Union Employees), No. 33-48330 (related to the Georgia-Pacific Corporation
Investment Plan For Certain Non-Union Hourly Employees of Butler Paper Company
and Leaf River Forest Products, Inc.), No. 33-48331 (related to the Georgia-
Pacific Corporation Supplemental Hourly 401(k) Savings Plan), No. 33-59057
(related to the 1995 Shareholder Value Incentive Plan), and No. 333-42597
(related to the Georgia-Pacific Corporation 1990 Long-Term Incentive Plan,
Georgia-Pacific Corporation 1993 Employee Stock Option Plan, Georgia-Pacific
Corporation 1994 Employee Stock Option Plan, Georgia-Pacific Corporation 1995
Shareholder Value Incentive Plan, as Amended and Restated, Georgia-Pacific
Corporation/Georgia-Pacific Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation/Timber Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation Savings and Capital Growth Plan, Georgia-Pacific Corporation Hourly
401(k) Savings Plan) filed with the Securities and Exchange Commission (the
"Commission"), and any and all instruments and documents filed as a part of or
in connection with such amendments or supplements; (2) the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997; and (3) any other
reports or registration statements to be filed by the Corporation with the
Commission and/or any national securities exchange under the Securities Exchange
Act of 1934, as amended, and any and all amendments thereto, and any and all
instruments and documents filed as part of or in connection with such reports or
registration statements or reports or amendments thereto; and in connection with
the foregoing, to do any and all acts and things and execute any and all
instruments which such attorneys-in-fact and agents may deem necessary or
advisable to enable this Corporation to comply with the securities laws of the
United States and of any State or other political subdivision thereof; hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any one
of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 26th
day of January, 1998.
/s/ M. Douglas Ivester
---------------------------
M. DOUGLAS IVESTER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director or officer, or
both, of Georgia-Pacific Corporation, a Georgia corporation (the
"Corporation"), hereby constitutes and appoints A. D. Correll, James F. Kelley
and Kenneth F. Khoury, and each of them, his or her true and lawful attorney-in-
fact and agent to sign (1) any and all amendments to, and supplements to any
prospectus contained in, the Registration Statements on Form S-3 Nos. 333-01785
and 33-64673 (related to $500,000,000 aggregate principal amount of debt
securities of the Corporation), the Registration Statement on Form S-4, No. 333-
35813, the Registration Statements on Form S-8, Nos. 2-61238, 2-68688, 2-76072,
2-93184, 33-11341, 33-26985, 33-39693, 33-62498,33-60933 and 333-35793 (related
to the 1978, 1980, 1982, 1984, 1987, 1989, 1991, 1993, 1995 and 1997 Employee
Stock Purchase Plans), Nos. 2-99380, 33-58664 and 33-52823 (related to the 1984,
1993 and 1994 Employee Stock Option Plans), No. 33-48328 (related to the
Georgia-Pacific Corporation Savings and Capital Growth Plan), No. 33-52815
(related to the Georgia-Pacific Corporation Hourly 401(k) Savings Plan), No. 33-
48329 (related to the Georgia-Pacific Corporation (GNN) Investment Plan For
Union Employees), No. 33-48330 (related to the Georgia-Pacific Corporation
Investment Plan For Certain Non-Union Hourly Employees of Butler Paper Company
and Leaf River Forest Products, Inc.), No. 33-48331 (related to the Georgia-
Pacific Corporation Supplemental Hourly 401(k) Savings Plan), No. 33-59057
(related to the 1995 Shareholder Value Incentive Plan), and No. 333-42597
(related to the Georgia-Pacific Corporation 1990 Long-Term Incentive Plan,
Georgia-Pacific Corporation 1993 Employee Stock Option Plan, Georgia-Pacific
Corporation 1994 Employee Stock Option Plan, Georgia-Pacific Corporation 1995
Shareholder Value Incentive Plan, as Amended and Restated, Georgia-Pacific
Corporation/Georgia-Pacific Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation/Timber Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation Savings and Capital Growth Plan, Georgia-Pacific Corporation Hourly
401(k) Savings Plan) filed with the Securities and Exchange Commission (the
"Commission"), and any and all instruments and documents filed as a part of or
in connection with such amendments or supplements; (2) the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997; and (3) any other
reports or registration statements to be filed by the Corporation with the
Commission and/or any national securities exchange under the Securities Exchange
Act of 1934, as amended, and any and all amendments thereto, and any and all
instruments and documents filed as part of or in connection with such reports or
registration statements or reports or amendments thereto; and in connection with
the foregoing, to do any and all acts and things and execute any and all
instruments which such attorneys-in-fact and agents may deem necessary or
advisable to enable this Corporation to comply with the securities laws of the
United States and of any State or other political subdivision thereof; hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any one
of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 26th
day of January, 1998.
/s/ Francis Jungers
----------------------
FRANCIS JUNGERS
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director or officer, or
both, of Georgia-Pacific Corporation, a Georgia corporation (the
"Corporation"), hereby constitutes and appoints A. D. Correll, James F. Kelley
and Kenneth F. Khoury, and each of them, his or her true and lawful attorney-in-
fact and agent to sign (1) any and all amendments to, and supplements to any
prospectus contained in, the Registration Statements on Form S-3 Nos. 333-01785
and 33-64673 (related to $500,000,000 aggregate principal amount of debt
securities of the Corporation), the Registration Statement on Form S-4, No. 333-
35813, the Registration Statements on Form S-8, Nos. 2-61238, 2-68688, 2-76072,
2-93184, 33-11341, 33-26985, 33-39693, 33-62498,33-60933 and 333-35793 (related
to the 1978, 1980, 1982, 1984, 1987, 1989, 1991, 1993, 1995 and 1997 Employee
Stock Purchase Plans), Nos. 2-99380, 33-58664 and 33-52823 (related to the 1984,
1993 and 1994 Employee Stock Option Plans), No. 33-48328 (related to the
Georgia-Pacific Corporation Savings and Capital Growth Plan), No. 33-52815
(related to the Georgia-Pacific Corporation Hourly 401(k) Savings Plan), No. 33-
48329 (related to the Georgia-Pacific Corporation (GNN) Investment Plan For
Union Employees), No. 33-48330 (related to the Georgia-Pacific Corporation
Investment Plan For Certain Non-Union Hourly Employees of Butler Paper Company
and Leaf River Forest Products, Inc.), No. 33-48331 (related to the Georgia-
Pacific Corporation Supplemental Hourly 401(k) Savings Plan), No. 33-59057
(related to the 1995 Shareholder Value Incentive Plan), and No. 333-42597
(related to the Georgia-Pacific Corporation 1990 Long-Term Incentive Plan,
Georgia-Pacific Corporation 1993 Employee Stock Option Plan, Georgia-Pacific
Corporation 1994 Employee Stock Option Plan, Georgia-Pacific Corporation 1995
Shareholder Value Incentive Plan, as Amended and Restated, Georgia-Pacific
Corporation/Georgia-Pacific Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation/Timber Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation Savings and Capital Growth Plan, Georgia-Pacific Corporation Hourly
401(k) Savings Plan) filed with the Securities and Exchange Commission (the
"Commission"), and any and all instruments and documents filed as a part of or
in connection with such amendments or supplements; (2) the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997; and (3) any other
reports or registration statements to be filed by the Corporation with the
Commission and/or any national securities exchange under the Securities Exchange
Act of 1934, as amended, and any and all amendments thereto, and any and all
instruments and documents filed as part of or in connection with such reports or
registration statements or reports or amendments thereto; and in connection with
the foregoing, to do any and all acts and things and execute any and all
instruments which such attorneys-in-fact and agents may deem necessary or
advisable to enable this Corporation to comply with the securities laws of the
United States and of any State or other political subdivision thereof; hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any one
of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 26th
day of January, 1998.
/s/ Louis W. Sullivan, M.D.
----------------------------
LOUIS W. SULLIVAN, M.D.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director or officer, or
both, of Georgia-Pacific Corporation, a Georgia corporation (the
"Corporation"), hereby constitutes and appoints A. D. Correll, James F. Kelley
and Kenneth F. Khoury, and each of them, his or her true and lawful attorney-in-
fact and agent to sign (1) any and all amendments to, and supplements to any
prospectus contained in, the Registration Statements on Form S-3 Nos. 333-01785
and 33-64673 (related to $500,000,000 aggregate principal amount of debt
securities of the Corporation), the Registration Statement on Form S-4, No. 333-
35813, the Registration Statements on Form S-8, Nos. 2-61238, 2-68688, 2-76072,
2-93184, 33-11341, 33-26985, 33-39693, 33-62498,33-60933 and 333-35793 (related
to the 1978, 1980, 1982, 1984, 1987, 1989, 1991, 1993, 1995 and 1997 Employee
Stock Purchase Plans), Nos. 2-99380, 33-58664 and 33-52823 (related to the 1984,
1993 and 1994 Employee Stock Option Plans), No. 33-48328 (related to the
Georgia-Pacific Corporation Savings and Capital Growth Plan), No. 33-52815
(related to the Georgia-Pacific Corporation Hourly 401(k) Savings Plan), No. 33-
48329 (related to the Georgia-Pacific Corporation (GNN) Investment Plan For
Union Employees), No. 33-48330 (related to the Georgia-Pacific Corporation
Investment Plan For Certain Non-Union Hourly Employees of Butler Paper Company
and Leaf River Forest Products, Inc.), No. 33-48331 (related to the Georgia-
Pacific Corporation Supplemental Hourly 401(k) Savings Plan), No. 33-59057
(related to the 1995 Shareholder Value Incentive Plan), and No. 333-42597
(related to the Georgia-Pacific Corporation 1990 Long-Term Incentive Plan,
Georgia-Pacific Corporation 1993 Employee Stock Option Plan, Georgia-Pacific
Corporation 1994 Employee Stock Option Plan, Georgia-Pacific Corporation 1995
Shareholder Value Incentive Plan, as Amended and Restated, Georgia-Pacific
Corporation/Georgia-Pacific Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation/Timber Group 1997 Long-Term Incentive Plan, Georgia-Pacific
Corporation Savings and Capital Growth Plan, Georgia-Pacific Corporation Hourly
401(k) Savings Plan) filed with the Securities and Exchange Commission (the
"Commission"), and any and all instruments and documents filed as a part of or
in connection with such amendments or supplements; (2) the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997; and (3) any other
reports or registration statements to be filed by the Corporation with the
Commission and/or any national securities exchange under the Securities Exchange
Act of 1934, as amended, and any and all amendments thereto, and any and all
instruments and documents filed as part of or in connection with such reports or
registration statements or reports or amendments thereto; and in connection with
the foregoing, to do any and all acts and things and execute any and all
instruments which such attorneys-in-fact and agents may deem necessary or
advisable to enable this Corporation to comply with the securities laws of the
United States and of any State or other political subdivision thereof; hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any one
of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 26th
day of January, 1998.
/s/ James B. Williams
---------------------------
JAMES B. WILLIAM
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<LEGEND>
"THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GEORGIA-PACIFIC CORPORATION FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS."
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 8
<SECURITIES> 0
<RECEIVABLES> 1,384
<ALLOWANCES> 13
<INVENTORY> 1,357
<CURRENT-ASSETS> 2,916
<PP&E> 14,134
<DEPRECIATION> 7,837
<TOTAL-ASSETS> 12,950
<CURRENT-LIABILITIES> 3,020
<BONDS> 3,713
0
0
<COMMON> 74
<OTHER-SE> 3,400
<TOTAL-LIABILITY-AND-EQUITY> 12,950
<SALES> 13,094
<TOTAL-REVENUES> 13,094
<CGS> 10,384
<TOTAL-COSTS> 10,384
<OTHER-EXPENSES> 958
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 465
<INCOME-PRETAX> 235
<INCOME-TAX> 106
<INCOME-CONTINUING> 129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (60)
<NET-INCOME> 69
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F2>
<FN>
<F1> Georgia-Pacific Group EPS - Primary (1.60)
The Timber Company EPS - Primary 2.35
<F2> Georgia-Pacific Group EPS - Diluted (1.60)
The Timber Company EPS - Diluted 2.33
</FN>
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<ARTICLE> 5
<LEGEND>
"THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS."
</LEGEND>
<RESTATED>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 1,459
<ALLOWANCES> 10
<INVENTORY> 1,385
<CURRENT-ASSETS> 3,025
<PP&E> 14,012
<DEPRECIATION> 7,648
<TOTAL-ASSETS> 13,108
<CURRENT-LIABILITIES> 2,693
<BONDS> 3,954
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<COMMON> 74
<OTHER-SE> 3,567
<TOTAL-LIABILITY-AND-EQUITY> 13,108
<SALES> 9,844
<TOTAL-REVENUES> 9,844
<CGS> 7,691
<TOTAL-COSTS> 7,691
<OTHER-EXPENSES> 710
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 355
<INCOME-PRETAX> 354
<INCOME-TAX> 151
<INCOME-CONTINUING> 203
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<CHANGES> 0
<NET-INCOME> 203
<EPS-PRIMARY> 2.23
<EPS-DILUTED> 2.21
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GEORGIA-PACIFIC CORPORATION FOR THE SIX MONTHS ENDED
JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS."
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 6
<SECURITIES> 0
<RECEIVABLES> 1,398
<ALLOWANCES> 12
<INVENTORY> 1,350
<CURRENT-ASSETS> 2,921
<PP&E> 13,0914
<DEPRECIATION> 7,497
<TOTAL-ASSETS> 13,071
<CURRENT-LIABILITIES> 2,511
<BONDS> 4,254
0
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<COMMON> 73
<OTHER-SE> 3,491
<TOTAL-LIABILITY-AND-EQUITY> 13,071
<SALES> 6,471
<TOTAL-REVENUES> 6,471
<CGS> 5,112
<TOTAL-COSTS> 5,112
<OTHER-EXPENSES> 467
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 241
<INCOME-PRETAX> 205
<INCOME-TAX> 88
<INCOME-CONTINUING> 117
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GEORGIA-PACIFIC CORPORATION FOR THE THREE MONTHS ENDED
MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS."
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 43
<SECURITIES> 0
<RECEIVABLES> 1,386
<ALLOWANCES> 15
<INVENTORY> 1,447
<CURRENT-ASSETS> 3,039
<PP&E> 13,817
<DEPRECIATION> 7,337
<TOTAL-ASSETS> 13,249
<CURRENT-LIABILITIES> 2,969
<BONDS> 4,253
0
0
<COMMON> 73
<OTHER-SE> 3,497
<TOTAL-LIABILITY-AND-EQUITY> 13,249
<SALES> 3,145
<TOTAL-REVENUES> 3,145
<CGS> 2,476
<TOTAL-COSTS> 2,476
<OTHER-EXPENSES> 230
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122
<INCOME-PRETAX> 154
<INCOME-TAX> 64
<INCOME-CONTINUING> 90
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90
<EPS-PRIMARY> .99
<EPS-DILUTED> .99
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GEORGIA-PACIFIC CORPORATION FOR THE 12 MONTHS ENDED
DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS."
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1997
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> 969
<ALLOWANCES> 10
<INVENTORY> 1,247
<CURRENT-ASSETS> 2,615
<PP&E> 13,733
<DEPRECIATION> 7,173
<TOTAL-ASSETS> 12,818
<CURRENT-LIABILITIES> 2,490
<BONDS> 4,371
0
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<COMMON> 73
<OTHER-SE> 3,448
<TOTAL-LIABILITY-AND-EQUITY> 12,818
<SALES> 13,024
<TOTAL-REVENUES> 13,024
<CGS> 9,933
<TOTAL-COSTS> 9,933
<OTHER-EXPENSES> 937
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 459
<INCOME-PRETAX> 296
<INCOME-TAX> 135
<INCOME-CONTINUING> 161
<DISCONTINUED> 0
<EXTRAORDINARY> (5)
<CHANGES> 0
<NET-INCOME> 156
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.71
</TABLE>
<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, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS."
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> 1,048
<ALLOWANCES> 27
<INVENTORY> 1,423
<CURRENT-ASSETS> 2,642
<PP&E> 13,779
<DEPRECIATION> 7,188
<TOTAL-ASSETS> 12,873
<CURRENT-LIABILITIES> 2,578
<BONDS> 4,274
0
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<COMMON> 73
<OTHER-SE> 3,479
<TOTAL-LIABILITY-AND-EQUITY> 12,873
<SALES> 9,828
<TOTAL-REVENUES> 9,828
<CGS> 7,441
<TOTAL-COSTS> 7,441
<OTHER-EXPENSES> 707
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 346
<INCOME-PRETAX> 290
<INCOME-TAX> 131
<INCOME-CONTINUING> 159
<DISCONTINUED> 0
<EXTRAORDINARY> (5)
<CHANGES> 0
<NET-INCOME> 154
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.69
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GEORGIA-PACIFIC CORPORATION FOR THE SIX MONTHS ENDED
JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS."
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 11
<SECURITIES> 0
<RECEIVABLES> 1,032
<ALLOWANCES> 27
<INVENTORY> 1,420
<CURRENT-ASSETS> 2,658
<PP&E> 13,695
<DEPRECIATION> 7,084
<TOTAL-ASSETS> 12,892
<CURRENT-LIABILITIES> 2,739
<BONDS> 4,253
0
0
<COMMON> 73
<OTHER-SE> 3,415
<TOTAL-LIABILITY-AND-EQUITY> 12,892
<SALES> 6,377
<TOTAL-REVENUES> 6,377
<CGS> 4,798
<TOTAL-COSTS> 4,798
<OTHER-EXPENSES> 460
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 226
<INCOME-PRETAX> 115
<INCOME-TAX> 55
<INCOME-CONTINUING> 60
<DISCONTINUED> 0
<EXTRAORDINARY> (5)
<CHANGES> 0
<NET-INCOME> 55
<EPS-PRIMARY> .61
<EPS-DILUTED> .60
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GEORGIA-PACIFIC CORPORATION FOR THE 3 MONTHS ENDED MARCH
31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS."
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 937
<ALLOWANCES> 26
<INVENTORY> 1,458
<CURRENT-ASSETS> 2,556
<PP&E> 12,888
<DEPRECIATION> 6,716
<TOTAL-ASSETS> 12,402
<CURRENT-LIABILITIES> 1,967
<BONDS> 4,545
0
0
<COMMON> 73
<OTHER-SE> 3,461
<TOTAL-LIABILITY-AND-EQUITY> 12,402
<SALES> 3,053
<TOTAL-REVENUES> 3,053
<CGS> 2,284
<TOTAL-COSTS> 2,284
<OTHER-EXPENSES> 212
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112
<INCOME-PRETAX> 90
<INCOME-TAX> 40
<INCOME-CONTINUING> 50
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GEORGIA-PACIFIC CORPORATION FOR THE 12 MONTHS ENDED
DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS."
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 11
<SECURITIES> 0
<RECEIVABLES> 974
<ALLOWANCES> 25
<INVENTORY> 1,446
<CURRENT-ASSETS> 2,595
<PP&E> 12,576
<DEPRECIATION> 6,563
<TOTAL-ASSETS> 12,335
<CURRENT-LIABILITIES> 1,764
<BONDS> 4,704
0
0
<COMMON> 73
<OTHER-SE> 3,446
<TOTAL-LIABILITY-AND-EQUITY> 12,335
<SALES> 14,313
<TOTAL-REVENUES> 14,313
<CGS> 9,885
<TOTAL-COSTS> 9,885
<OTHER-EXPENSES> 926
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 432
<INCOME-PRETAX> 1,697
<INCOME-TAX> 679
<INCOME-CONTINUING> 1,018
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,018
<EPS-PRIMARY> 11.29
<EPS-DILUTED> 11.18
</TABLE>
