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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 1-3506
GEORGIA-PACIFIC CORPORATION
(exact name of registrant as specified in its Charter)
GEORGIA 93-0432081
(State 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 16, 1999, the registrant had
93,625,183 shares of Georgia-Pacific Group Common Stock outstanding and
92,889,009 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, 1999 (assuming, for the sole purpose of this
calculation that all executive officers and directors of the registrant are
"affiliates") was $6,218,408,737.50 for Georgia-Pacific Group Common Stock and
$1,815,070,367.63 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, 1998, 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 to be dated on or
about March 23, 1999, for use in connection with the Annual Meeting
of
Shareholders to be held on May 4, 1999, 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, 1998
TABLE OF CONTENTS
PART I Page
Item 1. Business 1
Item 2. Properties 2
Item 3. Legal Proceedings 3
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 3
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 6
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 90
PART III<PAGE>
Item 10. Directors and Executive Officers of the Registrant 90
Item 11. Executive Compensation 93
Item 12. Security Ownership of Certain Beneficial Owners
and Management 93
Item 13. Certain Relationships and Related Transactions 93
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 94
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.
"Timber Group Stock" refers to the Corporation's Timber Group common stock,
par
value $.80.
Information pertaining to the Corporation's businesses, including operating
segments, is set forth under the captions "Financial Strategy,"
"Georgia-Pacific
Corporation and Subsidiaries - Management's Discussion and Analysis" and
"Georgia-Pacific Corporation and Subsidiaries - Sales and Operating Profits by
Operating Segment," and in Notes 1-3 of the Corporation's Consolidated
Financial
Statements, and is presented under Item 8 of this Form 10-K.
Information pertaining to Georgia-Pacific Group's businesses, including
operating segments, is set forth under the captions "Georgia-Pacific Group
Operations Review" and "Georgia-Pacific Group - Management's Discussion and
Analysis" and in Georgia-Pacific Group's Notes 1-4 of the Notes to Combined
Financial Statements contained in the Corporation's 1998 Annual Report to
Shareholders, and is incorporated herein by reference.
Information pertaining to The Timber Company's business is set forth under the
captions "The Timber Company Operations Review" and "The Timber Company -
Management's Discussion and Analysis" and in The Timber Company's Notes 1-3 of
the Notes to Combined Financial Statements contained in the Corporation's 1998
Annual Report to Shareholders, and is incorporated herein by reference.
1
TIMBER RESOURCES
Information pertaining to the Corporation's timber resources is set forth
under
the caption "The Timber Company Operations Review" contained in the
Corporation's 1998 Annual Report to Shareholders, and is incorporated herein
by
reference.
MINERAL RESOURCES
Information pertaining to the Corporation's gypsum resources is set forth
under
the captions "Georgia-Pacific Group Operations Review - Building Products -
Gypsum Products" contained in the Corporation's 1998 Annual Report to
Shareholders, and is incorporated herein by reference.
ENVIRONMENT
Information pertaining to environmental issues and the Corporation's
expenditures for pollution control facilities and equipment is set forth under
the captions "Georgia-Pacific Corporation and Subsidiaries - Management's
Discussion and Analysis - Liquidity and Capital Resources - Investing
Activities" and in Note 11 of the Corporation's Consolidated Financial
Statements, and is presented under Item 8 of this Form 10-K.
Information pertaining to environmental issues and the Corporation's
expenditures for pollution control facilities and equipment is set forth under
the captions "Georgia-Pacific Group - Management's Discussion and Analysis -
Liquidity and Capital Resources - Investing Activities" and in Georgia-Pacific
Group's Note 12 and The Timber Company's Note 10 of the Notes to Combined
Financial Statements contained in the Corporation's 1998 Annual Report to
Shareholders, and is incorporated herein by reference.
EMPLOYEES
Information pertaining to persons employed by the Corporation is set forth
Note
2 of the Corporation's Consolidated Financial Statements and is presented under
Item 8 of this Form 10-K.
Information pertaining to persons employed by the Corporation is set forth under
the captions "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" contained in
the Corporation's 1998 Annual Report to Shareholders, and is incorporated herein
by reference.
ITEM 2. PROPERTIES
Information pertaining to the number of manufacturing facilities as of December
31, 1998 set forth under the captions "Georgia-Pacific Corporation and
Subsidiaries _ Notes to Consolidated Financial Statements _ Operating Segment
Information," and is presented under Item 8 of this Form 10-K.
Information concerning the Corporation's timber and mineral resources is
presented under Item 1 of this Form 10-K.
2
ITEM 3. LEGAL PROCEEDINGS
Information pertaining to the Corporation's Legal Proceedings is set forth in
Note 11 of the Corporation's Consolidated Financial Statements, and is
presented under Item 8 of this Form 10-K.<PAGE>
Information pertaining to the Corporation's Legal Proceedings is set forth in
Georgia-Pacific Group's Note 12 and The Timber Company's Note 10 of the Notes to
Combined Financial Statements contained in the Corporation's 1998 Annual Report
to Shareholders, and 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 paragraphs of this Item 3, the legal
proceedings described below meet these criteria.
The Corporation paid a $425,000 fine to the Louisiana Department of
Environmental Quality in December 1998 for unauthorized venting of NCG's (non-
condensible gases) from the Port Hudson pulp mill's evaporators.
The Corporation is resolving an enforcement action brought by the Environmental
Protection Agency against its Elk Grove resins facility for past zinc wastewater
exceedances that occurred prior to 1996. A complaint has been signed by the
Department of Justice seeking a civil penalty. The penalty and costs of a
supplemental environmental project (which will be undertaken to reduce the
penalty amount) are anticipated to exceed $100,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1998, there were no matters submitted to a vote of
security holders through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS<PAGE>
Information with respect to the Market for the Corporation's Common Equity and
Related Stockholder Matters is set forth under the captions "Highlights"and
"Investor Information" and in Note 13 of the Corporation's Consolidated
Financial Statements, and is presented under Item 8 of this Form 10-K.
Information with respect to the Market for the Corporation's Common Equity and
Related Stockholder Matters is set forth under the captions "Highlights" and
"Investor Information" and in Georgia-Pacific Group's Note 14 and The Timber
Company's Note 12 of the Notes to Combined Financial Statements contained in the
Corporation's 1998 Annual Report to Shareholders, and is incorporated herein by
reference.
3
As of the close of business on March 16, 1999, the Georgia-Pacific Group Stock
price was $76.56 and the Timber Group Stock price was $21.50, and there were
approximately 35,333 record holders of Georgia-Pacific Group Stock and 35,352
record holders of the Timber Group 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 an 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.
On June 30, 1998, the Corporation issued an aggregate of 1,640,400 shares of
Georgia-Pacific Group Common Stock ("G-P Group Stock") in a private placement to
Jack W. Schwarz, Schwarz Family Irrevocable Trust, Schwarz Partners LLP II and
Schwarz Partners LLP III (hereinafter collectively referred to as the
"Investors"), in consideration for a portion of all of the issued and
outstanding capital stock of CeCorr, Inc., an Indiana corporation ("CeCorr"),
all as contemplated by a Stock Purchase Agreement dated June 30, 1998. In
connection with the Stock Purchase Agreement, the Corporation also entered into
a Put Agreement with the Investors dated June 30, 1998. On July 6, 1998, the
Investors put an aggregate of 1,140,400 shares of G-P Group Stock back to the
Corporation and prior to June 30, 1999, the Investors retain the option to put
an aggregate of 500,000 shares of G-P Group Stock back to the Corporation. The
aggregate of 1,640,400 shares of G-P Group Stock issued in the acquisition of
CeCorr were issued 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 is 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," and
is presented under Item 8 of this Form 10-K.
4
Information with respect to Selected Financial Data for Georgia-Pacific Group is
set forth under the captions "Georgia-Pacific Group - Selected Financial Data -
Operations" and "Georgia-Pacific Group - Selected Financial Data - Financial
Position, End of Year" contained in the Corporation's 1998 Annual Report to
Shareholders, and is incorporated herein by reference.
Information with respect to Selected Financial Data for The Timber Company is
set forth under the captions "The Timber Company - Selected Financial Data -
Operations" and "The Timber Company - Selected Financial Data - Financial
Position, End of Year" contained in the Corporation's 1998 Annual Report to
Shareholders, and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis and factors affecting future performance
for the Corporation are set forth under the caption "Georgia-Pacific Corporation
and Subsidiaries - Management's Discussion and Analysis," and are presented
under Item 8 of this Form 10-K.
Management's Discussion and Analysis and factors affecting future performance
for Georgia-Pacific Group are set forth under the caption "Georgia-Pacific Group
- - Management's Discussion and Analysis" and in Georgia-Pacific Group's Note 2 of
the Notes to Combined Financial Statements contained in the Corporation's 1998
Annual Report to Shareholders, and are incorporated herein by reference.
Management's Discussion and Analysis and factors affecting future performance
for The Timber Company are set forth under the caption "The Timber Company -
Management's Discussion and Analysis" and in The Timber Company's Note 2 of the
Notes to Combined Financial Statements contained in the Corporation's 1998
Annual Report to Shareholders, and are incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosure about Market Risk for the Corporation is
set forth under the captions "Georgia-Pacific Corporation and Subsidiaries -
Management's Discussion and Analysis - Liquidity and Capital Resources -
Financing Activities," and is presented under Item 8 of this Form 10-K.
Quantitative and Qualitative Disclosure about Market Risk for Georgia-Pacific
Group is set forth under the captions "Georgia-Pacific Group - Management's
Discussion and Analysis - Liquidity and Capital Resources - Financing
Activities" contained in the Corporation's 1998 Annual Report to Shareholders,
and is incorporated herein by reference.
Quantitative and Qualitative Disclosure about Market Risk for The Timber Company
is set forth under the captions "The Timber Company - Management's Discussion
and Analysis - Liquidity and Capital Resources - Financing Activities" contained
in the Corporation's 1998 Annual Report to Shareholders, and is incorporated
herein by reference.
5
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and Supplementary Data for the Corporation are set forth
under the captions "Georgia-Pacific Corporation and Subsidiaries _Consolidated
Statements of Income," "Georgia-Pacific Corporation and Subsidiaries _
Consolidated Statements of Cash Flows," "Georgia-Pacific Corporation and
Subsidiaries _ Consolidated Balance Sheets," "Georgia-Pacific Corporation and
Subsidiaries _ Consolidated Statements of Shareholders' Equity," "Georgia-
Pacific Corporation and Subsidiaries _ Consolidated Statements of Comprehensive
Income," "Report of Independent Public Accountants" and the Corporation's Notes
to Consolidated Financial Statements, and are presented below.
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 1998, these
timberlands supplied approximately 17 percent of the overall timber requirements
of the Corporation's manufacturing facilities.
1998 COMPARED WITH 1997
The Corporation reported consolidated net sales of $13.3 billion and net income
of $274 million for 1998, compared with net sales of $13.1 billion and net
income of $69 million in 1997. The 1998 results include an extraordinary, after-
tax loss of $15 million for the early retirement of debt. The 1997 results
included a pretax gain of $128 million ($80 million after taxes) from the sale<PAGE>
of the Corporation's Martell, California, assets and a $60 million one-time,
after-tax charge for an accounting change.
Selling, general and administrative expense ("SG&A") was $1,141 million in 1998,
compared with $1,180 million in 1997. The cost reduction is the result of
overhead reduction plans initiated in 1996 and implemented through 1997.
Interest expense was $443 million in 1998, compared with $465 million in 1997.
The reduction is the result of lower average debt levels and lower average
interest rates.
6
The Corporation reported pretax income of $491 million and an income tax
provision of $202 million for the year ended December 31, 1998, compared with
pretax income of $235 million and an income tax provision of $106 million for
the year ended December 31, 1997. 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 business
acquisitions.
In 1997, the Corporation adopted Financial Accounting Standards Board ("FASB")
Emerging Issues Task Force 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," which resulted in a one-time, after-tax charge of $60 million.<PAGE>
The remaining discussion refers to the "Selected Operating Segment Data" table
below.
SELECTED OPERATING SEGMENT DATA
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31
---------------------
(In millions) 1998 1997 1996
-------------------------------------------------------------
<S> <C> <C> <C>
Net sales
Building products $ 5,792 $ 5,545 $ 5,752
Distribution 4,333 4,406 4,563
Timber 534 551 547
Containerboard and packaging 2,104 1,817 1,976
Pulp and paper 3,548 3,701 3,620
Other* (2,975) (2,926) (3,434)
--------------------------------------------------------------
Total net sales $ 13,336 $ 13,094 $13,024
==============================================================
Operating profits
Building products $ 603 $ 490 $ 567
Distribution 1 (171) (220)
Timber 364 437 313
Containerboard and packaging 106 (6) 127
Pulp and paper 133 201 250
Other (273) (251) (282)
--------------------------------------------------------------
Total operating profits 934 700 755<PAGE>
Interest expense 443 465 459
Provision for income taxes 202 106 135
--------------------------------------------------------------
Income before
extraordinary items and
accounting change 289 129 161
Extraordinary items,
net of taxes (15) - (5)
Cumulative effect of
accounting change,
net of taxes - (60) -
--------------------------------------------------------------
Net income $ 274 $ 69 $ 156
==============================================================
</TABLE>
*Includes the elimination of intersegment sales.
BUILDING PRODUCTS. The Corporation's building products segment reported net
sales of $5.8 billion and operating profits of $603 million for the year ended
December 31, 1998, compared with net sales of $5.5 billion and operating profits
of $490 million in 1997. Return on sales was 10.4 percent in 1998 and 8.8
percent in 1997. The 1997 results included unusual one-time 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 primary components of the increase in 1998 sales and operating profits were
45 percent higher oriented strand board prices and 6 percent higher gypsum
prices. Demand and volume were also higher in 1998 for both of these products<PAGE>
than in the prior year. These increases were offset slightly by 12 percent lower
lumber prices and 9 percent higher log costs. Favorable economic conditions and
sustained high housing starts should continue to provide profitable results for
the building products segment in 1999.
DISTRIBUTION. The Corporation's building products distribution segment reported
operating profits of $1 million in 1998 (including gains on asset sales of $20
million) compared with a loss of $171 million in 1997 (including gains on asset
sales of $26 million). The 1997 results included restructuring charges of $80
million. The improvement in the distribution segment's operating results
reflects the implementation of the division's restructuring plan, which began in
the 1997 fourth quarter. This plan included disposition of its millwork
fabrication facilities nationwide and of a number of distribution centers
located in the Western United States. The millwork fabrication facilities have
been divested and the targeted distribution centers have been sold or closed.
The Corporation expects continued improvement in its distribution segment in
1999.
TIMBER. Excluding the 1997 gain of $114 million from the sale of timberlands
located near Martell, California, the timber segment operating profits increased
by $41 million to $364 million in 1998 compared with $323 million in 1997. This
increase is a result of efforts to reduce costs by optimizing productivity and
focusing on cost control, higher average sawtimber selling prices, particularly
in the first half of 1998 and a higher-margin product mix. The result of these
productivity and cost control efforts is reflected in lower cost of sales and
SG&A expenses in 1998.
8
Excluding the impact of any severe weather occurrences, prices for most products
are anticipated to hold at or near current levels in 1999. Pulpwood prices are
expected to remain under pressure, especially during the first half of 1999.
CONTAINERBOARD AND PACKAGING. The Corporation's containerboard and packaging
segment reported net sales of $2.1 billion and operating profits of $106 million
for the year ended December 31, 1998, compared with net sales of $1.8 billion
and an operating loss of $6 million in 1997. Return on sales increased to 5.0
percent compared with (0.3) percent for the same period a year ago, principally
due to a 19 percent increase in average prices for containerboard and an average
6 percent price increase for packaging products. During 1998, the Corporation
took approximately 270,000 tons of downtime at its containerboard mills to avoid
building inventories. It anticipates slightly stronger pricing for
containerboard and packaging in 1999 but may continue to take downtime depending
on overall demand for these products.
PULP AND PAPER. The Corporation's pulp and paper segment reported net sales of
$3.5 billion and operating profits of $133 million for the year ended December
31, 1998, compared with net sales of $3.7 billion and operating profits of $201
million in 1997. Return on sales decreased to 3.7 percent compared with 5.4
percent for the same period a year ago, principally due to a slight decrease in
average prices for almost all the Corporation's pulp and paper products.
Excluding the one-time, $12 million charge in 1998 primarily for the closure of
a hardwood market pulp operation, return on sales was 4.1 percent. Average pulp
prices were approximately 9 percent below year ago levels. Tissue prices
decreased approximately 3 percent due to lower fiber costs and new capacity.
Average prices of communication papers for 1998 were approximately 2 percent
below year ago levels.
Compared with a year ago, the Corporation has reduced inventories for
most pulp and paper products, incurring downtime when necessary. During the
second half of 1998, the Corporation took significant market-related downtime<PAGE>
due to continued weakness in demand and pricing for pulp and paper, primarily
stemming from market conditions in Asia. In the 1998 third quarter, the
Corporation indefinitely shut down the hardwood market pulp portion of its
operations at Port Hudson, Louisiana, resulting in closure of approximately
260,000 tons of annual production capacity. Additionally, the Corporation took
approximately 300,000 tons of downtime in 1998 at its pulp mills to avoid
building inventories. The Corporation has experienced increased activity in
foreign markets for pulp in recent months. However, demand and pricing for most
of its pulp and paper products are expected to remain weak for much of 1999.
Prices for most of the Corporation's commodity paper products have been
declining since the fourth quarter of 1995. Historically, prices for all the
Corporation's paper products have been highly volatile, and it is expected that
this trend will continue through 1999.
9
OTHER. The operating loss for the "Other" nonreportable segment, which includes
some miscellaneous businesses, certain goodwill amortization, unallocated
corporate operating expenses and the elimination of profit on intersegment
sales, increased by $22 million to a loss of $273 million in 1998 from a loss of
$251 million in 1997. This increase was primarily a result of higher litigation
and environmental remediation costs.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Corporation generated cash from operations of $1,554
million during 1998. The Corporation's cash provided by operations in 1997 was
$1,116 million. The increased cash flow was primarily a result of higher
operating profits and lower accounts receivable in 1998.
INVESTING ACTIVITIES. Capital expenditures for property, plant and equipment,
excluding acquisistions, during 1998 were $638 million compared with $717
million in 1997. Expenditures in 1998 included $186 million in the building
products segment, $12 million in the distribution segment, $6 million in the
timber segment, $84 million in the containerboard and packaging segment, $305
million in the pulp and paper segment and $45 million of other and general
corporate. The Corporation expects to make capital expenditures for property,
plant and equipment of approximately $700 million in 1999, excluding the cost of
any acquisitions.
During 1998, the Corporation invested $90 million for pollution control and
abatement. The Corporation's 1999 capital expenditure budget currently includes
approximately $160 million for environment-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.
On April 15, 1998, the U.S. Environmental Protection Agency (the "EPA")
promulgated a set of regulations known as the "Cluster Rule" that establishes
new requirements for air emissions and wastewater discharges from pulp and paper
mills. The Corporation estimates that it will make capital expenditures up to
approximately $550 million over the next eight years in order to comply with the
Cluster Rule's requirements. Of that total, about $365 million will be spent by
the end of 2000. One of the main components of the Cluster Rule requires that
pulp and paper mills use only elemental chlorine free ("ECF") technology, which
requires the complete substitution of chlorine dioxide for elemental chlorine in
the pulp bleaching process. Approximately $183 million of the amount required to
be spent in the next two years will go toward ECF conversion at mills located in
Ashdown, Arkansas; Crossett, Arkansas; Bellingham, Washington; and Palatka,
Florida. The bulk of the remaining expenditures within the next two years will<PAGE>
be for additional air emission controls at the Corporation's 14 pulp and paper
facilities.
Cash paid for timber and timberlands was $206 million in 1998 compared with
$182 million in 1997.
10
On June 30, 1998, the Corporation completed its acquisition of CeCorr Inc.
("CeCorr"), a leading independent producer of corrugated sheets in the United
States. The Corporation paid approximately $93 million in cash and issued
approximately 1.6 million shares of Georgia-Pacific Group stock valued at
$57.875 per share for all the outstanding shares of CeCorr. In addition, the
Corporation assumed approximately $58 million of CeCorr's debt. On July 2, 1998,
a former owner of CeCorr exercised his right to resell to the Corporation
approximately 1.1 million shares of Georgia-Pacific Group stock issued in the
transaction.
During 1998, the Corporation received $131 million from the sale of assets,
principally timberlands, real estate development properties located in South
Carolina and Florida, and various distribution facilities. During 1997, the
Corporation received proceeds of $388 million from the sale of assets, primarily
from the sale of its Martell operations.
FINANCING ACTIVITES. At December 31, 1998 and 1997, the Corporation's total
debt
was $5.55 billion and $5.49 billion, respectively. At December 31, 1998 and
1997, $4.57 billion and $4.52 billion, respectively, of such total debt was
Georgia-Pacific Group's debt, and $983 million and $971 million, 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<PAGE>
on a quarterly basis. The weighted average interest rate on the Corporation's
total debt at December 31, 1998 was 7.2 percent, including outstanding interest
rate exchange agreements. Each group's debt increases or decreases 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 Consolidated Financial
Statements for further discussion of financial activities.
In conjunction with the sale of the Corporation's Martell operations in March
1997, the Corporation received notes receivable from the purchaser. 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. 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 percent notes that were
due
on June 1, 1997. The balances of the notes receivable, which are classified as
"Other assets," and notes payable, which are classified as "Other long-term
liabilities," were both $270 million on the Corporation's December 31, 1998
and
1997 balance sheets.
During 1998, the Corporation issued $300 million of 7.25% Debentures Due June 1,
2028 and a $14 million floating rate note due September 30, 2003. In January
1998, the Corporation redeemed $200 million of 9 3/4% Sinking Fund Debentures
Due January 15, 2018. In February 1998, the Corporation redeemed $200 million of
9 1/2% Debentures Due February 15, 2018.
11
At December 31, 1998, the Corporation had outstanding borrowings of $637 million
under certain industrial revenue bonds. Approximately $11 million from the<PAGE>
issuance of these bonds was held by trustees at December 31, 1998 to refund a
like amount of bonds maturing on January 4, 1999. The corresponding amount held
by trustees is classified as "Other current 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. The agreement will terminate in 2001. As of December 31, 1998,
$570 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, which has been approved by the Board of Directors (the "Board").
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 tables below present principal (or notional) amounts and related weighted
average interest rates by year of expected maturity for the Corporation's debt
obligations as of December 31, 1998 and 1997. For obligations with variable
interest rates, the tables set forth payout amounts based on current rates and
do not attempt to project future interest rates.
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
(In millions) 1999 2000 2001 2002
------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt
Commercial paper and other
short-term notes $ - $ - $ - $ -
Average interest rates - - - -
Notes and debentures $ - $ - $ - $ 300
Average interest rates - - - 10.0%
Revenue bonds $ 21 $ 21 $ 1 $ 75
Average interest rates 4.2% 4.4% 6.5% 5.1%
Other loans $ 2 $ 13 $ - $ -
Average interest rates 7.7% 7.9% - -
Accounts receivable sale
program $ - $ - $ - $ -
Average interest rates - - - -
Notional principal amount of
interest rate exchange
agreements $ 56 $ 100 $ - $ -
Average interest rate paid
(fixed) 8.8% 8.4% - -
Average interest rate received
(variable) 5.0% 5.8% - -
------------------------------------------------------------<PAGE>
</TABLE>
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Fair value
December 31,
(In millions) 2003 Thereafter Total 1998
------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt
Commercial paper and other
short-term notes $ - $ 929 $ 929 $ 929
Average interest rates - 5.8% 5.8% 5.8%
Notes and debentures $ 300 $ 2,900 $ 3,500 $ 3,783
Average interest rates 5.5% 8.6% 8.4% 8.4%
Revenue bonds $ 1 $ 518 $ 637 $ 587
Average interest rates 6.5% 5.2% 5.2% 5.2%
Other loans $ 14 $ - $ 29 $ 29
Average interest rates 5.8% - 6.9% 6.9%
Accounts receivable sale
program $ - $ 280 $ 280 $ 280
Average interest rates - 5.7% 5.7% 5.7%
Notional principal amount of
interest rate exchange
agreements $ 300 $ - $ 456 $ 14
Average interest rate paid
(fixed) 5.9% - 6.8% 6.8%
Average interest rate received
(variable) 5.7% - 5.7% 5.7%
------------------------------------------------------------
</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 2003.
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,
(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%<PAGE>
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, 1998, the Corporation had interest rate exchange agreements
that
effectively converted $456 million of floating rate obligations with a weighted
average interest rate of 5.7% to fixed rate obligations with an average
effective interest rate of approximately 6.8%. These agreements increased
interest expense by $11 million, $16 million and $17 million for the three years
ended December 31, 1998, 1997 and 1996, respectively. As of December 31, 1998,
these agreements have a weighted average maturity of approximately 3.5 years. As
of December 31, 1998, 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 and
commodity futures and swaps, the amounts of which were not material to the
consolidated financial position of the Corporation at December 31, 1998.
As of December 31, 1998, the Corporation had registered for sale up to $500
million of debt securities under a shelf registration statement filed with the
Securities and Exchange Commission.
The Board has adopted a policy that earnings and cash flows 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 January 1998, 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 $4.75 billion and the
Corporation's total debt remains below $5.75 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 $5.75 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 1998, the Corporation purchased 7.7 million shares of Georgia-Pacific
Group stock (including 1.1 million shares related to the CeCorr acquisition) at
an aggregate price of $427 million ($55.51 average per share) on the open
market, of which 6.8 million shares were held as treasury stock at December
31,
1998. The Corporation also purchased 5.7 million shares of The Timber Company
stock at an aggregate price of $121 million ($21.25 average per share) on the
open market, all of which were held as treasury stock at December 31, 1998.
Cash
paid in 1998 related to Georgia-Pacific Group stock repurchases totaled $436
million, which included $9 million for shares purchased but not settled in 1997.
Subsequent to year-end 1998 through February 5, 1999, the Corporation purchased
224,200 shares of Georgia-Pacific Group stock at an aggregate price of $15
million ($66.42 average per share) on the open market and 716,900 shares of
The
Timber Company stock at an aggregate price of $16 million ($22.71 average per
share) on the open market. The Corporation expects to repurchase Georgia-Pacific
Group and The Timber Company stock throughout 1999 as long as debt levels are
below the established thresholds.
In 1999, 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 45,000 people. The majority are
members of unions. The Corporation considers its relationship with its employees
to be good. Twenty union contracts are subject to negotiation and renewal in
1999, including one at a large paper facility.
In June 1997, the FASB issued Statement of Financial Accounting Standards
("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 adopted SFAS No.
130 in the 1998 first quarter.
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<PAGE>
determine reporting segments based on the manner in which management makes
decisions about allocating resources to segments and measuring their
performance. SFAS No. 131 also requires entitywide 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
adopted SFAS No. 131 in 1998; prior period information was restated to conform
with the provisions of SFAS No. 131.
15
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Post-retirement Benefits," which requires additional pension-
related disclosures. The objective of the statement is to provide sufficient
information to understand the changes in benefit obligations or to analyze the
quality of earnings of the Corporation. SFAS No. 132 requires disclosure of
additional information about the changes in the benefit obligation and the fair
value of plan assets during the period, including unrecognized gains and losses.
The Corporation adopted SFAS No. 132 in 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities on the
balance sheets and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Corporation will be required to
adopt the new statement in 2000; early adoption is encouraged, but no prior
period restatement is permitted. Management is evaluating the effect of this
statement on the Corporation's derivative instruments, primarily interest rate
swaps and foreign currency forward contracts. The impact of adjustments to fair<PAGE>
value is not expected to be material to the Corporation's consolidated financial
position.
The Corporation is working to resolve the effects of the Year 2000 problem on
its information systems, the operating systems used in its manufacturing
operations as well as its facilities systems. The Year 2000 problem, which is
common to most businesses, concerns the inability of such systems to properly
recognize and process dates and date-sensitive information on and beyond January
1, 2000. In 1996, the Corporation began a companywide assessment of the
vulnerability of its systems to the Year 2000 problem. Based on such assessment,
the Corporation has developed a Year 2000 plan, under which all key systems are
being tested, and noncompliant software or technology is being modified or
replaced. The Corporation is also surveying the Year 2000 compliance status and
compatibility of customers' and suppliers' systems that interface with the
Corporation's systems or could otherwise impact the Corporation's operations.
The Corporation completed the necessary revisions and unit testing to most
systems and processes in 1998 with a few systems scheduled for revision in early
1999. Full integration testing and verification of such systems and processes
for Year 2000 compliance will continue and be completed during 1999. Early in
1998, the Corporation completed an inventory of the process control systems and
embedded chips used in its manufacturing operations and currently believes that
only a small percentage of such systems and chips could be subject to Year 2000
problems. The Corporation currently expects to have these affected manufacturing
systems replaced or corrected by mid-year 1999 and to complete testing and
verification of such systems for Year 2000 compliance throughout 1999. Since
completion of the original inventories, some additional
16
systems and devices have been discovered and added to the inventory list for
testing and, if necessary, remediation. Due to system acquisitions and the
number and complexity of existing systems, the Corporation expects some
continuing additions of noncritical systems to the inventory list. The
Corporation has contacted each of its critical suppliers to ascertain their
respective levels of readiness to address and remediate Year 2000 problems and
is currently reviewing their responses. The Corporation has identified and
contacted critical customers to ascertain their respective levels of Year 2000
readiness and will be assessing the need for testing with customers as
appropriate. While the Corporation currently believes that it will be able to
modify or replace its affected systems in time to minimize any detrimental
effects on its operations, failure to do so, or the failure of the Corporation's
major customers and suppliers to modify or replace their affected systems, could
have a material adverse impact on the Corporation's results of operations,
liquidity or consolidated financial position in the future. The most reasonably
likely worst-case scenario of failure by the Corporation or its customers or
suppliers to resolve the Year 2000 problem would be a temporary slowdown or
cessation of manufacturing operations at one or more of the Corporation's
facilities and a temporary inability on the part of the Corporation to process
orders and billings in a timely manner and to deliver finished products to
customers. The Corporation's individual business units are currently identifying
and considering various contingency options, including identification of
alternate suppliers, vendors and service providers, and manual alternatives to
systems operations, which will allow them to minimize the risks of any
unresolved Year 2000 problems on their operations and to minimize the effect of
any unforeseen Year 2000 failures. Contingency plans will be finalized by mid-
year 1999.
The Corporation currently estimates the incremental cost of the work needed to
resolve the Year 2000 problem at approximately $60 million (including
approximately $10 million of capital costs), of which $20 million is included
for the impact of contingency planning activities and unexpected events.
Approximately $13 million has been incurred to date. In addition, the
Corporation expects to incur internal costs totaling approximately $20 million
related to the Year 2000 problem, of which approximately $11 million has been
incurred to date. The bulk of the incremental costs relates to replacement or
modification of affected process control systems in the Corporation's
manufacturing operations and is projected to be incurred in the second and third
quarters of 1999. The majority of the internal costs relates to code remediation
and testing and is projected to be incurred through 1999. These incremental and
internal costs will be expensed as incurred, except for new systems purchased
that will be capitalized in accordance with corporate policy. Such costs may be
material to the Corporation's results of operations in one or more fiscal
quarters or years but are not expected to have a material adverse effect 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 11 of the Notes to Consolidated Financial Statements.
17
1997 COMPARED WITH 1996
The Corporation reported consolidated net sales of $13.1 billion and net income
of $69 million in 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
($80 million after taxes) from the sale of the Corporation's Martell operations
and a $60 million one-time, after-tax charge for an accounting change. An
extraordinary, after-tax loss of $5 million was recorded in 1996 for the early
retirement of debt.
SG&A expense was $1,180 million for 1997, compared with $1,399 million in 1996.
The cost reduction was largely the result of a voluntary early retirement
program initiated in 1996 and overhead reduction plans implemented through 1997.
The Corporation reported pretax income of $235 million and a 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.
BUILDING PRODUCTS. The Corporation's building products segment reported net
sales of $5.5 billion and operating profits of $490 million for 1997, compared
with net sales of $5.8 billion and operating profits of $567 million in 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 1996 results included an unusual
pretax gain of $39 million from the sale of two gypsum wallboard facilities.
Return on sales decreased to 8.8 percent in 1997 from 9.9 percent in 1996. A 10
percent increase in lumber prices, combined with a 10 percent increase in gypsum
prices, more than offset approximately 22 percent lower prices for oriented
strand board and an increase in log costs.
DISTRIBUTION. Operating losses for the Corporation's distribution segment were
$171 million for 1997, compared with losses of $220 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 percent
in 1997 compared with 1996.
TIMBER. The timber segment reported net sales of $551 million and operating
profits of $437 million in 1997, compared with net sales of $547 million and<PAGE>
operating profits of $313 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. The year-over-year increase in operating profit, excluding
the gain on the Martell sale, was principally the result of higher Southern
sawtimber selling prices in 1997.
18
CONTAINERBOARD AND PACKAGING. The Corporation's containerboard and packaging
segment reported net sales of $1.8 billion and an operating loss of $6 million
in 1997, compared with net sales of $2.0 billion and operating profits of $127
million in 1996. Return on sales decreased to (0.3) percent for 1997 compared
with 6.4 percent in 1996, primarily as a result of substantially lower average
prices for containerboard and packaging products.
PULP AND PAPER. The Corporation's pulp and paper segment reported net sales of
$3.7 billion and operating profits of $201 million for 1997, compared with net
sales of $3.6 billion and operating profits of $250 million in 1996. The 1997
results included unusual one-time charges of $6 million for information systems
write-offs. Return on sales decreased to 5.4 percent in 1997 compared with 6.9
percent in 1996, primarily as a result of lower overall average prices for pulp
and paper products in 1997.
OTHER. The operating loss for the "Other" nonreportable segment decreased by
$31 million to a loss of $251 million in 1997 from a loss of $282 million in
1996, primarily as a result of lower profit elimination on intersegment sales in
1997.
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 Corporation's production capacity continuing to
exceed demand for its pulp and paper products, necessitating market-related
downtime; the ability of the Corporation, and its customers and suppliers to
address the Year 2000 problem in a timely and efficient manner; changes in the
productive capacity and production levels of other building products and pulp
and paper producers; the effect on the Corporation of changes in environmental
and pollution control laws and regulations; the general level of economic
activity in U.S. and export markets, particularly the Asian markets; 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 filings with the
Securities and Exchange Commission, including the Corporation's Form 10-K dated
December 31, 1998 and the Corporation's Form 8-K dated October 17, 1996.
REPORT ON MANAGEMENT'S RESPONSIBILITIES
Georgia-Pacific Corporation and Subsidiaries
19
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 the annual report. In our opinion, the accompanying
financial statements have been prepared in conformity with generally accepted
accounting principles, and the other financial information in the 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<PAGE>
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, 1998, 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 5, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Georgia-Pacific Corporation and Subsidiaries
To Georgia-Pacific Corporation:
We have audited the accompanying consolidated balance sheets of Georgia-Pacific
Corporation (a Georgia corporation) and subsidiaries as of December 31, 1998 and
1997 and the related consolidated statements of income, shareholders' equity,
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 1998. 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, 1998 and 1997 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998 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 5, 1999
21
CONSOLIDATED STATEMENTS OF INCOME
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31
---------------------
(Millions, except per
share amounts) 1998 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 13,336 $13,094 $13,024
---------------------------------------------------------------
Costs and expenses
Cost of sales, excluding
depreciation and cost of
timber harvested shown below 10,326 10,384 9,933
Selling, general and
administrative 1,141 1,180 1,399
Depreciation and cost of timber<PAGE>
harvested 935 958 937
Interest 443 465 459
Other income - (128) -
---------------------------------------------------------------
Total costs and expenses 12,845 12,859 12,728
---------------------------------------------------------------
Income before income taxes,
extraordinary items and
accounting change 491 235 296
Provision for income taxes 202 106 135
---------------------------------------------------------------
Income before
extraordinary items and
accounting change 289 129 161
Extraordinary items - loss
from early retirement of
debt, net of taxes (15) - (5)
Cumulative effect of
accounting change,
net of taxes - (60) -
---------------------------------------------------------------
Net income $ 274 $ 69 $ 156
===============================================================
Georgia-Pacific Corporation
Basic per share:
Income before
extraordinary items
and accounting change $ 1.78
Extraordinary items, net of taxes (0.06)
Cumulative effect of
accounting change, net of taxes -
---------------------------------------------------------------
Net income $ 1.72
---------------------------------------------------------------
Diluted per share:
Income before
extraordinary items $ 1.77
Extraordinary items, net of taxes (0.06)
Cumulative effect of
accounting change, net of taxes -
---------------------------------------------------------------
Net income $ 1.71
===============================================================
Average number of shares
outstanding:
Basic 90.6
Diluted 91.2
===============================================================
Georgia-Pacific Group
Income (loss) before
extraordinary items and
accounting change $ 111 $ (86)
Extraordinary items, net of taxes (13) -
Cumulative effect of accounting
change, net of taxes - (60)
---------------------------------------------------------------
Net income (loss) $ 98 $ (146)
---------------------------------------------------------------
Basic per share:
Income (loss) before
extraordinary items and
accounting change $ 1.23 $(0.94)
Extraordinary items, net of taxes (0.14) -
Cumulative effect of accounting<PAGE>
change, net of taxes - (0.66)
---------------------------------------------------------------
Net income (loss) $ 1.09 $(1.60)
---------------------------------------------------------------
Diluted per share:
Income (loss) before
extraordinary items and
accounting change $ 1.22 $(0.94)
Extraordinary items, net of taxes (0.14) -
Cumulative effect of accounting
change, net of taxes - (0.66)
---------------------------------------------------------------
Net income (loss) $ 1.08 $(1.60)
---------------------------------------------------------------
Average number of shares
outstanding:
Basic 89.9 91.4
Diluted 90.5 91.4
===============================================================
The Timber Company
Income before extraordinary items $ 178 $ 215
Extraordinary items, net of taxes (2) -
---------------------------------------------------------------
Net income $ 176 $ 215
---------------------------------------------------------------
Basic per share:
Income before extraordinary items $ 1.97 $ 2.35
Extraordinary items, net of taxes (0.02) -
---------------------------------------------------------------
Net income $ 1.95 $ 2.35
---------------------------------------------------------------
Diluted per share:<PAGE>
Income before extraordinary items $ 1.96 $ 2.33
Extraordinary items, net of taxes (0.02) -
---------------------------------------------------------------
Net income $ 1.94 $ 2.33
---------------------------------------------------------------
Average number of shares
outstanding:
Basic 90.3 91.4
Diluted 90.8 92.1
===============================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31
----------------------
(Millions) 1998 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 274 $ 69 $ 156
Adjustments to reconcile net income
to cash provided by operations:
Depreciation 749 789 766<PAGE>
Cost of timber harvested 186 169 171
Deferred income taxes 38 100 7
Amortization of goodwill 62 59 59
Stock compensation programs (3) - 20
Cumulative effect of accounting
change, net of taxes - 60 -
Gain on sales of assets, net (40) (134) (63)
Amortization of debt issue costs,
discounts and premiums 13 5 6
Decrease (increase) in receivables 146 (64) 35
Decrease (increase) in inventories 92 101 (3)
Decrease in accounts payable (47) (24) (18)
Change in other working capital (82) 51 70
Increase (decrease) in taxes
payable 136 (45) (10)
Change in other assets and other
long-term liabilities 30 (20) 29
---------------------------------------------------------------
Cash provided by operations 1,554 1,116 1,225
---------------------------------------------------------------
Cash flows from investing
activities
Property, plant and equipment
investments (638) (717) (1,059)
Timber and timberland purchases (206) (182) (142)
Acquisition (112) - (363)
Proceeds from sales of assets 131 388 139
Other 26 (26) (54)
---------------------------------------------------------------
Cash used for investing activities (799) (537) (1,371)
---------------------------------------------------------------
Cash flows from financing
activities
Repayments of long-term debt (874) (340) (165)
Additions to long-term debt 575 48 125
Fees paid to issue debt (5) (1) (4)
(Decrease) increase in bank
overdrafts (33) (28) 44
Increase (decrease) in commercial
paper and other short-term notes 308 (94) 324
Common stock repurchased (557) (13) -
Proceeds from option plan exercises 9 31 4
Cash dividends paid (181) (184) (183)
---------------------------------------------------------------
Cash (used for) provided by
financing activities (758) (581) 145
---------------------------------------------------------------
Decrease in cash (3) (2) (1)
Balance at beginning of year 8 10 11
---------------------------------------------------------------
Balance at end of year $ 5 $ 8 $ 10
===============================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31
------------------
(Millions, except shares
and per share amounts) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash $ 5 $ 8
---------------------------------------------------------------
Receivables, less allowances
of $25 and $19, respectively 1,233 1,371
---------------------------------------------------------------
Taxes receivable - 61
---------------------------------------------------------------
Inventories
Raw materials 418 396
Finished goods 760 878
Supplies 311 295
LIFO reserve (209) (212)
---------------------------------------------------------------
Total inventories 1,280 1,357
---------------------------------------------------------------
Deferred income tax assets 61 67
---------------------------------------------------------------
Other current assets 66 52
---------------------------------------------------------------
Total current assets 2,645 2,916
---------------------------------------------------------------
Timber and timberlands 1,206 1,193
---------------------------------------------------------------
Property, plant and equipment
Land and improvements 428 425
Buildings 1,336 1,310
Machinery and equipment 12,374 12,035
Construction in progress 315 364
---------------------------------------------------------------
Property, plant and
equipment, at cost 14,453 14,134
Accumulated depreciation (8,204) (7,837)
---------------------------------------------------------------
Total property, plant and equipment, net 6,249 6,297
---------------------------------------------------------------
Goodwill, net 1,677 1,599
---------------------------------------------------------------
Other assets 923 945
---------------------------------------------------------------
Total assets $ 12,700 $12,950
===============================================================
</TABLE>
<TABLE>
<CAPTION>
December 31
-----------------
1998 1997<PAGE>
---------------------------------------------------------------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities
Bank overdrafts, net $ 195 $ 223
Commercial paper and
other short-term notes 1,209 901
Current portion of
long-term debt 22 653
Accounts payable 556 642
Accrued compensation 247 207
Other current liabilities 419 394
---------------------------------------------------------------
Total current liabilities 2,648 3,020
---------------------------------------------------------------
Long-term debt, excluding
current portion 4,125 3,713
---------------------------------------------------------------
Other long-term liabilities 1,572 1,548
---------------------------------------------------------------
Deferred income tax liabilities 1,231 1,199
---------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Common stock, 75 74
Georgia-Pacific Group, par value $.80;
400,000,000 shares authorized;
93,282,000 and 92,249,000 shares issued
at December 31, 1998 and 1997, respectively
The Timber Company, par value $.80;<PAGE>
250,000,000 shares authorized;
92,785,000 and 92,607,000 shares issued
at December 31, 1998 and 1997, respectively
Treasury stock, at cost (492) -
6,762,000 shares of Georgia-Pacific
Group common stock and
5,704,000 shares of The Timber Company
common stock
Additional paid-in capital 1,406 1,349
Retained earnings 2,178 2,085
Long-term incentive plan
deferred compensation - (5)
Accumulated other comprehensive income (43) (33)
---------------------------------------------------------------
Total shareholders' equity 3,124 3,470
---------------------------------------------------------------
Total liabilities and
shareholders' equity $ 12,700 $12,950
===============================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------
(In millions, except shares
and per share amounts) 1998 1997 1996
--------------------------------------------------------------------
<S> <C> <C> <C>
Common stock
Beginning balance $ 74 $ 73 $ 73
Common stock issued:
Employee stock purchase plans - 1 -
Common stock issued for acquisition 1 - -
--------------------------------------------------------------------
Ending balance 75 74 73
--------------------------------------------------------------------
Treasury stock
Beginning balance $ - $ - $ -
Common stock repurchased (492) - -
--------------------------------------------------------------------
Ending balance (492) - -
--------------------------------------------------------------------
Additional paid-in capital
Beginning balance 1,349 1,277 1,267
Common stock issued:
Stock option plans
and directors plan 20 35 6
Employee stock purchase plans - 56 1
Long-term incentive plan (1) 3 2
Common stock repurchased (56) (22) -
Common stock issued for
acquisition 94 - -<PAGE>
Other - - 1
--------------------------------------------------------------------
Ending balance 1,406 1,349 1,277
--------------------------------------------------------------------
Retained Earnings
Beginning balance 2,085 2,200 2,227
Net income 274 69 156
Cash dividends declared (Georgia-
Pacific Group, $1.00, per common
share for each of the three years
presented; The Timber Company, $1.00
per common share for each of the
three years presented) (181) (184) (183)
--------------------------------------------------------------------
Ending balance 2,178 2,085 2,200
--------------------------------------------------------------------
Long-term incentive plan deferred compensation
Beginning balance (5) (11) (24)
Common stock issued under long-
term incentive plan 5 6 13
--------------------------------------------------------------------
Ending balance - (5) (11)
--------------------------------------------------------------------
Accumulated other comprehensive income
Beginning balance (33) (28) (32)
Activity (10) (5) 4
--------------------------------------------------------------------
Ending balance (43) (33) (28)
--------------------------------------------------------------------
Total shareholders' equity $3,124 $3,470 $3,511
====================================================================
Georgia-Pacific Corporation common stock
shares issued and outstanding (in thousands):
Beginning balance 91,396 91,308
Common stock issued:
Stock option plans and
directors plan 473 84
Employee stock purchase plans 763 19
Long-term incentive plan (25) (10)
Other - (5)
Recapitalization (December 17, 1997) (92,607) -
--------------------------------------------------------------------
Ending balance - 91,396
====================================================================
Georgia-Pacific Group common stock shares
issued and outstanding (in thousands):
Beginning balance 92,249 -
Recapitalization
(December 17, 1997) - 92,607
Common stock issued:
Stock option plans and
directors plan 139 -
Employee stock purchase plans 9 -
Long-term incentive plan 169 -
Common stock issued
for acquisition 1,640 -
Common stock repurchased
and retired (924) (358)
--------------------------------------------------------------------
Balance, common stock issued 93,282 92,249
Common stock repurchased and held
in treasury (6,762) -
--------------------------------------------------------------------
Balance, common stock
outstanding 86,520 92,249
====================================================================
The Timber Company common stock shares
issued and outstanding (in thousands):
Beginning balance 92,607 -
Recapitalization
(December 17, 1997) - 92,607
Common stock issued:
Stock option plans and
directors plan 174 -
Employee stock purchase plans 8 -
Long-term incentive plan (4) -
--------------------------------------------------------------------
Balance, common stock issued 92,785 92,607
Common stock repurchased and held
in treasury (5,704) -
--------------------------------------------------------------------
Balance, common stock
outstanding 87,081 92,607
====================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31 -----
-----------------------------------------
(In millions) 1998 1997 1996
--------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 274 $ 69 $ 156
Other comprehensive income (loss),
before tax
Foreign currency translation
adjustments (14) (11) (10)
Minimum pension liability
adjustment (3) 3 16
Income tax (expense) benefit related to
items of other comprehensive
income 7 3 (2)
--------------------------------------------------------------------
Comprehensive income $ 264 $ 64 $ 160
====================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED 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. All significant intercompany balances and
transactions are eliminated in consolidation.
BASIS OF PRESENTATION. The Corporation, a Georgia corporation, is broadly
engaged in five business operations: the manufacture of 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); the distribution of building products manufactured
by the Corporation or purchased from others; the manufacture of containerboard
and packaging (including linerboard, medium, kraft and corrugated packaging);
the manufacture of pulp and paper (including communication papers, market pulp,
bleached board and tissue); and the growing of timber and wood fiber on the
approximately 5.8 million acres of timberlands that the Corporation owns or
leases. In 1998, these timberlands supplied approximately 17 percent of the
overall timber 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 were amended and
restated to (i) create a new class of stock designated as Georgia-Pacific
Corporation - Timber Group common stock, $0.80 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, $0.80 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, $0.80 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 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.
31
The Corporation has separately 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<PAGE>
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
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<PAGE>
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
32
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, 1998, 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 common stock related to
the other group at any time at a 15 percent premium, or at a 10 percent 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<PAGE>
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. The Corporation's debt was allocated between the groups based upon a
number of factors including expected future cash flows, volatility of earnings,
and the ability to pay debt service and dividends. In
33
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.<PAGE>
At December 31, 1998, $983 million of the Corporation's debt was The Timber
Company's and $4.6 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 $282 million, $346 million and $359 million in
1998, 1997 and 1996, respectively. It is not practicable to provide a detailed<PAGE>
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 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 benefit 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, "Employers' Accounting for
34
Pensions," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," 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 significantly differed from the amounts
reported on the groups' statements of income for the years ended December 31,
1998, 1997 and 1996. 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, for periods prior to 1998, 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
35
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 1997 for each
group is reflected on a pro forma basis 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.
EARNINGS PER SHARE
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31,
(In millions, except shares and
per share amounts) 1998 1998 1997 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Georgia- The Georgia- The
Pacific Timber Pacific Timber
Group Company Group Company
---------------------------------------------------------------
Basic and diluted income (loss) available
to shareholders (numerator):
Income (loss) before extraordinary
item and accounting change $ 111 $ 178 $(86) $ 215
Extraordinary item, net of
taxes (13) (2) - -
Accounting change, net of
taxes - - (60) -
---------------------------------------------------------------
Net income (loss) $ 98 $ 176 $(146) $ 215
---------------------------------------------------------------
Shares (denominator):
Average shares
outstanding 89,882,586 90,313,022 91,430,440 91,444,588
Dilutive securities:
Options 624,715* 492,549** -*** 677,784****
Employee stock purchase
plans 35,810 7,575 -*** 4,047
---------------------------------------------------------------
Total assuming
conversion 90,543,111 90,813,146 91,430,440 92,126,419
---------------------------------------------------------------
Per share amounts:
Basic
Income (loss) before extraordinary
item and accounting change $1.23 $1.97 $(0.94) $2.35
Extraordinary item,
net of taxes (0.14) (0.02) - -
Accounting change,
net of taxes - - (0.66) -
---------------------------------------------------------------
Net income (loss) $1.09 $1.95 $(1.60) $2.35
---------------------------------------------------------------
Diluted
Income (loss) before extraordinary
item and accounting change $1.22 $1.96 $(0.94) $2.33
Extraordinary item,
net of taxes (0.14) (0.02) - -
Accounting change,
net of taxes - - (0.66) -
---------------------------------------------------------------
Net income (loss) $1.08 $1.94 $(1.60) $2.33
====================================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
(In millions, except shares and
per share amounts) 1996
---------------------------------------------------------------
<S> <C>
Georgia-Pacific
Corporation
---------------------------------------------------------------
Basic and diluted income (loss) available
to shareholders (numerator):
Income (loss) before extraordinary
item and accounting change $ 161
Extraordinary item, net of taxes (5)
Accounting change, net of taxes -
---------------------------------------------------------------
Net income (loss) $ 156
---------------------------------------------------------------
Shares (denominator):
Average shares outstanding 90,554,677
Dilutive securities:
Options 598,142
Employee Stock Purchase Plans -*****
---------------------------------------------------------------
Total assuming conversion 91,152,819
---------------------------------------------------------------
Per share amounts:
Basic
Income (loss) before extraordinary
item and accounting change $ 1.78
Extraordinary item, net of taxes (0.06)
Accounting change, net of taxes -
---------------------------------------------------------------
Net income (loss) $ 1.72
---------------------------------------------------------------
Diluted
Income (loss) before extraordinary
item and accounting change $ 1.77
Extraordinary item, net of taxes (0.06)
Accounting change, net of taxes -
---------------------------------------------------------------
Net income (loss) $ 1.71
====================================================================
</TABLE>
* Options to purchase 11,928 shares of Georgia-Pacific Group stock at $60.50
per share were outstanding during 1998 but were not included in the computation
of diluted earnings per share because the options' exercise price was greater
than the average market price of the common shares.
** Options to purchase 1,951,130 shares of The Timber Company stock at prices
ranging from $23.21 per share to $25.13 per share were outstanding during 1998
but were not included in the computation of diluted earnings per share because
the options' exercise price was greater than the average market price of the
common shares.
*** Options to purchase 5,355,477 shares of Georgia-Pacific Group stock at
prices ranging from $41.99 per share to $57.29 per share 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 earnings per share.
**** 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 earnings per share because the options' exercise price
38
was greater than the average market price of the common shares.
***** 1,180,162 shares under the 1995 Employee Stock Purchase Plan were
subscribed during 1996 but were not included in the computation of diluted
earnings per share because the subscription price was greater than the average
market price of the common shares.
INVENTORY VALUATION. Inventories are valued at the lower of year-to-date
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 percent of inventories at
both December 31, 1998 and 1997.
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.
Gains or losses on sales of timberlands are reflected as a reduction of "Cost of
sales" on the accompanying statements of income, with the exception of major
divestitures which are reflected in "Other income."
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. Amounts are amortized over five
years beginning when the assets are placed in service. Capitalized costs were
$31 million at December 31, 1998 and $48 million at December 31, 1997. Amounts
are included as property, plant and equipment on the Corporation's balance
sheets.
In 1997, the Corporation adopted EITF 97-13, which resulted in a one-time,
after-tax charge of $60 million.
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
lives of the related assets. Interest capitalized, expensed and paid was as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
(In millions) 1998 1997 1996
-------------------------------------------------------------
<S> <C> <C> <C>
Total interest costs $ 452 $476 $ 490
Interest capitalized (9) (11) (31)
-------------------------------------------------------------
Interest expense $ 443 $465 $ 459<PAGE>
=============================================================
Interest paid $ 468 $475 $ 488
=============================================================
</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 $62 million in 1998 and $59 million in 1997 and 1996.
Accumulated amortization at December 31, 1998 and 1997 was $546 million and $484
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.
40
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 recognized sales of retail homesites
developed when all conditions, as set forth in SFAS No. 66, "Accounting for
Sales of Real Estate," had occurred.
The Corporation divested its real estate development properties located in South
Carolina and Florida in the first quarter of 1998. As a result, the Corporation
is no longer engaged in real estate development activities.
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.
ACCOUNTING STANDARDS CHANGE. In June 1998, the FASB issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities on the balance sheets and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation. The
Corporation will be required to adopt the new statement in 2000. Management is
evaluating the effect of this statement on the Corporation's derivative
instruments, primarily interest rate swaps and foreign currency forward
contracts. The impact of adjustments to fair value is not expected to be
material to the Corporation's consolidated financial position.
RECLASSIFICATIONS. Certain 1997 and 1996 amounts have been reclassified to
conform with the 1998 presentation.
NOTE 2. OPERATING SEGMENT INFORMATION
Georgia-Pacific Corporation has five reportable operating segments: building
products, distribution, timber, containerboard and packaging, and pulp and
paper. 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 segment sells a wide
range of building products manufactured by the Corporation or purchased from
others. These segments of the business are 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.
41
The timber segment consists of The Timber Company and is engaged primarily in
the growing and selling of timber. In addition, the timber segment is engaged in
certain businesses related to ownership and management of its timber operations,
including managing hunting leases and mineral rights and seedling production.
The operations of the timber segment are affected by a number of factors,
including prices for timber generally, selling prices for manufactured wood
products, supplies of timber from other wood sources in the United States and
competition for these raw materials, as well as seasonal factors such as
weather.
The containerboard and packaging segment produces linerboard, medium, kraft and
corrugated packaging. The Corporation's pulp and paper segment produces
communication papers, market pulp, bleached board and tissue. Markets for these
segments are affected primarily by changes in industry capacity, the level of
economic growth in U.S. and export markets, and fluctuations in currency
exchange rates.
The accounting policies of the segments are primarily the same as those
described in the summary of significant accounting policies. The Corporation
evaluates performance based on profit or loss from operations before interest
and income taxes.
The Corporation accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, that is, at current market prices.
The Corporation's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business has different customers and requires different production processes.
The "Other" nonreportable segment includes some miscellaneous businesses,
certain goodwill amortization, unallocated corporate operating expenses and the
elimination of intersegment sales and related profits.<PAGE>
The Corporation has a large and diverse customer base, which includes some
customers located in foreign countries. No single unaffiliated customer
accounted for more than 10 percent of total sales in any year during the three
years ended December 31, 1998. Sales to foreign markets in 1998, 1997 and 1996
were 7 percent, 8 percent and 8 percent, respectively. These sales were
primarily to customers in Europe, Asia and Latin America. Information for the
Corporation's operations in foreign markets is as follows:
REVENUES*
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
(In millions) 1998 1997 1996
-------------------------------------------------------------
<S> <C> <C> <C>
United States $12,405 $12,026 $11,986
Foreign countries 931 1,068 1,038
=============================================================
</TABLE>
*Revenues are attributed to countries based on location of customer.
Because a substantial portion of the Corporation's foreign revenues are derived
from the sale of U.S.-produced products abroad, assets located outside the
United States are not material.
Georgia-Pacific Corporation employs approximately 45,000 people at more than 400
facilities primarily located throughout the United States and Canada. The
Corporation also owns or controls more than 5.8 million acres of timber and
timberlands in the United States and Canada.
<TABLE>
<CAPTION>
Building Containerboard
(In millions) Products Distribution Timber and packaging
---------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Net sales to unaffiliated
customers $3,337 $4,325 $ 125 $ 2,044
Intersegment sales 2,455 8 409 60
---------------------------------------------------------------
Total net sales $5,792 $4,333 $ 534 $ 2,104
Operating profit (loss) 603 1 364 106
Depreciation, cost of timber
harvested and goodwill
amortization 321 45 44 148
Property, plant and equipment
investments 186 12 6 84
Timber and timberland
purchases 142 - 64 -
Acquisitions 19 - - 93
Assets 2,505 990 1,174 1,871
===============================================================
1997<PAGE>
Net sales to unaffiliated
customers $3,139 $4,398 $ 126 $ 1,765
Intersegment sales 2,406 8 425 52
---------------------------------------------------------------
Total net sales $5,545 $4,406 $ 551 $ 1,817
Operating profit (loss) 490 (171) 437 (6)
Depreciation, cost of timber
harvested and goodwill
amortization 312 48 48 134
Property, plant and equipment
investments 169 44 2 132
Timber and timberland
purchases 131 - 51 -
Acquisitions - - - -
Assets 2,452 1,179 1,171 1,735
===============================================================
1996
Net sales to unaffiliated
customers $2,841 $4,553 $ 123 $ 1,921
Intersegment sales 2,911 10 424 55
---------------------------------------------------------------
Total net sales $5,752 $4,563 $ 547 $ 1,976
Operating profit (loss) 567 (220) 313 127
Depreciation, cost of timber
harvested and goodwill
amortization 301 45 57 130
Property, plant and equipment
investments 250 224 4 186
Timber and timberland
purchases 94 - 48 -
Acquisitions 363 - - -
Assets 2,467 1,238 1,326 1,638<PAGE>
===============================================================
</TABLE>
<TABLE>
<CAPTION>
Pulp and All
(In millions) paper other Consolidated
---------------------------------------------------------------
<S> <C> <C> <C>
1998
Net sales to unaffiliated
customers $3,515 $ (10) * $13,336
Intersegment sales 33 (2,965)** -
---------------------------------------------------------------
Total net sales $3,548 $(2,975) $13,336
Operating profit (loss) 133 (273)*** 934
Depreciation, cost of timber
harvested and goodwill
amortization 354 85 997
Property, plant and equipment
investments 305 45 638
Timber and timberland
purchases - - 206
Acquisitions - - 112
Assets 3,808 2,352 12,700
===============================================================
1997
Net sales to unaffiliated
customers $3,675 $ (9)* $ 13,094
Intersegment sales 26 (2,917)** -
---------------------------------------------------------------
Total net sales $3,701 $(2,926) $13,094
Operating profit (loss) 201 (251)*** 700
Depreciation, cost of timber
harvested and goodwill
amortization 386 89 1,017
Property, plant and equipment
investments 306 64 717
Timber and timberland
purchases - - 182
Acquisitions - - -
Assets 3,951 2,462 12,950
===============================================================
1996
Net sales to unaffiliated
customers $3,593 $ (7)* $ 13,024
Intersegment sales 27 (3,427)** -
---------------------------------------------------------------
Total net sales $3,620 $(3,434) $ 13,024
Operating profit (loss) 250 (282) *** 755
Depreciation, cost of timber
harvested and goodwill
amortization 385 78 996
Property, plant and equipment
investments 248 147 1,059
Timber and timberland
purchases - - 142
Acquisitions - - 363
Assets 3,930 2,219 12,818
===============================================================<PAGE>
</TABLE>
* Represents the elimination of hunting lease income reflected in net sales
for the timber segment and reflected as a reduction to cost of sales on a
consolidated basis. In addition, these amounts include net sales from
miscellaneous businesses.
** Elimination of intersegment sales.
*** Includes some miscellaneous businesses, certain goodwill amortization,
unallocated corporate operating expenses and the elimination of profit on
intersegment sales.
RECONCILIATION OF SEGMENT OPERATING PROFITS TO CONSOLIDATED NET INCOME
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------
(In millions) 1998 1997 1996
--------------------------------------------------------------------
<S> <C> <C> <C>
Total operating profits $ 934 $700 $ 755
Interest expense 443 465 459
Provision for income taxes 202 106 135
--------------------------------------------------------------------
Income before extraordinary items
and accounting change 289 129 161
Extraordinary items, net of taxes (15) - (5)
Accounting change, net of taxes - (60) -
--------------------------------------------------------------------
Net income $ 274 $ 69 $ 156
====================================================================
</TABLE>
NOTE 3. ACQUISITIONS, DIVESTITURES AND UNUSUAL ITEMS
ACQUISISTIONS AND DIVESTITURES. The following acquisition and divestitures were
completed during 1998, 1997 and 1996.
On June 30, 1998, the Corporation completed its acquisition of CeCorr, a leading
independent producer of corrugated sheets in the United States. On June 30,
1998, the Corporation paid approximately $93 million in cash (net of $2 million
of acquired cash) and issued approximately 1.6 million shares of Georgia-Pacific
Group stock valued at $57.875 per share for all the outstanding shares of
CeCorr. In addition the Corporation assumed approximately $92 million of
CeCorr's debt, of which $34 million was owed to Georgia-Pacific Corporation ($58
million net debt assumed). On July 2, 1998, a former owner of CeCorr exercised
his right to resell to the Corporation approximately 1.1 million shares of
Georgia-Pacific Group stock issued in the transaction.
The acquisition included 11 CeCorr sheet feeder plants, which manufacture
corrugated sheets that are sold to others for final conversion into corrugated
containers. The acquisition also included a corrugating medium paper mill, and
several specialty operations and support service groups. CeCorr ships
approximately 6 billion square feet of corrugated sheets per year. CeCorr's
results of operations were consolidated with those of the Corporation beginning
July 1, 1998.
The Corporation has accounted for this transaction using the purchase method to
record a new cost basis for assets acquired and liabilities assumed. The
allocation of the purchase price and acquisition costs to the assets acquired
and liabilities assumed is preliminary as of December 31, 1998, and is subject
to change pending finalization of appraisals and other studies of fair value and
finalization of management's plans. The finalization of such appraisals and
other studies of fair value and the finalization of management's plans are
46
expected during the first half of 1999. The difference between the purchase
price and the fair market value of the assets acquired and liabilities assumed
was recorded as goodwill and is being amortized over 40 years. The preliminary
allocation of the purchase price of the acquisition is summarized as follows (in
millions of dollars):
<TABLE>
<CAPTION>
---------------------------------------------------------------
<S> <C>
Current assets $ 46
Property, plant and equipment 153
Goodwill 139
Liabilities (150)
Common stock issued (95)
---------------------------------------------------------------
Net cash paid $ 93
=====================================================
</TABLE>
In March 1998, the Corporation sold its real estate development properties
located in South Carolina and Florida for $18 million in cash resulting in a
pretax gain of approximately $1 million.
In December 1998, the Corporation completed the sale of approximately 61,000
acres of timberlands located in West Virginia. This sale resulted in a pretax
gain of $24 million ($14 million after taxes).
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 sheets. The Corporation recognized a pretax gain of
approximately $128 million on the sale ($80 million after taxes). The amount is
reflected in "Other income" on the accompanying statements of income.
In September 1996, the Corporation completed the sale of two gypsum wallboard
facilities at Buchanan, New York, and Wilmington, Delaware. The sale resulted in
after-tax cash proceeds of approximately $39 million and the Corporation
recognized a pretax gain of $39 million ($24 million after taxes). The amount is
reflected in "Other income" on the accompanying statements of income.
47
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 reflected in "Other income" on the accompanying statements
of income.
DISTRIBUTION SEGMENT RESTRUCTURING. In December 1997, the Corporation began 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. The execution of the plan included separation of approximately 1,770
employees in 1998. The employees included hourly and salaried personnel employed
in the identified millwork fabrication facilities and distribution centers, and
associated sales and administrative personnel. The Corporation also accrued
related pension, outplacement and retention expenses for these employees. The
total amount of the 1997 charge related to employee severance was $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 was 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
and for impairment of continuing facilities.
The following table provides a rollforward of the $70 million reserve for
business restructurings from December 31, 1997 to December 31, 1998:
<TABLE>
<CAPTION>
Type of Cost December 31, December 31,
(In millions) 1997 balance Additions Usage 1998 balance
---------------------------------------------------------
<S> <C> <C> <C> <C>
Employee separation $ 15 $ - $(15) $ -
Facility closing costs
and asset impairments 55 - (53) 2
---------------------------------------------------------
Total $ 70 $ - $(68) $ 2
===============================================================
</TABLE>
Prior to 1996, the Corporation implemented a program to change and improve
certain processes in the Corporation's distribution segment. The Corporation
expensed $10 million of termination benefit costs in 1997 related to this
program. As a result of this program, approximately 720 employees were
terminated in 1997.
48
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,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
December 31
------------
(In millions) 1998 1997
-----------------------------------------
<S> <C> <C>
Receivables
Trade $1,170 $1,278
Other 88 112
-----------------------------------------
1,258 1,390
Less allowances 25 19
-----------------------------------------
Receivables, net $1,233 $1,371
=========================================
</TABLE>
The Corporation's accounts receivable sale program is accounted for as a secured
borrowing. The $280 million of receivables outstanding under the program at both
December 31, 1998 and 1997 and the corresponding debt are included as current
receivables and short-term debt, respectively, on the Corporation's balance
sheets. A portion of the cost of the accounts receivable sale program is based<PAGE>
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
$17 million in 1998, $19 million in 1997 and $20 million in 1996, 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. The program has
been extended to May 1999.
49
NOTE 5. INDEBTEDNESS
The Corporation's indebtedness includes the following:
<TABLE>
<CAPTION>
December 31
---------------
(In millions) 1998 1997
-------------------------------------------------------
<S> <C> <C>
Debentures, 8.7% average rate,
payable through 2028 $ 3,100 $ 3,200
Notes, 5.9% average rate,
payable through 2006 400 517
Revenue bonds, 5.2% average rate,<PAGE>
payable through 2027 637 659
Other loans, 6.9% average rate,
payable through 2008 29 13
Less: unamortized discount (19) (23)
-------------------------------------------------------
4,147 4,366
Less: long-term portion of debt 4,125 3,713
-------------------------------------------------------
Current portion of long-term debt 22 653
Commercial paper and other
short-term notes,
5.8% average rate 929 621
Accounts receivable sale program,
5.7% average rate 280 280
Bank overdrafts, net 195 223
-------------------------------------------------------
Total short-term debt 1,426 1,777
-------------------------------------------------------
Total debt $ 5,551 $ 5,490
=======================================================
Georgia-Pacific Group's portion of
Corporation debt:
Short-term debt $ 1,173 $ 1,462
Long-term debt, excluding
current portion 3,395 3,057
-------------------------------------------------------
Georgia-Pacific Group's total debt $ 4,568 $ 4,519
=======================================================
The Timber Company's portion of
Corporation debt:
Short-term debt $ 253 $ 315
Long-term debt, excluding<PAGE>
current portion 730 656
-------------------------------------------------------
The Timber Company's total debt $ 983 $ 971
=======================================================
Weighted average interest rate on
Corporation debt at year end 7.2% 7.8%
=======================================================
</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: $22 million in 1999, $34 million in 2000, $1 million in
2001, $375 million in 2002 and $315 million in 2003.
NOTES, DEBENTURES AND OTHER LOANS. During 1998, the Corporation issued $300
million of 7.25% Debentures Due June 1, 2028 and a $14 million floating rate
note due September 30, 2003. In January 1998, the Corporation redeemed $200
million of 9 3/4% Sinking Fund Debentures Due January 15, 2018. In February
1998, the Corporation redeemed $200 million of 9 1/2% Debentures Due February
15, 2018. The Corporation recorded an after-tax extraordinary loss of
approximately $14 million related to these redemptions, of which $12 million was
allocated to the Georgia-Pacific Group and $2 million was allocated to The
Timber Company based on the ratio of each group's debt to the Corporation's
total debt.
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, all of
which was allocated to the Georgia-Pacific Group.
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, 1998, $570 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, 1998, $929 million was borrowed under the credit
agreement at a weighted average interest rate of 5.8%. Amounts outstanding under
the revolving credit facility are included in "Commercial paper and other short-
term notes" on the accompanying balance sheets.
51
The revolving credit agreement contains certain restrictive covenants. The
covenants include a maximum leverage ratio (funded indebtedness to operating<PAGE>
cash flow) of 4.5 to 1.0, which is to be maintained throughout the term of the
credit agreement. As of December 31, 1998, the leverage ratio was 2.8 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 1999.
REVENUE BONDS. At December 31, 1998, the Corporation had outstanding borrowings
of approximately $637 million under certain industrial revenue bonds. During
1998, approximately $254 million of floating rate bonds were replaced. $241
million of these bonds were refunded by fixed rate instruments and $13 million
were retired early. Approximately $11 million from the issuance of these bonds
was held by trustees at December 31, 1998 to refund a like amount of bonds
maturing on January 4, 1999. The corresponding amount held by trustees is
classified as "Other current assets" on the accompanying balance sheets. During
1998, the Corporation recorded an after-tax extraordinary loss of approximately
$1 million as a result of various refundings and early retirements of industrial
revenue bond instruments, all of which was allocated to the Georgia-Pacific
Group. In January 1999, the Corporation issued approximately $24 million of
fixed rate industrial revenue bonds. These bonds were issued to refund a like
amount of floating rate bonds in March 1999.
OTHER. At December 31, 1998, the amount of long-term debt secured by property,
plant and equipment and by timber and timberlands was not material.
Prior to 1996, 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 the inception of the agreement, 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, 1998, the related deposit and lease obligation balances were
both $358 million. Of these amounts, approximately $18 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.
As of December 31, 1998, the Corporation had registered for sale up to $500
million of debt securities under a shelf registration statement filed with the
Securities and Exchange Commission.
52
NOTE 6. FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of the Corporation's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------------------
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) $ 929 $ 929 $ 621 $ 621
Accounts receivable sale
program (Note 4) 280 280 280 280
Notes and debentures
(Note 5) 3,500 3,783 3,717 4,055
Revenue bonds (Note 5) 637 587 659 637
Other loans (Note 5) 29 29 13 13
Interest rate exchange
agreements * 14 * 10
----------------------------------------------------------------
</TABLE>
* The Corporation's balance sheets at December 31, 1998 and 1997 included
accrued interest of $1 million and $5 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.
53
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, 1998,
the Corporation had outstanding interest rate exchange agreements that
effectively converted $456 million of floating rate obligations with a weighted
average interest rate of 5.7% to fixed rate obligations with an average
effective interest rate of approximately 6.8%. These agreements increased
interest expense by $11 million, $16 million and $17 million for the years
ending December 31, 1998, 1997 and 1996, respectively. As of December 31, 1998,
these agreements have a weighted average maturity of approximately 3.5 years. As
of December 31, 1998, the Corporation's total floating rate debt, including the
accounts receivable sale program, exceeded related interest rate exchange
agreements by $1,327 million.
The estimated fair value of the Corporation's liability under interest rate
exchange agreements at December 31, 1998 and 1997 was $14 million and $10
million, respectively, and represents the estimated amount the Corporation could
have paid to terminate the agreements. The fair value at December 31, 1998 and
1997 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 also enters into foreign currency exchange agreements and
commodity futures and swaps, the amounts of which were not material to the
consolidated financial position of the Corporation at December 31, 1998 and
1997.
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 (benefit) for income taxes
consists of the following:
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
(In millions) 1998 1997 1996<PAGE>
---------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes:
Current $ 139 $ 11 $ 111
Deferred 37 80 6
State income taxes:
Current 25 (5) 17
Deferred 1 20 1
---------------------------------------------------------
Provision for income taxes $ 202 $ 106 $ 135
=========================================================
Income taxes paid, net of refunds $ 21 $ 51 $ 135
=========================================================
</TABLE>
Income taxes paid during 1998 are net of refunds of approximately $81 million,
primarily related to a 1997 federal tax overpayment. Income taxes paid during
1997 were net of refunds of approximately $45 million, primarily related to a
1996 federal tax overpayment.
The federal statutory income tax rate was 35 percent. The provision for income
taxes is reconciled to the federal statutory rate as follows:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
(In millions) 1998 1997 1996
---------------------------------------------------------
<S> <C> <C> <C>
Provision for income taxes
computed at the federal
statutory tax rate $ 172 $ 82 $ 104
State income taxes, net
of federal benefit 16 9 12
Goodwill amortization 24 23 23
Foreign sales corporation (6) (8) (7)
Other (4) - 3
---------------------------------------------------------
Provision for income taxes $ 202 $ 106 $ 135
=========================================================
</TABLE>
The components of the net deferred income tax liabilities are as follows:
<TABLE>
<CAPTION>
December 31
------------------
(In millions) 1998 1997
-------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Compensation related accruals $ 275 $ 273
Other accruals and reserves 59 84
Other 1 3
-------------------------------------------------------------
335 360
Valuation allowance - -
-------------------------------------------------------------
335 360
-------------------------------------------------------------
Deferred income tax liabilities:
Property, plant and equipment (1,181) (1,210)
Timber and timberlands (236) (236)
Other (88) (46)
-------------------------------------------------------------
(1,505) (1,492)
-------------------------------------------------------------
Deferred income tax liabilities, net $ (1,170) $ (1,132)
=============================================================
Included in the balance sheets:
Deferred income tax assets* $ 61 $ 67
Deferred income tax liabilities** (1,231) (1,199)
-------------------------------------------------------------
Deferred income tax liabilities, net $ (1,170) $ (1,132)
=============================================================
</TABLE>
* Net of current liabilities of $9 million and $6 million at December 31, 1998
and 1997, respectively.
** Net of long-term assets of $236 million and $254 million at December 31,
1998 and 1997, 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, 1998 and 1997, $101 million and $78 million, respectively, of noncurrent
prepaid pension cost was included in "Other assets." Accrued pension liability
of $78 million and $68 million at December 31, 1998 and 1997, respectively, was
included in "Other long-term liabilities."
Pursuant to the provisions of SFAS No. 87, intangible assets of $5 million and
$2 million were recorded as of December 31, 1998 and 1997, respectively, in
order to recognize the required minimum liability.
The following table sets forth the change in projected benefit obligation and
the change in plan assets for the solely administered plans:<PAGE>
<TABLE>
<CAPTION>
December 31,
(In millions) 1998 1997
----------------------------------------------------------------
<S> <C> <C>
Change in projected benefit obligation
Projected benefit obligation at beginning
of year $1,629 $1,544
Service cost 83 84
Interest cost 114 108
Plan amendments 12 26
Actuarial gains (losses) 72 (1)
Foreign currency exchange rate changes (2) -
Benefits paid (109) (132)
----------------------------------------------------------------
Projected benefit obligation at end
of year $1,799 $1,629
================================================================
Change in plan assets
Fair value of assets at beginning of year $1,939 $1,739
Actual return on plan assets 231 306
Employer contributions 23 27
Foreign currency exchange rate changes (2) -
Benefits paid (109) (133)
----------------------------------------------------------------
Fair value of assets at end of year $2,082 $1,939
================================================================
</TABLE>
The funded status and the amounts recognized on the accompanying balance sheets
for the solely administered plans are set forth in the following table:
<TABLE>
<CAPTION>
December 31,
(In millions) 1998 1997
----------------------------------------------------------------
<S> <C> <C>
Funded status $ 286 $ 310
Unrecognized actuarial gain (319) (358)
Unrecognized prior service cost 68 65
Unrecognized net (asset) obligation - -
----------------------------------------------------------------
Net prepaid benefit cost $ 35 $ 17
================================================================
Amounts recognized on the balance sheets consist of:
Prepaid pension cost $ 101 $ 78
Accrued pension liability (78) (68)
Intangible asset 5 2
Accumulated other comprehensive income 7 5
----------------------------------------------------------------
Net amount recognized $ 35 $ 17
================================================================
</TABLE>
Net periodic pension cost for solely administered and union-administered pension
plans included the following:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
(In millions) 1998 1997 1996
---------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned $ 83 $ 84 $ 83
Interest cost on projected benefit
obligation 114 108 106
Expected return on plan assets (184) (165) (163)
Amortization of gains (13) (7) (5)
Amortization of prior service cost 8 6 5
Amortization of net transition
obligation - (9) (9)
Contributions to multiemployer
pension plans 4 4 4
---------------------------------------------------------
Net periodic pension cost $ 12 $ 21 $ 21
=========================================================
</TABLE>
The following assumptions were used:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C>
Discount rate used to determine
the projected benefit obligation 6.5% 7.0% 7.0%
Rate of increase in future
compensation levels used to
determine the projected benefit
obligation 5.6 5.5 5.5
Expected long-term rate of return
on plan assets used to determine
net periodic pension cost 9.5 9.5 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 $52
million in 1998, $48 million in 1997 and $50 million in 1996.
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 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.
58
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 tables set forth the change in projected benefit obligation and
the amounts recognized on the accompanying balance sheets:
<TABLE>
<CAPTION>
December 31,
(In millions) 1998 1997
----------------------------------------------------------------
<S> <C> <C>
Change in projected benefit obligation
Projected benefit obligation at
beginning of year $ 414 $ 531
Service cost 7 7
Interest cost 26 26
Actuarial gains (losses) 6 (124)
Benefits paid (21) (26)
----------------------------------------------------------------
Projected benefit obligation at
end of year $ 432 $ 414
================================================================
Funded status $(432) $(414)
Unrecognized actuarial gain (67) (75)
Unrecognized prior service cost 11 12
Unrecognized net (asset) obligation - -
----------------------------------------------------------------
Net accrued benefit cost $(488) $(477)
================================================================
Amounts recognized on the balance
sheets consist of:
Prepaid benefit cost $ - $ -
Accrued benefit liability (488) (477)
----------------------------------------------------------------
Net amount recognized $(488) $(477)
================================================================
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
Year ended December 31
--------------------
(In millions) 1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned $ 7 $ 7 $ 10
Interest cost on accumulated
postretirement benefit obligation 26 26 29
Amortization of prior service cost 1 1 -
Amortization of (gain) loss (2) (3) -
--------------------------------------------------------
Net periodic postretirement
benefit cost $ 32 $ 31 $ 39
========================================================
</TABLE>
For measuring the expected postretirement benefit obligation, an 8 percent, 9
percent and 10 percent annual rate of increase in the per capita claims cost was
assumed for 1998, 1997 and 1996, respectively. The rate was assumed to decrease
1 percent per year to 5.5 percent in 2001 and remain at that level thereafter.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 6.0 percent at December 31, 1998 and 6.5
percent at both December 31, 1997 and 1996.
If the annual health care cost trend rate were increased by 1 percent, the
ccumulated postretirement benefit obligation would have increased by 10 percent<PAGE>
as of December 31, 1998, 9 percent as of December 31, 1997 and 14 percent as of
December 31, 1996. The effect of this change on the aggregate of service and
interest costs would be an increase of 11 percent for 1998, 14 percent for 1997
and 11 percent for 1996.
If the annual health care cost trend rate were decreased by 1 percent, the
accumulated postretirement benefit obligation would have decreased by 9 percent
as of December 31, 1998, 9 percent as of December 31, 1997 and 12 percent as of
December 31, 1996. The effect of this change on the aggregate of service and
interest cost would be a decrease of 10 percent for 1998, 13 percent for 1997
and 12 percent for 1996.
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, 1998, 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
60
of $0.80 per share and 93,282,000 and 92,249,000 shares were issued as of
December 31, 1998 and 1997, respectively. The Timber Company common stock has a
par value of $0.80 per share and 92,785,000 and 92,607,000 shares were issued as
of December 31, 1998 and 1997, respectively.
At December 31, 1998, the following authorized shares of common stock were
reserved for issue:
<TABLE>
<CAPTION>
Georgia-Pacific Group 1998
--------------------------------------------------
<S> <C>
1997 Long-Term Incentive Plan 4,410,300
1997 Employee Stock Purchase Plan 791,400
1995 Outside Directors Stock Plan 169,556
1995 Shareholder Value Incentive Plan 3,967,200
1994 Employee Stock Option Plan 182,800
--------------------------------------------------
Common stock reserved 9,521,256
==================================================
</TABLE>
<TABLE>
<CAPTION>
The Timber Company 1998
--------------------------------------------------
<S> <C>
1997 Long-Term Incentive Plan 2,296,700
1997 Employee Stock Purchase Plan 791,400
1995 Outside Directors Stock Plan 169,556
1995 Shareholder Value Incentive Plan 3,969,888
1994 Employee Stock Option Plan 222,150
--------------------------------------------------
Common stock reserved 7,449,694
==================================================
</TABLE>
1997 LONG-TERM INCENTIVE PLANS. The Corporation initially reserved 4,500,000
shares of Georgia-Pacific Group common stock for issuance under the Georgia-
Pacific Group 1997 Long-Term Incentive Plan (the "Georgia-Pacific Group Plan").
Options totaling 1,469,250, 17,000 and 13,800 were granted under the Georgia-
Pacific Group Plan on January 29, March 2 and July 29, 1998, respectively. These
grants have a ten-year term and vest ratably over a three-year period.
61
The Corporation initially reserved 2,300,000 shares of The Timber Company common
stock for issuance under The Timber Company 1997 Long-Term Incentive Plan ("The
Timber Company Plan"). Options totaling 1,010,600 were granted under The Timber
Company Plan on December 17, 1997. These grants have a ten-year term and vest
ratably over a four-year period.
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.
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 (the "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 981,240 shares
were vested as of December 31, 1998.
The Corporation recognized compensation expense of $7 million in 1998, $15
million in 1997 and $29 million in 1996 related to the 1990 Incentive Plan.
As a result of the Letter Stock Recapitalization, each share of restricted
Existing Common 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 (the "1997 Purchase Plan") offered employees a right to subscribe for
Existing Common Stock at a subscription price of $78.09 per share, representing
85 percent of the mean of the high and low prices of the Existing Common Stock
on September 2, 1997. The subscription period expired on November 14, 1997. A
subscriber had to purchase and pay for shares subscribed not later than November
30, 1999, but prior to the time of the subscriber's last contribution he/she
could obtain a refund of his/her payments plus interest at a rate of 6 percent
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, 1998, the Corporation had 791,400 shares of Georgia-Pacific
Group stock and 791,400 shares of The Timber Company stock reserved for issuance
under the 1997 Purchase Plan. Accordingly, $33 million is reflected as "Other
current liabilities" on the accompanying balance sheets. Approximately 5,900
subscribers remained in the 1997 Purchase Plan at December 31, 1998.
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 Corporation initially reserved 200,000
restricted shares of Existing Common Stock for issuance under the 1995 Outside
Directors Stock Plan (the "Directors Plan"), which provides for the issuance of
shares of common stock to nonemployee directors of the Corporation on a
restricted basis. Each nonemployee director was issued 392 restricted shares
each of Georgia-Pacific Group stock and The Timber Company stock in 1998 and 482
shares of Existing Common Stock in 1997.
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. Each
director's annual grant consists 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<PAGE>
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
related to this conversion was 15,702.
62
EMPLOYEE STOCK OPTION PLANS. The 1995 Shareholder Value Incentive Plan (the
"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 (the "1994 Option Plan") provided for the
granting of stock options to certain nonofficer key employees.
Following the Letter Stock Recapitalization, each outstanding stock option under
the SVIP and the 1994 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>
Year ended December 31
1998 1998
-------------------------------------------------------
Georgia-Pacific Group The Timber Company
-------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
-------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding
at January 1 4,903,100 $53.32 5,913,700 $ 22.21
Options granted 1,500,050 56.46 - -
Options exercised/
surrendered (318,600) 54.43 (180,400) 21.52
Options cancelled (524,200) 53.39 (533,962) 21.60
-------------------------------------------------------
Options outstanding
at December 31 5,560,350 $54.09 5,199,338 $ 22.30
Options available
for grant at
December 31 2,999,950 1,289,400
-------------------------------------------------------
Total reserved shares 8,560,300 6,488,738
=======================================================
Options exercisable
at December 31 852,550 $57.27 1,120,325 $ 23.64
Average remaining life of
options outstanding 8.2 years 7.7 years
Option prices per share
(December 17 - December 31):
Granted $56-61 $ -
Exercised/surrendered $42-57 $ 17-23
Cancelled $42-57 $ 17-25
Outstanding $52-61 $ 21-25
=======================================================
</TABLE>
<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 5.6 years 5.6 years
Option prices per share
(December 17 - December 31):
Granted $ - $ 25
Exercised/surrendered $ 42 $ 17
Outstanding $ 42-57 $ 17-25
=======================================================
</TABLE>
<TABLE>
<CAPTION>
Period ended Year ended
December 16, December 31,
1997* 1996
-------------------------------------------------------
Georgia-Pacific Corporation
-------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
-------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding
at January 1 4,158,500 $ 74.53 2,217,000 $75.61
Options granted 1,746,000 74.25 2,150,500 72.63
Options exercised/
surrendered (514,950) 69.94 (117,400) 57.15
Options cancelled (486,150) 75.05 (91,600) 75.45
-------------------------------------------------------
Options outstanding
at period end 4,903,400 $ 74.93 4,158,500 $74.53
Options available
for grant at
period end 3,531,200 4,811,000
-------------------------------------------------------
Total reserved shares 8,434,600 8,969,500
=======================================================
Options exercisable
at period end 334,600 $ 73.53 869,0000 $71.41
=======================================================
Option prices per share:
Granted $ 74 $ 73-77
Exercised/surrendered $ 59-75 $ 39-75
Cancelled $ 59-81 $ 39-81
=======================================================
</TABLE>
*All shares and prices reflect the Corporation's Existing Common Stock through
December 16, 1997.
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 percent 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 percent
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 1998, the Corporation purchased on the open market 7.7
million shares of Georgia-Pacific Group stock (including 1.1 million shares
related to the CeCorr acquisition) at an aggregate price of $427 million ($55.51
average per share), of which 6.8 million shares were held as treasury stock at
December 31, 1998. Cash paid in 1998 related to stock repurchases totaled $436<PAGE>
million, which included $9 million for shares purchased but not settled in 1997.
During 1997, the Corporation purchased on the open market 358,400 shares of
Georgia-Pacific Group stock at an aggregate price of $22 million ($60.63 average
per share).
66
During 1998, the Corporation also purchased on the open market 5.7 million
shares of The Timber Company stock at an aggregate price of $121 million ($21.25
average per share), all of which were held as treasury stock at December 31,
1998. No share repurchases of The Timber Company stock were made in 1997.
Subsequent to year-end 1998 through February 5, 1999, the Corporation purchased
224,200 shares of Georgia-Pacific Group stock at an aggregate price of $15
million ($66.42 average per share) on the open market. The Corporation also
purchased 716,900 shares of The Timber Company stock at an aggregate price of
$16 million ($22.71 average per share) on the open market.
The resolution of the Board authorizing such repurchases allows 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 $1.0 billion and the Corporation's debt remains
below $5.75 billion.
OTHER. 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 1997 Purchase Plan. Had
compensation cost for these plans been determined based on the fair value at the
grant dates in 1998, 1997 or 1996 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)
--------------------------------------------------
1998 1997 1996
Net Income Net income Income(loss) Net Income
income per share* (loss) per share* income per share*
--------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Georgia-Pacific Corporation
As reported $ 274 $ 69 $ 156 $1.72
Pro forma $ 252 $ 62 $ 144 $1.59
Georgia-Pacific Group
As reported $ 98 $ 1.09 $(146) $(1.60) $ 29
Pro forma $ 77 $ 0.86 $(153) $(1.68) $ 17
The Timber Company
As reported $ 176 $ 1.95 $ 215 $ 2.35 $ 127
Pro forma $ 175 $ 1.94 $ 215 $ 2.35 $ 127
--------------------------------------------------
</TABLE>
Represents basic earnings per share. Pro forma diluted income (loss) per share
was $0.85 and $1.93 in 1998 and $(1.68) and $2.33 in 1997 for the Georgia-
Pacific Group and The Timber Company, respectively, and $1.58 in 1996 for the
Corporation.
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<PAGE>
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 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1997 1996
Options Options ESPP* Options
<S> <C> <C> <C> <C>
-------------------------------------------------------------
Georgia-Pacific Corporation
Risk-free interest rate 5.7%
Expected dividend yield 2.0%
Expected life 10 years
Expected volatility 0.30
Option forfeiture rate 3%
-------------------------------------------------------------
Georgia-Pacific Group
Risk-free interest rate 5.8% 6.6% 5.8% 5.7%
Expected dividend yield 1.8% 2.7% 2.3% 2.0%
Expected life 10 years 10 years 2 years 10 years
Expected volatility 0.39 0.30 0.37 0.30
Option forfeiture rate 3% 3% 28% 3%
-------------------------------------------------------------
The Timber Company
Risk-free interest rate 5.9% 6.4% 5.8% 5.7%
Expected dividend yield 3.9% 3.2% 2.3% 2.0%
Expected life 10 years 10 years 2 years 10 years
Expected volatility 0.37 0.27 0.29 0.30
Option forfeiture rate 3% 3% 28% 3%
-------------------------------------------------------------
</TABLE>
*1997 Purchase Plan.
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 $26.88 and $8.55,
$23.74 and $7.54, and $18.98 and $6.42 for 1998, 1997 and 1996, respectively.
The weighted average grant date fair value per share of shares subscribed under
the 1997 Purchase Plan was $17.69 for the Georgia-Pacific Group and $6.52 for
The Timber Company. 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. OTHER COMPREHENSIVE INCOME
The Corporation's accumulated other comprehensive income includes the following:
<TABLE>
<CAPTION>
Minimum Accumulated
Foreign pension other
(In millions) currency libility comprehensive
items adjustment income
--------------------------------------------------------
<S> <C> <C> <C>
December 31, 1996 $(21) $ (7) $(28)
Activity, net of taxes (7) 2 (5)
--------------------------------------------------------
December 31, 1997 $(28) $ (5) $(33)
Activity, net of taxes (8) (2) (10)
--------------------------------------------------------
December 31, 1998 $(36) $ (7) $(43)
=======================================================
</TABLE>
NOTE 11. 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.
69
The Corporation is involved in environmental remediation activities at
approximately 144 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 44 percent are being investigated,
approximately 28 percent are being remediated and approximately 28 percent are
being monitored (an activity that occurs after either site investigation or
remediation has been completed). The ultimate costs to the Corporation for the<PAGE>
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 it is
reasonably possible that costs associated with these sites may exceed current
reserves by amounts that may prove insignificant or that could range, in the
aggregate, up to approximately $60 million. This estimate of the range of
reasonably possible additional costs is less certain than the estimates upon
which reserves are based, and in order to establish the upper limit of such
range, assumptions least favorable to the Corporation among the range of
reasonably possible outcomes were used. In estimating both its current reserve
for environmental remediation and the possible range of additional costs, the
Corporation has not assumed it will bear the entire cost of remediation of every
site to the exclusion of other known potentially responsible parties who may be
jointly and severally liable. The ability of other potentially responsible
parties to participate has been taken into account, based generally on the
parties' financial condition and probable contribution on a per site basis.
The Corporation and many other companies are defendants in suits brought in
various courts around the nation by plaintiffs who allege that they have
suffered personal injury as a result of exposure to asbestos-containing
products. These suits allege a variety of lung and other diseases based on
alleged exposure to products previously manufactured by the Corporation. In many
cases, the plaintiffs are unable to demonstrate that they have suffered any
compensable loss as a result of such exposure, or that any injuries they have
incurred in fact resulted from exposure to the Corporation's products.
The Corporation generally settles asbestos cases for amounts it considers
reasonable given the facts and circumstances of each case. The amounts it has
paid to date to defend and settle these cases have been substantially covered by
product liability insurance. The Corporation is currently defending claims
70
of approximately 71,000 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
has also established a receivable for expected insurance recoveries.
On May 6, 1998, suit was filed in state court in Columbus, Ohio, against the
Corporation and Georgia-Pacific Resins, Inc., a wholly owned subsidiary of the
Corporation. The lawsuit was filed by eight plaintiffs who seek to represent a
class of individuals who at any time from 1985 to the present lived, worked,
resided, owned, frequented or otherwise occupied property located within a
three-mile radius of the Corporation's resins manufacturing operation in
Columbus, Ohio. The lawsuit alleges that the individual plaintiffs and putative
class members have suffered personal injuries and/or property damage because of<PAGE>
(i) alleged "continuing and long-term releases and threats of releases of
noxious fumes, odors and harmful chemicals, including hazardous substances" from
the Corporation's operations and/or (ii) a September 10, 1997 explosion at the
Columbus facility and alleged release of hazardous material resulting from that
explosion. Prior to the lawsuit, the Corporation had received a number of
explosion-related claims from nearby residents and businesses. These claims were
for property damage, personal injury and business interruption and were being
reviewed and adjusted on a case-by-case basis. The Corporation has denied the
material allegations of the lawsuit. While it is premature to evaluate the
claims asserted in the lawsuit, the Corporation believes it has meritorious
defenses.
In May 1997, the Corporation and nine other companies were named as defendants
in a suit brought by the Attorney General of the State of Florida alleging that
they engaged in a conspiracy to fix the prices of sanitary commercial paper
products, such as towels and napkins, in violation of federal and state laws.
Approximately 45 similar suits have been filed by private plaintiffs in federal
courts in California, Florida, Georgia and Wisconsin, and in the state courts of
California, Wisconsin, Minnesota and Tennessee. On October 15, 1997, the Federal
Judicial Panel on Multi-District Litigation consolidated all federal court cases
in the federal district court in Gainesville, Florida. On July 24, 1998, the
court certified the suit as a class action consisting of nongovernmental direct
purchasers of the defendants' products. Discovery in the federal and state cases
is ongoing. The Corporation has denied that it has engaged in any of the illegal
conduct alleged in these cases and intends to defend itself vigorously.
71
The Corporation's facility in Port Hudson, Louisiana, has notified the State of
Louisiana of the emitting of noncondensable gases in violation of its air
permit. The State has assessed a penalty against the Corporation of $425,000,
which the Corporation has paid.
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.
During the second quarter of 1998, the Georgia-Pacific Group and The Timber
Company revised the operating policy, which they had entered into in 1997, with
respect to sales of timber by The Timber Company to the Georgia-Pacific Group.
These revisions arose from sharp changes in the prices of timber from the first
quarter to the second quarter of 1998, a significant decrease in the volume of
timber purchased by the Georgia-Pacific Group in the second quarter, and other
issues in the policy. At the time these revisions were negotiated, The Timber
Company sold a timber deed to the Georgia-Pacific Group in the amount of
approximately $23 million, and the Georgia-Pacific Group made a one-time $3
million payment to The Timber Company for 1998 second quarter adjustments due<PAGE>
under the revised policy. The Timber Company recognized revenues and earnings
from this timber deed, and other contracts to sell timber to the Georgia-Pacific
Group, as the timber was cut.
Under the revised policy, beginning July 1, 1998, the prices for Southern timber
sold by The Timber Company are adjusted monthly, rather than quarterly, and
represent the average of prices paid by the Georgia-Pacific Group for timber
purchased from third parties in a particular forest over the most recent three-
month period. In most of The Timber Company's Southern forests, it must offer 80
percent of its projected annual harvest from those forests to the Georgia-
Pacific Group, and the Georgia-Pacific Group must purchase not less than 60
percent nor more than 80 percent of that projected annual harvest. In addition,
premiums charged by The Timber Company for the right to harvest a significant
percentage of wood from its Southern forests have been reduced.
72
In two key Southern forests, the price paid by the Georgia-Pacific Group for
timber purchased from The Timber Company will be based on the average prices
paid over the most recent three months by the Georgia-Pacific Group for timber
purchased from third parties, and prices received by The Timber Company for
timber sold to third parties, in each forest. In those same forests, the
Georgia-Pacific Group has agreed to purchase, each quarter, 20 percent of the
annual volume of timber it has committed to purchase from The Timber Company
during that year. The revised policy reduces the volume of timber that the
Georgia-Pacific Group can purchase in these same two forests from 80 percent to
70 percent of The Timber Company's annual harvest in those forests, and also
reduces the Georgia-Pacific Group's minimum annual purchase obligation in those
forests from 60 percent to 50 percent of the annual harvest in 1999 and 2000.<PAGE>
These changes are intended to cause prices paid by the Georgia-Pacific Group for
timber sold by The Timber Company to more quickly reflect market prices in
particular forests, to allow the Georgia-Pacific Group more flexibility in
purchasing wood from third parties, and to allow The Timber Company greater
flexibility in the timing of sales of its annual harvest on the open market. The
revised policy also contains additional provisions that resolve issues related
to certain operating practices of The Timber Company and the Georgia-Pacific
Group. This policy will remain in effect through 2000.
The Georgia-Pacific Group has given The Timber Company notice, pursuant to the
policy, of its desire to renegotiate the terms of the policy for periods after
2000. If negotiations for a revised policy are unsuccessful, the policy will
terminate at the end of 2000. As a result, both the Georgia-Pacific Group and
The Timber Company have a two-year period to find other sellers and purchasers,
respectively, of timber.
The Corporation is a 50 percent 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, 1998, GA-MET had an outstanding mortgage loan payable to
Metropolitan in the amount of $147 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 13. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
First Quarter Second Quarter
----------------------------
(In millions, except
per share amounts) 1998 1997 1998 1997
------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 3,221 $ 3,145 $ 3,305 $ 3,326
Gross profit (net sales minus
cost of sales) 727 669 729 690
Income (loss) before extraordinary
items and accounting change 68 90 68 27
Net income (loss) 54 90 67 27
=======================================================
Georgia-Pacific Corporation
Dividends declared per
share $ 0.50 $ 0.50
Basic per share:
Income before extraordinary
items and accounting change 0.99 0.30
Net income 0.99 0.30
------------------------------------------------------------
Diluted per share:
Income before extraordinary
items and accounting change 0.99 0.29
Net income 0.99 0.29
=======================================================
Georgia-Pacific Group
Dividends declared per
share $ 0.25 $ 0.25
Basic and diluted per share:
Income (loss) before extraordinary
items and accounting change 0.17 0.33
Net income (loss) 0.04 0.32
=======================================================
The Timber Company
Dividends declared per
share 0.25 0.25
Basic per share:
Income (loss) before
extraordinary items 0.56 0.41
Net income 0.54 0.41
------------------------------------------------------------
Diluted per share:
Income (loss) before
extraordinary items 0.56 0.41
Net income 0.54 0.41
=======================================================
Price range of common stock
Georgia-Pacific Corporation
(through December 16, 1997)
High $ 78.75 $ 90.25
Low 71.00 70.50
Georgia-Pacific Group*
High $ 70.00 $ 81.00
Low 52.00 54.69
The Timber Company*
High 27.25 27.00
Low 21.25 19.69
=======================================================
</TABLE>
<TABLE>
<CAPTION>
Third Quarter Fourth Quarter
------------------------------------------------------------
(In millions, except
per share amounts) 1998 1997 1998 1997
------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 3,397 $ 3,373 $ 3,413 $ 3,250
Gross profit (net sales minus
cost of sales) 779 794 775 557
Income (loss) before
extraordinary items and
accounting change 80 86 73 (74)
Net income (loss) 80 86 73 (134)
=======================================================
Georgia-Pacific Corporation
Dividends declared per
share $ 0.50
Basic per share:
Income before extraordinary
items and accounting change 0.94
Net income 0.94
------------------------------------------------------------
Diluted per share:
Income before extraordinary
items and accounting change 0.94
Net income 0.94
=======================================================
Georgia-Pacific Group
Dividends declared per
share $ 0.25 $ 0.25
Basic and diluted per share:
Income (loss) before
extraordinary items and
accounting change 0.43 0.30 (1.13)
Net income (loss) 0.43 0.30 (1.78)
=======================================================
The Timber Company
Dividends declared per
share 0.25 0.25
Basic per share:
Income (loss) before
extraordinary items and
accounting change 0.46 0.54 0.33
Net income (loss) 0.46 0.54 0.33
------------------------------------------------------------
Diluted per share:
Income (loss) before
extraordinary items and
accounting change 0.46 0.54 0.32
Net income (loss) 0.46 0.54 0.32
=======================================================
Price range of common stock
Georgia-Pacific Corporation
(through December 16, 1997)
High $105.13 $108.56
Low 85.63 81.50
Georgia-Pacific Group*
High $ 60.50 $ 60.00 64.00
Low 37.38 44.00 59.00
The Timber Company*
High 23.19 24.56 25.88
Low 18.00 17.38 22.50
=======================================================
</TABLE>
* 1997 amounts are for the period from December 17, 1997 through December 31,
1997.
The first and second quarters of 1998 included an after-tax extraordinary loss
of $14 million and $1 million, respectively, on early extinguishment of debt.
In the first quarter of 1997, the Corporation recorded a pretax gain of $128
million ($80 million after taxes) from the sale of its Martell, California,
operations.
The fourth quarter of 1997 included a one-time, after-tax, noncash charge of $60
million to comply with a new accounting standard requiring certain computer
system development project charges to be expensed as incurred. Prior to this
accounting change, these charges were capitalized in accordance with generally
accepted accounting principles.
On December 16, 1997, the Corporation recapitalized its former common stock into
Georgia-Pacific Group common stock and The Timber Company common stock.
Therefore, neither the Georgia-Pacific Group nor The Timber Company had common
shares issued or outstanding for periods prior to December 17, 1997.
SELECTED FINANCIAL DATA - OPERATIONS
Georgia-Pacific Corporation and Subsidiaries
EARNINGS TO FIXED CHARGES
Income before income taxes, extraordinary items and accounting change plus total
interest cost (interest expense plus capitalized interest) and one-third of rent
expense, divided by total interest cost plus one-third of rent expense.
76
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 (benefit) for income taxes divided by income (loss) before income
taxes, extraordinary items and accounting change.
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) 1998 1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net sales $13,336 $13,094 $13,024 $14,313
----------------------------------------------------------------
Costs and expenses
Cost of sales 10,326 10,384 9,933 9,885
Selling, general and
administrative 1,141 1,180 1,399 1,373
Depreciation and cost
of timber harvested 935 958 937 926
Interest 443 465 459 432
Other income - (128) - -
----------------------------------------------------------------
Total costs and expenses 12,845 12,859 12,728 12,616
----------------------------------------------------------------
Income before income
taxes, extraordinary items
and accounting change 491 235 296 1,697
Provision for income taxes 202 106 135 679
----------------------------------------------------------------
Income before extraordinary
items and accounting
change 289 129 161 1,018
Extraordinary items and
accounting change, net
of taxes (15) (60) (5) -
----------------------------------------------------------------
Net income $ 274 $ 69 $ 156 $1,018
================================================================
Cash provided by operations $1,554 $ 1,116 $ 1,225 $1,820*
================================================================
Other statistical data
Georgia-Pacific Corporation<PAGE>
Basic per share
Income before extraordinary
items and accounting
change $ 1.78 $11.29
Extraordinary items and
accounting change, net of taxes (.06) -
----------------------------------------------------------------
Net income $ 1.72 $11.29
----------------------------------------------------------------
Diluted per share
Income before extraordinary
items and accounting
change $ 1.77 $11.18
Extraordinary items and
accounting change, net of taxes (.06) -
----------------------------------------------------------------
Net income $ 1.71 $11.18
----------------------------------------------------------------
Georgia-Pacific Group
Income (loss) before extraordinary
items and accounting
change $ 111 $ (86)
Extraordinary items and
accounting change,
net of taxes (13) (60)
----------------------------------------------------------------
Net income (loss) $ 98 (146)
----------------------------------------------------------------
Basic per share
Income (loss) before
Extraordinary items
and accounting change $ 1.23 $(0.94)
Extraordinary items and
accounting change,
net of taxes (0.14) (0.66)
----------------------------------------------------------------
Net income (loss) $ 1.09 $(1.60)
----------------------------------------------------------------
Diluted per share
Income (loss) before
extraordinary items and
accounting change $ 1.22 $(0.94)
Extraordinary items and
accounting change,
net of taxes (0.14) (0.66)
----------------------------------------------------------------
Net income (loss) $ 1.08 $(1.60)
----------------------------------------------------------------
The Timber Company
Income before extraordinary
items $ 178 $ 215
Extraordinary items, net
of taxes (2) -
----------------------------------------------------------------
Net income $ 176 215
----------------------------------------------------------------
Basic per share
Income before extraordinary
items $ 1.97 $ 2.35
Extraordinary items,
net of taxes (0.02) -
----------------------------------------------------------------
Net income $ 1.95 $ 2.35
----------------------------------------------------------------
Diluted per share
Income before extraordinary
items $ 1.96 $ 2.33
Extraordinary items,
net of taxes (0.02) -
----------------------------------------------------------------
Net income $ 1.94 $ 2.33
================================================================
Average number shares outstanding
Georgia-Pacific
Corporation, basic 90.6 90.2
Georgia-Pacific
Corporation, diluted 91.2 91.1
Georgia-Pacific
Group, basic 89.9 91.4
Georgia-Pacific
Group, diluted 90.5 91.4
The Timber Company,
basic 90.3 91.4
The Timber Company,
diluted 90.8 92.1
Earnings to fixed charges 2.1 1.5 1.7 4.8
Cash flow to interest 4.4 3.3 3.4 4.8
Effective income tax rate 41.1% 45.1% 45.6% 40.0%
================================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------
(Dollar amounts, except per share,
and shares
are in millions) 1994
----------------------------------------------------------------
<S> <C>
Operations
Net sales $12,738
----------------------------------------------------------------
Costs and expenses
Cost of sales 9,620
Selling, general and
administrative 1,204
Depreciation and cost
of timber harvested 913
Interest 486
Other income (57)
----------------------------------------------------------------
Total costs and expenses 12,166
----------------------------------------------------------------
Income before income taxes,
extraordinary items and
accounting change 572
Provision for income taxes 246
----------------------------------------------------------------
Income before extraordinary items
and accounting change 326
Extraordinary items and
accounting change, net
of taxes (16)
----------------------------------------------------------------
Net income $ 310
================================================================
Cash provided by continuing
operations $ 997
================================================================
Other statistical data
Georgia-Pacific Corporation
Basic per share
Income before extraordinary items
and accounting change $ 3.66
Extraordinary items and
accounting change,
net of taxes (0.18)
----------------------------------------------------------------
Net income $ 3.48
----------------------------------------------------------------
Diluted per share
Income before extraordinary items
and accounting change $ 3.63
Extraordinary items and
accounting change,
net of taxes (0.18)
----------------------------------------------------------------
Net income $ 3.45
----------------------------------------------------------------
Georgia-Pacific Group
Income (loss) before extraordinary
items and accounting
change
Extraordinary items and
accounting change, net of taxes
----------------------------------------------------------------
Net income (loss)
----------------------------------------------------------------
Basic per share
Income (loss) before extraordinary
items and accounting
change
Extraordinary items and
accounting change, net of taxes
----------------------------------------------------------------
Net income (loss)
----------------------------------------------------------------
Diluted per share
Income (loss) before extraordinary
items and accounting
change
Extraordinary items and
accounting change, net of taxes
----------------------------------------------------------------
Net income (loss)
----------------------------------------------------------------
The Timber Company
Income before extraordinary items
Extraordinary items, net of taxes
----------------------------------------------------------------
Net income
----------------------------------------------------------------
Basic per share
Income before extraordinary items
Extraordinary items, net of taxes
----------------------------------------------------------------
Net income
----------------------------------------------------------------
Diluted per share
Income before extraordinary items
Extraordinary items, net of taxes
----------------------------------------------------------------
Net income
================================================================
Average number shares outstanding
Georgia-Pacific
Corporation, basic 89.1
Georgia-Pacific
Corporation, diluted 89.7
Georgia-Pacific
Group, basic
Georgia-Pacific
Group, diluted
The Timber Company,
basic
The Timber Company,
diluted
Earnings to fixed charges 2.2
Cash flow to interest 3.0
Effective income tax rate 43.0%
================================================================
</TABLE>
* 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, net, 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 market 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) 1998 1997 1996 1995
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial position, end of year
Current assets $ 2,645 $ 2,916 $2,615 $2,595
Timber and timberlands 1,206 1,193 1,337 1,374
Property, plant and
Equipment, net 6,249 6,297 6,560 6,013
Goodwill, net 1,677 1,599 1,658 1,714
Other assets 923 945 648 639
-----------------------------------------------------------------
Total assets 12,700 12,950 12,818 12,335
-----------------------------------------------------------------
Current liabilities 2,648 3,020 2,490 1,764
Long-term debt 4,125 3,713 4,371 4,704
Other long-term liabilities 1,572 1,548 1,285 1,201
Deferred income taxes 1,231 1,199 1,161 1,147
-----------------------------------------------------------------
Total liabilities 9,576 9,480 9,307 8,816
-----------------------------------------------------------------
Shareholders' equity $ 3,124 $ 3,470 $3,511 $3,519
-----------------------------------------------------------------
Working capital $ (3) $ (104) $ 125 $ 831
-----------------------------------------------------------------
Other statistical data
Property, plant and equipment
investments $ 638 $ 717 $1,059 $1,259
Timber & timberland purchases 206 182 142 244
Acquisitions 112 - 363 -
-----------------------------------------------------------------
Georgia-Pacific Corporation
Per share (through December 16, 1997)
Market price:
High $108.56 $81.00 $95.75
Low $ 70.50 $63.00 $65.75
Period-end $ 85.13 $72.00 $68.63
Book value $38.52 $38.54
Shares of stock outstanding at
year-end 91.4 91.3
Dividends declared per share $ 2.00 $ 2.00 $ 1.90
-----------------------------------------------------------------
Georgia-Pacific Group*
Per share
Market price:
High $ 81.00 $ 64.00
Low $ 37.38 $ 59.00
Year-end $ 58.56 $ 60.75
Book value $ 37.09 $ 38.19
Shares of stock outstanding at
year-end 86.5 92.2
Dividends declared per share $ 1.00
-----------------------------------------------------------------
The Timber Company*
Per share
Market price:
High $ 27.25 $ 25.88
Low $ 17.38 $ 22.50
Year-end $ 23.81 $ 22.69
Book value $(0.98) $(0.53)
Shares of stock outstanding at
year-end 87.1 92.6
Dividends declared per share $ 1.00
-----------------------------------------------------------------
Total debt to capital,
book basis 48.6% 47.2% 50.4% 49.3%
Total debt to capital,
market basis 47.4% 47.2%
Current ratio 1.0 1.0 1.1 1.5
=================================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------
(Dollar amounts, except per share,
and shares are in millions) 1994
-----------------------------------------------------------------
<S> <C>
Financial position, end of year
Current assets $ 1,984
Timber and timberlands 1,363
Property, plant and
Equipment, net 5,488
Goodwill, net 1,773
Other assets 256
-----------------------------------------------------------------
Total assets 10,864
-----------------------------------------------------------------
Current liabilities 2,325
Long-term debt 3,904
Other long-term liabilities 825
Deferred income taxes 1,190
-----------------------------------------------------------------
Total liabilities 8,244
-----------------------------------------------------------------
Shareholders' equity $ 2,620
-----------------------------------------------------------------
Working capital $ (341)
-----------------------------------------------------------------
Other statistical data
Property, plant and equipment
investments $ 850
Timber & timberland purchases 211
Acquisitions -
-----------------------------------------------------------------
Georgia-Pacific Corporation
Per share (through December 16, 1997)
Market price:
High $ 79.00
Low $ 56.75
Period-end $ 71.50
Book value $ 28.95
Shares of stock outstanding at
year-end 90.5
Dividends declared per share $ 1.60
-----------------------------------------------------------------
Georgia-Pacific Group*
Per share
Market price:
High
Low
Year-end
Book value
Shares of stock outstanding at
year-end
Dividends declared per share
-----------------------------------------------------------------
The Timber Company*
Per share
Market price:
High
Low
Year-end
Book value
Shares of stock outstanding at
year-end
Dividends declared per share
-----------------------------------------------------------------
Total debt to capital,
book basis 56.0%
Total debt to capital,
market basis 46.9%
Current ratio .9
=================================================================
</TABLE>
* 1997 amounts are for the period from December 17, 1997 through December 31,
1997.
SALES AND OPERATING PROFITS BY OPERATING SEGMENT
Georgia-Pacific Corporation and Subsidiaries
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996 1995
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales(1)
Building products
Wood panels $ 1,055 8% $ 946 7% $ 948 7% $ 923 6%
Lumber 844 6 876 7 779 6 668 5
Gypsum products 891 7 794 6 647 5 371 3
Chemicals 427 3 455 3 416 3 427 3
Other 120 1 68 1 51 1 72 -
---------------------------------------------------------------------
3,337 25 3,139 24 2,841 22 2,461 17
---------------------------------------------------------------------
Distribution
Wood panels 2,117 16 1,904 15 1,997 15 2,301 16
Lumber 1,467 11 1,634 12 1,619 13 1,577 11
Other 741 5 860 7 937 7 978 7
---------------------------------------------------------------------
4,325 32 4,398 34 4,553 35 4,856 34
---------------------------------------------------------------------
Timber 125 1 126 1 123 1 118 1
---------------------------------------------------------------------
Containerboard and
packaging
Containerboard 488 4 505 4 499 4 702 5
Packaging 1,556 12 1,260 9 1,422 11 1,681 12
---------------------------------------------------------------------
2,044 16 1,765 13 1,921 15 2,383 17
---------------------------------------------------------------------
Pulp and paper
Communication
papers 1,486 11 1,506 11 1,521 12 1,961 14
Tissue 987 8 940 7 939 7 878 6
Market pulp 709 5 863 7 738 5 1,220 8
Bleached board 176 1 207 2 228 2 269 2
Other 157 1 159 1 167 1 173 1
---------------------------------------------------------------------
3,515 26 3,675 28 3,593 27 4,501 31
---------------------------------------------------------------------
Corporate and
all other(2) (10) - (9) - (7) - (6) -
---------------------------------------------------------------------
Total net sales $13,336 100% $13,094 100% $13,024 100% $14,313 100%
=====================================================================
Operating profits
Building products $ 603 65% $ 490 70% $ 567 75% $ 419 20%
Distribution 1 - (171) (24) (220) (29) (83) (4)
Timber 364 39 437 62 313 41 277 13
Containerboard and
packaging 106 11 (6) (1) 127 17 547 26
Pulp and paper 133 14 201 29 250 33 1,125 53
Corporate and
all other(3) (273) (29) (251) (36) (282) (37) (156) (8)
---------------------------------------------------------------------
Total operating
profits $ 934 100% $ 700 100% $ 755 100% $ 2,129 100%
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
(In millions) 1994
---------------------------------------------------------------------
<S> <C> <C>
Net sales(1)
Building products
Wood panels $ 889 7%
Lumber 771 6
Gypsum products 337 3
Chemicals 380 3
Other 75 -
---------------------------------------------------------------------
2,452 19
---------------------------------------------------------------------
Distribution
Wood panels 2,336 18
Lumber 1,785 14
Other 990 8
---------------------------------------------------------------------
5,111 40
---------------------------------------------------------------------
Timber 114 1
---------------------------------------------------------------------
Containerboard and
packaging
Containerboard 575 5
Packaging 1,283 10
---------------------------------------------------------------------
1,858 15
---------------------------------------------------------------------
Pulp and paper
Communication
papers 1,313 10
Tissue 746 6
Market pulp 772 6
Bleached board 203 2
Other 175 1
---------------------------------------------------------------------
3,209 25
---------------------------------------------------------------------
Corporate and
all other(2) (6) -
---------------------------------------------------------------------
Total net sales $12,738 100%
=====================================================================
Operating profits
Building products $ 705 67%
Distribution 84 8
Timber 221 21
Containerboard and
packaging 244 23
Pulp and paper 104 10
Corporate and
all other(3) (300) (29)
---------------------------------------------------------------------
Total operating
profits $ 1,058 100%
=====================================================================
</TABLE>
(1) Represents net sales to unaffiliated customers.
(2) Represents the elimination of hunting lease income reflected in net sales
for the timber segment and reflected as a reduction to cost of sales on a
consolidated basis. In addition, includes net sales from miscellaneous
businesses.
(3) Includes some miscellaneous businesses, certain goodwill amortization,
unallocated corporate operating expenses and the elimination of profit on
intersegment sales.
INVESTOR INFORMATION
Georgia-Pacific Corporation and Subsidiaries
CORPORATE HEADQUARTERS
Georgia-Pacific Corporation
Georgia-Pacific Center, 133 Peachtree Street, N.E.,
Atlanta, Georgia 30303
(404) 652-4000
The Timber Company
Post Office Box 105210
Atlanta, Georgia 30303
(404) 586-0275<PAGE>
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 Company common stock is "TGP."
Georgia-Pacific Group and The Timber Company 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
88
ENVIRONMENTAL AND SAFETY REPORT
Requests for Georgia-Pacific Corporation's 1998 Environmental and Safety Report
should be addressed to: Corporate Communications, Georgia-Pacific Corporation,
Post Office Box 105605, Atlanta, Georgia 30348. The report can also be viewed
on-line at www.gp.com.
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, a Division
of EquiServe, Dividend Reinvestment Plan, Post Office Box 2598, Jersey City, New
Jersey 07303-2598, or by telephone at (800) 414-6280. Internet address: www.
fctc.com.
Number of Georgia-Pacific Group shareholders of record at December 31, 1998:
36,092. Number of The Timber Company shareholders of record at December 31,
1998: 36,114.
FINANCIAL INFORMATION
A copy of the Georgia-Pacific Corporation 1998 Annual Report to the Securities
and Exchange Commission on Form 10-K and the Georgia-Pacific Corporation 1998
Consolidated Financial Statements will be supplied without charge. Annual
statistical updates are also available. For current quarterly financial updates
telephone (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 Corporation can also be
found on the Internet at http://www.gp.com.
Georgia-Pacific Corporation is an equal opportunity employer.
Financial Statements and Supplementary Data for Georgia-Pacific Group is 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," "Georgia-Pacific Group - Combined
Statements of Comprehensive Income," "Report of Independent Public Accountants"
and in Georgia-Pacific Group's Notes to Combined Financial Statements contained
in the Corporation's 1998 Annual Report to Shareholders, and are incorporated
herein by reference.
89
Financial Statements and Supplementary Data for The Timber Company are 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 in The
Timber Company's Notes to Combined Financial Statements contained in the
Corporation's 1998 Annual Report to Shareholders, and are 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 1998 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 are incorporated herein by reference to the
Corporation's Notice of 1999 Annual Meeting of Shareholders and Proxy Statement
to be dated on or about March 23, 1999.
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 57 1988 Chairman, Chief Executive
Officer, President and a
Director
Donald L. Glass 50 1982 Executive Vice President _
Timber, President and Chief
Executive Officer, The Timber
Company
Clint M. Kennedy 49 1988 Executive Vice President _
Pulp and Paperboard
John F. McGovern 52 1983 Executive Vice President _
Finance and Chief Financial
Officer
Ronald L. Paul 55 1997 Executive Vice President _
Wood Products and Distribution
90
John F. Rasor 55 1983 Executive Vice President _
Wood Procurement, Gypsum and
Industrial Wood Products
Lee M. Thomas 54 1993 Executive Vice President _
Paper and Chemicals
James E. Bostic, Jr. 51 1991 Senior Vice President -
Environmental, Government
Affairs and Communications
James F. Kelley 57 1993 Senior Vice President - Law
and General Counsel
James E. Terrell 49 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<PAGE>
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.
91
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.
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.
James F. Kelley has been Senior Vice President - Law and General Counsel since
December 1993.
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 of the Board of Directors 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.
92
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is incorporated herein by
reference to the Corporation's Notice of 1999 Annual Meeting of Shareholders and
Proxy Statement to be dated on or about March 23, 1999.
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
1999 Annual Meeting of Shareholders and Proxy Statement to be dated on or about
March 23, 1999.
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 1999 Annual
Meeting of Shareholders and Proxy Statement to be dated on or about March 23,
1999.
93
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 Consolidated Financial Statements, Notes to Consolidated Financial
Statements and the Report of Independent Public Accountants for Georgia-
Pacific Corporation and subsidiaries dated February 5, 1999 are presented
under Item 8 of this Form 10-K.
The Combined Financial Statements, Notes to Combined Financial Statements and
the Reports of Independent Public Accountants for Georgia-Pacific Group and The<PAGE>
Timber Company dated February 5, 1999 are incorporated herein by reference to
the Corporation's 1998 Annual Report to Shareholders.
(2) Financial Statement Schedules:
Reports of Independent Public Accountants as to Schedule
II Valuation and Qualifying Accounts of Georgia-Pacific Corporation
and subsidiaries and Georgia-Pacific Group for the years ended
December 31, 1998, 1997 and 1996.
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(i) 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).
3.1(ii) Articles of Amendment to Restated Articles of
Incorporation (Filed as Exhibit 3.1 to the
Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, and incorporated herein by
this reference thereto).
3.3 Bylaws as amended to date (Filed as Exhibit 3.2 to the
Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, 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<PAGE>
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.*
10.2 Officer Retirement Agreement (Officers Retirement
Plan).*
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).*
*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(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-<PAGE>
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).*
10.3(vi) Amendment No. 3 to the Key Salaried Employees Group Insurance Plan -
Post-1986 Group (effective August 1, 1994).*
10.3(vii) Amendment No. 4 to the Key Salaried Employees Group
Insurance Plan - Post-1986 Group (effective January 1,
1998).*
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).*
10.7 1995 Economic Value Incentive Plan, as Amended and Restated
effective January 28, 1999.*
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).*
*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(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<PAGE>
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).*
*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(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<PAGE>
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 the 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).*
10.9(iii) Amendment No. 2 to the Outside Directors Stock Plan,
effective September 23, 1998 (Filed as Exhibit 10.9 to
the Corporation's Quarterly Report on Form 10-Q for the
Quarter ended September 30, 1998, and incorporated
herein by this reference thereto).*
10.10(i) Directors Deferred Compensation Plan, effective
September 22, 1998 (Filed as Exhibit 10.10(ii) to the
Corporation's Quarterly Report on Form 10-Q for the<PAGE>
quarter ended September 30, 1998, and incorporated
herein by this reference thereto).*
10.10(ii) Form of Deferral Agreement. (Filed as Exhibit 10.10(i)
to the Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998, 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.
10.11(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<PAGE>
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 Revised Georgia-Pacific Group 1997 Long-Term
Incentive Plan Option (Filed as Exhibit 10.1 to the
Corporation's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, and incorporated herein
by this reference thereto).*
10.12(iii) Form of Revised Special Georgia-Pacific Group 1997
Long-Term Incentive Plan Option (Filed as Exhibit 10.2
to the Corporation's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998, 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.
10.12(iv) Form of Georgia-Pacific Group 1997 Long-Term Incentive
Plan Performance Stock Grant Agreement for the January<PAGE>
1, 1999 through December 31, 1999 Performance Period
(January 28, 1999 Grant).*
10.12(v) Form of Georgia-Pacific Group 1997 Long-Term Incentive
Plan Performance Stock Grant Agreement for the January
1, 1999 through December 31, 2000 Performance Period
(January 28, 1999 Grant).*
10.12(vi) Form of Georgia-Pacific Group 1997 Long-Term Incentive
Plan Performance Stock Grant Agreement for the January
1, 1999 through December 31, 2001 Performance Period
(January 28, 1999 Grant).*
10.12(vii) Form of Georgia-Pacific Group 1997 Long-Term Incentive
Plan Option (January 28, 1999 Grant).*
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) Form of Revised Timber Group 1997 Long-Term Incentive
Plan Option (Filed as Exhibit 10.3 to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, and incorporated herein by this
reference thereto).*
10.14(i) Wood Supply Policy Agreement between Georgia-Pacific
Group and The Timber Company, excluding Southeast
Arkansas and Mississippi, effective June 30, 1998.
10.14(ii) Wood Supply Policy Agreement between Georgia-Pacific
Group and The Timber Company for Southeast Arkansas and
Mississippi, effective June 30, 1998.
12 Statements of Computation of Ratio of Earnings to Fixed
Charges.
*Management contract or compensatory plan or arrangement required to be filed
pursuant to Item 14(c) of this Annual Report on Form 10-K.
13 Portions of Georgia-Pacific Corporation's 1998 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 Current Reports on Form 8-K dated March 31,
1998, June 2, 1998 and July 1, 1998, in which it reported under Item 5
- "Other Events."
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 18, 1999
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 18, 1999
_____________________ Executive Officer and President
(A. D. Correll) (Principal Executive Officer)
/s/ John F. McGovern Executive Vice President-Finance March 18, 1999
_____________________ and Chief Financial Officer
(John F. McGovern) (Principal Financial Officer)
/s/ James E. Terrell Vice President and Controller March 18, 1999<PAGE>
_____________________ (Principal Accounting Officer)
(James E. Terrell)
* Director March 18, 1999
_____________________
(Robert Carswell)
* Director March 18, 1999
______________________
(Jane Evans)
* Director March 18, 1999
_______________________
(Donald V. Fites)
* Director March 18, 1999
_______________________
(Harvey C. Fruehauf, Jr.)
* Director March 18, 1999
_______________________
(Richard V. Giordano)
* Director March 18, 1999
________________________
(David R. Goode)
* Director March 18, 1999
_________________________
(T. Marshall Hahn, Jr.)
* Director March 18, 1999
_________________________
(M. Douglas Ivester)
* Director March 18, 1999
_________________________
(Francis Jungers)
* Director March 18, 1999
__________________________
(Louis W. Sullivan)
* Director March 18, 1999
__________________________
(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 5, 1999. Our audits were 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 audits 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 5, 1999
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(Millions)
<TABLE>
CAPTION
<PAGE>
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,
1998
-------------
Allowance for
doubtful
accounts $ 19 $ 14 $ 1 $ (9) ** $ 25
------- ------- ------- ------- ------
Restructuring
reserves 70 - - (68) 2
------- ------- ------- ------- ------
Year ended
December 31,
1997
-------------
Allowance for
doubtful
accounts $ 10 $ 21 $ 1* $ (13)** $ 19
------ ------ ------ ------ ------
Restructuring
reserves 17 80 - (27) 70
------- ------- ------- ------- ------
Year ended
December 31,
1996
-------------
Allowance for
doubtful
accounts $ 25 $ (10) $ 2* $ (7) ** $ 10
------ ------ ------- ------- ------
Restructuring
reserves 22 - - (5) 17
------- ------- ------- ------- ------
</TABLE>
*Recoveries of accounts previously written off.
**Accounts written off.
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 Corporation - Georgia-Pacific
Group incorporated by reference in this Form 10-K, and have issued our report
thereon dated February 5, 1999. Our audits were 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 audits 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 5, 1999
GEORGIA-PACIFIC CORPORATION _ GEORGIA-PACIFIC GROUP
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(Millions)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance
beginning costs and Other at end
Description of period expenses Accounts Deductions of period
--------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Year ended
December 31,
1998
-------------
Allowance for
doubtful
accounts $ 19 $ 14 $ 1 $ (9) ** $ 25
------- ------- ------- ------- ------
Restructuring
reserves 70 - - (68) 2
------- ------- ------- ------- ------
Year ended
December 31,
1997
-------------
Allowance for
doubtful
accounts $ 10 $ 21 $ 1* $ (13) ** $ 19
------ ------ ------ ------ ------
Restructuring
reserves 17 80 - (27) 70
------- ------- ------- ------- ------
Year ended
December 31,
1996
-------------
Allowance for
doubtful
accounts $ 25 $ (10) $ 2* $ (7) ** $ 10
------ ------ ------- ------- ------
Restructuring
reserves 22 - - (5) 17
------- ------- ------- ------- ------
</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, 1998
NUMBER DESCRIPTION
3.1(i) 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).
3.1(ii) Articles of Amendment to Restated Articles of Incorporation (Filed as
Exhibit 3.1 to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, and incorporated herein by this reference
thereto).<PAGE>
3.3 Bylaws as amended to date (Filed as Exhibit 3.2 to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998, 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<PAGE>
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. (1)
10.2 Officer Retirement Agreement (Officers Retirement Plan). (1)
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).
10.3(v) Amendment No. 2 to the Key Salaried Employees Group Insurance Plan -
Post-1986 Group (effective January 1, 1987). (1)
10.3(vi) Amendment No. 3 to the Key Salaried Employees Group Insurance Plan -
Post-1986 Group (effective August 1, 1994). (1)
10.3(vii) Amendment No. 4 to the Key Salaried Employees Group Insurance Plan _
Post 1986 Group (effective January 1, 1998). (1)
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<PAGE>
quarter ended March 31, 1996, and incorporated herein by this
reference thereto).
10.7 1995 Economic Value Incentive Plan, as Amended and Restated effective
January 28, 1999. (1)
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<PAGE>
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 the 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).
10.9(iii) Amendment No. 2 to the Outside Directors Stock Plan, effective
September 23, 1998 (Filed as Exhibit 10.9 to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998, and incorporated herein by this reference thereto).
10.10(i) Directors Deferred Compensation Plan, effective September 22, 1998
(Filed as Exhibit 10.10(ii) to the Corporation's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, and incorporated
herein by this reference thereto).
10.10(ii) Form of Deferral Agreement (Filed as Exhibit 10.10(i) to the
Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, and incorporated herein by this reference
thereto).
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<PAGE>
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 Revised Georgia-Pacific Group 1997 Long-Term Incentive Plan
Option (Filed as Exhibit 10.1 to the Corporation's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, and incorporated
herein by this reference thereto).
10.12(iii) Form of Revised Special Georgia-Pacific Group 1997 Long-Term
Incentive Plan Option (Filed as Exhibit 10.2 to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
and incorporated herein by this reference thereto).
10.12(iv) Form of Georgia-Pacific Group 1997 Long-Term Incentive Plan
Performance Stock Grant Agreement for the January 1, 1999 through
December 31, 1999 Performance Period (January 28, 1999 Grant). (1)
10.12(v) Form of Georgia-Pacific Group 1997 Long-Term Incentive Plan
Performance Stock Grant Agreement for the January 1, 1999 through
December 31, 2000 Performance Period (January 28, 1999 Grant). (1)<PAGE>
10.12(vi) Form of Georgia-Pacific Group 1997 Long-Term Incentive Plan
Performance Stock Grant Agreement for the January 1, 1999 through
December 31, 2001 Performance Period (January 28, 1999 Grant). (1)
10.12(vii) Form of Georgia-Pacific Group 1997 Long-Term Incentive Plan Option
(January 28, 1999 Grant). (1)
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) Form of Revised Georgia-Pacific Corporation/Timber Group 1997 Long-
Term Incentive Plan Option (Filed as Exhibit 10.3 to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
and incorporated herein by this reference thereto.
10.14(i) Wood Supply Policy Agreement between Georgia-Pacific Group and The
Timber Company, excluding Southeast Arkansas and Mississippi,
effective June 30, 1998.(1)
10.14(ii) Wood Supply Policy Agreement between Georgia-Pacific Group and The
Timber Company for Southeast Arkansas and Mississippi, effective June
30, 1998. (1)
12 Statements of Computation of Ratio of Earnings to Fixed Charges. (1)
13 Portions of Georgia-Pacific Corporation's 1998 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
GEORGIA-PACIFIC CORPORATION
DIRECTOR'S GROUP LIFE INSURANCE PROGRAM
Georgia-Pacific proposes to provide $50,000 of group term life insurance for
each outside director. Such coverage would be provided through a separate
group life insurance contract with Prudential Insurance Company, the carrier
for our regular salaried employee group life insurance plan. Contracts would
be combined only for experience rating purposes.
The premium charge would be $3.39 per $1,000 of coverage per year and the
experience rate which the Georgia-Pacific salaried plan currently enjoys.
Therefore, the premium charge paid by Georgia-Pacific for $50,000 coverage
will be $14.13 per month ($169.50 per year).
Since outside directors cannot be classified as employees, they probably do
not enjoy the tax shelter provided in Section 79 of the Internal Revenue
Code. Taxable value to the director is probably the premium to be paid by
Georgia-Pacific ($169.50 per year) but each outside director should consult
his own tax adviser for a personal determination.
Group term life insurance is payable in the event of death from any cause at
any time or place. It accrues no cash or permanent values and will terminate
when the individual ceases to be a director.
The insurance carrier is not willing to offer an Accidental Death and
Dismemberment (double indemnity) feature so the amount payable would be
$50,000 for death from either natural or accidental causes. Coverage would
include the usual conversion privilege which allows purchase of an individual
policy at "standard" rates for the individual's attained age without a
physical examination upon termination of the group coverage.
<PAGE>
OFFICER RETIREMENT AGREEMENT
THIS AGREEMENT entered into this ____ day of ____________ and
becoming effective as of the ______ day of _____________, between GEORGIA-
PACIFIC CORPORATION, a Georgia corporation, having its principal office in
Atlanta, Georgia (hereinafter referred to as "G-P"), and .............
(hereinafter referred to as "Officer");
WITNESSETH:
WHEREAS, Officer is and will be rendering valuable services to G-P and
its Affiliates (as defined in Paragraph 9(f)), and G-P desires to receive the
benefit of Officer's continued loyalty, service and counsel and to assist
Officer in providing for the contingencies of death, disability and old age
dependency;
IT IS HEREBY AGREED:
1. General.
G-P agrees to make monthly payments ("Retirement Payments") to Officer
or to Officer's eligible Surviving Spouse or Survivor(s) (as defined in this
Agreement) pursuant to the provisions of this Agreement, provided that the
applicable eligibility conditions set forth in Paragraphs 2 through 7 of this
Agreement are met.
2. Normal Retirement.
(a) "Normal Retirement" shall mean Officer's termination of
employment after attaining age sixty-five (65) and having been continuously
employed by G-P and/or its Affiliates (as defined in Paragraph 9(f)) from the
date of this Agreement (or any predecessor agreement described in Paragraph 18)
through his/her date of termination. For purposes of this Paragraph 2(a),
employment with an Affiliate shall be counted only for periods during which the
Affiliate met the definition of "Affiliate" in Paragraph 9(f).
(b) Normal Retirement Payments (determined as provided in Paragraph
2(c)) to Officer shall commence on the first day of the month following the last
day for which Officer receives either vacation pay or base salary after
termination of employment with G-P and its Affiliates ("pay-through date").
Such payments shall be made monthly on the first day of each month during the
lifetime of Officer and, subject to the death benefit provisions of Paragraph 7
or any election under Paragraph 8, shall end with the payment for the month of
his or her death.
(c) Subject to any election by Officer permitted by Paragraph 8, the
monthly Normal Retirement Payment to Officer shall be calculated as follows:
(1) Fifty percent (50%) of Officer's average monthly Cash Salary
(as defined below) for the last forty-eight (48) full calendar months of
his or her employment by G-P and/or its Affiliates (or, if fewer, all full
calendar months of his or her employment with G-P and/or its Affiliates
which immediately precede termination of such employment);
(2) Less the Annuity Equivalent (as defined below) of benefits,
if any, payable to or on behalf of Officer under all other retirement
compensation plans maintained by G-P and/or its Affiliates (as defined
below), which are attributable to contributions made by G-P and/or its
Affiliates (excluding any Cash Salary which he or she elected to defer
under such plans). For purposes of this paragraph the following terms are
defined as follows:
(A) "Cash Salary" - shall mean base salary, annual incentive
bonuses and any cash salary or annual incentive bonus which Officer elected to
defer, and excludes, without limitation, severance payments of any kind,
deferred compensation under any long-term incentive program, bonuses for purpose
of offsetting taxation and any other incentive compensation; provided that
annual incentive bonuses shall be counted in the year(s) or partial year(s) with
respect to which they are earned (rather than in the year of payment) and shall
be prorated for partial years (if not already prorated to reflect partial year
participation) included in the forty-eight (48) month averaging period and
provided, further, that if the annual incentive bonus amount with respect to any
part of that period is unavailable at the time Retirement Payments are to
commence, an estimated benefit will be paid based on the available compensation
data, subject to a retroactive adjustment when final data are available.
(B) "Annuity Equivalent" - of a given benefit shall mean an
actuarially equivalent benefit in the form in which Officer's Retirement
Payments will be paid, determined as of Officer's last day worked for G-P
and its Affiliates ("Officer's last day worked") using the then applicable
mortality table specified under the Georgia-Pacific Corporation Salaried
Employees Retirement Plan (the "SERP"), statutory restrictions on qualified
plan benefits as in effect on Officer's last day worked (if any) and the
immediate interest rate published and used by the Pension Benefit Guaranty
Corporation for plan terminations occurring during the first month of the
calendar quarter during which Officer's last day worked occurs (if the PBGC
rate is not available, the then applicable interest rate specified in the
SERP will be used); provided, however, that notwithstanding the foregoing,
if the Officer elects to retain his or her SERP benefits in the SERP after
Officer's last day worked and the amount of those benefits is increased due
to adjustments in the statutory restrictions on qualified plan benefits
between Officer's last day worked and the date of distribution of his or
her SERP benefits, Officer's benefits under this Agreement will be
recalculated with respect to the first payment due after the date of the
SERP distribution (and all future payments) solely to reflect the greater
offset necessitated by the above-described increase in the SERP benefit;
and provided further that with respect to benefits under retirement
compensation plans maintained by G-P and/or its Affiliates which depend on
investment performance and which are either in Officer's plan account on
his or her last day worked or have been distributed to Officer prior to his
last day worked, G-P's actuarial equivalent calculation shall take into
account such investment performance by deeming the appropriate investment
gain between the date of any such distribution of benefits and Officer's
last day worked to be the Periodic Adjustment Percentage under the SERP as
in effect from time to time during that period and the investment gain for
periods after Officer's last day worked to age sixty-two (62) (if not
attained at Officer's last day worked) to be the Periodic Adjustment
percentage for the SERP as of Officer's last day worked.
(C) "Retirement compensation plans maintained by G-P
and/or its Affiliates" - shall mean any qualified or non-qualified
retirement plans covering Officer including, without limitation, the
Georgia-Pacific Corporation Savings and Capital Growth Plan (formerly the
Georgia-Pacific Stock Bonus Trust) and the SERP, but excluding any former
Georgia-Pacific Corporation employee stock ownership plan to the extent
that benefits under such plans are attributable to contributions made by G-
P and/or its Affiliates.
3. Early Retirement.
(a) "Early Retirement" shall mean Officer's termination of employment
with G-P and its Affiliates after reaching age fifty-five (55) and having
completed at least fifteen (l5) years of Service (as defined in Paragraph 10).
(b) If Officer is eligible for Early Retirement under Paragraph 3(a),
the Early Retirement Payments (determined as provided in Paragraph 3(c)) to
Officer shall commence on the first day of the month following the Officer's
pay-through date. Such payments shall be made monthly on the first day of each
month during the lifetime of the Officer and, subject to the death benefit
provisions of Paragraph 7 or any election under Paragraph 8, shall end with the
payment for the month of his or her death.
(c) Subject to any election by Officer permitted by Paragraph 8, the
monthly Early Retirement Payment payable to Officer shall be calculated as
follows:
(1) Determine the monthly Normal Retirement Payment to which the
Officer would be entitled if the Officer were eligible for Normal
Retirement under Paragraph 2(a) as of Officer's date of termination of
employment;
(2) Multiply the result in subparagraph (c)(1) by the
appropriate early commencement percentage as indicated below:
Age of Officer
At Commencement of Benefits Percentage
62 100%
61 96%
60 92%
59 88%
58 84%
57 80%
56 76%
55 72%
4. Termination.
(a) Officer will be eligible for Termination Payments if Officer's
employment terminates for any reason other than Normal Retirement, Early
Retirement, Pre-Termination Disability or Pre-Termination Death (under
Paragraphs 2(a), 3(a), 5(a) or 6(a), respectively) after Officer has completed
at least three (3) years of Service (as defined in Paragraph 10).
(b) Termination Payments (determined as provided in Paragraph 4(c))
to Officer shall commence on the first day of the month following the Officer's
pay-through date or the Officer's attainment of the age of sixty-two (62) years,
whichever last occurs. Such payments shall be made monthly on the first day of
each month during the lifetime of the Officer and, subject to the death benefit
provisions of Paragraph 7 or any election under Paragraph 8, shall end with the
payment for the month of his or her death.
(c) Subject to any election by Officer permitted by Paragraph 8, the
monthly Termination Payment payable to Officer shall be calculated as follows:
(1) Determine the Normal Retirement Payment to which the Officer
would be entitled if the Officer were eligible for Normal Retirement under
Paragraph 2(a) as of the date of the Officer's termination of employment;
(2) Multiply that amount by a fraction, the numerator of which
shall equal the number of Officer's completed years of Service at the date
his or her employment terminates or fifteen (l5), whichever is less, and
the denominator of which shall be fifteen (l5).
5. Pre-Termination Disability.
(a) Officer will be eligible for Pre-Termination Disability Payments
if Officer's employment terminates by reason of disability (as defined in
Paragraph 5(d)) after the completion of at least one (l) year of Service.
(b) Pre-Termination Disability Payments (determined as provided in
Paragraph 5(c)) to Officer shall commence on the first day of the month
following the Officer's pay-through date. Such payments shall be made monthly
on the first day of each month during the lifetime of the Officer and, subject
to the death benefit provisions of Paragraph 7 or any election under Paragraph
8(b), shall end with the payment for the month of his or her death.
(c) Subject to any election by Officer permitted by Paragraph 8(b),
the amount of the monthly Pre-Termination Disability Payment payable to Officer
shall be calculated as follows:
(1) Determine the monthly Normal Retirement Payment to which the
Officer would be entitled if the Officer were eligible for Normal
Retirement under Paragraph 2(a) as of the Officer's date of termination due
to disability;
(2) Multiply the result in subparagraph (c)(1) by the
appropriate early commencement percentage as indicated below:
Age of Officer
At Termination
Because of Disability Percentage
64 100%
63 100%
62 100%
61 94%
60 88%
59 82%
58 76%
57 70%
56 64%
55 58%
54 and prior 50%
(d) For purposes of this Paragraph 5, Officer shall be deemed to have
terminated employment by reason of disability if, as of the date of his or her
termination of employment, Officer is "totally disabled" as defined under the
Georgia-Pacific Corporation Salaried Long-Term Disability Plan (the "LTD Plan")
(whether or not Officer actually participates in that plan at the time) as
determined by the Plan Administrator of the LTD Plan.
(e) If Officer shall be participating in the LTD Plan at the time
Officer's employment terminates by reason of disability, Retirement Payments
payable under this Paragraph 5 shall be in addition to those payable under the
LTD Plan, and there shall be no offset of benefits payable under this Agreement
as a result of payments under the LTD Plan.
6. Pre-Termination Death.
(a) Officer's spouse at the time of his or her death (the "Surviving
Spouse") will be eligible for Pre-Termination Death Payments if Officer's
employment terminates by reason of death after the completion of at least one
(l) year of Service.
(b) Pre-Termination Death Payments to Officer's Surviving Spouse
shall commence on the first day of the month following the later of the
Officer's date of death or the Officer's pay-through date. Such payments shall
be made monthly on the first day of each month during the lifetime of the
Officer's Surviving Spouse only and shall end with the payment for the month of
his or her death.
(c) The amount of the monthly Pre-Termination Death Payment payable
to Officer's Surviving Spouse shall be calculated as follows:
(1) Determine the monthly Normal Retirement Payment to which the
Officer would be entitled if the Officer were eligible for Normal
Retirement under Paragraph 2(a) as of the Officer's date of death;
(2) Multiply the result in subparagraph (c)(1) by the
appropriate early commencement percentage as indicated below:
Age of Officer
At Death Percentage
64 50%
63 50%
62 50%
61 47%
60 44%
59 41%
58 38%
57 35%
56 32%
55 29%
54 and prior 25%
7. Post-Termination Death.
(a) Officer's Survivor(s) (as defined in Paragraph 7(d)(4)) will
be eligible for Post-Termination Death Payments if:
(1) Officer dies after Retirement Payments under this Agreement
have commenced; or
(2) Officer dies after the Officer's employment with G-P and its
Affiliates has terminated, but before Retirement Payments pursuant to
Paragraphs 2(b), 3(b), 4(b) or 5(b) have commenced, and at a time when the
Officer has met the eligibility requirements for benefits under this
Agreement stated in Paragraphs 2(a), 3(a), 4(a) or 5(a).
(b) Post-Termination Death Payments to Officer's eligible Survivor(s)
shall commence on the first day of the month following the latest of:
(1) Officer's date of death, or
(2) If eligible under Paragraph 7(a)(1), the last day of the
period for which Officer's Retirement Payments have been paid, or
(3) If eligible under Paragraph 7(a)(2), Officer's pay-through
date.
If the Survivor (as defined in Paragraph 7(d)(4)) is an Original Spouse (as
defined in Paragraph 7(d)(1)) or a New Spouse (as defined in Paragraph 7(d)(2)),
such payments shall be made monthly on the first day of each month during the
lifetime of such Survivor only and shall end with the payment for the month of
his or her death. If the Survivor is a Beneficiary (as defined in Paragraph
7(d)(3)) pursuant to an election by Officer under Paragraph 8(a)(2), such
payments shall be made monthly only for the remainder of the 120-month term of
payments specified by such election.
(c) The amount of the monthly Post-Termination Death Payment payable
to a Survivor of Officer shall be calculated as follows:
(1) If Officer dies after his or her Retirement Payments under this
Agreement have commenced:
(A) If Officer has made no effective election under
Paragraph 8, Officer's Original Spouse shall be entitled to the payment of
a monthly Post-Termination Death Payment for the rest of such spouse's
lifetime equal to fifty percent (50%) of the monthly Retirement Payment
which was being paid to Officer immediately before his or her death;
(B) If Officer has made an effective election under
Paragraph 8, Officer's Survivor specified in such election shall be
entitled to the payment of monthly Post-Termination Death Payments in the
form and to the extent contemplated in the applicable election.
(2) If Officer dies prior to the commencement of his or her
Retirement Payments under this Agreement and at the time of his death has
met the requirements for such payments in accordance with Paragraph
7(a)(2):
(A) If Officer has made no effective election under
Paragraph 8, Officer's Original Spouse shall be entitled to the payment of
a monthly Post-Termination Death Payment for the rest of such spouse's
lifetime equal to fifty percent (50%) of the accrued monthly Retirement
Payment (as of the date of death) which would have been payable to Officer
at age sixty-two (62); provided, however, that if Officer dies prior to
attaining age sixty-two (62), the survivor benefit shall be further reduced
(i) as provided in Paragraph 5(c)(2) (if Officer was not eligible for Early
Retirement under Paragraph 3(a) at the time of his termination of
employment) or (ii) by multiplying the unreduced (50%) death benefit by the
appropriate early commencement percentage listed below (if Officer was
eligible for Early Retirement under Paragraph 3(a) at the time of his
termination of employment):
Age of Officer
At Date of Death Percentage
62 100%
61 96%
60 92%
59 88%
58 84%
57 80%
56 76%
55 72%
54 or earlier 60%
(B) If Officer has made an effective election under
Paragraph 8, Officer's Survivor specified in such election shall be
entitled to the payment of monthly Post-Termination Death Payments in the
form and to the extent contemplated in the applicable election determined
as follows: (i) Calculate the Retirement Payment the Officer would have
received in the elected form at age sixty-two (62); (ii) if Officer died
prior to attaining age sixty-two (62), reduce the result in clause (i) by
multiplying it by the appropriate early commencement percentage specified
in Paragraph 7(c)(2)(A)(ii) (if Officer was eligible for Early Retirement
under Paragraph 3(a) at the time of his termination of employment) or
specified below (if Officer was not eligible for Early Retirement under
Paragraph 3(a) at the time of his termination of employment):
Age of Officer
Date of Death Percentage
64 100%
63 100%
62 100%
61 94%
60 88%
59 82%
58 76%
57 70%
56 64%
55 58%
54 and prior 50%
(iii) determine the lifetime and survivor payments under the benefit form
elected by Officer as provided in Paragraph 8, based on the result in clause
(ii); and (iv) the benefit payable to the Survivor will be the survivor payment
under the elected optional form of benefit as determined in accordance with
clause (iii). For purposes of clause (iii), the base or original form of
benefit used for the actuarial conversion shall be, in the case of an election
under Paragraph 8(b), a life annuity for Officer's life expectancy in the amount
determined under clause (ii) above, or, in the case of an election under
Paragraph 8(a), a life annuity for Officer's life expectancy in the amount
determined under clause (ii) followed (if and only if Officer had an Original
Spouse at the time of his death) by a survivor annuity payable to his Original
Spouse (if any) with payments of 50% of such amount.
(d) For purposes of this Paragraph 7 only (except where otherwise
specified):
(1) "Original Spouse" mean a spouse who is Officer's lawful
spouse on the date of Officer's death and, in the case of Paragraph
7(c)(1)(A), on the date Officer's benefits under this Agreement commenced.
(2) "New Spouse" means the spouse who is Officer's lawful spouse
on the date Officer makes an election described in Paragraph 8(b) and on
the date of Officer's death.
(3) "Beneficiary(ies)" means the person(s) (which may include a
trust or Officer's estate) designated in writing by Officer (in a form
acceptable to G-P) prior to the commencement of benefits to receive the
remaining Retirement Payments due upon Officer's death pursuant to
Officer's election of the benefit form described in Paragraph 8(a)(2)
(effective upon receipt by G-P). Any such designation is subject to the
provisions of Paragraph 8(d).
(4) "Survivor" means, as appropriate, the Original Spouse, a New
Spouse or any Beneficiary of Officer.
8. Alternative Benefit Forms.
(a) An Officer eligible for Retirement Payments under Paragraphs
2(a), 3(a) or 4(a) may elect in writing (in a form acceptable to G-P) at any
time specified in this Paragraph 8 to have such Retirement Payments paid in one
of the following alternative forms in lieu of any other benefit payment form
available under this Agreement:
(1) An annuity which provides monthly payments to Officer for
his or her lifetime and, upon Officer's death, provides monthly payments to
his or her Original Spouse (as defined in Paragraph 7(d)(1)) for his or her
lifetime equal to 100% of the payments made to Officer prior to his death.
(2) Substantially equal monthly payments for a period of 120
months which continue at the same level to Officer's Beneficiaries if
Officer dies prior to the completion of such 120-month period.
(b) Notwithstanding anything in Paragraph 7 to the contrary, if
Officer is entitled to Retirement Payments and, after termination of employment
with G-P and/or its Affiliates, (i) Officer marries or remarries after the date
his or her Retirement Payments commence, and (ii) Officer desires to provide for
the payment of a survivor benefit to his or her New Spouse if such spouse
survives Officer, Officer shall have the right to make an irrevocable election
(in a form satisfactory to G-P) to convert the monthly Retirement Payments to
which he or she is then entitled under this Agreement into an actuarially
equivalent benefit which will provide a reduced monthly Retirement Payment to
Officer for his or her lifetime and, if Officer's New Spouse survives Officer
and is still married to Officer at the time of his death, will provide such New
Spouse with a monthly benefit equal to fifty percent (50%) of Officer's reduced
monthly Retirement Payments for the rest of such new spouse's lifetime. If
Officer marries or remarries after termination because of disability under
Paragraph 5, the provisions of this subparagraph (without regard to clause (i))
shall apply.
(c) Any election under subparagraph (a) shall be immediately
effective upon receipt by G-P if made within ninety (90) days prior to
commencement of Retirement Payments pursuant to Paragraphs 2, 3 or 4; otherwise,
such election shall not be effective until the first anniversary of the date it
is received by G-P. Notwithstanding anything in this Paragraph 8 to the
contrary, if Officer is married on the date his/her Retirement Payments
commence, no election by Officer under Paragraph 8(a)(2) shall be effective
unless Officer's spouse on such date has consented in writing to the election.
Any election under subparagraph (b) shall be effective as specified in the
election (but in no event prior to the first of the month following receipt of
the election by G-P). If Officer makes an election under this Paragraph 8, the
Retirement Payments to which he or she is otherwise entitled under Paragraphs 2,
3 or 4 of this Agreement shall be modified so that the new benefit form is
actuarially equivalent (as determined by G-P using the actuarial factors
specified in Paragraph 2(c)) to the original form of the affected Retirement
Payments. Any election under this Paragraph 8 may be revoked by Officer at any
time before the commencement of Retirement Payments (or, in the case of an
election under subparagraph (b), modified Retirement Payments), but becomes
irrevocable upon such commencement.
(d) If Officer is married at the time he or she originally submits or
later modifies his or her Beneficiary designation in connection with an election
under Paragraph 8(a)(2) and the Beneficiary designated is not Officer's then
current spouse, such Beneficiary designation will not be effective unless
accompanied by written consent of such current spouse. Notwithstanding anything
to the contrary in this Agreement, any Beneficiary designation on file at the
time Officer dies which names as a Beneficiary a person or entity other than
Officer's spouse at such time without such spouse's written consent shall be
void and shall not be recognized for purposes of this Agreement. If no
Beneficiary has been effectively designated by Officer at the time of his or her
death, Officer's Beneficiary shall be Officer's spouse as of his or her date of
death or, if Officer has no spouse at that time, Officer's estate.
9. Forfeiture of Benefits.
(a) General Rule. Officer and G-P agree that G-P shall have the
right to forfeit all benefits otherwise payable under this Agreement to or on
behalf of Officer if Officer:
(1) competes with G-P or any Affiliate within the meaning of
Paragraph 9(b);
(2) discloses trade secrets or confidential information of G-P or any
Affiliate within the meaning of Paragraph 9(c); or
(3) solicits employees of G-P or any Affiliate within the meaning of
Paragraph 9(d).
G-P's rights under this Paragraph 9 shall expire and shall have no further force
or effect effective upon the occurrence of a Change in Control of G-P (as such
term is defined in Section 2(e) of the Georgia-Pacific Corporation/Georgia-
Pacific Group 1997 Long-Term Incentive Plan or any successor to such plan).
(b) Competition.
(1) Officer will be deemed to have competed with G-P or any Affiliate
within the meaning of this Paragraph 9(b) if, during the three (3) year period
commencing on the date Officer's employment with G-P and all Affiliates
terminates, Officer directly or indirectly (whether as an owner, partner,
stockholder, investor, officer, director, employee, agent, independent
contractor, sales representative (if his or her responsibilities at G-P or any
Affiliate included sales), or consultant carries on, is engaged in, concerned
with or takes part in the performance of services for any "competitor of G-P"
which are substantially the same as the services Officer provided to G-P or any
Affiliate anywhere in the geographic area[s] where Officer is performing such
services for G-P or any Affiliate as of the date he or she executes this
Agreement, which may, with the mutual consent of the parties, be specified on an
Exhibit A attached to this Agreement. If such an Exhibit A is appended to this
Agreement, G-P, with Officer's approval, may from time to time update the
exhibit to reflect changes in Officer's responsibilities.
(2) For purposes of this Paragraph 9(b), the phrase "competitor
of G-P" means an entity with offices in the United States or Canada which,
when combined with its affiliates (i) has or, at any time in the two (2)
year period before or after Officer's employment with G-P or any Affiliate
terminates, had at least U.S. $500,000,000 in annual sales and (ii)
manufactures, sells, and/or markets products or services which compete with
any products or services manufactured, sold and/or marketed by G-P or any
Affiliate while Officer was employed by G-P or any Affiliate and with
respect to which G-P and its Affiliates holds or, at any time in the two
(2) year period before Officer's employment with G-P or any Affiliate
terminates, held at least 10% of the relevant market. An entity's
"affiliates" under this Paragraph 9(b)(2) shall be determined by applying
the definition under Paragraph 9(f) to determine whether an organization is
an affiliate of G-P except that the name of the entity shall be substituted
in the definition for G-P.
(c) Trade Secrets or Confidential Information.
(1) Trade Secrets. Officer will be deemed to have disclosed trade
secrets within the meaning of this Paragraph 9(c) if during the term of
Officer's employment with G-P or any Affiliate, or thereafter, Officer fails to
hold in confidence for the benefit of G-P or any Affiliate, or directly or
indirectly uses or discloses, except as authorized by G-P or any Affiliate in
connection with the performance of Officer's duties and responsibilities for G-P
or any Affiliate, any "trade secret", as defined hereinafter, that Officer may
have or acquire during the term of Officer's employment with G-P or any
Affiliate for so long as such information remains a trade secret. The term
"trade secret" as used in this Agreement means any "trade secret" as defined
under applicable state law plus any information, without regard to form,
including but not limited to, technical or non-technical data, a formula, a
pattern, a compilation, a program, a device, a method, a technique, a drawing, a
process, financial data, financial plans, product plans, or a list of actual or
potential customers or suppliers, which is not commonly known by or available to
the public and which information (1) derives economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use, and (2) is the subject of reasonable efforts by G-P
or any Affiliate, or the entity from which the information was received, to
maintain its secrecy or confidentially.
(2) Confidential Information. Officer will be deemed to have
disclosed confidential information within the meaning of this Paragraph 9(c) if
during the term of Officer's employment with G-P or any Affiliate, or during the
one (1) year period commencing on the date Officer's employment with G-P and all
its Affiliates terminates, Officer fails to hold in a confidence for the benefit
of G-P or any Affiliate, or directly or indirectly uses or discloses, except as
authorized by G-P or any Affiliate in connection with the performance of
Officer's duties and responsibilities for G-P or any Affiliate, any confidential
information, as defined hereinafter, that Officer may have or acquire (whether
or not developed or compiled by Officer and whether or not Officer has been
authorized to have access to such confidential or proprietary information)
during the term of his employment with G-P or any Affiliate. The term
"confidential information" as used in this Agreement means any secret,
confidential or proprietary information of G-P or an Affiliate, including
information received by G-P or any Affiliate, or Officer from any customer or
client or potential customer or client of G-P or any Affiliate, not otherwise
included in the definition of "trade secret" in Paragraph 9(c)(1), in each case
except for information that has become generally available to the public by the
act of one who has the right to disclose such information without violating any
right of the customer or client to which such information pertains.
(d) Solicitation.
(1) Solicitation of Employees. Officer will be deemed to have
solicited employees of G-P or any Affiliate within the meaning of this Paragraph
9(d) if during the term of Officer's employment with G-P or any Affiliate, or at
any time during the two (2) year period commencing on the date Officer's
employment with G-P and all Affiliates terminates, Officer solicits any employee
of G-P or any Affiliate with whom Officer had material contact during Officer's
employment to leave his or her employment with G-P or any Affiliate for the
purpose of competing with G-P or any Affiliate for any reason, either
individually, or as an owner, partner, employee, agent, consultant, advisor,
contractor, salesman, stockholder, investor, officer, director, or other member
of any corporation, partnership, venture or other business entity.
(2) Solicitation of Customers. Officer will be deemed to have
solicited customers of G-P or any Affiliate within the meaning of this Paragraph
9(d) if during the term of Officer's employment with G-P or any Affiliate, or at
any time during the two (2) year period commencing on the date Officer's
employment with G-P and all Affiliates terminates, Officer solicits any customer
and/or client of G-P or any Affiliate with whom Officer had material business
contact during Officer's employment for the purpose of competing with G-P or any
Affiliate or for the purpose of inducing such customer and/or client to do
business with Officer, either individually, or as an owner, partner, employee,
agent, consultant, advisor, contractor, salesman, stockholder, investor,
officer, director, or other member of any corporation, partnership, venture, or
other business entity.
(e) Construction. Officer acknowledges and agrees that, in light of
the confidential and proprietary nature of Officer's duties and the fact that G-
P and the Affiliates compete throughout the United States and Canada, the
protections set forth in this Paragraph 9 are reasonable, fair and equitable in
scope, terms and duration and are necessary to protect the legitimate business
interests of G-P and any Affiliate. If any portion or portions of this
Paragraph 9 is determined to be unenforceable as drafted, it is the intention of
G-P and Officer that, to the extent permitted by applicable law, the
unenforceable portion or portions of this Paragraph 9 shall be severed or
restricted (as the case may be) and that, except as so severed or restricted,
the terms of this Paragraph 9 shall be enforced.
(f) Affiliate. The term "Affiliate" as used in this Agreement shall
be any organization whose employees are treated as employees of G-P under
section 414(b) or section 414(c) of the Internal Revenue Code of 1986, as
amended (or the corresponding provisions of any successor statute), or which is
treated as an "affiliate" of G-P under Rule 144 in the General Rules and
Regulations under the Securities Act of 1933.
10. For purposes of this Agreement, "Service" shall mean a period of
unbroken employment with G-P and/or its Affiliates, provided however that
employment with an Affiliate shall be counted only for periods during which the
Affiliate met the definition of "Affiliate" in Paragraph 9(f).
11. Nothing contained in this Agreement and no action taken pursuant to
the provisions of this Agreement shall create or be construed to create a trust
of any kind, or a fiduciary relationship between G-P and Officer, or Officer's
spouse, or any other person. This Agreement does not create any escrow account,
trust fund or any other form of asset segregation. Any Retirement Payments due
under the provisions of this Agreement shall be paid from the general funds of
G-P, except that in the event of a Change of Control (as defined in Paragraph
9), any Retirement Payment may be made from any trust established and funded by
G-P for such purposes. If a trust is established and funded by G-P to pay
Retirement Payments under this and similar Agreements in connection with a
Change of Control, Officer shall also be deemed to be a beneficiary of such
trust with such rights with respect to the trust corpus as may be defined in the
governing trust agreement and applicable law .
12. The right of Officer or any other person to Retirement Payments under
this Agreement shall not be subject to the claims of their creditors or others,
nor to legal process, and shall not be assigned, transferred, pledged or
encumbered.
13. Nothing contained herein shall be construed as conferring upon Officer
the right to continue in the employ of G-P and/or its Affiliates as an executive
or in any other capacity.
14. The annual Retirement Payments provided for by this Agreement shall
not constitute "compensation" for purposes of computing compensation for any
qualified deferred compensation plan maintained by G-P or its Affiliates.
15. The Compensation Committee of the Board of Directors of G-P (the
"Committee") shall have full power and authority to interpret, construe and
administer this Agreement and the Committee's interpretation and construction
thereof, and actions thereunder shall be binding and conclusive on all persons
for all purposes. No member of the Committee shall be liable to any person for
any action taken or omitted in connection with the interpretation and
administration of this Agreement unless attributable to his own willful
misconduct or lack of good faith.
16. This Agreement shall be binding upon and inure to the benefit of G-P
and its Affiliates, its successors and assigns, and to the Officer and Officer's
heirs, executors, administrators and legal representatives.
17. All actions for the enforcement of any rights under, or interpretation
of, this Agreement shall be brought in the courts of the State of Georgia or (to
the extent that jurisdictional requirements permit) in federal courts located in
the State of Georgia, and all parties to this Agreement agree to be subject to
the jurisdiction of such courts for the purpose of any such actions. This
Agreement shall be construed and its provisions enforced and administered in
accordance with the laws of the State of Georgia and, to the extent applicable,
federal law.
18. It is understood and agreed by the parties that if there is an
Executive Retirement Agreement between Officer and G-P entered into prior to the
date of this Agreement, this Agreement is a mutually-agreed amendment and
restatement of such Agreement, and any such prior Agreement is acknowledged to
be superseded by this Agreement as of the effective date of this Agreement
specified above.
19. Any notices required by this Agreement shall be sent as follows:
If to: Officer: Name and address
...............__.
. .................._..
G-P: Georgia-Pacific Corporation
133 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: Chairman, Chief Executive Officer
and President
Any party may specify in writing to the other party a change of address for
purposes of this Paragraph 19, and any such change shall be effective upon
receipt of such written notice.
IN WITNESS WHEREOF, G-P has caused this Agreement to be executed by its
duly authorized officer and Officer has hereunto set his/her hand as of the date
first above written.
GEORGIA-PACIFIC CORPORATION
By: ________________________________
A. D. Correll
Chairman, Chief Executive Officer
and President
OFFICER:
_____________________________________
Signature
_____________________________________
Date Signed
AMENDMENT NUMBER TWO
TO THE
GEORGIA-PACIFIC CORPORATION
KEY SALARIED EMPLOYEES GROUP INSURANCE PLAN
POST-1986 GROUP
(Effective January 1, 1987)
Pursuant to the authority granted to the Board of Directors of Georgia-
Pacific Corporation (the "Board") to amend the Georgia-Pacific Corporation Key
Salaried Employees Group Insurance Plan/Post-1986 Group (the "Plan") and in
accordance with a resolution of the Board adopted July 26, 1993, the Plan has
been amended effective January 1, 1994 as follows:
1) Section 2.1 of the Plan is amended and restated as follows:
"2.1 Participation
All salaried employees who are actively at work and whose annual base salaries
equal or exceed $150,000 shall become participants in the Plan, provided that
salaried employees who are eligible to participate in the Georgia-Pacific Key
Salaried Employees Group Insurance Plan/Pre-1987 Group will not be eligible to
participate in this Plan. Participation shall commence on the January 1 as of
which the compensation standard is met; provided, however, that if a salaried
employee's base salary is increased to a level at or above $150,000 on a
retroactive basis to a date on or before the January 1 next preceding the
official authorization date of the salary action, that employee shall become
eligible to participate in this Plan effective as of the authorization date of
the salary action. In the event an employee is otherwise eligible but is not
actively at work, such employee shall commence participation upon return to
active employment. Once an employee has become a Participant in the Plan, the
employee shall continue to participate notwithstanding the future failure of
employee to meet the minimum annual salary requirements for new Participants."
2) Section 6.2 of the Plan is amended and restated as follows:
"6.2 Amendment and Plan Termination
The Company expressly reserves the right to amend or terminate the Plan at any
time. Exercise by the Company of its rights pursuant to this Section 6.2 may be
evidenced by action of the Company's Chairman, Vice Chairman, Chief Executive
Officer or President and will not require approval by the Board of Directors (or
any Committee thereof) or the shareholders of the Company."
<PAGE>
AMENDMENT NUMBER THREE
TO THE
GEORGIA-PACIFIC CORPORATION
KEY SALARIED EMPLOYEES GROUP INSURANCE PLAN
POST-1986 GROUP
(Effective January 1, 1987)
Pursuant to the authority granted to Georgia-Pacific Corporation (the
"Company") to amend the Georgia-Pacific Corporation Key Salaried Employees Group
Insurance Plan/Post-1986 Group (the "Plan") under Section 6.2 of the Plan, the
Plan has been amended effective as indicated as follows:
1) Section 2.1 of the Plan is amended and restated effective August 1,
1994 as follows:
"2.1 Participation
All salaried employees who are actively at work and either whose annual base
salary equals or exceeds $150,000 or who are officers (other than assistant
officers such as an Assistant Secretary or an Assistant Treasurer) of Georgia-
Pacific Corporation shall become participants in the Plan, provided that
salaried employees who are eligible to participate in the Georgia-Pacific Key
Salaried Employees Group Insurance Plan/Pre-1987 Group will not be eligible to
participate in this Plan. Participation shall commence on the January 1 as of
which the compensation or officer status standard is met; provided, however,
that if a salaried employee's base salary is increased to a level at or above
$150,000 on a retroactive basis to a date on or before the January 1 next
preceding the official authorization date of the salary action, that employee
shall become eligible to participate in this Plan effective as of the
authorization date of the salary action. In the event an employee is otherwise
eligible but is not actively at work, such employee shall commence participation
upon return to active employment. Once an employee has become a Participant in
the Plan, the employee shall continue to participate notwithstanding the future
failure of employee to meet the minimum annual salary requirements for new
Participants."
2) Except as hereinabove and heretofore amended and modified, the Plan as
effective as of January 1, 1987 shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has duly executed this Amendment this
______ day of _________, 1994.
GEORGIA-PACIFIC CORPORATION
By:_____________________________
A. D. Correll
Chairman and Chief Executive
Officer
<PAGE>
AMENDMENT NUMBER FOUR
TO THE
GEORGIA-PACIFIC CORPORATION
KEY SALARIED EMPLOYEES GROUP INSURANCE PLAN
POST-1986 GROUP
(Effective January 1, 1987)
Pursuant to the authority granted to Georgia-Pacific Corporation (the
"Company") to amend the Georgia-Pacific Corporation Key Salaried Employees
Group Insurance Plan/Post-1986 Group (the "Plan") under Section 6.2 of the
Plan, effective January 1, 1998, the Plan has been amended to update the
eligibility rules and to incorporate long-standing administrative
interpretations of certain provisions as follows:
1) Section 2.1 of the Plan is amended and restated as follows:
"2.1 Participation
"a. Eligibility Criteria. All salaried employees who meet the following
qualifications on their respective participation effective dates as
specified in subparagraph b. below shall become Participants in this
Plan on such date:
"i. The employee is actively at work.
"ii. The employee is a non-officer whose rate of annual base salary
equals or exceeds $150,000 OR the employee is an officer (other than an
assistant officer such as an Assistant Secretary or an Assistant
Treasurer) of Georgia-Pacific Corporation.
"iii. The employee is not eligible to participate in the Georgia-
Pacific Key Salaried Employees Group Insurance Plan/Pre-1987 Group.
"b. Participation Effective Dates. An employee's participation in this
Plan shall commence on the earliest applicable participation effective date
specified below:
"i. Any January 1 on which the employee first meets the eligibility
standards of subsection a., in which case coverage for the initial
calendar year of coverage shall be determined using the employee's age
and rate of annual base salary as of such January 1.
"ii. The authorization date of a salary action first increasing a
non-officer employee's rate of annual base salary to a level at or above
$150,000 on a retroactive basis to a date on or before the January 1 next
preceding such authorization date, in which case coverage for the initial
calendar year of coverage shall be determined using the employee's age and
rate of annual base salary as of such January 1.
"iii. The date as of which an employee is first elected or
appointed an officer (other than an assistant officer such as an
Assistant Secretary or an Assistant Treasurer) of Georgia-Pacific
Corporation, in which case coverage for the initial calendar year
of coverage shall be determined using the employee's age and rate
of annual base salary as of such date of election or appointment.
"iv. The date that an employee who is otherwise eligible on one of
the participation effective dates described in clauses i. through iii. of
this subsection b., but is not then actively at work (the employee's
"tentative effective date"), returns to work, in which case coverage
shall be determined as of the tentative effective date applicable to such
employee. This participation effective date shall be applicable only if
the employee maintains a continuous employment relationship with the
Company and/or its subsidiaries from the tentative effective date through
the date specified in this clause iv.
"c. Actively at Work. For purposes of this Plan, an employee
will be deemed to be "actively at work" (without limitation) while
on vacation and during any period of approved, paid medical leave.
"d. Continued Participation. Subject to the provisions of Sections
2.3 and 3.3, once an employee has become a Participant in the Plan, the
employee shall continue to participate notwithstanding any future failure
of employee to meet the minimum qualification requirements for new
Participants.
"e. Basic Life Plan Participation. Effective on a Participant's
participation effective date with respect to this Plan, the Participant's
coverage under the Company's Basic Life and Accidental Death and
Dismemberment Plan shall cease."
2) The introductory sentence of Section 2.2a. is amended and restated as
follows:
"a. Normal Coverage. Each Participant in the Plan will receive
death benefit coverage for the calendar year of determination
(including any partial calendar year of participation) equal to the
amount indicated below opposite the Participant's age as of the
Participant's participation effective date (as defined in Section
2.1b.) or such other date specified in Section 2.1b. for the
initial (full or partial) calendar year of coverage and as of each
subsequent January 1 for each subsequent calendar year of coverage:"
3) The last two sentences of Section 2.2a. are amended and restated to read as
follows:
"The amount of coverage shall be adjusted effective as of each January 1
after the Participant's participation effective date, if necessary, to
take account of any increase (including retroactive increases) in the
Participant's annual base salary in effect as of such January 1 and any
change of coverage pursuant to the coverage schedule (using the
Participant's age on that January 1). In addition, if a non-officer
Participant is elected or appointed an officer (other than an assistant
officer such as an Assistant Secretary or an Assistant Treasurer),
his or her coverage shall be modified as of the date of such election or
appointment to reflect the employee's then current age and rate of annual
base salary,
provided, however, that in no event shall such employee's coverage for
the then current calendar year be reduced. No adjustment shall be made
because of a decrease in the Participant's salary."
4) Section 2.3c. is amended by adding the following at the end of the
present provision:
"For purposes of this Section 2.3c., a Participant shall be considered to
be totally disabled at a given time if he/she would be deemed to be
"totally disabled" at such time under the Georgia-Pacific Corporation
Long-Term Disability Plan for Salaried Employees (whether or not the
Participant actually participated in that plan at such time).
Coverage pursuant to this Section 2.3c. will cease when the Participant
ceases to be totally disabled, at which time provisions of Section 2.3d.
will apply as if the employee had then terminated employment."
5) Section 2.3d. is amended and restated to read as follows:
"d. Upon Separation from Service for Reasons Other Than Disability.
A Participant terminating employment for reasons other that disability
shall continue to be covered by the Plan for thirty-one (31) days
following the last day of the month coincident with or next following
his/her termination date. Within the thirty-one (31) day period, the
terminating Participant may convert any group insurance covering him/her
under this the Plan to an individual life insurance Policy mirroring
his/her coverage under the Plan.
6) Except as hereinabove and heretofore amended and modified, the Plan as
effective as of January 1, 1987 shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has duly executed this Amendment this
12th day of November, 1998.
GEORGIA-PACIFIC CORPORATION
By:_____________________________
A. D. Correll
Chairman and Chief Executive Officer
GEORGIA-PACIFIC CORPORATION
ECONOMIC VALUE INCENTIVE PLAN
(As Amended and Restated by Action of the Compensation Committee on January
28, 1999)
By action of its Board of Directors on February 1, 1995, Georgia-Pacific
Corporation adopted the Georgia-Pacific Corporation 1995 Economic Value
Incentive Plan ("EVIP") for its senior management and staff effective for
calendar year 1995 and subsequent Covered Years. By action of the
Compensation
Committee on January 28, 1999, the EVIP was amended and restated as follows as
the "Georgia-Pacific Corporation Economic Value Incentive Plan", effective for
calendar year 1999 and subsequent Covered Years:
I. DEFINITIONS
For purposes of the EVIP, the following terms or phrases shall have the
indicated meanings:
1. "Affected Officer" means any officer of Georgia-Pacific Corporation as
of January 1 of a given Covered Year (other than the CEO) who participates in
the EVIP for that Covered Year and who in the judgment of the Committee may
receive total compensation for that Covered Year in excess of the limit on tax
deductible compensation specified in Section 162(m) of the Internal Revenue
Code
of 1986 or any statute which is the successor or replacement of Section
162(m),
as the same may be amended from time to time (and any regulations promulgated
thereunder). The Committee shall determine which officer Participants in this
Plan will be considered Affected Officers in a given Covered Year prior to
March 31 of that Covered Year.
2. "Base Salary as of January 1 of that Covered Year" means a
Participant's base annual salary in effect on January 1 of a given Covered
Year,
provided that the determination of "Base Salary on January 1 of that Covered
Year" shall take into account base salary increases retroactively effective to
that date as approved (in accordance with normal corporate procedures) by
management or by the Committee or the Board on or before March 31 of that
Covered Year, and provided further that, for Employees who become Participants
for that Covered Year after the commencement of that year, "Base Salary on
January 1 of that Covered Year" shall mean such Participant's base annual
salary in effect on the date his/her participation commences.
3. "Board" means the Board of Directors of the Corporation.
4. "Business Unit" means any operating group, business segment,
division
or corporate staff department of the Corporation (including, without
limitation,
the G-P Group and/or TTC) for which Relative EVA or EVA performance standards
are set for a given Covered Year.
5. "CEO" means the Chairman and Chief Executive Officer of Georgia-
Pacific Corporation or, if one person does not hold both of these offices, the
Chief Executive Officer of Georgia-Pacific Corporation.
6. "Committee" means the Compensation Committee of the Board, 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 this Plan, provided however that any such subcommittee shall
consist
entirely of (but not less than two) "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).
7. "Compensation" means midpoint of the Salary Grade of a Participant
for
a given Covered Year determined as of January 1 of that Covered Year by the
Plan
Administrator, provided that the determination of "Compensation" shall take
into
account Salary Grade and Salary Grade midpoint increases retroactively
effective
to that date as approved (in accordance with normal corporate procedures) by
management or by the Committee on or before the date of the Board's first
regular meeting during that Covered Year.
8. "Corporation" means Georgia-Pacific Corporation and its
subsidiaries.
9. "Covered Year" means any calendar year beginning on or after January
1, 1999.
10. "Discretionary Bonus" means that portion of a Participant's award
under this Plan for a given Covered Year which is determined in accordance
with the provisions of subsection 2 of Section III.
11. "Discretionary Bonus Limit" means, for a given Covered Year, (i) for
Participants other than the CEO, the least of (A) the amount of the maximum
total Quantitative Bonus and Discretionary Bonus the Participant could receive
if both Target Relative EVA for the G-P Group and Target EVA for TTC were
achieved in that Covered Year (as determined by the Committee pursuant to
paragraphs 1(a)(ii) and (iii) of Section III), (B) 100% of the Participant's
Base Salary on January 1 of that Covered Year, reduced by any Quantitative
Bonus
that may be payable for that Covered Year or (C); the amount of the maximum
total Quantitative Bonus and Discretionary Bonus the Participant could receive
if both Maximum Relative EVA for the G-P Group and Maximum EVA for TTC were
achieved in that Covered Year (as determined by the Committee pursuant to
paragraphs 1(a)(ii) and (iii) of Section III), reduced by any Quantitative
Bonus
that may be payable for that Covered Year and (ii) for the CEO, the lesser of
(A) an amount equal to twice the Quantitative Bonus to which he would be
entitled for that Covered Year, or (B) 200% of the CEO's Base Salary on
January
1 of that Covered Year, reduced by any Quantitative Bonus that may be payable
for that Covered Year.
12. "EVA" means "economic value added" for a given Covered Year, which
is
defined, in the case of a given Business Unit, as "net operating profit after
tax" for that Business Unit for that Covered Year minus a capital charge
determined by multiplying its weighted average cost of debt and equity capital
for that Covered Year by that Business Unit's "average invested capital" for
that Covered Year. For purposes of determining Relative EVA performance of
the
G-P Group, EVA for a given Peer Group Company will be "Indexed EVA" determined
by subtracting that Peer Group Company's weighted average cost of debt and
equity capital from its "return on average invested capital" and multiplying
the
difference by the G-P Group's "average invested capital". For purposes of
this
definition: (i) "net operating profit after tax" for a given entity for a
given
Covered Year is its reported net earnings for that Covered Year adjusted by
(A)
adding its net interest expense for that Covered Year (B) adding its goodwill
amortization for that Covered Year, (C) eliminating the effect of changes in
its
LIFO inventory reserve for that Covered Year, (D) eliminating the effects of
Special Items during that Covered Year such as non-recurring gains or losses,
disposals of assets, restructuring charges and similar items, and (E)
adjusting
taxes for that Covered Year to reflect actual cash taxes paid and eliminating
the tax benefit of interest expense; (ii) "average invested capital" for a
given
entity for a given Covered Year is the average of the sum of its short-term
debt, long-term debt and adjusted book value of equity at the beginning of
that
Covered Year and at the end of that Covered Year; and (iii) "return on average
invested capital" for a given entity for a given Covered Year is its "net
operating profit after tax" divided by its "average invested capital" for that
Covered Year.
13. "Employee" means any exempt full-time, salaried employee of the
Corporation.
14. "G-P Group" means the Business Unit known as the "Georgia-Pacific
Group", viz. that portion of the business and operations of the Corporation
which is reflected by the class of the Corporation's common stock known as
Georgia-Pacific Corporation-Georgia-Pacific Group Common Stock.
15. "Maximum EVA" means the EVA performance level of TTC at which the
percentage of Compensation paid as a Quantitative Bonus reaches its maximum,
as
determined by the Committee pursuant to subsection 1 of Section III.
16. "Maximum Relative EVA" means the Relative EVA performance level of
the
G-P Group at which the percentage of Compensation paid as a Quantitative Bonus
reaches its maximum, as determined by the Committee pursuant to subsection 1
of Section III.
17. "Participant" means an Employee of the Corporation who, for a given
Covered Year, meets the eligibility standards of Section II.
18. "Peer Group Companies" means, for a given Covered Year, the
companies
included in the Standard & Poors Paper and Forest Products Industry Index (but
excluding the Corporation) on January 1 of that year; provided, however that
if
a Peer Group Company is not in existence as an independent entity generating
the
types of public information needed for EVA calculations under this EVIP both
at
the beginning and the end of that Covered Year, that company shall be
disregarded for purposes of making awards under this Plan for that Covered
Year,
notwithstanding its inclusion in the group of Peer Group Companies otherwise
applicable to such calculations.
19. "Plan" or "EVIP" means the Georgia-Pacific Corporation Economic
Value
Incentive Plan as set forth in this document, as amended from time to time.
20. "Plan Administrator" means the person or entity having
administrative
authority under this EVIP, as specified in Section IV.
21. "Quantitative Bonus" means that portion of a Participant's award
under
this Plan for a given Covered Year which is determined in accordance with the
provisions of subsection 1 of Section III.
22. "Quantitative Bonus Limit" means, for a given Covered Year, (i) for
any Participant other than the CEO, the lesser of (A) 200% of the amount which
is the product of (x) the maximum total Quantitative Bonus and Discretionary
Bonus that the Participant could receive if both Target Relative EVA for the
G-P
Group and Target EVA for TTC were achieved in that Covered Year (as determined
by the Committee under paragraph 1(a)(ii) and (iii) of Section III) and (y)
the
weighting assigned by the Committee (under paragraph 1(a)(vi) of Section III) to
the Quantitative Bonus opportunity for that Covered Year or (B) 100% of the
Participant's Base Salary on January 1 of that Covered Year; and (ii) for the
CEO, the lesser of (A) an amount equal to the amount described in (i)(A)
above
calculated for the CEO or (B) 200% of the CEO's Base Salary on January 1 of
that Covered Year.
23. "Relative EVA" means, for a given Covered Year, the percentile
ranking
of the G-P Group's EVA performance for that Covered Year as compared to the
"indexed EVA" performance (determined pursuant to subsection 12 of this
Section I) of the Peer Group Companies for that year.
24. "Salary Grade" means the salary grade of a Participant as established
from time to time by the Compensation Department of the Corporation in
accordance with the Corporation's generally applicable policies.
25. "Target EVA" means the EVA performance level of TTC as determined by
the Committee pursuant to subsection 1 of Section III.
26. "Target Relative EVA" means the Relative EVA performance level of the
G-P Group as determined by the Committee pursuant to subsection 1 of Section
III.
27. "Threshold EVA" means the minimum EVA of TTC for which a Quantitative
Bonus will be paid, as determined by the Committee pursuant to subsection 1 of
Section III.
28. "Threshold Relative EVA" means the minimum Relative EVA of the G-P
Group for which a Quantitative Bonus will be paid, as determined by the
Committee pursuant to subsection 1 of Section III.
29. "TTC" means the Business Unit known as "The Timber Company", viz. that
portion of the business and operations of the Corporation which is reflected
by
the class of the Corporation's common stock known as Georgia-Pacific
Corporation-Timber Group Common Stock.
II. ELIGIBILITY
1. Participation Criteria. An Employee will be eligible to
participate
in the EVIP for a given Covered Year if he/she is, on January 1 of that
Covered
Year, an officer of Georgia-Pacific Corporation (or becomes an officer during
that Covered Year) or, if a non-officer, has been designated by the CEO or the
Committee as a Participant at the beginning of that year or has been added as
a
Participant in the EVIP by act of the CEO.
2. Special Rules. Notwithstanding anything in subsection 1 of this
Section II to the contrary:
(a) A Participant who terminates employment with the Corporation during a
given Covered Year may receive a prorated award or no award pursuant
to subsection 4 of Section III.
(b) The CEO shall have authority, in his discretion, to add or delete
Employees from the Participant group, provided that no person may be
added as a Participant during the fourth calendar quarter of a
Covered
Year, and provided further that the bonus for an Employee who is
added
as a Participant for a given Covered Year will be prorated based on
the number of complete calendar months he/she was a Participant for
that Covered Year. In each case in which the CEO adds a
Participant,
he shall designate the effective date of his/her participation and
his/her Business Unit.
(c) Participants in other incentive compensation programs (excluding any
stock option plan) maintained by the Corporation are not eligible to
participate in the EVIP.
III. AWARDS
Bonuses under the EVIP are composed of two different types of awards,
viz.,
the non-discretionary annual bonus award ("Quantitative Bonus") and the
discretionary long-term bonus award ("Discretionary Bonus"):
1. Award of Quantitative Bonuses. Quantitative Bonuses for
each
Participant under this EVIP for a given Covered Year will be an amount
determined pursuant to standards adopted by the Committee prior to March 31 of
that Covered Year as follows:
(a) The Committee will determine, in its discretion:
(i) The identity of any Affected Officers for the Covered Year in
question;
(ii) The Threshold Relative EVA, Target Relative EVA and Maximum
Relative EVA levels for that Covered Year for the G-P Group;
(iii) The Threshold EVA, Target EVA and Maximum EVA levels for
that Covered Year for TTC;
(iv) For the G-P Group, the total Quantitative Bonus and
Discretionary
Bonus permissible under this Plan (expressed as a percentage of
Compensation) for each Salary Grade at each of the Relative EVA
levels described in subparagraph (ii) above (and at such other
Relative EVA levels as the Committee, in its discretion, may
decide to specify);
(v) For TTC, the total Quantitative Bonus and Discretionary Bonus
permissible under this Plan (expressed as a percentage of
Compensation) for each Salary Grade at each of the EVA levels
described in subparagraph (iii) above (and at such other EVA
levels as the Committee, in its discretion, may decide to
specify);
(vi) The percentage of the total bonus opportunity for that Covered
Year which will comprise the Quantitative Bonus; and
(vii) For each Participant for that Covered Year whose
Quantitative Bonus will be based on both G-P Group Relative EVA
and TTC EVA performance, the fractional weighting assigned to
G-P
Group Relative EVA and/or TTC EVA performance for each
Participant, such weightings to total 1 for each such
Participant.
(c) The amount of Quantitative Bonus (expressed as a percentage of
Compensation) for any Relative EVA level between a given level and
the
next preceding or following level shall be determined by
interpolation
between those two levels. If the achieved Relative EVA level for
the
G-P Group for a given Covered Year is less than the Threshold
Relative
EVA set for the G-P Group for that year, no Quantitative Bonuses
with
respect to the performance of the G-P Group for that year shall be
paid. If the achieved Relative EVA level for the G-P Group for a
given Covered Year exceeds the Maximum Relative EVA set for the G-P
Group for that year, the percentage of Compensation corresponding to
the Maximum Relative EVA for the G-P Group for that year shall be
used
to determine the amount of the Quantitative Bonus.
(d) The amount of Quantitative Bonus (expressed as a percentage of
Compensation) for any EVA level between a given level and the next
preceding or following level shall be determined by interpolation
between those two levels. If the achieved EVA level for TTC for a
given Covered Year is less than the Threshold EVA set for TTC for
that
year, no Quantitative Bonuses with respect to the performance of TTC
shall be paid. If the achieved EVA level for TTC for a given
Covered
Year exceeds the Maximum EVA set for TTC for that year, the
percentage
of Compensation corresponding to the Maximum EVA for TTC for that
year
shall be used to determine the amount of the Quantitative Bonus.
(d) The Quantitative Bonus of any Participant in a given Covered Year
shall be calculated as follows:
(i) After the close of that Covered Year and before the payment
date
specified in subsection 3 of this Section III, the Committee
shall certify in writing the extent to which the Relative EVA
standards for the G-P Group and the EVA standards for TTC,
determined pursuant to this subsection 1 of this Section III,
have been achieved for that Covered Year.
(ii) Based upon the achieved Relative EVA performance for the G-P
Group and achieved EVA performance for TTC for that Covered
Year
determined in accordance with subparagraph (i) of this
paragraph
(d), the corresponding percentages of Compensation for the
Salary
Grade of each Participant shall be determined using the
standards
established pursuant to paragraph (a) of this subsection 1.
(iii) The Participant's Quantitative Bonus for that Covered Year
will equal the product of (x) the sum of the percentages
calculated pursuant to subparagraph (ii) of this paragraph (e),
and (y) the Participant's Compensation.
(f)Notwithstanding anything in this Plan to the contrary, the
Quantitative Bonus for any Participant for a given Covered Year may
not exceed the Quantitative Bonus Limit for that year.
2. Award of Discretionary Bonuses. Any Participant shall be
eligible to
receive a Discretionary Bonus for a given Covered Year, regardless of whether
he/she receives an Quantitative Bonus for that year, provided that the CEO
will
not be eligible for a Discretionary Bonus for a given Covered Year if he is
not
eligible for an Quantitative Bonus for that year. Discretionary Bonus amounts
will be determined as follows:
(a) Subject to the limits of this subsection 2, the CEO, in his/her
discretion, shall determine the amount of the Discretionary Bonus
for
a given Covered Year for each Participant (other that the CEO and
each
Affected Officer) after reviewing, in his/her discretion, (i) the
performance of the Business Unit to which such Participant belongs
during that Covered Year with respect to EVA drivers specified no
later than March 31 of that Covered Year by the CEO, and (ii) the
actions taken by the Business Unit to which such Participant belongs
during that Covered Year to increase the long-term EVA of that
Business Unit and/or the Corporation as a whole. In conducting this
review, the CEO may consider any actions by Business Units he/she
deems appropriate, including but not limited to actions to (i)
increase efficiency (by increasing revenue or reducing costs using
the
same or less capital), (ii) develop new investment opportunities,
and/or (iii) reduce or divest under-performing assets.
(b) For each Affected Officer, the Discretionary Bonus for a given
Covered
Year shall equal the Discretionary Bonus Limit for such Affected
Officer (determined in accordance with subsection 11 of Section I),
subject to reduction by the Committee, in its discretion, based on
its
review and evaluation of such performance criteria as the Committee
may deem appropriate.
(c) For the CEO, the Discretionary Bonus for a given Covered Year shall
equal 200% of the Quantitative Bonus applicable to him/her for that
year, subject to reduction by the Committee in its discretion based
on
its review and evaluation of such performance criteria as the
Committee may deem appropriate.
(d) Notwithstanding anything in this Plan to the contrary:
(i) The amount of the Discretionary Bonus for each Participant
(including the CEO) will also reflect his/her individual
performance - and the performance of any Business Unit under
his/her supervision - with respect to the Corporation's
standing
policies (as applicable and in effect from time to time), in
particular (but without limitation) the Corporation's Code of
Business Conduct and its safety and environmental policies;
and
(ii) For all Participants, the Discretionary Bonus for a given
Covered
Year may not exceed the Discretionary Bonus Limit for that
year.
3. Payment of Awards. Awards shall be paid as soon as practicable
after
the calculation of achieved Relative EVA and EVA levels for a given Covered
Year, but in no event later than April 30 following the end of that Covered
Year. In the event of the death of a Participant, any awards due to - or in
respect of - him/her under this Plan will be paid, first, to his/her surviving
spouse (if any) and, if there is no surviving spouse, to his/her estate.
4. Special Situations.
(a) A Participant whose employment with the Corporation terminates
during
a given Covered Year (i) for any reason after he/she has attained at
least age 65 or has attained age 55 and accumulated at least ten
(10)
years of service for vesting purposes under the Georgia-Pacific
Corporation Savings and Capital Growth Plan, (ii) because of his/her
death, (iii) because of his/her total and permanent disability (as
determined by the Plan Administrator pursuant to the standards of
the
Georgia-Pacific Corporation Salaried Long-Term Disability Plan,
whether or not the Participant has enrolled in that plan) or (iv)
for
any other reason specifically approved by the Plan Administrator
(provided that, for purposes of this clause (iv) only, the approval
of
the Committee shall be required in the case of the CEO or an
Affected
Officer) shall be entitled to a bonus award prorated to reflect the
number of complete calendar months actually worked during that
Covered
Year payable at the same time bonuses for other Participants are
paid for that Covered Year.
(b) Subject to paragraph (a) of this subsection 4, Participants who
during
a given Covered Year (i) voluntarily terminate their employment with
the Corporation or (ii) are involuntarily terminated by the
Corporation for any reason, will not be eligible to receive a bonus
under this Plan for that Covered Year.
5. Maximum Total Bonus Award. Notwithstanding anything in this Plan to
the contrary, no Participant may receive a Quantitative Bonus and
Discretionary
Bonus award under this Plan in any Covered Year which in total exceeds
$2,000,000.
IV. ADMINISTRATION
The Plan will be administered by the Committee. Decisions and
determinations by the Committee shall be final and binding upon all parties,
including the Corporation, shareholders, Participants and other employees.
The
Committee shall have the authority to administer the Plan, make all
determinations with respect to the construction and application of the Plan
and
the Board resolutions establishing the Plan, 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. No
member
of the Committee shall be liable to any person for any action taken or omitted
in connection with the interpretation and administration of this Plan unless
attributable to the member's own willful misconduct or lack of good faith.
The
Committee is expressly authorized to appoint one or more individuals, who need
not be members of the Committee, or entities to administer the Plan and to
make
all determinations with respect to the construction and application of the
Plan,
and otherwise exercise all powers vested in the Committee under the Plan.
Such
agents shall serve at the pleasure of the Committee. The decisions of any
such
agents taken within the scope of his/her authority will have the same effect
as
decisions by the Committee. Notwithstanding anything in this Section IV to
the
contrary, the Committee may not delegate authority which under this Plan is
expressly reserved to the Committee alone.
V. AMENDMENT OR TERMINATION
The Board, by action of the Committee, expressly reserves the right to
amend or terminate the EVIP at any time, provided that no Quantitative Bonus
for
a given Covered Year may thereby be reduced on or after December 31 of that
Covered Year.
VI. MISCELLANEOUS
1. Awards Unfunded. Awards payable pursuant to the EVIP (if any) shall
be paid solely from the general assets of the Corporation. No trust or other
funding device providing for the identification or segregation of assets to
fund EVIP awards has been established, nor is it the Corporation's intention
to do so.
2. Taxation of Awards. Awards under the EVIP will be compensation
subject to Federal and State tax withholding (including, without limitation,
FICA withholding) in the calendar year in which they are paid.
3. Retirement Plans and Welfare Benefit Plans. Except as
otherwise
specified in the plan in question, awards under the EVIP will not be included
as
"compensation" for purposes of the Corporation's retirement plans (both
qualified and non-qualified) or welfare benefit plans.
4. Spendthrift Clause. A Participant may not assign, anticipate,
alienate, commute, pledge or encumber any benefits to which he or she may
become
entitled under the EVIP, nor are the awards subject to attachment or
garnishment by any creditor.
5. No Contract of Employment. The Corporation intends that the awards
provided under the EVIP be a term of employment and a part of each
Participant's
compensation and benefit package. Participation in this Plan shall not
constitute an agreement (1) of the Participant to remain in the employ of and to
render his/her services to the Corporation or (2) of the Corporation to
continue
to employ such Participant, and the Corporation may terminate the employment
of a Participant at any time with or without cause.
6. Previous EVIP Interpretations. The amendment and restatement of
this
Plan is not intended to _ and shall not - affect the continuing validity of
EVIP
interpretations issued by the Plan Administrator prior to January 1, 1999.
VII. EFFECTIVE DATE/SHAREHOLDER APPROVAL
1. Effective Date. This amendment and restatement of the EVIP
shall become effective as of January 1, 1999.
2. Shareholder Approval. The Compensation Committee has determined
that
the approval of the shareholders of the Corporation is not required for this
amendment and restatement.
GEORGIA-PACIFIC CORPORATION/GEORGIA-PACIFIC GROUP
1997 LONG-TERM INCENTIVE PLAN
PERFORMANCE SHARE GRANT AGREEMENT
Grantee: [First Middle Last]
Performance Period January 1, 1999 through
December 31, 1999
Grant Date: January 28, 1999
THIS AGREEMENT, dated as of the Grant Date stated above, by and between
Georgia-Pacific Corporation (the "Corporation") and the Grantee;
WITNESSETH
WHEREAS, the Corporation wishes to give the Grantee an opportunity to
acquire or enlarge his/her equity ownership in the Corporation for purposes of
augmenting the Grantee's proprietary interest in the success of
Georgia-Pacific
Corporation and, in particular, its Georgia-Pacific Group, and thereby
focusing
Grantee's efforts on increasing shareholder value;
WHEREAS, the Performance Shares described in this Agreement have been
granted pursuant to, and are governed by, the Plan (as defined below);
NOW, THEREFORE, the Corporation and the Grantee hereby agree as follows:
1. PERFORMANCE SHARE GRANT. Subject to the terms and conditions of this
Agreement, the Corporation hereby grants to Grantee a Target Grant of
Performance Shares as specified on the first page of this Agreement.
2. AWARD OF PERFORMANCE SHARES. Subject to the restrictions described in
Sections 3, 4 and 5 of this Agreement, the Grantee will receive an award of a
specified percentage of his/her Target Grant of Performance Shares as of the
last day of the Performance Period if the percentile ranking of the G-P
Group's
TSR for the Performance Period, when compared to the TSR performance of the
other Peer Group Companies for the Performance Period, equals or exceeds the
30th percentile. The following chart specifies the percentage of the Target
Grant that will be awarded depending upon the actual TSR percentile rating
achieved by G-P Group during the Performance Period:
ACHIEVED TSR AWARD AS
PERCENTILE PERCENTAGE OF
TARGET GRANT
Less than 30th 0%
30th 50%
40th 70%
50th 90%
60th 114%
70th 138%
80th 160%
90th 180%
100th 200%
The percentage of the Target Grant awarded for achieved TSR percentiles which
lie between the data points specified in the chart will be determined by
interpolation. One hundred percent (100%) of the Target Grant will be awarded
if the G-P Group achieves a TSR performance during the Performance Period of
54.17. The precise number of Performance Shares awarded to the Grantee under
this Agreement pursuant to this Section 2 will be determined by multiplying
the
Target Grant by the percentage specified in the above chart (or determined
through interpolation based on the chart), and then rounding the resulting
number up to the nearest whole number.
3. VESTING.
(a) REGULAR VESTING. Except as stated in Sections 3(b) and 3(c) of this
Agreement, the Grantee shall become fully vested in his/her Performance Shares
awarded in accordance with Section 2 (if any) on the fifth anniversary of the
Award Date.
(b) ACCELERATED VESTING. Notwithstanding the regular vesting rule
specified in Section 3(a) of this Agreement, Performance Shares awarded
pursuant
to Section 2 shall become 100% vested upon the earliest to occur of the
following Vesting Dates:
(i) the Grantee's Normal or Early Retirement Date;
(ii) the Grantee's Disability Retirement Date;
(iii) the date of the Grantee's death prior to his termination
of employment from the Corporation;
(iv) the date of a Change of Control; or
(v) subject to the approval of the Committee, the date of the
Grantee's involuntary termination of employment from the
Corporation due to (A) job elimination or (B) such other reason
as may be specifically approved by the Committee.
Except as otherwise provided in this Agreement in the case of a Disability
Retirement Date which occurs after Grantee's termination of employment with
the
Corporation, no Vesting Date will occur - and no Performance Shares may vest-
following termination of employment with the Corporation.
(c) TERMINATION FOR CAUSE. Notwithstanding anything in this Agreement
to
the contrary, if the Corporation terminates the Grantee's employment for Cause
prior to a Change of Control, this Agreement shall be terminated and all
Performance Shares granted to the Grantee under this Agreement shall be
forfeited, regardless of whether they have been awarded or a Vesting Date has
occurred on or before such termination date, unless and to the extent that the
Plan Administrator determines that such forfeiture would violate applicable
law.
4. RESTRICTIONS ON AWARDED SHARES/FORFEITURES. Performance Shares awarded
pursuant to Section 2 of this Agreement will be subject to the following
restrictions until their respective Vesting Dates:
(a) FORFEITURE ON TERMINATION. Subject to Section 3, if the Grantee's
employment with the Corporation terminates for any reason prior to the Vesting
Date for awarded Performance Shares, the Grantee shall forfeit all rights with
respect to the shares included in that award, and the certificates evidencing
such shares shall be null, void and of no effect as of the date his/her
employment terminates. Such shares shall revert to the Corporation as
treasury
stock and may, in the sole discretion of the Corporation, be cancelled or
retained as treasury stock.
(b) NONTRANSFERABILITY. Prior to the Vesting Date with respect to awarded
Performance Shares, such shares shall be nontransferable and may not be sold,
hypothecated or otherwise assigned or conveyed by a Grantee to any party,
except as otherwise provided in Section 9(e).
(c) ADDITIONAL SHARES. Any shares of Stock accruing to awarded
Performance
Shares as a result of any adjustment under Section 9(h) will be subject to the
same restrictions (and have the same Vesting Date) as the shares to which they
accrue.
5. DELIVERY OF SHARES.
(a) AWARDED SHARES. Performance Shares awarded pursuant to Section 2 of
this Agreement shall be registered in the name of the affected Grantee within
sixty (60) days after the Award Date. Such shares shall, however, be subject
to
the restrictions described in Sections 3 and 4 of this Agreement until the
Vesting Date for such shares, and the certificates evidencing the shares shall
bear a legend noticing those restrictions either specifically or by reference to
the provisions of this Agreement. Such shares, when issued in accordance with
this Agreement, shall be deemed to be fully paid and nonassessable.
Certificates representing such shares shall be held in the custody of the
Corporation (or the Agent). Each Grantee shall supply the Corporation or the
Agent (as instructed) with an executed stock power with respect to each such
stock certificate.
(b) VESTED SHARES. Certificates representing awarded Performance Shares
(without the legend described in Section 4) which have vested pursuant to
Sections 3 shall be delivered to the affected Grantee within ten (10) business
days after the Vesting Date with respect to such shares. At such time, the
stock powers described in Section 4 will be destroyed, and the Grantee shall
enjoy full shareholder and ownership rights with respect to such shares.
6. OWNERSHIP RIGHTS. Except as otherwise provided in Sections 4 and 5 of
this
Agreement, upon receipt of an award of Performance Shares under this
Agreement,
the Grantee shall exercise all ownership rights (including, without
limitation,
the right to vote and the right to receive dividends) with respect to such
shares, provided that voting and dividend rights with respect to the shares
will
be exercisable only if the record date for determining shareholders entitled
to
vote, or to receive dividends, falls on or after an Award Date and before the
effective date of a forfeiture of the shares under Section 4. The Grantee
shall have the same rights with respect to any shares of Stock accruing to
awarded Performance Shares as a result of any adjustment under Sections 9(h).
7. DEFERRAL OF EXERCISE OR DELIVERY OF SHARES. Notwithstanding any
provision
in this Agreement to the contrary, if any law or regulation of any
governmental
authority having jurisdiction in the matter requires the Corporation, the
Plan
Administrator, the Agent or the Grantee to take any action or refrain from
action in connection with the award of delivery of Performance Shares under
this
Agreement, or to delay such award or delivery, then the award or delivery of
such shares shall be deferred until such action has been taken or such
restriction on action has been removed.
8. TERMINATION DATE. The Grantee's date of termination of employment from
the
Corporation shall be deemed for purposes of this Agreement to be the later of
(i) his last day of active work for the Corporation or (ii) his last day on
the
active employee payroll of the Corporation; provided, however, that for all
purposes of this Agreement, the Grantee shall be deemed actively at work
during
any period the Grantee is on approved paid medical leave or leave of absence;
and provided, further, that notwithstanding anything in this Section 8 to the
contrary, if the Grantee's employment terminates and accelerated vesting under
Section 3(b)(ii) applies, the Grantee's termination date shall be his/her
Disability Retirement Date.
9. GENERAL PROVISIONS. The Grantee acknowledges that he has read,
understands
and agrees with all of the provisions in this Agreement and the Plan,
including (but not limited to) the following:
(a) AUTHORITY OF PLAN ADMINISTRATOR. The Plan Administrator shall have
the authority to administer the Agreement and the Plan; to make all
determinations with respect to the construction and application of the
Agreement, the Plan, and the resolutions of the Board of Directors
establishing
the Plan; to adopt and revise rules relating to the Agreement and the Plan;
to
hire the Agent with respect to its administrative responsibilities under the
Agreement and the Plan; and to make other determinations which it believes are
necessary or advisable for the administration of the Agreement and the Plan.
Any dispute or disagreement which arises under this Agreement or the Plan
shall
be resolved by the Plan Administrator in its absolute discretion. Any such
determination, interpretation, resolution, or other action by the Plan
Administrator shall be final, binding and conclusive with respect to the Grantee
and all other persons affected thereby.
(b) NOTICES. Any notice which is required or permitted under this
Agreement shall be in writing (unless otherwise specified in the Agreement or in
a writing from the Corporation or the Agent to the Grantee), and delivered
personally or by mail, postage prepaid, addressed as follows: (i) if to the
Corporation or the Agent, at l33 Peachtree Street, N.E., Atlanta, Georgia
30303,
Attention: Compensation Department, or at such other address as the
Corporation
or the Agent by notice to the Grantee may have designated from time to time;
(ii) if to the Grantee, at the address indicated in the Grantee's then-current
personnel records, or at such other address as the Grantee by notice to the
Corporation may have designated from time to time. Such notice shall be
deemed given upon receipt.
(c) TAXATION. The Grantee shall be responsible for all applicable
income
and withholding taxes and the employee share of FICA taxes with respect to any
compensation income generated upon the award or vesting of his vested
Performance Shares under this Agreement.
(d) NONTRANSFERABILITY. This Agreement and the Performance Shares
granted
to the Grantee shall be nontransferable and shall not be sold, hypothecated or
otherwise assigned or conveyed by the Grantee to any other person, except as
specifically permitted in this Agreement. No assignment or transfer of this
Agreement or the rights represented thereby, whether voluntary or involuntary,
or by operation of law or otherwise, shall vest in the assignee or transferee
any interest or right whatsoever, except as specifically permitted in this
Agreement. The Agreement shall terminate, and be of no force or effect,
immediately upon any attempt to assign or transfer the Agreement or any of the
Performance Shares to which the Agreement applies.
(e) DESIGNATION OF BENEFICIARY. Notwithstanding anything in Section
9(d)
to the contrary, the Grantee may designate a person or persons to receive, in
the event of his death, any rights to which he would be entitled under this
Agreement. Such a designation shall be filed with the Agent in accordance
with
uniform procedures specified by the Plan Administrator. The Grantee may
change
or revoke a Beneficiary designation at any time by filing a written statement of
such change or revocation with the Agent in accordance with uniform procedures
specified by the Plan Administrator. No Beneficiary designation or change of
Beneficiary designation will be effective until notice thereof is received.
If
an Grantee fails to designate a Beneficiary or if the Beneficiary predeceases
the Grantee, the Grantee's estate shall be deemed to be his/her Beneficiary
for purposes of this Agreement.
(f) NO SHAREHOLDER RIGHTS. Except as otherwise specifically provided
in
Section 6 of this Agreement (regarding shareholder rights of the Grantee with
respect to Performance Shares awarded pursuant to Section 2), until
Performance
Shares have vested in accordance with the provisions of Section 3 of the
Agreement, the Grantee shall have no rights as a shareholder of the
Corporation,
and shall not be deemed to be a shareholder of the Corporation for any
purpose,
as a result of any grant or award of Performance Shares to the Grantee.
(g) NOT AN EMPLOYMENT CONTRACT. This Agreement shall not be deemed to
limit or restrict the right of the Corporation to terminate the Grantee's
employment at any time, for any reason, with or without Cause, or to limit or
restrict the right of the Grantee to terminate his employment with the
Corporation at any time.
(h) CORPORATE RESTRUCTURING/CAPITAL READJUSTMENTS. Nothing in this
Agreement shall abridge the rights or powers of the Corporation or its
stockholders reserved to them in Section 9(a) of the Plan, and in the event of
any extraordinary transaction with respect to or affecting Georgia-Pacific
Group
Stock, adjustments to the number of Performance Shares granted in this
Agreement
may be made in accordance with the provisions of Section 9(b) of the Plan.
(i) FRACTIONAL SHARES. Notwithstanding anything in this Agreement to
the
contrary, in the event that any adjustment to the Target Grant or an award of
Performance Shares or the calculation of an award pursuant to this Agreement
would otherwise result in the creation of a fractional share interest, the
affected Target Grant or Performance Share award shall be rounded up to the
nearest whole share.
(j) AMENDMENT OR TERMINATION. This Agreement may be amended or terminated
at any time by the mutual agreement and written consent of the Grantee and the
Plan Administrator, but only to the extent permitted under the Plan.
(k) GOVERNING INSTRUMENT. This Agreement is subject to all terms and
conditions of the Plan and shall at all times be interpreted in a manner that
is
consistent with the intent, purposes, and specific language of the Plan.
(l) SEVERABILITY. If any provision of this Agreement should be held
illegal or invalid for any reason by the Plan Administrator or court of
applicable jurisdiction, such determination shall not affect the other
provisions of this Agreement, and it shall be construed as if such provision
had never been included herein.
(m) HEADINGS/GENDER. Headings in this Agreement are for convenience
only
and shall not be construed to be part of this Agreement. Any reference to the
masculine, feminine or neuter gender shall be a reference to other genders as
appropriate.
(n) 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.
10. DEFINITIONS. For purposes of this Agreement, the following terms shall
be
defined as follows:
(a) AGENT means First Chicago Trust Corporation of New York or any other
entity designated by the Plan Administrator to act as its administrative
service provider.
(b) AGREEMENT means this agreement between the Grantee and the
Corporation
setting forth the terms and conditions of the Performance Share grant
described herein.
(c) AWARD DATE means the date as of which Performance Shares are awarded
to the Grantee pursuant to Section 2.
d) BENEFICIARY means the person(s) designated by the Grantee pursuant
to
Section 9(e) of this Agreement to receive his/her rights under this Agreement
upon his/her death.
(e) BOARD OF DIRECTORS means the Board of Directors of Georgia-Pacific
Corporation.
(f) CAUSE means any of the actions or omissions specified in Section
2(d) of the Plan.
(g) CHANGE OF CONTROL has the meanings specified in Section 11(b) of the
Plan.
(h) COMMITTEE means the Compensation Committee of the Board of
Directors,
or a subcommittee of such Committee, as the same may be constituted from time
to time.
(i) CORPORATION means Georgia-Pacific Corporation, its successors and
assigns, and any other corporation in an unbroken chain of corporations
beginning with Georgia-Pacific Corporation if each of the corporations other
than the last corporation in the unbroken chain owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
(j) DISABILITY means "total disability" as defined under the long-term
disability program of the Georgia-Pacific Corporation Salaried Employees Long-
Term Disability Plan (whether or not the Grantee is covered under such program).
(k) DISABILITY RETIREMENT DATE means the later of (i) the day the
Grantee's employment with the Corporation ends after the maximum period during
which salary continuation benefits from the Corporation because of illness or
injury are authorized in accordance with its then-current medical leave policy,
but only if the Grantee's Disability continues through that date, or (ii) the
day the Grantee's employment with the Corporation ends after the last day of a
personal leave of absence immediately following such period of salary
continuation, provided, that the Grantee has a Disability on such date. If
the
Grantee is involuntarily terminated because of job elimination or facility
closure (or other reason approved by the Plan Administrator) while on a paid
medical leave based on a Disability or during a personal leave of absence
immediately following such medical leave, the Grantee will have a Disability
Retirement Date on the last day of the maximum period during which salary
continuation benefits from the Corporation because of illness or injury would
have been authorized in accordance with its then-current medical leave policy
if
he had not been terminated (in the case of termination during a medical leave)
or on the date of termination (in the case of termination during the personal
leave of absence), provided that he still has a Disability on such date.
(l) EARLY RETIREMENT DATE means the Grantee's date of termination from
the
Corporation after having attained at least age 62 (but not age 65) and having
accrued at least 10 years of service for vesting purposes as determined in
accordance with the provisions of the Georgia-Pacific Corporation Savings and
Capital Growth Plan (or any successor tax-qualified retirement plan maintained
for salaried employees of the Corporation).
(m) FAIR MARKET VALUE is the mean between the high and low sales prices of
a share of Georgia-Pacific Group Stock on a particular 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 Plan Administrator in its discretion. If the date of
determination is not a trading date on the New York Stock Exchange, Fair
Market
Value shall be determined using the high and low sales prices of a share of
Georgia-Pacific Group Stock on the next preceding trading date. The Fair
Market
Value of Georgia-Pacific Group Stock shall be rounded to the nearest whole
cent
(with 0.5 cent being rounded to the next higher whole cent).
(n) GEORGIA-PACIFIC GROUP STOCK or STOCK means the class of the
Corporation's common stock, par value $0.80 per share, which has been
designated
by the Corporation as the Georgia-Pacific Corporation--Georgia-Pacific Group
Common Stock.
(o) GRANT DATE means the date set forth on the first page of this
Agreement.
(p) GRANTEE means the employee of the Corporation named on the first
page of this Agreement.
(q) NORMAL RETIREMENT DATE means the Grantee's date of termination from
the Corporation after having attained at least age 65.
(r) PEER GROUP COMPANIES means, for any Performance Period, the
companies
included in the Standard & Poors Paper and Forest Products Industry Index (but
excluding the Corporation) on January 1 of such Performance Period; provided,
however that if a Peer Group Company is not in existence as an independent
entity generating the types of public information needed for TSR calculations
under this Agreement both at the beginning and the end of the Performance
Period, that company shall be disregarded for purposes of making awards under
this Agreement, notwithstanding its inclusion in the group of Peer Group
Companies otherwise applicable to such calculations.
(s) PERFORMANCE PERIOD means the period during which Total Shareholder
Return of the G-P Group and the Peer Group Companies will be measured to
determine whether any of the Performance Shares will be awarded to Grantee
pursuant to Section 2, which period is specified on the first page of this
Agreement.
(t) PERFORMANCE SHARES means the restricted shares of Stock granted
under
the terms and conditions of this Agreement.
(u) PLAN means the Georgia-Pacific Corporation/Georgia-Pacific Group
1997
Long-Term Incentive Plan, as adopted by the Board of Directors on September
17,
1997, and approved by the Corporation's shareholders on December 16, 1997,
and as amended from time to time.
(v) PLAN ADMINISTRATOR means the Committee, provided, however, that to
the
extent permitted by the Plan and authorized by the Committee, the Chief
Executive Officer of the Georgia-Pacific Corporation may act on behalf of the
Committee in executing the duties and responsibilities of the Plan
Administrator.
(w) TARGET GRANT means the number of Performance Shares specified on the
first page of this Agreement.
(x) TOTAL SHAREHOLDER RETURN or TSR means, for a given Performance
Period
and a given common stock, the number determined by the formula [(SB+SD)PE -
100] . 100, where (i) "SB" is the number of shares of the common stock
(including fractional shares) that could be bought with an initial $100
investment at PB, or $100 . PB; (ii) "SD" is the total number of shares of the
common stock (including fractional shares) (A) which are distributed as stock
dividends with respect to the common stock during the Performance Period or
(B)
which could be purchased with the cash dividends (or allocated portion of a
per
share dividend) paid on SB shares of the common stock during the Performance
Period (and any additional shares or fractional shares allocated in accordance
with this subsection (ii) with respect to dividends paid during the
Performance
Period but prior to the dividend in question), determined in the case of each
such dividend paid using the closing price of the common stock on the trading
date coincident with or next preceding the date of payment of the dividend;
(iii) "PB" is the closing price of the common stock on the last trading day
before the first day of the Performance Period; and (iv) "PE" is the closing
price of the common stock on the last trading day of the Performance Period.
In
calculating the Total Shareholder Return for a given common stock, the Plan
Administrator will apply the principles of Section 9(h) as if that section
applied to the common stock.
(y) VESTING DATE means the date upon which the restrictions contained in
Section 4 lapse with respect to an award of Performance Shares made in
accordance with Section 2, which date shall be determined in accordance with
Section 3.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers under its corporate seal, and the
Grantee has executed this Agreement, as of the 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
GRANTEE
Name:
NOTE: PLEASE COMPLETE THE ATTACHED ACKNOWLEDGMENT OF RECEIPT AND BENEFICIARY
DESIGNATION FORM AND RETURN THEM TO:
FIRST CHICAGO TRUST
GEORGIA-PACIFIC STOCK OPTION PLAN
"PERSONAL AND CONFIDENTIAL"
P. O. BOX 2585
JERSEY CITY, NJ 07303-2585
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
your Performance Share grant 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 First Chicago Trust
Corporation in writing at the address indicated below.
PLEASE TAKE TIME TO FILL OUT THIS FORM AND RETURN IT TO FIRST CHICAGO
TRUST
AT THE FOLLOWING ADDRESS: FIRST CHICAGO TRUST, GEORGIA-PACIFIC STOCK OPTION
PLAN, "PERSONAL AND CONFIDENTIAL", P. O. BOX 2585, JERSEY CITY, NJ 07303-2585.
BENEFICIARY DESIGNATIONS OR MODIFICATIONS OF BENEFICIARY DESIGNATIONS SENT TO
ANY OTHER ADDRESS WILL NOT BE EFFECTIVE UNTIL ACTUALLY RECEIVED BY FIRST
CHICAGO
TRUST. 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 1999 Performance Share
grants under the 1997 Georgia-Pacific Group LTIP.
/__/ I designate the following person(s) as my beneficiary(ies) under my 1999
Performance Share grants under the 1997 Georgia-Pacific Group LTIP:
I ACKNOWLEDGE RECEIPT OF THE EXECUTED PERFORMANCE SHARE AGREEMENT EVIDENCING
MY
JANUARY 28, 1999, PERFORMANCE SHARE 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:______________________________
Date:________________________________
GEORGIA-PACIFIC CORPORATION/GEORGIA-PACIFIC GROUP
1997 LONG-TERM INCENTIVE PLAN
PERFORMANCE SHARE GRANT AGREEMENT
Grantee: [First Middle Last]
Target Grant: [ ] shares
Performance Period January 1, 1999 through
December 31, 2000
Grant Date: January 28, 1999
THIS AGREEMENT, dated as of the Grant Date stated above, by and between
Georgia-Pacific Corporation (the "Corporation") and the Grantee;
WITNESSETH:
WHEREAS, the Corporation wishes to give the Grantee an opportunity to
acquire or enlarge his/her equity ownership in the Corporation for purposes of
augmenting the Grantee's proprietary interest in the success of
Georgia-Pacific
Corporation and, in particular, its Georgia-Pacific Group, and thereby
focusing Grantee's efforts on increasing shareholder value;
WHEREAS, the Performance Shares described in this Agreement have been
granted pursuant to, and are governed by, the Plan (as defined below);
NOW, THEREFORE, the Corporation and the Grantee hereby agree as follows:
1. PERFORMANCE SHARE GRANT. Subject to the terms and conditions of this
Agreement, the Corporation hereby grants to Grantee a Target Grant of
Performance Shares as specified on the first page of this Agreement.
2. AWARD OF PERFORMANCE SHARES. Subject to the restrictions described in
Sections 3, 4 and 5 of this Agreement, the Grantee will receive an award of a
specified percentage of his/her Target Grant of Performance Shares as of the
last day of the Performance Period if the percentile ranking of the G-P
Group's
TSR for the Performance Period, when compared to the TSR performance of the
other Peer Group Companies for the Performance Period, equals or exceeds the
30th percentile. The following chart specifies the percentage of the Target
Grant that will be awarded depending upon the actual TSR percentile rating
achieved by G-P Group during the Performance Period:
ACHIEVED TSR AWARD AS
PERCENTILE PERCENTAGE OF
TARGET GRANT
Less than 30th 0%
30th 50%
40th 70%
50th 90%
60th 114%
70th 138%
80th 160%
90th 180%
100th 200%
The percentage of the Target Grant awarded for achieved TSR percentiles which
lie between the data points specified in the chart will be determined by
interpolation. One hundred percent (100%) of the Target Grant will be awarded
if the G-P Group achieves a TSR performance during the Performance Period of
54.17. The precise number of Performance Shares awarded to the Grantee under
this Agreement pursuant to this Section 2 will be determined by multiplying
the
Target Grant by the percentage specified in the above chart (or determined
through interpolation based on the chart), and then rounding the resulting
number up to the nearest whole number.
3. VESTING.
(a) REGULAR VESTING. Except as stated in Sections 3(b) and 3(c) of this
Agreement, the Grantee shall become fully vested in his/her Performance Shares
awarded in accordance with Section 2 (if any) on the fifth anniversary of the
Award Date.
(b) ACCELERATED VESTING. Notwithstanding the regular vesting rule
specified in Section 3(a) of this Agreement, Performance Shares awarded
pursuant
to Section 2 shall become 100% vested upon the earliest to occur of the
following Vesting Dates:
(i) the Grantee's Normal or Early Retirement Date;
(ii) the Grantee's Disability Retirement Date;
(iii) the date of the Grantee's death prior to his termination
of employment from the Corporation;
(iv) the date of a Change of Control; or
(v) subject to the approval of the Committee, the date of the
Grantee's involuntary termination of employment from the
Corporation due to (A) job elimination or (B) such other reason
as may be specifically approved by the Committee.
Except as otherwise provided in this Agreement in the case of a Disability
Retirement Date which occurs after Grantee's termination of employment with
the
Corporation, no Vesting Date will occur - and no Performance Shares may vest-
following termination of employment with the Corporation.
(c) TERMINATION FOR CAUSE. Notwithstanding anything in this Agreement
to
the contrary, if the Corporation terminates the Grantee's employment for Cause
prior to a Change of Control, this Agreement shall be terminated and all
Performance Shares granted to the Grantee under this Agreement shall be
forfeited, regardless of whether they have been awarded or a Vesting Date has
occurred on or before such termination date, unless and to the extent that the
Plan Administrator determines that such forfeiture would violate applicable
law.
4. RESTRICTIONS ON AWARDED SHARES/FORFEITURES. Performance Shares awarded
pursuant to Section 2 of this Agreement will be subject to the following
restrictions until their respective Vesting Dates:
(a) FORFEITURE ON TERMINATION. Subject to Section 3, if the Grantee's
employment with the Corporation terminates for any reason prior to the Vesting
Date for awarded Performance Shares, the Grantee shall forfeit all rights with
respect to the shares included in that award, and the certificates evidencing
such shares shall be null, void and of no effect as of the date his/her
employment terminates. Such shares shall revert to the Corporation as
treasury
stock and may, in the sole discretion of the Corporation, be cancelled or
retained as treasury stock.
(b) NONTRANSFERABILITY. Prior to the Vesting Date with respect to
awarded
Performance Shares, such shares shall be nontransferable and may not be sold,
hypothecated or otherwise assigned or conveyed by a Grantee to any party,
except as otherwise provided in Section 9(e).
(c) ADDITIONAL SHARES. Any shares of Stock accruing to awarded
Performance
Shares as a result of any adjustment under Section 9(h) will be subject to the
same restrictions (and have the same Vesting Date) as the shares to which they
accrue.
5. DELIVERY OF SHARES.
(a) AWARDED SHARES. Performance Shares awarded pursuant to Section 2 of
this Agreement shall be registered in the name of the affected Grantee within
sixty (60) days after the Award Date. Such shares shall, however, be subject
to
the restrictions described in Sections 3 and 4 of this Agreement until the
Vesting Date for such shares, and the certificates evidencing the shares shall
bear a legend noticing those restrictions either specifically or by reference to
the provisions of this Agreement. Such shares, when issued in accordance with
this Agreement, shall be deemed to be fully paid and nonassessable.
Certificates representing such shares shall be held in the custody of the
Corporation (or the Agent). Each Grantee shall supply the Corporation or the
Agent (as instructed) with an executed stock power with respect to each such
stock certificate.
(b) VESTED SHARES. Certificates representing awarded Performance Shares
(without the legend described in Section 4) which have vested pursuant to
Sections 3 shall be delivered to the affected Grantee within ten (10) business
days after the Vesting Date with respect to such shares. At such time, the
stock powers described in Section 4 will be destroyed, and the Grantee shall
enjoy full shareholder and ownership rights with respect to such shares.
6. OWNERSHIP RIGHTS. Except as otherwise provided in Sections 4 and 5 of this
Agreement, upon receipt of an award of Performance Shares under this
Agreement,
the Grantee shall exercise all ownership rights (including, without
limitation,
the right to vote and the right to receive dividends) with respect to such
shares, provided that voting and dividend rights with respect to the shares
will
be exercisable only if the record date for determining shareholders entitled
to
vote, or to receive dividends, falls on or after an Award Date and before the
effective date of a forfeiture of the shares under Section 4. The Grantee
shall
have the same rights with respect to any shares of Stock accruing to awarded
Performance Shares as a result of any adjustment under Sections 9(h).
7. DEFERRAL OF EXERCISE OR DELIVERY OF SHARES. Notwithstanding any
provision
in this Agreement to the contrary, if any law or regulation of any
governmental
authority having jurisdiction in the matter requires the Corporation, the
Plan
Administrator, the Agent or the Grantee to take any action or refrain from
action in connection with the award of delivery of Performance Shares under
this
Agreement, or to delay such award or delivery, then the award or delivery of
such shares shall be deferred until such action has been taken or such
restriction on action has been removed.
8. TERMINATION DATE. The Grantee's date of termination of employment from
the
Corporation shall be deemed for purposes of this Agreement to be the later of
(i) his last day of active work for the Corporation or (ii) his last day on
the
active employee payroll of the Corporation; provided, however, that for all
purposes of this Agreement, the Grantee shall be deemed actively at work
during
any period the Grantee is on approved paid medical leave or leave of absence;
and provided, further, that notwithstanding anything in this Section 8 to the
contrary, if the Grantee's employment terminates and accelerated vesting under
Section 3(b)(ii) applies, the Grantee's termination date shall be his/her
Disability Retirement Date.
9. GENERAL PROVISIONS. The Grantee acknowledges that he has read,
understands
and agrees with all of the provisions in this Agreement and the Plan,
including (but not limited to) the following:
(a) AUTHORITY OF PLAN ADMINISTRATOR. The Plan Administrator shall have
the authority to administer the Agreement and the Plan; to make all
determinations with respect to the construction and application of the
Agreement, the Plan, and the resolutions of the Board of Directors
establishing
the Plan; to adopt and revise rules relating to the Agreement and the Plan; to
hire the Agent with respect to its administrative responsibilities under the
Agreement and the Plan; and to make other determinations which it believes are
necessary or advisable for the administration of the Agreement and the Plan.
Any dispute or disagreement which arises under this Agreement or the Plan
shall
be resolved by the Plan Administrator in its absolute discretion. Any such
determination, interpretation, resolution, or other action by the Plan
Administrator shall be final, binding and conclusive with respect to the
Grantee
and all other persons affected thereby.
(b) NOTICES. Any notice which is required or permitted under this
Agreement shall be in writing (unless otherwise specified in the Agreement or
in
a writing from the Corporation or the Agent to the Grantee), and delivered
personally or by mail, postage prepaid, addressed as follows: (i) if to the
Corporation or the Agent, at l33 Peachtree Street, N.E., Atlanta, Georgia
30303,
Attention: Compensation Department, or at such other address as the
Corporation
or the Agent by notice to the Grantee may have designated from time to time;
(ii) if to the Grantee, at the address indicated in the Grantee's then-current
personnel records, or at such other address as the Grantee by notice to the
Corporation may have designated from time to time. Such notice shall be
deemed given upon receipt.
(c) TAXATION. The Grantee shall be responsible for all applicable
income
and withholding taxes and the employee share of FICA taxes with respect to any
compensation income generated upon the award or vesting of his vested
Performance Shares under this Agreement.
(d) NONTRANSFERABILITY. This Agreement and the Performance Shares
granted
to the Grantee shall be nontransferable and shall not be sold, hypothecated or
otherwise assigned or conveyed by the Grantee to any other person, except as
specifically permitted in this Agreement. No assignment or transfer of this
Agreement or the rights represented thereby, whether voluntary or involuntary,
or by operation of law or otherwise, shall vest in the assignee or transferee
any interest or right whatsoever, except as specifically permitted in this
Agreement. The Agreement shall terminate, and be of no force or effect,
immediately upon any attempt to assign or transfer the Agreement or any of the
Performance Shares to which the Agreement applies.
(e) DESIGNATION OF BENEFICIARY. Notwithstanding anything in Section
9(d)
to the contrary, the Grantee may designate a person or persons to receive, in
the event of his death, any rights to which he would be entitled under this
Agreement. Such a designation shall be filed with the Agent in accordance
with
uniform procedures specified by the Plan Administrator. The Grantee may
change
or revoke a Beneficiary designation at any time by filing a written statement
of
such change or revocation with the Agent in accordance with uniform
procedures
specified by the Plan Administrator. No Beneficiary designation or change of
Beneficiary designation will be effective until notice thereof is received.
If
an Grantee fails to designate a Beneficiary or if the Beneficiary predeceases
the Grantee, the Grantee's estate shall be deemed to be his/her Beneficiary
for purposes of this Agreement.
(f) NO SHAREHOLDER RIGHTS. Except as otherwise specifically provided in
Section 6 of this Agreement (regarding shareholder rights of the Grantee with
respect to Performance Shares awarded pursuant to Section 2), until
Performance
Shares have vested in accordance with the provisions of Section 3 of the
Agreement, the Grantee shall have no rights as a shareholder of the
Corporation,
and shall not be deemed to be a shareholder of the Corporation for any
purpose,
as a result of any grant or award of Performance Shares to the Grantee.
(g) NOT AN EMPLOYMENT CONTRACT. This Agreement shall not be deemed to
limit or restrict the right of the Corporation to terminate the Grantee's
employment at any time, for any reason, with or without Cause, or to limit or
restrict the right of the Grantee to terminate his employment with the
Corporation at any time.
(h) CORPORATE RESTRUCTURING/CAPITAL READJUSTMENTS. Nothing in this
Agreement shall abridge the rights or powers of the Corporation or its
stockholders reserved to them in Section 9(a) of the Plan, and in the event of
any extraordinary transaction with respect to or affecting Georgia-Pacific
Group
Stock, adjustments to the number of Performance Shares granted in this
Agreement
may be made in accordance with the provisions of Section 9(b) of the Plan.
(i) FRACTIONAL SHARES. Notwithstanding anything in this Agreement to
the
contrary, in the event that any adjustment to the Target Grant or an award of
Performance Shares or the calculation of an award pursuant to this Agreement
would otherwise result in the creation of a fractional share interest, the
affected Target Grant or Performance Share award shall be rounded up to the
nearest whole share.
(j) AMENDMENT OR TERMINATION. This Agreement may be amended or
terminated
at any time by the mutual agreement and written consent of the Grantee and the
Plan Administrator, but only to the extent permitted under the Plan.
(k) GOVERNING INSTRUMENT. This Agreement is subject to all terms and
conditions of the Plan and shall at all times be interpreted in a manner that
is
consistent with the intent, purposes, and specific language of the Plan.
(l) SEVERABILITY. If any provision of this Agreement should be held
illegal or invalid for any reason by the Plan Administrator or court of
applicable jurisdiction, such determination shall not affect the other
provisions of this Agreement, and it shall be construed as if such provision
had never been included herein.
(m) HEADINGS/GENDER. Headings in this Agreement are for convenience
only
and shall not be construed to be part of this Agreement. Any reference to
the
masculine, feminine or neuter gender shall be a reference to other genders as
appropriate.
(n) 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.
10. DEFINITIONS. For purposes of this Agreement, the following terms shall
be defined as follows:
(a) AGENT means First Chicago Trust Corporation of New York or any other
entity designated by the Plan Administrator to act as its administrative
service provider.
(b) AGREEMENT means this agreement between the Grantee and the
Corporation
setting forth the terms and conditions of the Performance Share grant
described herein.
(c) AWARD DATE means the date as of which Performance Shares are awarded
to the Grantee pursuant to Section 2.
d) BENEFICIARY means the person(s) designated by the Grantee pursuant
to
Section 9(e) of this Agreement to receive his/her rights under this Agreement
upon his/her death.
(e) BOARD OF DIRECTORS means the Board of Directors of Georgia-Pacific
Corporation.
(f) CAUSE means any of the actions or omissions specified in Section
2(d) of the Plan.
(g) CHANGE OF CONTROL has the meanings specified in Section 11(b) of the
Plan.
(h) COMMITTEE means the Compensation Committee of the Board of
Directors,
or a subcommittee of such Committee, as the same may be constituted from time
to time.
(i) CORPORATION means Georgia-Pacific Corporation, its successors and
assigns, and any other corporation in an unbroken chain of corporations
beginning with Georgia-Pacific Corporation if each of the corporations other
than the last corporation in the unbroken chain owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
(j) DISABILITY means "total disability" as defined under the long-term
disability program of the Georgia-Pacific Corporation Salaried Employees Long-
Term Disability Plan (whether or not the Grantee is covered under such
program).
(k) DISABILITY RETIREMENT DATE means the later of (i) the day the
Grantee's employment with the Corporation ends after the maximum period during
which salary continuation benefits from the Corporation because of illness or
injury are authorized in accordance with its then-current medical leave
policy,
but only if the Grantee's Disability continues through that date, or (ii) the
day the Grantee's employment with the Corporation ends after the last day of a
personal leave of absence immediately following such period of salary
continuation, provided, that the Grantee has a Disability on such date. If
the
Grantee is involuntarily terminated because of job elimination or facility
closure (or other reason approved by the Plan Administrator) while on a paid
medical leave based on a Disability or during a personal leave of absence
immediately following such medical leave, the Grantee will have a Disability
Retirement Date on the last day of the maximum period during which salary
continuation benefits from the Corporation because of illness or injury would
have been authorized in accordance with its then-current medical leave policy
if
he had not been terminated (in the case of termination during a medical leave)
or on the date of termination (in the case of termination during the personal
leave of absence), provided that he still has a Disability on such date.
(l) EARLY RETIREMENT DATE means the Grantee's date of termination from
the
Corporation after having attained at least age 62 (but not age 65) and having
accrued at least 10 years of service for vesting purposes as determined in
accordance with the provisions of the Georgia-Pacific Corporation Savings and
Capital Growth Plan (or any successor tax-qualified retirement plan maintained
for salaried employees of the Corporation).
(m) FAIR MARKET VALUE is the mean between the high and low sales prices
of
a share of Georgia-Pacific Group Stock on a particular 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 Plan Administrator in its discretion. If the date of
determination is not a trading date on the New York Stock Exchange, Fair
Market
Value shall be determined using the high and low sales prices of a share of
Georgia-Pacific Group Stock on the next preceding trading date. The Fair
Market
Value of Georgia-Pacific Group Stock shall be rounded to the nearest whole
cent
(with 0.5 cent being rounded to the next higher whole cent).
(n) GEORGIA-PACIFIC GROUP STOCK or STOCK means the class of the
Corporation's common stock, par value $0.80 per share, which has been
designated
by the Corporation as the Georgia-Pacific Corporation--Georgia-Pacific Group
Common Stock.
(o) GRANT DATE means the date set forth on the first page of this
Agreement.
(p) GRANTEE means the employee of the Corporation named on the first
page of this Agreement.
(q) NORMAL RETIREMENT DATE means the Grantee's date of termination from
the Corporation after having attained at least age 65.
(r) PEER GROUP COMPANIES means, for any Performance Period, the
companies
included in the Standard & Poors Paper and Forest Products Industry Index (but
excluding the Corporation) on January 1 of such Performance Period; provided,
however that if a Peer Group Company is not in existence as an independent
entity generating the types of public information needed for TSR calculations
under this Agreement both at the beginning and the end of the Performance
Period, that company shall be disregarded for purposes of making awards under
this Agreement, notwithstanding its inclusion in the group of Peer Group
Companies otherwise applicable to such calculations.
(s) PERFORMANCE PERIOD means the period during which Total
Shareholder
Return of the G-P Group and the Peer Group Companies will be measured to
determine whether any of the Performance Shares will be awarded to Grantee
pursuant to Section 2, which period is specified on the first page of this
Agreement.
(t) PERFORMANCE SHARES means the restricted shares of Stock granted
under the terms and conditions of this Agreement.
(u) PLAN means the Georgia-Pacific Corporation/Georgia-Pacific Group
1997
Long-Term Incentive Plan, as adopted by the Board of Directors on September
17,
1997, and approved by the Corporation's shareholders on December 16, 1997,
and as amended from time to time.
(v) PLAN ADMINISTRATOR means the Committee, provided, however, that to
the
extent permitted by the Plan and authorized by the Committee, the Chief
Executive Officer of the Georgia-Pacific Corporation may act on behalf of the
Committee in executing the duties and responsibilities of the Plan
Administrator.
(w) TARGET GRANT means the number of Performance Shares specified on the
first page of this Agreement.
(x) TOTAL SHAREHOLDER RETURN or TSR means, for a given Performance
Period
and a given common stock, the number determined by the formula [(SB+SD)PE -
100] . 100, where (i) "SB" is the number of shares of the common stock
(including fractional shares) that could be bought with an initial $100
investment at PB, or $100 . PB; (ii) "SD" is the total number of shares of the
common stock (including fractional shares) (A) which are distributed as stock
dividends with respect to the common stock during the Performance Period or
(B)
which could be purchased with the cash dividends (or allocated portion of
a per
share dividend) paid on SB shares of the common stock during the Performance
Period (and any additional shares or fractional shares allocated in accordance
with this subsection (ii) with respect to dividends paid during the
Performance
Period but prior to the dividend in question), determined in the case of each
such dividend paid using the closing price of the common stock on the trading
date coincident with or next preceding the date of payment of the dividend;
(iii) "PB" is the closing price of the common stock on the last trading day
before the first day of the Performance Period; and (iv) "PE" is the closing
price of the common stock on the last trading day of the Performance Period.
In
calculating the Total Shareholder Return for a given common stock, the Plan
Administrator will apply the principles of Section 9(h) as if that section
applied to the common stock.
(y) VESTING DATE means the date upon which the restrictions contained in
Section 4 lapse with respect to an award of Performance Shares made in
accordance with Section 2, which date shall be determined in accordance with
Section 3.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers under its corporate seal, and the
Grantee has executed this Agreement, as of the 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
GRANTEE
Name:
NOTE: PLEASE COMPLETE THE ATTACHED ACKNOWLEDGMENT OF RECEIPT AND
BENEFICIARY
DESIGNATION FORM AND RETURN THEM TO:
FIRST CHICAGO TRUST
GEORGIA-PACIFIC STOCK OPTION PLAN
"PERSONAL AND CONFIDENTIAL"
P. O. BOX 2585
JERSEY CITY, NJ 07303-2585
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
your Performance Share grant 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 First Chicago Trust
Corporation in writing at the address indicated below.
PLEASE TAKE TIME TO FILL OUT THIS FORM AND RETURN IT TO FIRST CHICAGO TRUST
AT THE FOLLOWING ADDRESS: FIRST CHICAGO TRUST, GEORGIA-PACIFIC STOCK OPTION
PLAN, "PERSONAL AND CONFIDENTIAL", P. O. BOX 2585, JERSEY CITY, NJ 07303-2585.
BENEFICIARY DESIGNATIONS OR MODIFICATIONS OF BENEFICIARY DESIGNATIONS SENT TO
ANY OTHER ADDRESS WILL NOT BE EFFECTIVE UNTIL ACTUALLY RECEIVED BY FIRST CHICAGO
TRUST. 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 1999 Performance Share
grants under the 1997 Georgia-Pacific Group LTIP.
/__/ I designate the following person(s) as my beneficiary(ies) under my 1999
Performance Share grants under the 1997 Georgia-Pacific Group LTIP:
NAME ADDRESS RELATIONSHIP TO SOCIAL SECURITY
YOU NUMBER (IF
KNOWN)
I ACKNOWLEDGE RECEIPT OF THE EXECUTED PERFORMANCE SHARE AGREEMENT EVIDENCING MY
JANUARY 28, 1999, PERFORMANCE SHARE 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:______________________________
Date:________________________________
GEORGIA-PACIFIC CORPORATION/GEORGIA-PACIFIC GROUP
1997 LONG-TERM INCENTIVE PLAN
PERFORMANCE SHARE GRANT AGREEMENT
Grantee: [First Middle Last]
Target Grant: [ ] shares
Performance Period January 1, 1999 through
December 31, 2001
Grant Date: January 28, 1999
THIS AGREEMENT, dated as of the Grant Date stated above, by and between
Georgia-
Pacific Corporation (the "Corporation") and the Grantee;
WITNESSETH:
WHEREAS, the Corporation wishes to give the Grantee an opportunity to
acquire or enlarge his/her equity ownership in the Corporation for purposes of
augmenting the Grantee's proprietary interest in the success of
Georgia-Pacific
Corporation and, in particular, its Georgia-Pacific Group, and thereby
focusing
Grantee's efforts on increasing shareholder value;
WHEREAS, the Performance Shares described in this Agreement have been
granted pursuant to, and are governed by, the Plan (as defined below);
NOW, THEREFORE, the Corporation and the Grantee hereby agree as follows:
1. PERFORMANCE SHARE GRANT. Subject to the terms and conditions of this
Agreement, the Corporation hereby grants to Grantee a Target Grant of
Performance Shares as specified on the first page of this Agreement.
2. AWARD OF PERFORMANCE SHARES. Subject to the restrictions described in
Sections 3, 4 and 5 of this Agreement, the Grantee will receive an award of a
specified percentage of his/her Target Grant of Performance Shares as of the
last day of the Performance Period if the percentile ranking of the G-P
Group's
TSR for the Performance Period, when compared to the TSR performance of the
other Peer Group Companies for the Performance Period, equals or exceeds the
30th percentile. The following chart specifies the percentage of the Target
Grant that will be awarded depending upon the actual TSR percentile rating
achieved by G-P Group during the Performance Period:
ACHIEVED TSR AWARD AS
PERCENTILE PERCENTAGE OF
TARGET GRANT
Less than 30th 0%
30th 50%
40th 70%
50th 90%
60th 114%
70th 138%
80th 160%
90th 180%
100th 200%
The percentage of the Target Grant awarded for achieved TSR percentiles which
lie between the data points specified in the chart will be determined by
interpolation. One hundred percent (100%) of the Target Grant will be awarded
if the G-P Group achieves a TSR performance during the Performance Period of
54.17. The precise number of Performance Shares awarded to the Grantee under
this Agreement pursuant to this Section 2 will be determined by multiplying
the
Target Grant by the percentage specified in the above chart (or determined
through interpolation based on the chart), and then rounding the resulting
number up to the nearest whole number.
3. VESTING.
(a) REGULAR VESTING. Except as stated in Sections 3(b) and 3(c) of this
Agreement, the Grantee shall become fully vested in his/her Performance Shares
awarded in accordance with Section 2 (if any) on the fifth anniversary of the
Award Date.
(b) ACCELERATED VESTING. Notwithstanding the regular vesting rule
specified in Section 3(a) of this Agreement, Performance Shares awarded
pursuant
to Section 2 shall become 100% vested upon the earliest to occur of the
following Vesting Dates:
(i) the Grantee's Normal or Early Retirement Date;
(ii) the Grantee's Disability Retirement Date;
(iii) the date of the Grantee's death prior to his termination
of employment from the Corporation;
(iv) the date of a Change of Control; or
(v) subject to the approval of the Committee, the date of the
Grantee's involuntary termination of employment from the
Corporation due to (A) job elimination or (B) such other
reason
as may be specifically approved by the Committee.
Except as otherwise provided in this Agreement in the case of a Disability
Retirement Date which occurs after Grantee's termination of employment with
the
Corporation, no Vesting Date will occur - and no Performance Shares may vest-
following termination of employment with the Corporation.
(c) TERMINATION FOR CAUSE. Notwithstanding anything in this Agreement
to
the contrary, if the Corporation terminates the Grantee's employment for Cause
prior to a Change of Control, this Agreement shall be terminated and all
Performance Shares granted to the Grantee under this Agreement shall be
forfeited, regardless of whether they have been awarded or a Vesting Date has
occurred on or before such termination date, unless and to the extent that the
Plan Administrator determines that such forfeiture would violate applicable
law.
4. RESTRICTIONS ON AWARDED SHARES/FORFEITURES. Performance Shares awarded
pursuant to Section 2 of this Agreement will be subject to the following
restrictions until their respective Vesting Dates:
(a) FORFEITURE ON TERMINATION. Subject to Section 3, if the Grantee's
employment with the Corporation terminates for any reason prior to the Vesting
Date for awarded Performance Shares, the Grantee shall forfeit all rights with
respect to the shares included in that award, and the certificates evidencing
such shares shall be null, void and of no effect as of the date his/her
employment terminates. Such shares shall revert to the Corporation as
treasury
stock and may, in the sole discretion of the Corporation, be cancelled or
retained as treasury stock.
(b) NONTRANSFERABILITY. Prior to the Vesting Date with respect to
awarded
Performance Shares, such shares shall be nontransferable and may not be sold,
hypothecated or otherwise assigned or conveyed by a Grantee to any party,
except as otherwise provided in Section 9(e).
(c) ADDITIONAL SHARES. Any shares of Stock accruing to awarded
Performance
Shares as a result of any adjustment under Section 9(h) will be subject to
the
same restrictions (and have the same Vesting Date) as the shares to which they
accrue.
5. DELIVERY OF SHARES.
(a) AWARDED SHARES. Performance Shares awarded pursuant to Section 2 of
this Agreement shall be registered in the name of the affected Grantee within
sixty (60) days after the Award Date. Such shares shall, however, be subject
to
the restrictions described in Sections 3 and 4 of this Agreement until the
Vesting Date for such shares, and the certificates evidencing the shares shall
bear a legend noticing those restrictions either specifically or by reference
to
the provisions of this Agreement. Such shares, when issued in accordance with
this Agreement, shall be deemed to be fully paid and nonassessable.
Certificates representing such shares shall be held in the custody of the
Corporation (or the Agent). Each Grantee shall supply the Corporation or the
Agent (as instructed) with an executed stock power with respect to each such
stock certificate.
(b) VESTED SHARES. Certificates representing awarded Performance Shares
(without the legend described in Section 4) which have vested pursuant to
Sections 3 shall be delivered to the affected Grantee within ten (10) business
days after the Vesting Date with respect to such shares. At such time, the
stock powers described in Section 4 will be destroyed, and the Grantee shall
enjoy full shareholder and ownership rights with respect to such shares.
6. OWNERSHIP RIGHTS. Except as otherwise provided in Sections 4 and 5 of
this
Agreement, upon receipt of an award of Performance Shares under this
Agreement,
the Grantee shall exercise all ownership rights (including, without
limitation,
the right to vote and the right to receive dividends) with respect to such
shares, provided that voting and dividend rights with respect to the shares
will
be exercisable only if the record date for determining shareholders entitled
to
vote, or to receive dividends, falls on or after an Award Date and before
the
effective date of a forfeiture of the shares under Section 4. The Grantee
shall
have the same rights with respect to any shares of Stock accruing to awarded
Performance Shares as a result of any adjustment under Sections 9(h).
7. DEFERRAL OF EXERCISE OR DELIVERY OF SHARES. Notwithstanding any
provision
in this Agreement to the contrary, if any law or regulation of any
governmental
authority having jurisdiction in the matter requires the Corporation, the
Plan
Administrator, the Agent or the Grantee to take any action or refrain from
action in connection with the award of delivery of Performance Shares under
this
Agreement, or to delay such award or delivery, then the award or delivery of
such shares shall be deferred until such action has been taken or such
restriction on action has been removed.
8. TERMINATION DATE. The Grantee's date of termination of employment from
the
Corporation shall be deemed for purposes of this Agreement to be the later of
(i) his last day of active work for the Corporation or (ii) his last day on
the
active employee payroll of the Corporation; provided, however, that for all
purposes of this Agreement, the Grantee shall be deemed actively at work
during
any period the Grantee is on approved paid medical leave or leave of absence;
and provided, further, that notwithstanding anything in this Section 8 to the
contrary, if the Grantee's employment terminates and accelerated vesting under
Section 3(b)(ii) applies, the Grantee's termination date shall be his/her
Disability Retirement Date.
9. GENERAL PROVISIONS. The Grantee acknowledges that he has read,
understands
and agrees with all of the provisions in this Agreement and the Plan,
including (but not limited to) the following:
(a) AUTHORITY OF PLAN ADMINISTRATOR. The Plan Administrator shall have
the authority to administer the Agreement and the Plan; to make all
determinations with respect to the construction and application of the
Agreement, the Plan, and the resolutions of the Board of Directors
establishing
the Plan; to adopt and revise rules relating to the Agreement and the Plan;
to
hire the Agent with respect to its administrative responsibilities under the
Agreement and the Plan; and to make other determinations which it believes are
necessary or advisable for the administration of the Agreement and the Plan.
Any dispute or disagreement which arises under this Agreement or the Plan
shall
be resolved by the Plan Administrator in its absolute discretion. Any such
determination, interpretation, resolution, or other action by the Plan
Administrator shall be final, binding and conclusive with respect to the Grantee
and all other persons affected thereby.
(b) NOTICES. Any notice which is required or permitted under this
Agreement shall be in writing (unless otherwise specified in the Agreement or in
a writing from the Corporation or the Agent to the Grantee), and delivered
personally or by mail, postage prepaid, addressed as follows: (i) if to the
Corporation or the Agent, at l33 Peachtree Street, N.E., Atlanta, Georgia
30303,
Attention: Compensation Department, or at such other address as the
Corporation
or the Agent by notice to the Grantee may have designated from time to time;
(ii) if to the Grantee, at the address indicated in the Grantee's then-current
personnel records, or at such other address as the Grantee by notice to the
Corporation may have designated from time to time. Such notice shall be
deemed given upon receipt.
(c) TAXATION. The Grantee shall be responsible for all applicable income
and withholding taxes and the employee share of FICA taxes with respect to any
compensation income generated upon the award or vesting of his vested
Performance Shares under this Agreement.
(d) NONTRANSFERABILITY. This Agreement and the Performance Shares
granted
to the Grantee shall be nontransferable and shall not be sold, hypothecated or
otherwise assigned or conveyed by the Grantee to any other person, except as
specifically permitted in this Agreement. No assignment or transfer of this
Agreement or the rights represented thereby, whether voluntary or involuntary,
or by operation of law or otherwise, shall vest in the assignee or transferee
any interest or right whatsoever, except as specifically permitted in this
Agreement. The Agreement shall terminate, and be of no force or effect,
immediately upon any attempt to assign or transfer the Agreement or any of the
Performance Shares to which the Agreement applies.
(e) DESIGNATION OF BENEFICIARY. Notwithstanding anything in Section
9(d) to the contrary, the Grantee may designate a person or persons to
receive, in
the event of his death, any rights to which he would be entitled under this
Agreement. Such a designation shall be filed with the Agent in accordance
with
uniform procedures specified by the Plan Administrator. The Grantee may
change
or revoke a Beneficiary designation at any time by filing a written
statement of
such change or revocation with the Agent in accordance with uniform
procedures
specified by the Plan Administrator. No Beneficiary designation or change of
Beneficiary designation will be effective until notice thereof is received.
If
an Grantee fails to designate a Beneficiary or if the Beneficiary predeceases
the Grantee, the Grantee's estate shall be deemed to be his/her Beneficiary
for purposes of this Agreement.
(f) NO SHAREHOLDER RIGHTS. Except as otherwise specifically provided in
Section 6 of this Agreement (regarding shareholder rights of the Grantee with
respect to Performance Shares awarded pursuant to Section 2), until
Performance
Shares have vested in accordance with the provisions of Section 3 of the
Agreement, the Grantee shall have no rights as a shareholder of the
Corporation,
and shall not be deemed to be a shareholder of the Corporation for any
purpose,
as a result of any grant or award of Performance Shares to the Grantee.
(g) NOT AN EMPLOYMENT CONTRACT. This Agreement shall not be deemed to
limit or restrict the right of the Corporation to terminate the Grantee's
employment at any time, for any reason, with or without Cause, or to limit or
restrict the right of the Grantee to terminate his employment with the
Corporation at any time.
(h) CORPORATE RESTRUCTURING/CAPITAL READJUSTMENTS. Nothing in this
Agreement shall abridge the rights or powers of the Corporation or its
stockholders reserved to them in Section 9(a) of the Plan, and in the event of
any extraordinary transaction with respect to or affecting Georgia-Pacific
Group
Stock, adjustments to the number of Performance Shares granted in this
Agreement
may be made in accordance with the provisions of Section 9(b) of the Plan.
(i) FRACTIONAL SHARES. Notwithstanding anything in this Agreement to
the
contrary, in the event that any adjustment to the Target Grant or an award of
Performance Shares or the calculation of an award pursuant to this Agreement
would otherwise result in the creation of a fractional share interest, the
affected Target Grant or Performance Share award shall be rounded up to the
nearest whole share.
(j) AMENDMENT OR TERMINATION. This Agreement may be amended or
terminated
at any time by the mutual agreement and written consent of the Grantee and
the
Plan Administrator, but only to the extent permitted under the Plan.
(k) GOVERNING INSTRUMENT. This Agreement is subject to all terms and
conditions of the Plan and shall at all times be interpreted in a manner that
is
consistent with the intent, purposes, and specific language of the Plan.
(l) SEVERABILITY. If any provision of this Agreement should be held
illegal or invalid for any reason by the Plan Administrator or court of
applicable jurisdiction, such determination shall not affect the other
provisions of this Agreement, and it shall be construed as if such provision
had never been included herein.
(m) HEADINGS/GENDER. Headings in this Agreement are for convenience
only
and shall not be construed to be part of this Agreement. Any reference to
the
masculine, feminine or neuter gender shall be a reference to other genders as
appropriate.
(n) 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.
10. DEFINITIONS. For purposes of this Agreement, the following terms shall
be
defined as follows:
(a) AGENT means First Chicago Trust Corporation of New York or any other
entity designated by the Plan Administrator to act as its administrative
service provider.
(b) AGREEMENT means this agreement between the Grantee and the
Corporation
setting forth the terms and conditions of the Performance Share grant
described herein.
(c) AWARD DATE means the date as of which Performance Shares are awarded
to the Grantee pursuant to Section 2.
d) BENEFICIARY means the person(s) designated by the Grantee pursuant
to
Section 9(e) of this Agreement to receive his/her rights under this Agreement
upon his/her death.
(e) BOARD OF DIRECTORS means the Board of Directors of Georgia-Pacific
Corporation.
(f) CAUSE means any of the actions or omissions specified in Section
2(d) of the Plan.
(g) CHANGE OF CONTROL has the meanings specified in Section 11(b) of the
Plan.
(h) COMMITTEE means the Compensation Committee of the Board of
Directors,
or a subcommittee of such Committee, as the same may be constituted from time
to time.
(i) CORPORATION means Georgia-Pacific Corporation, its successors and
assigns, and any other corporation in an unbroken chain of corporations
beginning with Georgia-Pacific Corporation if each of the corporations other
than the last corporation in the unbroken chain owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
(j) DISABILITY means "total disability" as defined under the long-term
disability program of the Georgia-Pacific Corporation Salaried Employees Long-
Term Disability Plan (whether or not the Grantee is covered under such
program).
(k) DISABILITY RETIREMENT DATE means the later of (i) the day the
Grantee's employment with the Corporation ends after the maximum period during
which salary continuation benefits from the Corporation because of illness or
injury are authorized in accordance with its then-current medical leave
policy,
but only if the Grantee's Disability continues through that date, or (ii) the
day the Grantee's employment with the Corporation ends after the last day of a
personal leave of absence immediately following such period of salary
continuation, provided, that the Grantee has a Disability on such date. If
the
Grantee is involuntarily terminated because of job elimination or facility
closure (or other reason approved by the Plan Administrator) while on a paid
medical leave based on a Disability or during a personal leave of absence
immediately following such medical leave, the Grantee will have a Disability
Retirement Date on the last day of the maximum period during which salary
continuation benefits from the Corporation because of illness or injury would
have been authorized in accordance with its then-current medical leave policy
if
he had not been terminated (in the case of termination during a medical leave)
or on the date of termination (in the case of termination during the personal
leave of absence), provided that he still has a Disability on such date.
(l) EARLY RETIREMENT DATE means the Grantee's date of termination from
the
Corporation after having attained at least age 62 (but not age 65) and having
accrued at least 10 years of service for vesting purposes as determined in
accordance with the provisions of the Georgia-Pacific Corporation Savings and
Capital Growth Plan (or any successor tax-qualified retirement plan maintained
for salaried employees of the Corporation).
(m) FAIR MARKET VALUE is the mean between the high and low sales prices
of
a share of Georgia-Pacific Group Stock on a particular 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 Plan Administrator in its discretion. If the date of
determination is not a trading date on the New York Stock Exchange, Fair
Market
Value shall be determined using the high and low sales prices of a share of
Georgia-Pacific Group Stock on the next preceding trading date. The Fair
Market
Value of Georgia-Pacific Group Stock shall be rounded to the nearest whole
cent
(with 0.5 cent being rounded to the next higher whole cent).
(n) GEORGIA-PACIFIC GROUP STOCK or STOCK means the class of the
Corporation's common stock, par value $0.80 per share, which has been
designated
by the Corporation as the Georgia-Pacific Corporation--Georgia-Pacific Group
Common Stock.
(o) GRANT DATE means the date set forth on the first page of this
Agreement.
(p) GRANTEE means the employee of the Corporation named on the first
page of this Agreement.
(q) NORMAL RETIREMENT DATE means the Grantee's date of termination from
the Corporation after having attained at least age 65.
(r) PEER GROUP COMPANIES means, for any Performance Period, the
companies
included in the Standard & Poors Paper and Forest Products Industry Index (but
excluding the Corporation) on January 1 of such Performance Period; provided,
however that if a Peer Group Company is not in existence as an independent
entity generating the types of public information needed for TSR calculations
under this Agreement both at the beginning and the end of the Performance
Period, that company shall be disregarded for purposes of making awards under
this Agreement, notwithstanding its inclusion in the group of Peer Group
Companies otherwise applicable to such calculations.
(s) PERFORMANCE PERIOD means the period during which Total Shareholder
Return of the G-P Group and the Peer Group Companies will be measured to
determine whether any of the Performance Shares will be awarded to Grantee
pursuant to Section 2, which period is specified on the first page of this
Agreement.
(t) PERFORMANCE SHARES means the restricted shares of Stock granted
under
the terms and conditions of this Agreement.
(u) PLAN means the Georgia-Pacific Corporation/Georgia-Pacific Group
1997
Long-Term Incentive Plan, as adopted by the Board of Directors on September
17,
1997, and approved by the Corporation's shareholders on December 16, 1997,
and as amended from time to time.
(v) PLAN ADMINISTRATOR means the Committee, provided, however, that to
the
extent permitted by the Plan and authorized by the Committee, the Chief
Executive Officer of the Georgia-Pacific Corporation may act on behalf of the
Committee in executing the duties and responsibilities of the Plan
Administrator.
(w) TARGET GRANT means the number of Performance Shares specified on the
first page of this Agreement.
(x) TOTAL SHAREHOLDER RETURN or TSR means, for a given Performance
Period
and a given common stock, the number determined by the formula [(SB+SD)PE -
100] . 100, where (i) "SB" is the number of shares of the common stock
(including fractional shares) that could be bought with an initial $100
investment at PB, or $100 . PB; (ii) "SD" is the total number of shares of the
common stock (including fractional shares) (A) which are distributed as stock
dividends with respect to the common stock during the Performance Period or
(B)
which could be purchased with the cash dividends (or allocated portion of a
per
share dividend) paid on SB shares of the common stock during the Performance
Period (and any additional shares or fractional shares allocated in
accordance
with this subsection (ii) with respect to dividends paid during the
Performance
Period but prior to the dividend in question), determined in the case of each
such dividend paid using the closing price of the common stock on the trading
date coincident with or next preceding the date of payment of the dividend;
(iii) "PB" is the closing price of the common stock on the last trading day
before the first day of the Performance Period; and (iv) "PE" is the closing
price of the common stock on the last trading day of the Performance Period.
In
calculating the Total Shareholder Return for a given common stock, the Plan
Administrator will apply the principles of Section 9(h) as if that section
applied to the common stock.
(y) VESTING DATE means the date upon which the restrictions contained in
Section 4 lapse with respect to an award of Performance Shares made in
accordance with Section 2, which date shall be determined in accordance with
Section 3.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers under its corporate seal, and the
Grantee has executed this Agreement, as of the 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
GRANTEE
Name:
NOTE: PLEASE COMPLETE THE ATTACHED ACKNOWLEDGMENT OF RECEIPT AND BENEFICIARY
DESIGNATION FORM AND RETURN THEM TO:
FIRST CHICAGO TRUST
GEORGIA-PACIFIC STOCK OPTION PLAN
"PERSONAL AND CONFIDENTIAL"
P. O. BOX 2585
JERSEY CITY, NJ 07303-2585
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
your Performance Share grant 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 First Chicago Trust
Corporation in writing at the address indicated below.
PLEASE TAKE TIME TO FILL OUT THIS FORM AND RETURN IT TO FIRST CHICAGO
TRUST
AT THE FOLLOWING ADDRESS: FIRST CHICAGO TRUST, GEORGIA-PACIFIC STOCK OPTION
PLAN, "PERSONAL AND CONFIDENTIAL", P. O. BOX 2585, JERSEY CITY, NJ 07303-2585.
BENEFICIARY DESIGNATIONS OR MODIFICATIONS OF BENEFICIARY DESIGNATIONS SENT TO
ANY OTHER ADDRESS WILL NOT BE EFFECTIVE UNTIL ACTUALLY RECEIVED BY FIRST
CHICAGO
TRUST. 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 1999 Performance Share
grants under the 1997 Georgia-Pacific Group LTIP.
__
/__/ I designate the following person(s) as my beneficiary(ies) under my 1999
Performance Share grants under the 1997 Georgia-Pacific Group LTIP:
NAME ADDRESS RELATIONSHIP TO SOCIAL SECURITY
YOU NUMBER (IF
KNOWN)
I ACKNOWLEDGE RECEIPT OF THE EXECUTED PERFORMANCE SHARE AGREEMENT EVIDENCING MY
JANUARY 28, 1999, PERFORMANCE SHARE 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:______________________________
Date:________________________________
GEORGIA-PACIFIC CORPORATION/GEORGIA-PACIFIC GROUP
1997 LONG-TERM INCENTIVE PLAN
EMPLOYEE STOCK OPTION AGREEMENT
Optionee: [First Middle Last]
Total Shares Under [ ] shares
Option:
Option Price: $64.34 per share
Grant Date: January 28, 1999
THIS AGREEMENT, dated as of the Grant Date stated above, by and between
georgia-
Pacific Corporation and the Optionee:
WITNESSETH
WHEREAS, Georgia-Pacific Corporation wishes to give the Optionee an
opportunity to acquire or enlarge the Optionee's equity ownership in Georgia-
Pacific Corporation for purposes of augmenting the Optionee's proprietary
interest in the success of Georgia-Pacific Corporation and, in particular, its
Georgia-Pacific Group;
WHEREAS, the options described in this Agreement have been granted
pursuant to, and are governed by, the Plan;
NOW, THEREFORE, Georgia-Pacific Corporation and the Optionee hereby agree
as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms shall
be defined as follows:
(a) AGENT means First Chicago Trust or any other entity designated by
the
Plan Administrator to act as its administrative service provider.
(b) BOARD OF DIRECTORS means the Board of Directors of Georgia-Pacific
Corporation.
(c) CAUSE means any of the actions or omissions specified in Section
2(d) of the Plan.
(d) CHANGE OF CONTROL has the meanings specified in Section 11(b) of the
Plan.
(e) CODE means 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
the regulations promulgated thereunder.
(f) CORPORATION means Georgia-Pacific Corporation, its successors and
assigns, and any other corporation in an unbroken chain of corporations
beginning with Georgia-Pacific Corporation if each of the corporations other
than the last corporation in the unbroken chain owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
(g) COMMITTEE means the Compensation Committee of the Board of
Directors,
or a subcommittee of such Committee, as the same may be constituted from time
to time.
(h) DISABILITY means "total disability" as defined under the long-term
disability program of the Georgia-Pacific Corporation Salaried Employees Long-
Term Disability Plan (whether or not the Optionee is covered under such
program).
(i) DISABILITY RETIREMENT DATE means the later of (i) the day the
Optionee's employment with the Corporation ends after the maximum period
during
which salary continuation benefits from the Corporation because of illness or
injury are authorized in accordance with its then-current medical leave
policy,
but only if the Optionee's Disability continues through that date, or (ii) the
day the Optionee's employment with the Corporation ends after the last day of
a
personal leave of absence immediately following such period of salary
continuation, provided, that the Optionee has a Disability on such date. If
the
Optionee is involuntarily terminated because of job elimination or facility
closure (or other reason approved by the Plan Administrator) while on a paid
medical leave based on a Disability or during a personal leave of absence
immediately following such medical leave, the Optionee will have a Disability
Retirement Date on the last day of the maximum period during which salary
continuation benefits from the Corporation because of illness or injury would
have been authorized in accordance with its then-current medical leave policy
if
he had not been terminated (in the case of termination during a medical leave)
or on the date of termination (in the case of termination during the personal
leave of absence), provided that he still has a Disability on such date.
(j) EARLY RETIREMENT DATE means the Optionee's last day of active
employment by the Corporation after having attained at least age 55 (but not
age
62) and having accrued at least 10 years of service for vesting purposes as
determined in accordance with the provisions of the Georgia-Pacific
Corporation
Savings and Capital Growth Plan (or any successor tax-qualified retirement
plan
maintained for salaried employees of the Corporation).
(k) EXERCISE AMOUNT means the sum of (a) the Option Price multiplied by
the number of vested options being exercised plus (b) an amount sufficient to
pay all applicable FICA and withholding taxes on the difference between the
Fair
Market Value of Georgia-Pacific Group Stock for which the vested options are
being exercised (determined as of the exercise date) and their Option Price,
as
calculated by the Plan Administrator or the Agent, if any.
(l) EXPIRATION DATE means the tenth anniversary of the Grant Date,
unless
an earlier Expiration Date is established by operation of Section 5 of this
Agreement.
(m) FAIR MARKET VALUE is the mean between the high and low sales prices
of
a share of Georgia-Pacific Group Stock on a particular 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 Plan Administrator in its discretion. If the date of
determination is not a trading date on the New York Stock Exchange, Fair
Market
Value shall be determined using the high and low sales prices of a share of
Georgia-Pacific Group Stock on the next preceding trading date. The Fair
Market
Value of Georgia-Pacific Group Stock shall be rounded to the nearest whole
cent
(with 0.5 cent being rounded to the next higher whole cent).
(n) GEORGIA-PACIFIC GROUP STOCK means the class of the Corporation's
common stock, par value $0.80 per share, which has been designated by the
Corporation as the Georgia-Pacific Corporation--Georgia-Pacific Group Common
Stock.
(o) GRANT DATE means the date set forth on the first page of this
Agreement, upon which the options described in this Agreement were granted to
the Optionee.
(p) NORMAL RETIREMENT DATE means the Optionee's last day of active
employment by the Corporation after having attained (i) at least age 62 (but
not
age 65) and at least 10 years of service for vesting purposes as determined
in
accordance with the provisions of the Georgia-Pacific Corporation Savings and
Capital Growth Plan (or any successor tax-qualified retirement plan maintained
for salaried employees of the Corporation) or (ii) at least age 65.
(q) OPTION PRICE means the price per share set forth on the first page
of this Agreement.
(r) OPTIONEE means the employee of the Corporation named on the first
page of this Agreement.
(s) PLAN means the Georgia-Pacific Corporation/Georgia-Pacific Group
1997
Long-Term Incentive Plan, as adopted by the Board of Directors on September
17,
1997, and approved by the Corporation's shareholders on December 16, 1997, and
as amended from time to time.
(t) PLAN ADMINISTRATOR means the Committee, provided, however, that to
the
extent permitted by the Plan and authorized by the Committee, the Chief
Executive Officer of the Georgia-Pacific Corporation may act on behalf of the
Committee in executing the duties and responsibilities of the Plan
Administrator.
(u) REPRESENTATIVE means, in the event of the Optionee's Disability, his
duly authorized legal guardian or representative; or, in the event of the
Optionee's death, his estate, personal representative, or beneficiary as
designated pursuant to Section 6(e).
(v) TOTAL SHARES UNDER OPTION means the number of options granted to the
Optionee as set forth on the first page of this Agreement.
(w) VESTING DATE means any one of the dates upon which options granted
to
the Optionee under this Agreement become exercisable in accordance with this
Agreement.
2. OPTION GRANT. Subject to the terms and conditions of this Agreement, the
Corporation hereby grants an option to the Optionee to purchase from the
Corporation, at the Option Price, the number of shares of Georgia-Pacific
Group
Stock equal to the Total Shares Under Option.
3. VESTING.
(a) REGULAR VESTING. Except as stated in Sections 3(b) and 3(c) of this
Agreement, the Optionee shall become vested in a percentage of the Total
Shares
Under Option in accordance with the following schedule:
VESTING DATE PERCENTAGE OF TOTAL
SHARES UNDER OPTION
First anniversary of Grant 34%
Date
Second anniversary of Grant 33%
Date
Third anniversary of Grant 33%
Date
The number of options granted to the Optionee under this Agreement which
become
vested on a Vesting Date in accordance with the above schedule will be
determined by multiplying the Total Shares Under Option by the percentage
specified in the above schedule, and then rounding the resulting number up to
the nearest whole number, provided that the aggregate number of the Optionee's
vested options under this Agreement shall not exceed the Total Shares Under
Option.
(b) ACCELERATED VESTING. Notwithstanding the vesting schedule specified
in Section 3(a) of this Agreement, the Total Shares Under Option shall become
100% vested upon the earliest to occur of the following Vesting Dates:
(i) the Optionee's Normal Retirement Date;
(ii) the Optionee's Disability Retirement Date;
(iii) the date of the Optionee's death prior to his termination
of employment from the Corporation;
(iv) the date of a Change of Control; or
(v) subject to the approval of the Plan Administrator, the
Optionee's
Early Retirement Date or the date of the Optionee's involuntary
termination of employment from the Corporation, in either case
due to (A) job elimination, (B) plant closure, or (C) such
other
reason as may be specifically approved by the Plan
Administrator.
If more than one of the accelerated vesting rules specified in this Section
3(b)
can apply to the Optionee, the Optionee may elect in writing which vesting
rule
will apply. The vesting rule elected by the Optionee will determine the
Expiration Date for the options affected by such accelerated vesting. If the
Optionee fails to make such an election within 30 days after being notified by
the Plan Administrator, the Optionee will be deemed to have elected the
available accelerated vesting rule which, first, vests the most options in the
Optionee or, second (if each accelerated vesting rule vests the same number of
options), provides the longest exercise period. Notwithstanding anything in
this Agreement to the contrary, except as otherwise provided in this Agreement
in the case of a Disability Retirement Date which occurs after Optionee's
termination of employment with the Company, no Vesting Date will occur - and
no
options may vest - following termination of employment with the Company.
(c) TERMINATION FOR CAUSE. Notwithstanding anything in this Agreement
to
the contrary, if the Corporation terminates the Optionee's employment for
Cause
prior to a Change of Control, this Agreement shall be terminated and all
options
granted to the Optionee under this Agreement shall be forfeited, regardless of
whether a Vesting Date has occurred on or before such termination date, unless
and to the extent that the Plan Administrator determines that such forfeiture
would violate applicable law.
4. EXERCISE OF OPTIONS.
(a) GENERAL. Except as otherwise specified by the Plan Administrator in
accordance with Sections 4(d) and 4(e), the Optionee (or his Representative,
as
the case may be) may exercise the options granted under the Agreement, in
whole
or in part, at any time on or after the Vesting Date for such options and
prior
to their Expiration Date, by complying with the procedures described in this
Section 4. The Optionee shall forfeit all rights to any option under this
Agreement, whether or not then vested, which is not exercised prior to its
Expiration Date.
PAGE
<PAGE>
(b) EXERCISE PROCEDURE. The Optionee or his Representative (if
applicable) may exercise all or a portion of his vested options under this
Agreement by delivering notice to the Agent, or by complying with any
alternative procedure which may be authorized by the Plan Administrator from
time to time. The notice to the Agent shall specify the number of shares of
Georgia-Pacific Group Stock that the Optionee desires to purchase by exercise of
his vested options, and shall include payment for the Exercise Amount of such
shares in one of the following ways:
(i) The Optionee may tender payment of the Exercise Amount on the
date of exercise in the form of cash, certified check, bank
draft, or postal or express money order made payable to the
order
of the Corporation and denominated in U.S. dollars; or
(ii) The Optionee may tender payment of the Exercise Amount on the
date of exercise 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, if such shares were acquired upon exercise
of an option, they must have been held by the Optionee for at
least six months at the time of tender; or
(iii) The Optionee may tender payment of the Exercise Amount on
the date of exercise in a combination of (A) shares of Georgia-
Pacific Group Stock (subject to the holding period described in
paragraph (ii) above); and (B) cash, certified check, bank
draft,
or postal or express money order made payable to the order of
the
Corporation and denominated in U.S. 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; or
(iv) The Optionee may initiate a cashless exercise in accordance
with
procedures promulgated by the Plan Administrator or the Agent,
if any.
(v) The Optionee may tender payment of the Exercise Amount on the
date of exercise in accordance with such other method as the
Plan
Administrator shall authorize.
Within 30 days after the date of such exercise, the Agent shall make available
to the Optionee a certificate registered in the Optionee's name or a book
entry
in a depository institution for the Optionee's account, representing the
aggregate number of shares of Georgia-Pacific Group Stock purchased by the
Optionee as a result of such exercise.
(c) EXERCISE OF OPTIONS FOLLOWING OPTIONEE'S DISABILITY OR DEATH.
(i) Optionee's Disability. If the Optionee's Disability occurs
during a period in which he may exercise options under this Agreement, the
Optionee or, if applicable, the Optionee's Representative may exercise the
options before their Expiration Date with respect to any or all of the Total
Shares Under Option which are available for purchase under this Agreement by
the
Optionee on his Disability Retirement Date (taking into account the
accelerated
vesting provisions of Section 3(b)) and which had not been purchased by him
prior to such date.
(ii) Optionee's Death. If the Optionee's death occurs during a
period
in which he may exercise options under this Agreement, the Optionee's
Representative may exercise the options before their Expiration Date with
respect to any or all of the Total Shares Under Option which are available
for
purchase under this Agreement by the Optionee on the date of his death (taking
into account the accelerated vesting provisions of Section 3(b)) and which had
not been purchased by him prior to his death.
(d) EXERCISE OF OPTIONS DURING LEAVE OF ABSENCE. Notwithstanding any
provision of this Agreement to the contrary, if the Optionee is on a leave of
absence or is absent on military or government service at any time on or after
the Grant Date and prior to the Expiration Date, the Optionee may not exercise
any part of the Total Shares Under Option prior to the date the Optionee
returns
to active employment with the Corporation, and vesting of any options under
this
Agreement which would normally vest on a date during the absence shall be
postponed until the Optionee returns to active work at the end of the absence
(in which case, the date of return to active employment shall be a Vesting
Date). The provisions of this subsection (d) shall not affect any of
Optionee's
rights in the event of his death, Disability, Early Retirement or Normal
Retirement or in the event of a Change of Control occurring during such an
absence.
(e) DEFERRAL OF EXERCISE OR DELIVERY OF SHARES. Notwithstanding any
provision in this Agreement to the contrary, if any law or regulation of any
governmental authority having jurisdiction in the matter requires the
Corporation, Plan Administrator, Agent, Optionee, or Representative to take
any
action or refrain from action in connection with the exercise of any option
under this Agreement or the delivery of shares of Georgia-Pacific Group Stock
to
the Optionee, or to delay such exercise or delivery, then the exercise or
delivery of such shares shall be deferred until such action has been taken or
such restriction on action has been removed.
5. SPECIAL RULES GOVERNING THE EXPIRATION DATE. The Expiration Date for
options granted to the Optionee under this Agreement shall be subject to the
following special rules:
(a) TERMINATION OF EMPLOYMENT. If the Optionee voluntarily or
involuntarily terminates employment with the Corporation (for reasons other
than
death, Change of Control or having reached his Normal Retirement Date, Early
Retirement Date or Disability Retirement Date), the Expiration Date for
exercising any options under this Agreement which were vested as of his date
of
termination shall be the 90th day after the date of such termination; provided
that if the Optionee has a Disability or dies, or a Change of Control occurs,
prior to such 90th day, the Expiration Date for the Optionee's options under
this Agreement which were vested as of his date of termination shall be the
Expiration Date applicable to such Disability (subject to the rules stated in
Section 5(d)), death, or Change of Control, whichever is applicable.
(b) NORMAL RETIREMENT. If the Optionee terminates employment with the
Corporation on his Normal Retirement Date, the Expiration Date for exercising
his vested options under this Agreement shall be the last day of the 60th
month
after the end of the month in which the Optionee's Normal Retirement Date
occurs.
(c) EARLY RETIREMENT. If the Optionee terminates employment with the
Corporation on his Early Retirement Date, the Expiration Date for exercising
his
vested options under this Agreement shall be the last day of the 60th month
after the end of the month in which the Optionee's Early Retirement Date
occurs.
(d) DISABILITY OR DISABILITY RETIREMENT. If the Optionee terminates
employment with the Corporation on his Disability Retirement Date, the
Expiration Date for exercising his vested options under this Agreement shall
be
the last day of the 36th month after the end of the month in which the
Optionee's Disability Retirement Date occurs. If the Optionee has a
Disability
before the 90th day after terminating employment with the Corporation (for
reasons other than having reached his Normal Retirement Date, Early Retirement
Date, or Disability Retirement Date) and such Disability continues through the
end of the initial 90-day period, the Expiration Date for exercising his
vested
options under this Agreement shall be the last day of the 36th month after the
end of the month in which the Optionee's Disability occurs.
(e) OPTIONEE'S DEATH. If the Optionee dies while actively employed by
the
Corporation or prior to the 90th day after the Optionee's termination of
employment with the Corporation (for reasons other than having reached his
Normal Retirement Date, Early Retirement Date, or Disability Retirement Date),
the Expiration Date for exercising his vested options under this Agreement
shall
be the last day of the 36th month after the end of the month in which the
Optionee's death occurs.
(f) CHANGE OF CONTROL. The Expiration Date for all of the Optionee's
vested options shall be the tenth anniversary of the Grant Date if a Change of
Control takes place (i) while the Optionee is actively employed by the
Corporation; (ii) prior to the 90th day after the Optionee terminates
employment
with the Corporation; or (iii) prior to the 90th day after the Optionee
terminates his employment with the Corporation on his Normal Retirement Date,
Early Retirement Date, Disability Retirement Date or date of death.
(g) MAXIMUM EXPIRATION DATE. Notwithstanding any provision in Section 5
of the Agreement to the contrary, no Expiration Date may extend beyond the
tenth anniversary of the Grant Date.
(h) TERMINATION DATE. The Optionee's date of termination of employment
from the Corporation shall be deemed for purposes of this Agreement to be the
later of (i) his last day of active work for the Corporation or (ii) his last
day on the active employee payroll of the Corporation, provided, however, that
for all purposes of this Agreement, the Optionee shall be deemed actively at
work during any period the Optionee is on approved paid medical leave.
6. GENERAL PROVISIONS. The Optionee acknowledges that he has read,
understands and agrees with all of the provisions in this Agreement and the
Plan, including (but not limited to) the following:
(a) AUTHORITY OF PLAN ADMINISTRATOR. The Plan Administrator shall have
the authority to administer the Agreement and the Plan; to make all
determinations with respect to the construction and application of the
Agreement, the Plan, and the resolutions of the Board of Directors
establishing
the Plan; to adopt and revise rules relating to the Agreement and the Plan; to
hire the Agent with respect to its administrative responsibilities under the
Agreement and the Plan; and to make other determinations which it believes are
necessary or advisable for the administration of the Agreement and the Plan.
Any dispute or disagreement which arises under this Agreement or the Plan
shall
be resolved by the Plan Administrator in its absolute discretion. Any such
determination, interpretation, resolution, or other action by the Plan
Administrator shall be final, binding and conclusive with respect to the
Optionee and all other persons affected thereby.
(b) NOTICES. Any notice which is required or permitted under this
Agreement shall be in writing (unless otherwise specified in the Agreement or in
a writing from the Corporation or the Agent to the Optionee), and delivered
personally or by mail, postage prepaid, addressed as follows: (i) if to the
Corporation or the Agent, at l33 Peachtree Street, N.E., Atlanta, Georgia
30303,
Attention: Compensation Department, or at such other address as the
Corporation
or the Agent by notice to the Optionee may have designated from time to time;
(ii) if 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 may have designated from time to time. Such notice shall be
deemed given upon receipt.
(c) TAXATION. The Optionee shall be responsible for all applicable
withholding taxes and the employee share of FICA taxes with respect to
compensation income generated upon the exercise or surrender of his vested
options under this Agreement.
(d) NONTRANSFERABILITY. This Agreement and the options granted to the
Optionee hereto shall be nontransferable and shall not be sold, hypothecated
or
otherwise assigned or conveyed by the Optionee to any other person, except as
specifically permitted in this Agreement. No assignment or transfer of this
Agreement or the rights represented thereby, whether voluntary or involuntary,
or by operation of law or otherwise, shall vest in the assignee or transferee
any interest or right whatsoever, except as specifically permitted in this
Agreement. The Agreement shall terminate, and be of no force or effect,
immediately upon any attempt to assign or transfer the Agreement or any of the
options to which the Agreement applies.
(e) DESIGNATION OF BENEFICIARY. The 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 Agreement. Such a designation shall be filed with the
Agent
in accordance with uniform procedures specified by the Plan Administrator.
The
Optionee may change or revoke a beneficiary designation at any time by filing a
written statement of such change or revocation with the Agent in accordance
with
uniform procedures specified by the Plan Administrator. No beneficiary
designation or change of beneficiary designation will be effective until
notice
thereof is received. If an Optionee fails to designate a beneficiary or if
the
beneficiary predeceases the Optionee, the Optionee shall be deemed not to have
a beneficiary for purposes of this Agreement.
(f) NO SHAREHOLDER RIGHTS. The Optionee shall have no rights as a
shareholder of the Corporation, and shall not be deemed to be a shareholder of
the Corporation for any purpose, as a result of the options granted to the
Optionee under this Agreement, until the earliest of the following dates: (i)
the date that the Corporation receives payment in full of the Exercise Price
for
shares of Georgia-Pacific Group Stock because an option has been exercised in
accordance with this Agreement; or (ii) the date that shares of
Georgia-Pacific
Group Stock have been issued or transferred to the Optionee following the
exercise of an option in accordance with this Agreement. The Optionee shall
not
be entitled to any dividends or other rights for which the record date is
prior
to the date of such issuance, transfer, or receipt.
(g) NOT AN EMPLOYMENT CONTRACT. This Agreement shall not be deemed to
limit or restrict the right of the Corporation 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 at any time.
(h) CORPORATE RESTRUCTURING/CAPITAL READJUSTMENTS. Nothing in this
Agreement shall abridge the rights or powers of the Corporation or its
stockholders reserved to them in Section 9(a) of the Plan, and in the event of
any extraordinary transaction with respect to or affecting Georgia-Pacific
Group
Stock, adjustments to the number of options granted in this Agreement may be
made in accordance with the provisions of Section 9(b) of the Plan.
(i) AMENDMENT OR TERMINATION. This Agreement may be amended or
terminated
at any time by the mutual agreement and written consent of the Optionee and
the
Plan Administrator, but only to the extent permitted under the Plan.
(j) NOT CONSIDERED INCENTIVE STOCK OPTIONS. The options granted under
this Agreement do not constitute and shall not be construed to constitute
"incentive stock options" with the meaning of section 422 of the Code.
(k) GOVERNING INSTRUMENT. This Agreement is subject to all terms and
conditions of the Plan and shall at all times be interpreted in a manner that
is
consistent with the intent, purposes, and specific language of the Plan.
(l) SEVERABILITY. If any provision of this Agreement should be held
illegal or invalid for any reason by the Plan Administrator or court of
applicable jurisdiction, such determination shall not affect the other
provisions of this Agreement, and it shall be construed as if such provision
had never been included herein.
(m) HEADINGS/GENDER. Headings in this Agreement are for convenience
only
and shall not be construed to be part of this Agreement. Any reference to the
masculine, feminine or neuter gender shall be a reference to other genders as
appropriate.
(n) 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.
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 the 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
Name:
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"
P. O. BOX 2585
JERSEY CITY, NJ 07303-2585
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 First Chicago Trust in writing at the address indicated below.
PLEASE TAKE TIME TO FILL OUT THIS FORM AND RETURN IT TO FIRST CHICAGO
TRUST
AT THE FOLLOWING ADDRESS: FIRST CHICAGO TRUST, GEORGIA-PACIFIC STOCK OPTION
PLAN, "PERSONAL AND CONFIDENTIAL", P. O. BOX 2585, JERSEY CITY, NJ 07303-2585.
BENEFICIARY DESIGNATIONS OR MODIFICATIONS OF BENEFICIARY DESIGNATIONS SENT TO
ANY OTHER ADDRESS WILL NOT BE EFFECTIVE UNTIL ACTUALLY RECEIVED BY FIRST
CHICAGO
TRUST. 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 1999 grant under the
1997 Georgia-Pacific Group LTIP.
__
/__/ I designate the following person(s) as my beneficiary(ies) under my 1999
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
28,
1999, STOCK 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:________________________
Date:________________________________
TTC / GPG WOOD SUPPLY POLICY
SOUTHERN UNITED STATES
(EXCLUDING SE ARKANSAS & MISSISSIPPI)
(EFFECTIVE JUNE 30, 1998)
1. SCOPE
a) This Policy will govern the sale of all timber and wood fiber by TTC to
GPG
from TTC's Coastal Georgia, Chattahoochee, Florida, Piedmont, and
Whiteville/Virginia-Roanoke forests (hereinafter collectively the
"Southern
Forests and individually a "Forest") nominated by GPG pursuant to
Section
2 below for consumption at current GPG manufacturing facilities in
Alabama,
Georgia, Florida, North Carolina, South Carolina, and Virginia,
b) This Policy does not cover sales of timber and wood fiber in the coastal
South Carolina region, Southeast Arkansas, Mississippi, and the Ashdown
Forest, which are covered by separate agreements.
2. VOLUMES
a) By September 1, 1998, and by September 1 of each year thereafter during
the
term of this Policy, TTC shall offer for sale to GPG for the year
beginning
the following January 1 tracts representing 80% of TTC's projected annual
harvest of timber and wood fiber from the Southern Forests and no less
than
70% of the projected annual harvest of timber and wood fiber from each
Forest . To the extent that TTC has stand and stocking information
relating to the tracts offered to GPG it shall provide such information
to
GPG with the list of tracts offered on each September 1st.
b) On or before November 1, 1998, and on or before November 1 of each year
thereafter during the term of this Policy, GPG shall nominate to purchase
from TTC tracts representing not less than 60%, and not more than 80%, of
TTC's projected annual harvest of timber and wood fiber from the Southern
Forests for the year beginning the following January 1.
c) In the event that GPG nominates less that 40% of the volume offered by
TTC
in each Forest, GPG shall meet with TTC to discuss a price at which GPG
would be willing to purchase a minimum of 40% of the volume offered at
any such Forest.
d) TTC shall be free to sell the portion of its annual harvest of timber and
wood fiber not elected for purchase by GPG to third parties and/or
through the sealed bid process.
e) In all years, GPG will have the right to bid, along with third parties,
on
any timber or wood fiber offered for sale by TTC on a sealed bid basis.
3. PRICE
a) The monthly price charged by TTC for all timber and wood fiber sold to
GPG
from each Forest shall be the prior three-month weighted average of
prices
of GPG's delivered wood purchases in that area (all volumes that cross
the
scale except timber and wood fiber purchased under this Policy),
multiplied by one plus any applicable premium percentage as provided in
paragraph (d) below, less the TTC cut and haul cost, except that for
July,
1998, the weighted average prices for May and June shall be used.
b) Beginning August 1, 1998 NC, SC, WVA and VA (Wendell serviced areas)
will
begin pricing on a three-month rolling average with a one month lag.
c) A sample price calculation is attached for illustrative purposes as
Exhibit "A".
d) GPG will pay TTC the premiums for timber and wood fiber listed on Exhibit
"B" attached hereto and made a part hereof.
e) Premiums shall be billed in a manner consistent with the current practice
(e.g., weekly with wood invoices).
f) Payments to TTC from GPG will be made predominantly on a "pay as cut"
basis, subject to the requirements for advances against future cutting on
volumes carried beyond 12 months as set forth in Sections 4(a) and 4(b)
of this Policy.
g) Should GPG or TTC conclude that the actual transaction prices paid by GPG
in a Forest do not represent the market value of the wood sold by TTC to
GPG, the parties will first appeal to relevant market information
available
from a number of sources. If the parties are still unable to agree on an
appropriate price, the issue will be determined using a dispute
resolution process.
4. HARVEST SCHEDULING/CARRYOVER
a) GPG will have twelve months to complete the harvest of nominated tracts,
provided that at the end of 1998 and subsequent years, TTC will grant a
six-month extension of harvest for tracts representing in the aggregate
no
more than 30% of the nominated but uncut volume for such year in the
Southern Forests.
b) All such 1998 carry-over volumes will be purchased by GPG by Timber Sale
Agreement on 12/31/98 at a price equal to the unweighted average of
monthly
prices paid by GPG to TTC in July through December, 1998 as determined by
Section 3(a) above. In each of 1999 and 2000, GPG will be allowed to
carry
over into, and cut in, the following year up to 30% of its nominated but
uncut volume for such year in the Southern Forests. GPG will deliver to
TTC on 12/31 of each year a Timber Sale Agreement for such volumes
priced,
for wood carried over from each Forest, at the unweighted average of
monthly prices paid by GPG to TTC during such year for wood delivered
from
such Forest during such year as determined by Section 3(a) above. The
Timber Sale Agreements will be in substantially the same form as Exhibit
"C".
5. TERM
a) This Policy shall remain in effect through December 31, 2000. If neither
party gives written notice of its desire to re-negotiate or terminate it
by
October 15, 1998, the Policy will automatically be extended through 2001
and thereafter will be extended for an additional year on each succeeding
January 1, until any such notice of termination of renegotiation is given
by either party by the preceding October 15. This Policy may not be
unilaterally terminated on less than two years notice.
b) This Policy may be amended or terminated at any time by the Board of
Directors of Georgia-Pacific Corporation or by mutual agreement of the
parties.
6. MISCELLANEOUS
a) By April 1, 1999, TTC shall provide GPG with a good faith of estimate of
TTC harvest plans for 1999 and 2000.
b) TTC and GPG each acknowledges and agrees that in dealing with the other
party each party shall comply with all applicable laws.
c) This Policy contains the entire agreement between the parties concerning
the purchase and sale of timber and wood fiber in the Southern Forests
and
cancels and supersedes all prior agreements, policy statements and
understandings concerning the same subject matter, except those
agreements listed in Exhibit "D" Draft.
d) Any alterations, revisions or amendments to this Policy shall be in
writing
and signed by representatives of both TTC and GPG and attached to this
Policy.
Agreed and Accepted:
THE TIMBER COMPANY GEORGIA-PACIFIC GROUP
By: _______________________ By: ________________________
Donald L. Glass John F. Rasor
President and CEO Executive Vice President
<PAGE>
EXHIBIT "A"
Summary Pricing Formula _ Illustrative Example for timber and wood fiber in
Southern US
March April May Total
GPG PAP & Deed Volume 2.7 6.1 8.7 17.5
Amount $530 $526 $517 $522
Prem.
Factor Adj. Est. Stumpage
Price C&H
GPG Component $522 1.10 $574 105 $469
Formula Price
$469
<PAGE>
EXHIBIT "B"
FEE PREMIUMS
FOREST BASIN MILL SPECIES/PRODU UOM FEE PREMIUM
CT %
Alabama Talladega Lg Pine MBF 0%
Talladega Hardwood ST MBF 0%
Peterman Lg Pine MBF 5%
Peterman Hardwood ST MBF 9%
Fayette Chip-N-Saw CDS 11%
Fayette Lg Pine MBF 12%
Whiteville / Dudley Hdwd Pulp CDS 0%
Virginia
Roanoke
Dudley Pine Pulp CDS 0%
Dudley Gum & Poplar MBF 0%
Whiteville Lg Pine MBF 4%
Whiteville Chip-N-Saw CDS 4%
Dudley Chip-N-Saw CDS 5%
Dudley Lg Pine MBF 10%
Skippers Hdwd Pulp CDS 1%
Skippers Pine Pulp CDS 2%
Emporia Lg Pine MBF 3%
Ahoskie Chip-N-Saw CDS 5%
Creedmoor Chip-N-Saw CDS 5%
Wakefield Chip-N-Saw CDS 9%
N. Georgia Warm Springs Gum MBF 0%
Warm Springs Small Pine CDS 0%
Madison Tree Length CDS 0%
Pine
Madison Chip-N-Saw CDS 0%
Monticello Tree Length CDS 0%
Pine
Monticello Gum & Poplar MBF 4%
Madison Pine Pulpwood CDS 7%
Chipping
Monticello Lg Pine MBF 8%
Warm Springs Lg Pine MBF 8%
Warrenton Chip-N-Saw CDS 8%
Madison Lg Pine MBF 9%
Madison Pine Pulpwood CDS 10%
S. Georgia - Brunswick Hardwood CDS - 4%
Florida Pulpwood
Cedar Spring Hardwood CDS 1%
Pulpwood
Brunswick Pine Pulpwood CDS 3%
Claxton Chip-N-Saw CDS 4%
Cedar Springs Pine Pulpwood CDS 5%
Palatka Chip Pine Pulpwood CDS 5%
Mill
Sterling Chip-N-Saw CDS 6%
Palatka Chip Hardwood CDS 10%
Mill Pulpwood
Hawthorne Sm Pine CDS 10%
Palatka Chip-N-Saw CDS 10%
Cross City Chip-N-Saw CDS 10%
Hawthorne Lg Pine MBF 8%
<PAGE>
EXHIBIT "C"
TIMBER SALE AGREEMENT
(With Advance)
THIS TIMBER SALE AGREEMENT (THIS "AGREEMENT"), made this 31st day of
December, 1998, by and between Georgia-Pacific Corporation, a Georgia
corporation, d/b/a THE TIMBER COMPANY ("SELLER"), and GEORGIA-PACIFIC
CORPORATION (G-P GROUP) ("PURCHASER").
IN CONSIDERATION of the agreements on the part of the PURCHASER herein
contained, SELLER grants to PURCHASER the right for the term hereof to cut and
remove certain standing timber described in Paragraph 1 below, located on
SELLER's tracts more particularly described or shown on EXHIBIT "A" attached
hereto (the "Property").
1. TIMBER. PURCHASER shall cut and remove from the Property all
merchantable timber.
2. PRICE AND PAYMENT.
a. For Timber cut, removed, and sold to PURCHASER hereunder, PURCHASER
shall pay SELLER on a per ton basis pursuant to the price schedule set
forth on EXHIBIT "B" attached hereto.
b. The total consideration and purchase price of Timber sold hereunder
shall be based upon the actual volumes of Timber cut and removed from the
Property at the prices specified above. PURCHASER has paid SELLER the
sum
of _________________ DOLLARS ($_______) as an advance payment (50% of
estimated total value), which shall be applied as payment for Timber
subsequently cut hereunder at the specified prices. Upon exhaustion of
credit for the advance payment, payment shall be made weekly for Timber
cut
and removed the preceding week at the prices specified above. The
volumes
of the Timber cut and removed will be determined by scalers at the places
of delivery.
c. PURCHASER shall remit each week to SELLER original scale tickets
and/or a settlement summary (ticket level) showing the volume cut and
removed during the preceding week. Payment shall be made to SELLER at
the address specified by SELLER.
3. TITLE AND RISK OF LOSS. Title to the Timber sold hereunder and all risk
of
loss shall pass from SELLER to PURCHASER concurrently with the severance
of the Timber from the stump.
4. TERM. PURCHASER shall have 6 months from the date hereof to cut and
remove
the Timber. In the event that PURCHASER cannot complete the harvest of
any
Timber within such 6 month period the term shall be extended for a period
of up to 3 months on a tract by tract basis for fees consistent with
local
practice, provided that the extension fee for any tract shall not exceed
ten percent of the total value of the remaining Timber on said tract.
5. DISCLAIMER. SELLER makes no warranty nor representation as to the
suitability, quality or quantity of Timber covered hereby, nor the
logging
conditions required to harvest said Timber. PURCHASER acknowledges that
it
has inspected the Property and Timber and has satisfied itself as to such
Timber and the condition of the Property, and PURCHASER is not relying on
any representation of SELLER.
6. BMPS. PURCHASER agrees that cutting, skidding, loading and hauling
operations hereunder shall in all respects comply with the Best
Management
Practices (BMPs) adopted by the state in which the Timber is located.
7. HARVESTING OPERATIONS AND PRACTICES. PURCHASER shall adhere to the
following conditions in conducting its harvesting operations hereunder:
a. PURCHASER agrees to cut all trees as close to the ground as
practicable.
b. PURCHASER agrees to exercise all possible precautions against forest
fires, to notify SELLER and the appropriate authorities of any fires that
may occur or threaten the Property, and to cooperate in the
extinguishment
of any such fires. In the event that any such fires are caused by
PURCHASER, its agents, employees, or contractors, PURCHASER shall be
liable for all damages arising therefrom.
c. PURCHASER shall use all reasonable care in its operations hereunder
so
as not to materially damage the Property by logging when the site is
abnormally wet.
d. All mobile equipment which is serviced on the Property must be
serviced away from streams, ditches, or drainages. Oil or other
potential
contaminants that are being removed during the servicing process must be
contained and disposed of properly.
e. All refuse generated during operations on the Property, including,
but
not limited to, lunch or snack containers, paper, cans, oil cans,
bottles,
filters, tires, and discarded equipment, must be disposed of properly.
f. PURCHASER shall repair all fences, roads or structures damaged by
its
logging operations and leave all roads, fire breaks, property lines,
running streams, and drainage ditches clear of logs, timber, limbs, or
debris, and if the repairs are not made or if the debris is not removed
and
cleared promptly after notice from SELLER, SELLER may undertake such
repair
or removal for PURCHASER's account, and PURCHASER shall be liable to
SELLER
for any expense incurred in repairing or removing same.
8. ACCESS. PURCHASER shall have the non-exclusive right to use SELLER's
private roads on the Property. New roads will not be constructed without
prior written approval of SELLER as to location. Any new roads shall be
constructed, maintained and left in a condition that meets state BMPs.
All
roads, skid trails and drains shall be maintained in good condition and
kept open and passable, shall be waterbarred, and shall be left in as
good
condition and repair as now exists upon completion of logging. Nothing
contained herein shall require SELLER to provide all weather access to
any
tract. If with SELLER's prior written approval, PURCHASER constructs a
road for access to timber sold hereunder, SELLER shall reimburse
PURCHASER
for the actual and reasonable cost of the road.
9. ENDANGERED SPECIES. In the event any threatened or endangered species
are
discovered on the Property during the course of operations allowed by
this
Agreement, or in the event PURCHASER learns that its activities might
otherwise constitute a violation of the Endangered Species Act, PURCHASER
shall immediately cease cutting operations and notify SELLER and any
appropriate regulatory agency. In the case of such discovery of a
threatened or endangered species, the volume of Timber which remains
uncut
for the protection of the threatened or endangered species shall be
deleted
and removed from this Agreement and the sums to be paid by PURCHASER
shall be adjusted accordingly.
10. COMPLIANCE WITH LAW. PURCHASER shall at all times comply with all
applicable federal, state, and local laws and regulations in the
performance hereof. PURCHASER agrees that PURCHASER and PURCHASER's
employees, representatives and agents will comply with OSHA safety
regulations by wearing proper safety equipment while on the Property.
PURCHASER shall obtain all permits, public approvals or licenses
necessary
for the performance of this Agreement.
11. TIMBER SALVAGE. In the event that the quality or product composition of
the Timber is altered through physical damage to the Timber due to
reasons
beyond the control of PURCHASER, including but not limited to fire,
insects, or wind, PURCHASER upon notification by SELLER shall immediately
attempt to salvage said damaged Timber if reasonably possible, and the
purchase price thereof shall be adjusted by mutual agreement to reflect
the
salvage value of the Timber.
12. INDEMNIFICATION. SELLER shall in no way be liable or responsible for any
injury or damage done or occasioned by the actions or operations of
PURCHASER under this Agreement, and PURCHASER binds and obligates itself
to
pay and satisfy any and all claims arising on account of its operations
hereunder. PURCHASER further agrees to indemnify, defend, and hold
SELLER,
its agents and employees harmless from any and all liability, claims,
damages and losses, including attorneys' fees and court costs, which may
result from failure to abide by any laws or regulations and from injury
to
any person or property caused by PURCHASER's exercise of the rights
herein
granted. In executing this Agreement, PURCHASER expressly agrees to the
above indemnity provisions and states that PURCHASER intends to
specifically bind itself to indemnify SELLER in every instance set forth
above
13. WARRANTY OF TITLE. SELLER warrants title to the Timber sold hereunder
and
agrees to fully defend and indemnify PURCHASER against all claims
asserted
by any party.
14. RESERVED RIGHTS.
a. SELLER reserves the right to enter the Property at any time for the
purpose
of inspecting logging operations, making or maintaining fire lines, or
doing any other necessary forest management work, including the carrying
out of other woods operations which do not interfere with PURCHASER's
operations hereunder.
b. SELLER reserves the right to stop or interrupt PURCHASER's operations
hereunder when SELLER in its sole discretion deems significant site
damage
or forest fires will likely result from continued operations, provided
that
in the event such right is exercised, the term of this Agreement shall be
extended by the number of days that such stoppage or interruption
continues.
c. SELLER reserves the right to make and execute any contracts with
reference
to all oil, gas and other minerals in, on and under any portion of the
Property and the right to grant any and all reasonable and necessary
rights
of ingress and egress for the exploration, exploitation, production,
transportation, removal or handling of such oil, gas and all other
minerals
or mineral products, provided that SELLER shall reimburse PURCHASER for
the
loss of any Timber as a result of such mineral operations.
15. ALCOHOLIC BEVERAGES, DRUGS AND FIREARMS. PURCHASER hereby acknowledges
that SELLER has informed PURCHASER of its policies that being under the
influence of, bringing in, possessing, providing, manufacturing or other
production of, buying, selling or using alcoholic beverages, unauthorized
drugs or controlled substances on the Property, and the possession of
firearms on the Property, are strictly prohibited. PURCHASER understands
and agrees that PURCHASER, its officers, agents and employees will follow
these policies during the term of this Agreement. PURCHASER further
agrees
to report to the proper law enforcement authorities or SELLER, either
locally or anonymously to the G-P Hotline at 1-800-234-4321, any observed
or suspected marijuana or other controlled substance growing or being
manufactured on the Property.
16. ASSIGNMENT. PURCHASER shall not assign this Agreement or any rights
thereunder without the previous consent of SELLER in writing first
obtained
and only then subject to the conditions and restrictions contained
herein.
In the event of any such assignment, PURCHASER shall in no way be
released
from the performance of its obligations contained herein.
17. BOUNDARIES. PURCHASER AND SELLER acknowledge that prior to the execution
of this instrument, SELLER or its representative has determined the
boundary lines of the Property and has fully, accurately, and completely
described or clearly marked said boundaries to PURCHASER. SELLER agrees
to
defend, protect, and hold PURCHASER and independent contractors, harmless
from any and all loss, cost, damages, and/or expenses, arising from
claims
of trespass for any Timber cut within the designated boundaries.
18. AGENTS. For the purpose of paragraph 7, 10, 12, 15 and 17 the term
PURCHASER shall be defined to include PURCHASER's, officers, agents,
employees, and contractors.
19. PRIORITY. The rights granted PURCHASER hereunder shall be subject to any
prior easement, servitude, right-of-way, lease, contract, deed, or other
written instrument affecting the Property, or any conditions or
restrictions now of record or imposed by law.
20. WAIVER. Any delay or failure by SELLER in the strict enforcement of the
provisions of this Agreement with respect to any default by PURCHASER
hereunder shall not constitute a waiver of SELLER's rights respecting
such
default or any other default hereunder.
21. TAXES. Unless otherwise agreed, PURCHASER agrees to pay all severance
taxes upon Timber cut from the Property hereunder, except in Georgia
where SELLER shall pay all severance taxes.
22. NOTICES. Any notice required or permitted to be given hereunder shall be
deemed properly given on a date personally delivered by messenger
service,
overnight courier service or telecopy (facsimile) transmission, or three
(3) days after same is deposited with the United States Postal Service by
registered or certified mail, postage prepaid, return receipt requested,
to
the parties at the following address or telecopy/facsimile numbers:
SELLER: THE TIMBER COMPANY
100 Peachtree Street, NW
Suite 2650
Atlanta, Georgia 30303
ATTN.: Gary A. Myers
Telecopier: (404) 586-9723
PURCHASER: GEORGIA-PACIFIC CORPORATION
133 Peachtree Street, NE
Atlanta, Georgia 30303
ATTN.: Michael P. McCollum
Telecopier: (404) 584-1467
23. ENTIRE AGREEMENT. This instrument represents the entire agreement
between
the parties and any alterations thereof or amendments thereto shall be in
writing and signed by all parties.
IN WITNESS WHEREOF, SELLER and PURCHASER have caused this Agreement to be
duly executed by authorized representatives, in duplicate originals, on this
the
day and year first above written.
PURCHASER: SELLER:
GEORGIA-PACIFIC CORPORATION Georgia-Pacific Corporation
(G-P GROUP) d/b/a
THE TIMBER COMPANY
By: By:
John F. Rasor Donald L. Glass
Executive Vice President President and CEO
<PAGE>
EXHIBIT "D"
1. Subsequent to June 30, 1998, TTC and GPG mutually agreed to revise the
Premium applied to the sale of large sawtimber at Hawthorne. Effective
October 1, 1998 this premium was changed to 8 percent and this Policy has
been revised to reflect that change.
2. Subsequent to June 30 1998, TTC and GPG agreed to remove the Ashdown
Forest from the terms and conditions of this Policy. Effective January 1,
1999 the Ashdown Forest will covered by a separate written agreement and
will
not be subject to this Policy. This Policy has been revised to reflect
that
change.
3. Subsequent to June 30, 1998, TTC and GPG mutually agreed that the
price
for timber and wood fiber on tracts nominated by GPG which is not of the
type
that can be consumed by GPG mills shall be the actual price obtained by GPG
for the sale of such timber and wood fiber to third parties. It is agreed
that TTC and GPG shall jointly market such timber and wood fiber on terms
and
conditions (including cut and haul rates) generally acceptable to TTC. This
agreement shall also apply to timber sold under the Timber Sale Agreements
referenced in Sections 4 (b) and 4 (c) of the Policy. This agreement may
be
cancelled by either party at any time.
TTC/GPG WOOD SUPPLY POLICY
SOUTHEAST ARKANSAS & MISSISSIPPI
(EFFECTIVE JUNE 30, 1998)
1. SCOPE
This Policy will govern the sale of all timber and wood fiber by TTC to GPG
from
TTC's Southeast Arkansas Forests (presently Crossett South, Crossett North,
Fordyce (hereinafter the SEARK Forest)) and Mississippi Forests (presently SW
MS, Central MS, and SE MS, (hereinafter the MS Forest)) nominated by GPG
pursuant to Section 3 below, for consumption at the current GPG manufacturing
facilities in Southeast Arkansas and Mississippi. The SEARK Forest and the MS
Forest are hereinafter sometimes collectively referred to as the "Forests".
2. RECONCILIATION (1ST HALF 1998)
a) On June 30, 1998, GPG will pay TTC $4,835,000.00, representing an agreed-
upon settlement for various outstanding adjustments.
b) On June 30, 1998, GPG will purchase from TTC a timber deed (the "Timber
Deed") (total value of $22,900,000.00) with following terms:
SAWTIMBER
Fordyce $401 / MBF 10.0 MMBF
S. Crossett $401 / MBF 6.0 MMBF
Central MS $476 / MBF 5.1 MMBF
SW MS $408 / MBF 6.1 MMBF
Other locations $392 / MBF 6.9 MMBF
C-N-S $128 / CD 36.6 M CDS
PULPWOOD (softwood) $ 43 / CD 93.7 M CDS
TOTAL TIMBER DEED
$22,900,000.00
c) GPG shall select tracts to be included in the Timber Deed from the
Forests
from its uncut 1998 nomination and notify TTC and GPG Accounting of the
selection on or before July 30, 1998. TTC shall guarantee the total
volume
and provide additional tracts of timber to GPG to make up any shortfall
in
the total volume actually harvested. The parties shall adjust volumes
to
+/- 10% for each forest or product to rationalize tracts. In the event
that the total volumes actually harvested by GPG exceed the estimates by
forest, the excess timber shall be paid for by GPG at the current monthly
prices then in effect as determined by Section 4 below.
d) The term of the Timber Deed shall be for twelve (12) months, expiring on
July 1, 1999. TTC will allow GPG an additional period of up to six (6)
months to complete harvesting for a fee to be negotiated by local
managers
and consistent with practices in that area.
e) Volumes and prices for timber covered by the Timber Deed shall not be
used
in the monthly pricing calculations in Section 5 below.
3. VOLUMES
a) By September 1, 1998, and by September 1 of each year thereafter during
the
term of this Policy, TTC shall offer for sale to GPG tracts representing
70% of TTC's projected annual harvest of timber and wood fiber from each
of
the SEARK Forest and the MS Forest for the year beginning the following
January 1. To the extent that TTC has stand and stocking information
relating to the tracts offered to GPG it shall provide such information
same to GPG with the list of tracts offered on each September 1.
b) On or before November 1, 1998, and on or before November 1 of each year
thereafter during the term of this Policy, GPG shall elect to purchase
from
TTC tracts representing not less than 50% of TTC's projected annual
harvest
of timber and wood fiber from each of the SEARK Forest and the MS Forest,
and not more than 70% of TTC's projected annual harvest of timber and
wood
fiber from each of the SEARK Forest and the MS Forest for the year
beginning the following January 1.
c) In the event that GPG nominates less that 40% of the volume offered by
TTC
in each Forest, GPG shall meet with TTC to discuss a price at which GPG
would be willing to purchase a minimum of 40% of the volume offered at
any such Forest.
d) TTC shall be free to sell the portion of TTC's annual harvest not elected
for purchase by GPG to third parties and/or through the sealed bid
process.
e) In all years, GPG will have the right to bid, along with third parties,
on
any timber or wood fiber being offered for sale by TTC on a sealed bid
basis.
4. PRICE
a) The monthly price charged by TTC for all sawtimber sold to GPG from the
Forests shall be the prior three-month weighted average of prices of (i)
GPG's delivered wood purchases in that area (all volumes that cross the
scale except timber and wood fiber purchased under this Policy)
multiplied
by one plus any applicable premium provided for by this Policy, less the
TTC cut and haul cost, and (ii) TTC timber sales (auctioned or
negotiated)
from the same Forest (excluding all timber deeds sold to GPG), without
premium, except that for July, 1998, the weighted average prices for May
and June shall be used.
b) The price charged by TTC for all pulpwood sold to GPG from the
Forests
shall be adjusted monthly using the prior three-month weighted average of
prices of GPG's delivered wood purchases in that area (all volumes that
cross the scale except timber and wood fiber purchased under this
Policy)
multiplied by one plus any applicable premium percentage, less the TTC
cut
and haul cost, except that for July, 1998, the weighted average prices
for May and June shall be used.
c) GPG will pay TTC the premiums listed below on all southern pine
large
sawtimber purchased from TTC at the following locations:
i) Crossett, Fordyce and El Dorado, AR
a) July - December, 1998 10%
b) 1999 and 2000 8%
ii) Gloster, Louisville, Leaf River and Taylorsville, MS 8%
iii) During the 2H 98 only, the 10% premium will reduce to 8% at Crossett
and/or
Fordyce for the month following any month in which such mill generates a
negative operating cash flow (excluding working capital and extraordinary
maintenance).
d) A sample price calculation is attached for illustrative purposes as
Exhibit "A".
e) GPG will pay TTC the premiums (in addition to pine sawtimber
premiums
described in Section 4 (c)), listed on Exhibit "B" for timber and wood
fiber.
f) Premiums shall be billed in a manner consistent with the current
practice (e.g., weekly with wood invoices).
g) Payments to TTC from GPG will be made predominantly on a "pay as
cut"
basis, subject to the requirements for advances against future cutting on
volumes carried beyond 12 months as set forth in Sections 5(d) and 5(f)
of this Policy.
h) Should GPG or TTC conclude that the actual transaction price
determined by the formula set forth in Section 4(a) or 4(b) in any area
does not represent the market value of the timber or wood fiber sold by
TTC
to GPG, the parties will first appeal to relevant market information
available to the parties. If the parties are still unable to agree on an
appropriate price, the issue will be determined using a dispute
resolution process.
5. HARVEST SCHEDULING / CARRYOVER
a) GPG will cut at least 20% of its existing 1998 nomination in the SEARK
Forest in each of 3Q 1998 and 4Q 1998, and will use its best efforts to
cut the same percentage of its 1998 nomination in the MS Forest in each
such quarter.
b) GPG will cut at least 20% of its 1999 and 2000 nominations in each of the
SEARK Forest and the MS Forest in each quarter of such years.
c) The volume requirements in Sections 5 (a) and (b) above will be "tolled"
for that portion of GPG's annual nomination and quarterly volume
commitments which would have been taken by a shut-down mill, subject to
the
following conditions:
i) The shut-down must last at least 30 days and occur in the 2nd half of a
given year;
ii) This provision applies only to those mills where volumes of timber and
wood
fiber supplied by TTC pursuant to this Policy exceed 50% of the mill's
annual volume requirements; and
iii) If in any year the tolled volumes are not harvested by the year end, such
volume may be added to the year end timber deed described in Section
5(d)
and/or Section 5(f) below or by other mutually satisfactory carry forward
instrument.
d) GPG will be allowed to carry-over into, and cut in 1999, not more than
the
following volumes from the 1998 annual volumes:
i) SEARK Forest 30 MMBF
ii) MS Forest 15 MMBF
All such carry-over volumes will be purchased by GPG by Timber Sale Agreement
on 12/31/98 at a price equal to the unweighted average of monthly prices paid
by
GPG to TTC in July through December, 1998 as determined by Sections 4(a) and
4(b) above. The Timber Sale Agreement will be in substantially the same form
as
the instrument attached hereto as Exhibit "C".
e) Quarterly forecasts of volumes to be harvested by GPG on TTC's lands for
the remainder of 1998 will be supplied by GPG to TTC by July 8, 1998.
f) In each of 1999 and 2000, GPG will be allowed to carry over into, and cut
in, the following year up to 20% of its nominated but uncut volume for
such
year in each of the SEARK Forest and the MS Forest . GPG will deliver to
TTC on 12/31 of each year a Timber Sale Agreement for such volumes
priced,
for wood carried over from each of the SEARK Forest and the MS Forest, at
the unweighted average of monthly prices paid by GPG to TTC during such
year for wood delivered from such Forest during such year as determined
by
Section 4(a) above. The Timber Sale Agreement will be in substantially
the same form as Exhibit "C".
6. UNIT OF MEASURE
a) GPG and TTC both have agreed in principle to explore moving to a per ton
unit of measure for all sales made by TTC to GPG under this Policy, and
agree to evaluate and determine by mutual agreement the appropriate
diameter breaks by location by October 1, 1998.
b) The Gloster Scale issue will be resolved not later than September 1, 1998
by TTC/GPG by agreeing to either a per ton pricing system or to a
mutually
satisfactory scaling system.
7. TERM
a) This Policy shall remain in effect through December 31, 2000. If
neither
party gives written notice of its desire to re-negotiate or terminate it
by
October 15, 1998, the Policy will automatically be extended through 2001
and thereafter will be extended for an additional year on each succeeding
January 1, until any such notice of termination or renegotiation is given
by either party by the preceding October 15. This Policy may not be
unilaterally terminated on less than two years notice.
b) This Policy may be amended or terminated at any time by the Board of
Directors of Georgia-Pacific Corporation or by mutual agreement of the
parties.
8. MISCELLANEOUS
a) By April 1, 1999, TTC shall provide GPG with a good faith of estimate of
TTC harvest plans for 1999 and 2000.
b) TTC and GPG each acknowledges and agrees that in dealing with the other
party each party shall comply with all applicable laws.
c) This Policy contains the entire agreement between the parties concerning
the purchase and sale of timber and wood fiber in the SEARK Forest and
the
MS Forest, and cancels and supersedes all prior agreements, policy
statements and understandings concerning the same subject matter except
those listed in Exhibit "D".
d) Any alterations, revisions or amendments to this Policy shall be in
writing
and signed by representatives of both TTC and GPG and attached to this
Policy.
Agreed and Accepted:
THE TIMBER COMPANY GEORGIA-PACIFIC GROUP
By: _______________________ By: ________________________
Donald L. Glass John F. Rasor
President and CEO Executive Vice President
EXHIBIT "A"
Summary Pricing Formula _ Illustrative Example for sawtimber in SEARK and MS
March April May Total
GPG PAP & Deed Volume 2.7 6.1 8.7 17.5
Amount $530 $526 $517 $522
TTC Timber Volume 2.2 2.2 1.5 5.9
Sales *
Amount $546 $551 $498 $536
Total Volume 23.4
(* Excludes Timber Deeds Sold to GPG)
Prem.
Factor Adj. Est. Stumpage Weightin Price
Price C&H
GPG Component $522 1.10 $574 105 $469 74.8% $351
TTC Component $536 1.00 $536 0 $536 25.2% $135
Formula Price $486
Summary Pricing Formula _ Illustrative Example for pulpwood in SEARK and MS
March April May Total
GPG PAP & Deed Volume 2.7 6.1 8.7 17.5
Amount $530 $526 $517 $522
Prem.
Factor Adj. Est. C&H Stumpage
Price
GPG Component $522 1.10 $574 105 $469
Formula $469
Price
EXHIBIT "B"
FEE PREMIUMS
FOREST BASIN MILL SPECIES/PRODU FEE PREMIUM
CT %
East N. Oxford Pine Pulpwood 0%
Central Mississippi
Oxford Hardwood 0%
Pulpwood
Grenada Hdwd PW T/L 0%
Louisville Hardwood ST 0%
Louisville Pine Saw 8%
Timber
Grenada Pine PW T/L 1%
East S. Port Hudson Hardwood 0%
Central Mississippi Pulpwood
Monticello Pine Pulpwood 0%
Port Hudson Pine Pulpwood 0%
Taylorsville Hardwood ST 0%
Gloster Hardwood ST 0%
Gloster Pine 8%
Sawtimber
Leaf River Pine Pulpwood 3%
Leaf River Hardwood 4%
Pulpwood
Leaf River Pine Saw 8%
Timber
Bay Springs Chip-N-Saw 9%
Roxie Chip-N-Saw 11%
Bay Springs Lg Pine 12%
Roxie Lg Pine 12%
New Augusta Chip-N-Saw 13%
New Augusta Lg Pine 13%
Columbia Lg Pine 15%
Columbia Chip-N-Saw 15%
West S. Arkansas Crossett Pine Pulpwood 5%
Central
Crossett Hardwood 7%
Pulpwood
Crossett Pine Saw 8%
Timber
Crossett Chip N Saw 10%
Fordyce Pine Saw 8%
Timber
El Dorado Pine Saw 8%
Timber
TIMBER SALE AGREEMENT
(With Advance)
THIS TIMBER SALE AGREEMENT (THIS "AGREEMENT"), made this 31st day of
December, 1998, by and between Georgia-Pacific Corporation, a Georgia
corporation, d/b/a THE TIMBER COMPANY ("SELLER"), and GEORGIA-PACIFIC
CORPORATION (G-P GROUP) ("PURCHASER").
IN CONSIDERATION of the agreements on the part of the PURCHASER herein
contained, SELLER grants to PURCHASER the right for the term hereof to cut and
remove certain standing timber described in Paragraph 1 below, located on
SELLER's tracts more particularly described or shown on EXHIBIT "A" attached
hereto (the "Property").
1. TIMBER. PURCHASER shall cut and remove from the Property all merchantable
timber.
2. PRICE AND PAYMENT.
a. For Timber cut, removed, and sold to PURCHASER hereunder, PURCHASER
shall pay SELLER on a per ton basis pursuant to the price schedule set
forth on EXHIBIT "B" attached hereto.
b. The total consideration and purchase price of Timber sold hereunder
shall be based upon the actual volumes of Timber cut and removed from the
Property at the prices specified above. PURCHASER has paid SELLER the sum
of _________________ DOLLARS ($_______) as an advance payment (50% of
estimated total value), which shall be applied as payment for Timber
subsequently cut hereunder at the specified prices. Upon exhaustion of
credit for the advance payment, payment shall be made weekly for Timber cut
and removed the preceding week at the prices specified above. The volumes
of the Timber cut and removed will be determined by scalers at the places
of delivery.
c. PURCHASER shall remit each week to SELLER original scale tickets
and/or a settlement summary (ticket level) showing the volume cut and
removed during the preceding week. Payment shall be made to SELLER at the
address specified by SELLER.
3. TITLE AND RISK OF LOSS. Title to the Timber sold hereunder and all risk of
loss shall pass from SELLER to PURCHASER concurrently with the severance of
the Timber from the stump.
4. TERM. PURCHASER shall have 6 months from the date hereof to cut and remove
the Timber. In the event that PURCHASER cannot complete the harvest of any
Timber within such 6 month period the term shall be extended for a period
of up to 3 months on a tract by tract basis for fees consistent with local
practice, provided that the extension fee for any tract shall not exceed
ten percent of the total value of the remaining Timber on said tract.
5. DISCLAIMER. SELLER makes no warranty nor representation as to the
suitability, quality or quantity of Timber covered hereby, nor the logging
conditions required to harvest said Timber. PURCHASER acknowledges that it
has inspected the Property and Timber and has satisfied itself as to such
Timber and the condition of the Property, and PURCHASER is not relying on
any representation of SELLER.
6. BMPS. PURCHASER agrees that cutting, skidding, loading and hauling
operations hereunder shall in all respects comply with the Best Management
Practices (BMPs) adopted by the state in which the Timber is located.
7. HARVESTING OPERATIONS AND PRACTICES. PURCHASER shall adhere to the
following conditions in conducting its harvesting operations hereunder:
a. PURCHASER agrees to cut all trees as close to the ground as
practicable.
b. PURCHASER agrees to exercise all possible precautions against forest
fires, to notify SELLER and the appropriate authorities of any fires that
may occur or threaten the Property, and to cooperate in the extinguishment
of any such fires. In the event that any such fires are caused by
PURCHASER, its agents, employees, or contractors, PURCHASER shall be liable
for all damages arising therefrom.
c. PURCHASER shall use all reasonable care in its operations hereunder so
as not to materially damage the Property by logging when the site is
abnormally wet.
d. All mobile equipment which is serviced on the Property must be
serviced away from streams, ditches, or drainages. Oil or other potential
contaminants that are being removed during the servicing process must be
contained and disposed of properly.
e. All refuse generated during operations on the Property, including, but
not limited to, lunch or snack containers, paper, cans, oil cans, bottles,
filters, tires, and discarded equipment, must be disposed of properly.
f. PURCHASER shall repair all fences, roads or structures damaged by its
logging operations and leave all roads, fire breaks, property lines,
running streams, and drainage ditches clear of logs, timber, limbs, or
debris, and if the repairs are not made or if the debris is not removed and
cleared promptly after notice from SELLER, SELLER may undertake such repair
or removal for PURCHASER's account, and PURCHASER shall be liable to SELLER
for any expense incurred in repairing or removing same.
8. ACCESS. PURCHASER shall have the non-exclusive right to use SELLER's
private roads on the Property. New roads will not be constructed without
prior written approval of SELLER as to location. Any new roads shall be
constructed, maintained and left in a condition that meets state BMPs. All
roads, skid trails and drains shall be maintained in good condition and
kept open and passable, shall be waterbarred, and shall be left in as good
condition and repair as now exists upon completion of logging. Nothing
contained herein shall require SELLER to provide all weather access to any
tract. If with SELLER's prior written approval, PURCHASER constructs a
road for access to timber sold hereunder, SELLER shall reimburse PURCHASER
for the actual and reasonable cost of the road.
9. ENDANGERED SPECIES. In the event any threatened or endangered species are
discovered on the Property during the course of operations allowed by this
Agreement, or in the event PURCHASER learns that its activities might
otherwise constitute a violation of the Endangered Species Act, PURCHASER
shall immediately cease cutting operations and notify SELLER and any
appropriate regulatory agency. In the case of such discovery of a
threatened or endangered species, the volume of Timber which remains uncut
for the protection of the threatened or endangered species shall be deleted
and removed from this Agreement and the sums to be paid by PURCHASER shall
be adjusted accordingly.
10. COMPLIANCE WITH LAW. PURCHASER shall at all times comply with all
applicable federal, state, and local laws and regulations in the
performance hereof. PURCHASER agrees that PURCHASER and PURCHASER's
employees, representatives and agents will comply with OSHA safety
regulations by wearing proper safety equipment while on the Property.
PURCHASER shall obtain all permits, public approvals or licenses necessary
for the performance of this Agreement.
11. TIMBER SALVAGE. In the event that the quality or product composition of
the Timber is altered through physical damage to the Timber due to reasons
beyond the control of PURCHASER, including but not limited to fire,
insects, or wind, PURCHASER upon notification by SELLER shall immediately
attempt to salvage said damaged Timber if reasonably possible, and the
purchase price thereof shall be adjusted by mutual agreement to reflect
the salvage value of the Timber.
12. INDEMNIFICATION. SELLER shall in no way be liable or responsible for any
injury or damage done or occasioned by the actions or operations of
PURCHASER under this Agreement, and PURCHASER binds and obligates itself
to
pay and satisfy any and all claims arising on account of its operations
hereunder. PURCHASER further agrees to indemnify, defend, and hold
SELLER,
its agents and employees harmless from any and all liability, claims,
damages and losses, including attorneys' fees and court costs, which may
result from failure to abide by any laws or regulations and from injury
to
any person or property caused by PURCHASER's exercise of the rights
herein
granted. In executing this Agreement, PURCHASER expressly agrees to the
above indemnity provisions and states that PURCHASER intends to
specifically bind itself to indemnify SELLER in every instance set forth
above
13. WARRANTY OF TITLE. SELLER warrants title to the Timber sold hereunder
and
agrees to fully defend and indemnify PURCHASER against all claims
asserted
by any party.
14. RESERVED RIGHTS.
a. SELLER reserves the right to enter the Property at any time for the
purpose
of inspecting logging operations, making or maintaining fire lines, or
doing any other necessary forest management work, including the carrying
out of other woods operations which do not interfere with PURCHASER's
operations hereunder.
b. SELLER reserves the right to stop or interrupt PURCHASER's operations
hereunder when SELLER in its sole discretion deems significant site
damage
or forest fires will likely result from continued operations, provided
that
in the event such right is exercised, the term of this Agreement shall be
extended by the number of days that such stoppage or interruption
continues.
c. SELLER reserves the right to make and execute any contracts with
reference
to all oil, gas and other minerals in, on and under any portion of the
Property and the right to grant any and all reasonable and necessary
rights
of ingress and egress for the exploration, exploitation, production,
transportation, removal or handling of such oil, gas and all other
minerals
or mineral products, provided that SELLER shall reimburse PURCHASER for
the
loss of any Timber as a result of such mineral operations.
15. ALCOHOLIC BEVERAGES, DRUGS AND FIREARMS. PURCHASER hereby acknowledges
that SELLER has informed PURCHASER of its policies that being under the
influence of, bringing in, possessing, providing, manufacturing or other
production of, buying, selling or using alcoholic beverages, unauthorized
drugs or controlled substances on the Property, and the possession of
firearms on the Property, are strictly prohibited. PURCHASER understands
and agrees that PURCHASER, its officers, agents and employees will follow
these policies during the term of this Agreement. PURCHASER further
agrees
to report to the proper law enforcement authorities or SELLER, either
locally or anonymously to the G-P Hotline at 1-800-234-4321, any observed
or suspected marijuana or other controlled substance growing or being
manufactured on the Property.
16. ASSIGNMENT. PURCHASER shall not assign this Agreement or any rights
thereunder without the previous consent of SELLER in writing first
obtained
and only then subject to the conditions and restrictions contained
herein.
In the event of any such assignment, PURCHASER shall in no way be
released
from the performance of its obligations contained herein.
17. BOUNDARIES. PURCHASER AND SELLER acknowledge that prior to the execution
of this instrument, SELLER or its representative has determined the
boundary lines of the Property and has fully, accurately, and completely
described or clearly marked said boundaries to PURCHASER. SELLER agrees
to
defend, protect, and hold PURCHASER and independent contractors, harmless
from any and all loss, cost, damages, and/or expenses, arising from
claims
of trespass for any Timber cut within the designated boundaries.
18. AGENTS. For the purpose of paragraph 7, 10, 12, 15 and 17 the term
PURCHASER shall be defined to include PURCHASER's, officers, agents,
employees, and contractors.
19. PRIORITY. The rights granted PURCHASER hereunder shall be subject to any
prior easement, servitude, right-of-way, lease, contract, deed, or other
written instrument affecting the Property, or any conditions or
restrictions now of record or imposed by law.
20. WAIVER. Any delay or failure by SELLER in the strict enforcement of the
provisions of this Agreement with respect to any default by PURCHASER
hereunder shall not constitute a waiver of SELLER's rights respecting
such
default or any other default hereunder.
21. TAXES. Unless otherwise agreed, PURCHASER agrees to pay all severance
taxes upon Timber cut from the Property hereunder, except in Georgia
where
SELLER shall pay all severance taxes.
22. NOTICES. Any notice required or permitted to be given hereunder shall be
deemed properly given on a date personally delivered by messenger
service,
overnight courier service or telecopy (facsimile) transmission, or three
(3) days after same is deposited with the United States Postal Service by
registered or certified mail, postage prepaid, return receipt requested,
to
the parties at the following address or telecopy/facsimile numbers:
SELLER: THE TIMBER COMPANY
100 Peachtree Street, NW
Atlanta, Georgia 30303
ATTN.: Gary A. Myers
Telecopier: (404) 586-9723
PURCHASER: GEORGIA-PACIFIC CORPORATION
133 Peachtree Street, NE
Atlanta, Georgia 30303
ATTN.: Michael P. McCollum
Telecopier: (404) 584-1467
23. ENTIRE AGREEMENT. This instrument represents the entire agreement
between
the parties and any alterations thereof or amendments thereto shall be in
writing and signed by all parties.
IN WITNESS WHEREOF, SELLER and PURCHASER have caused this Agreement to be
duly executed by authorized representatives, in duplicate originals, on this
the day and year first above written.
PURCHASER: SELLER:
GEORGIA-PACIFIC CORPORATION Georgia-Pacific Corporation
(G-P GROUP) d/b/a
THE TIMBER COMPANY
By: By:
John F. Rasor Donald L. Glass
Executive Vice President President and CEO
EXHIBIT "D"
1. Subsequent to June 30, 1998, TTC and GPG mutually agreed to temporarily
waive the premium applied to the sale of hardwood pulpwood at Crossett.
Effective January 1, 1999 this premium of 7 percent was temporarily
waived by TTC percent pending an improvement in the local market for
pulpwood as determined by TTC.
2. Subsequent to June 30, 1998, TTC and GPG mutually agreed that the price
for timber and wood fiber on tracts nominated by GPG which is not of the
type
that can be consumed by GPG mills shall be the actual price obtained by GPG
for the sale of such timber and wood fiber to third parties. It is agreed
that TTC and GPG shall jointly market such timber and wood fiber on terms
and
conditions (including cut and haul rates) generally acceptable to TTC.
This
agreement shall also apply to timber sold under the Timber Sale Agreements
referenced in Sections 5 (d) and 5 (f) of the Policy. This agreement may be
cancelled by either party at any time.
EXHIBIT 12
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
STATEMENTS OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
(Unaudited)
(In millions)
For the year ended December 31,
---------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Fixed charges:
Total interest expense $ 443 $ 465 $ 459
One-third of rent expense 25 25 23
----- ------ ------
Total fixed charges 468 490 482
----- ----- ------
Add (deduct):
Income before income taxes,
extraordinary item and
accounting change 491 235 296
Interest capitalized 9 11 31
------ ------ ------
500 246 327
------ ------ ------
Earnings for fixed charges $ 968 $ 736 $ 809
====== ====== ======
Ratio of earnings to fixed charges 2.07x 1.50x 1.68x
====== ====== ======
</TABLE>
<PAGE>
HIGHLIGHTS
<TABLE>
<CAPTION>
GEORGIA-PACIFIC CORPORATION _GEORGIA-PACIFIC GROUP
(Dollar amounts, except per share,
and shares are in millions) 1998 1997
------------------------------------------------------------
<S> <C> <C>
Net sales $13,223 $12,979
Income before extraordinary items 111 (86)
Basic income per share before
extraordinary items 1.23 (0.94)
Cash provided by operations 1,686 1,254
Property, plant and equipment
investments 632 715
Cash dividends paid 90 92
Total assets at year end 11,538 11,779
Total debt at year end 4,568 4,519
Total debt to capital at
year end, book basis 44.5% 43.1%
Total debt to capital at
year end, market basis 47.4% 44.7%
------------------------------------------------------------
Cash dividends paid per share of
common stock $ 1.00
Market price per share of common
stock at year end $58.56 $ 60.75
Shares of common stock outstanding
at year end 86.5 92.2
------------------------------------------------------------
</TABLE>
GEORGIA-PACIFIC CORPORATION - GEORGIA-PACIFIC GROUP<PAGE>
FINANCIAL REVIEW
FINANCIAL OBJECTIVE: Total shareholder returns.
The Georgia-Pacific Group continues to focus on creating long-term shareholder
value. The paper and forest products industry traditionally provided
shareholders a portion of their returns through dividend payments, while trying
to increase equity values by reinvesting operating cash flows in expansion
projects and acquisitions. The industry's stock performance suggests the returns
on much of this reinvestment have been insufficient. Georgia-Pacific Group
management recognizes this performance gap. We believe cash generated in excess
of positive net present value investment opportunities should be distributed to
shareholders in the form of both dividends and share repurchases.
SEPARATION OF CASH FLOWS. In December 1997, as part of our effort to improve
returns for our shareholders, the Corporation issued letter stock that separated
the business and cash flows of the Corporation's timberlands from those of its
manufacturing and distribution operations. Georgia-Pacific Group stock tracks
the performance of the Corporation's manufacturing and distribution operations.
The earnings and cash flows of the Georgia-Pacific Group are generated,
reinvested and distributed solely for the benefit of Georgia-Pacific Group
shareholders.
CAPITAL STRUCTURE. We balance our mix of debt and equity to best benefit our
shareholders. We achieve this by keeping our weighted average cost of capital as
low as possible, while retaining the flexibility needed to finance attractive
opportunities and pay dividends. Our capital structure decisions are influenced
by risk factors that contribute to the volatility of our cash flows. These
include economic cycles, changes in industry capacity and additional
environmental regulations. At the same time, a number of factors reduce our
risk
and increase the Corporation's borrowing capacity. These include the number,
size, diversity and liquidity of our capital assets and of The Timber Company's
timberlands. The Corporation employs a high proportion of long-term, fixed-rate
debt in its capital structure, consistent with the long-term nature of the
Corporation's assets.<PAGE>
In January 1998, the Board of Directors approved a $250 million increase in the
Corporation's target debt level, to $5.75 billion. All the increase was
allocated to the Georgia-Pacific Group. We believe this is appropriate given the
approximately $4.2 billion in additions to the Group's manufacturing asset base
since establishing the original target debt level of $5.5 billion in 1993, and
considering the major cost reduction achievements of the past three years.
On December 31, 1998, the Georgia-Pacific Group's share of corporate debt was
$4.57 billion. On a market value basis, the debt-to-capital ratio for the
Georgia-Pacific Group was 47 percent. The cash-generation capability of the
Group allows it to service debt at this level in cyclical troughs, while leaving
sufficient free cash for dividends and maintenance needs. More importantly, this
capability allows for significant cash distributions to our shareholders, even
during periods of weak industry fundamentals.
On December 31, 1998, the Corporation's total debt was $5.55 billion, nearly
$200 million below the target debt of $5.75 billion. During 1998, the
Corporation took advantage of options to call some higher-coupon, long-term debt
and replaced it with lower-cost, longer-term debt. As a result, the portfolio
remained cost efficient during this period of volatile markets. The weighted
average after-tax cost of debt was 4.4 percent. Approximately 75 percent of our
debt was long term, with an average maturity of approximately 19 years. On a
combined market value basis, the Corporation's debt-to-capital ratio was 44
percent.
The Board of Directors continually reviews the Corporation's capital structure
and could change the target debt level in the future. Any future major
acquisitions likely would be financed with equity or a combination of debt and
equity.
INVESTMENTS AND DIVESTITURES. The Georgia-Pacific Group 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 levels of economic growth<PAGE>
and product 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 or imported products.
In addition to the preinvestment evaluations of capital projects, we review
major investments during the course of the projects and/or after their
completion. These reviews compare the actual timing and amounts of expenditures,
product prices, raw material costs and other critical success factors to the
assumptions made when the investments were proposed. These reviews (presented
periodically to the Corporation's Board) are key to continually learning about
and understanding the risks inherent in future investments. This knowledge is
critical to our ability to employ shareholders' capital where it is most likely
to create positive economic returns.
We anticipate property, plant and equipment investments will remain around $700
million per year for the foreseeable future, excluding any potential acquisition
costs.
In our continuing effort to create shareholder value, we routinely evaluate the
performance and strategic fit of existing operations. Assets not considered
strategic or not expected to deliver adequate returns undergo evaluation for
divestment. For example, the Georgia-Pacific Group's decision to curtail
production of Southern hardwood market pulp in 1998 was based on our belief we
were unlikely to produce economic returns in export market pulp going forward.
Evaluation of the worldwide hardwood pulp market convinced us that continued
production of Southern hardwood pulp for sale in export markets could not
deliver acceptable returns for our shareholders, except in cyclical peaks.
The Georgia-Pacific Group measures business unit performance and bases incentive
compensation on the Economic Value Added (EVA) metric. In applying this measure,
business units are compensated for their ability to improve returns on the
market value of capital employed. These plans encourage our employees and
management to continuously seek process improvements, manage inventories, reduce
costs and divest underperforming assets.
DIVIDENDS AND SHARE REPURCHASES. We believe a portion of our cash flows should
be paid to shareholders as regular, sustainable quarterly dividends. Currently,
the Group pays a $0.25 per share quarterly dividend. In the future, the dividend
rate will depend on our cash flows, long-term capital requirements and overall
capital structure.
As was the case in 1998, there likely will be periods when the Georgia-Pacific
Group generates cash in excess of our opportunities for reinvestment and
dividend requirements. Excess cash will be returned to our shareholders through
share repurchases, so they can make their own reinvestment choices. We believe
our long-term shareholders will benefit as their proportionate share of the
Group grows.
Management is authorized to repurchase shares of the Georgia-Pacific Group when
total corporate debt is below $5.75 billion and Georgia-Pacific Group debt is
below $4.75 billion. During 1998, the Georgia-Pacific Group repurchased 7.7
million shares. This represents a tax-efficient distribution of $436 million to
our shareholders and an 8 percent gross reduction from our January 1 share base.
GEORGIA-PACIFIC CORPORATION - GEORGIA-PACIFIC GROUP
OPERATIONS REVIEW
The Georgia-Pacific Group has grown through expansion and acquisitions to become
one of the world's leading manufacturers of building products and pulp and
paper. Among North American producers, the Georgia-Pacific Group (the "Group")
ranks first in structural and other wood panels; second in lumber products;
second in communication papers (uncoated free-sheet); second in gypsum
wallboard; second in market pulp; third in linerboard and medium; fourth in
tissue and paper towels; and fifth in corrugated packaging.<PAGE>
The Group's distribution segment leads in supplying wholesale building products
in the United States. The Group's chemicals business is the primary supplier of
resins and other chemicals to the forest products industry.
Since 1997, the Georgia-Pacific Group has made substantial progress toward its
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 $650
million to $750 million per year. After maintenance and environmental spending,
the Group limits investments either to businesses with higher return
opportunities, such as gypsum, tissue and chemicals; or to projects that lower
costs or improve efficiencies. Investments in property, plant and equipment in
1998 totaled $632 million, approximately 84 percent of 1998's depreciation of
$744 million.
The Group operates production facilities in four operating business segments:
building products; distribution; containerboard and packaging; and pulp and
paper. Operating segment descriptions follow.
BUILDING PRODUCTS. The Georgia-Pacific Group is a leading manufacturer of
building products in the United States. The building products segment includes
wood panels (including plywood, oriented strand board [OSB] and industrial
panels), lumber, gypsum products and chemicals. These products are manufactured
at 147 facilities in the United States, at seven plants in Canada, and through
joint ventures in South Africa and South America. The building products business
is affected by the level of housing starts; the level of repairs, remodeling and
additions; commercial building activity; the availability and cost of financing;
and changes in industry capacity. Exports for the building products segment in
1998 were $78 million, primarily to the Caribbean and Europe.
WOOD PANELS. The largest producer of structural wood panels in the United
States, the Georgia-Pacific Group accounts for about 20 percent of domestic
capacity. The segment's 16 softwood plywood plants and six OSB plants can
produce 7 billion square feet of panels annually. With most of these plants
located in the Southeast, the business benefits from an ample supply of timber,
favorable weather conditions, regional population growth, national economic
growth and other factors. OSB is a structural panel made from wood strands
carefully 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 building products segment leads in production of manufactured board products
for industrial and construction applications. Twenty-one mills manufacture
hardboard, particleboard, panelboard, softboard, hardwood plywood, decorative
panels and medium-density fiberboard. Applications include furniture, cabinets,
housing, retail fixtures and other industrial products.
LUMBER. The second-largest lumber producer in North America, the Georgia-
Pacific Group annually manufactures about 2.7 billion board feet, approximately
5 percent of domestic lumber production. Most of the segment's 37 lumber mills
are located in the Southern United States. 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 building products segment's engineered lumber products has
increased rapidly in recent years as wood I-joists (made from veneer, OSB and
sawn lumber) have become the product of choice for floor joist applications.
Laminated veneer lumber and wood I-joists are designed to meet the precise
structural performance requirements of roofing and flooring systems.
GYPSUM PRODUCTS. The building products segment operates 20 gypsum board plants
throughout the United States and Canada and is the second-largest producer of
gypsum wallboard in North America, with an annual capacity of 6.3 billion square
feet. Gypsum products include wallboard, Dens specialty panels, fire-door cores,
industrial plaster and joint compound. In addition, the segment also operates
four 100-percent-recycled gypsum paperboard mills with a capacity of 306,000
tons per year and owns gypsum reserves of approximately 195 million recoverable
tons, an estimated 42-year supply at current production rates.<PAGE>
During 1998, the Georgia-Pacific Group proceeded with construction of a new 500-
million-square-foot-capacity gypsum wallboard facility at Wheatfield, Indiana.
Local power generation plants will supply it with synthetic gypsum, a waste by-
product of coal combustion. This arrangement provides a new low-cost source of
raw material, while more than doubling the amount of this waste product recycled
in the state of Indiana. Operations are expected to begin in the second quarter
of 1999.
CHEMICALS. The building products segment's chemicals business is the forest
products industry's leading supplier of wood-bonding resins, industrial
thermosetting resins, paper chemicals and tall-oil-based chemicals. The business
ships more than 4 billion pounds of thermosetting resins, formaldehyde, pulp
chemicals and paper chemicals annually from 20 plants to most of the major
buyers of these products. This segment also produces chemicals for use in a
variety of specialty applications in other industries, including roofing,
thermal insulation, metal working, coatings, fertilizer and transportation. In
1998, the chemicals business expanded internationally through joint ventures in
South Africa, Chile and Argentina. The business is conducting an ongoing
worldwide search for opportunities to leverage its chemicals technology and
other strengths.
DISTRIBUTION. The distribution segment of the Georgia-Pacific Group leads all
domestic wholesalers of building products. This segment sells building products
to independent dealers, industrial customers and large home improvement centers
throughout the United States. The distribution business provides a nationwide
outlet for a significant amount of the Georgia-Pacific Group's building
products. It also sells building products purchased from third parties. In 1998,
these third-party purchases totaled $2.3 billion and accounted for approximately
58 percent of distribution segment sales.
The distribution segment's geographic coverage and product breadth are unmatched
in North America. The distribution business is affected by the availability and<PAGE>
cost of financing, the pace of new home construction, and the level of repair
and remodeling expenditures.
In 1995, the segment began reengineering its organizational, logistical and
information systems. Implementation of these initiatives, however, was far more
costly and difficult than anticipated. As part of an aggressive effort to return
these operations to profitability, management decided in late 1997 to sell or
close the segment's millwork fabrication facilities and a number of distribution
centers in the Western United States. These efforts were concluded in 1998, and
in the third and fourth quarters the segment posted quarterly operating profits
for the first time in three years.
CONTAINERBOARD AND PACKAGING. The containerboard and packaging segment produces
containerboard, corrugated containers and packaging, bleached paperboard and
kraft paper. The third-largest North American producer of containerboard, this
segment is the primary supplier of this product to independent converters in the
United States. Annual capacity at the five containerboard mills totals 3.8
million tons, representing about 10 percent of total U.S. capacity. The
corrugated packaging plants use approximately 72 percent of the segment's
containerboard production; the remainder is sold to independent box converters
in the United States, Latin America and Asia. Markets for containerboard and
packaging products are affected primarily by changes in industry capacity and
the level of industrial activity in U.S. and export markets. Containerboard and
packaging segment exports totaled 520,000 tons during 1998, a significant drop
from 1997's level of 591,000 tons.
The segment took several steps in 1998 to improve the strategic position and
performance of its containerboard operations. In June, it completed the
acquisition of CeCorr Inc., a leading manufacturer of corrugated sheets in the
United States. Management also initiated a new production strategy in the
containerboard mills: matching production with demand while maintaining - or
lowering - unit cost and tightly maintaining rollstock inventories. This
operating policy provides the mills with production flexibility without
compromising their competitive cost position. This represents a clear departure
from operating policies employed in the past.
In addition to standard corrugated containers, the segment'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. The Technology and Development Center in
Norcross, Georgia, uses state-of-the-art technology to design and test packaging
for customers.
PULP AND PAPER. The Georgia-Pacific Group produces and sells market pulp,
communication papers, tissue and other products at 14 facilities in the United
States. Combined production capacity for pulp, paper and tissue is 5.1 million
tons. The pulp and paper segment's mills are among the industry's lowest-cost
producers. An initiative over the past several years has motivated employees
throughout the mill system to find ways to continually reduce costs, increase
quality and reduce maintenance spending.
Markets for pulp and paper products are affected primarily by changes in
industry capacity, the level of economic growth in U.S. and export markets, and
fluctuations in currency exchange rates. Exports from this operating segment
consist chiefly of market pulp bound for Asia, Europe and Latin America. In
1998, exports dropped sharply from prior years due to the Asian economic
slowdown. Exports for the pulp and paper segment fell from $715 million in 1997
to $592 million in 1998.
MARKET PULP. The Georgia-Pacific Group ranks second in the world in the
production of market pulp. The pulp and paper operating segment includes six
mills with a combined annual capacity of 2.1 million tons, approximately 20
percent of U.S. capacity. These mills produce primarily Southern softwood,
Northern hardwood, and sulfite pulps for use in the manufacture of many paper
grades. The segment also is a major supplier of fluff pulp and other specialty
pulps. Fluff pulp is used in the manufacture of disposable diapers and other<PAGE>
sanitary items. Demand continues to grow for these products, particularly in
developing countries.
The Asian financial crisis continued to impact the world pulp market throughout
1998. The segment historically exported approximately 65 percent of its market
pulp to Asia, Europe and Latin America. In 1998, exports fell to 57 percent of
market pulp sales. The decline was principally in bale pulp sold to Asian
markets. In response to a sharp drop in orders from Asia, the segment took
nearly 108,000 tons of market-related pulp downtime in the first half of 1998.
By mid-summer, it became increasingly obvious that Southern hardwood pulp could
no longer compete in the international marketplace. During the third quarter of
1998, the pulp and paper segment indefinitely shut down the hardwood market pulp
portion of its Port Hudson, Louisiana, operations, resulting in the elimination
of approximately 260,000 tons of annual production capacity.
COMMUNICATION PAPERS. The Georgia-Pacific Group is the nation's second-largest
domestic producer of communication papers. Also known as uncoated free-sheet,
communication papers are used in office copy machines and printers, commercial
printing, business forms, stationery, tablets, books, envelopes, labels and
checks. The pulp and paper segment's seven uncoated free-sheet paper mills have
a combined annual capacity of 2.2 million tons, approximately 15 percent of
U.S.
capacity. These products are sold through major paper distributors, office
products distributors, printing equipment manufacturers, retailers and
converters. Products are sold under a variety of names including Microprint,
Quantum, Spectrum, Nekoosa Solutions, Valorem, GeoCycle, HOTS, St. Croix, Re-
Comm and Westminster.
In 1998, the communication papers business reorganized to consolidate management
of its merchant distribution business and to improve its focus on other emerging
channels of converting and distribution. The reorganization effectively brought
decision-makers closer to the customers. In a very difficult market, operating
profits improved year-over-year.<PAGE>
Communication papers continues to focus on its strategy of reducing costs and
improving customer service. A key investment is a major information systems
initiative that is anticipated to start on schedule in 1999. Once completed, it
will enable the business to continue to optimize paper machine productivity,
decrease order fulfillment time, and reduce transportation and inventory costs.
TISSUE. The Georgia-Pacific Group ranks fourth among U.S. producers of tissue
products, which include bath tissue, paper towels and napkins. These products
are manufactured at five primary mills and two converting plants. Capacity
totals approximately 740,000 tons annually, about 10 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,
or directly to national fast-food accounts. This business's line of proprietary
dispensing systems for the Cormatic, Ultimatic and Guardian brands continued to
expand in 1998.
In recent years, demand for the pulp and paper segment's tissue products
exceeded primary production capacity. To reduce reliance on purchased parent
rolls, the business completed a new tissue machine and associated converting
equipment at Crossett, Arkansas, and a major rebuild of an existing machine at
Plattsburgh, New York. These two investments will increase production by
approximately 80,000 tons of tissue per year.
MANAGEMENT'S DISCUSSION AND ANALYSIS
GEORGIA-PACIFIC GROUP
The Georgia-Pacific Group consists of all of Georgia-Pacific Corporation's (the
"Corporation") manufacturing mills and plants and its building products
distribution business. These include 95 facilities in the United States and one
in Canada manufacturing containerboard and packaging materials, communication
papers, market pulp, tissue and other products; 147 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 63
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, a portion of the Group's timber requirements have been
supplied by the Corporation's own timberlands (17 percent in 1998), which now
constitute The Timber Company, and the remaining amounts have been supplied by
unaffiliated third parties.
In 1997 and 1998, the Georgia-Pacific Group and The Timber Company negotiated an
operating policy governing sales of timber through the year 2000, which is more
fully described in Note 13 of the Notes to Combined Financial Statements.
1998 COMPARED WITH 1997
The Georgia-Pacific Group reported net sales of $13.2 billion and net income of
$98 million, or $1.09 per share, for 1998, compared with net sales of $13.0
billion and a net loss of $146 million, or $1.60 per share, in 1997. The 1998
results include an extraordinary, after-tax loss of $13 million, or $0.14 per
share, for the early retirement of debt. The 1997 results included a pretax gain
of $14 million ($9 million after taxes) from the sale of the Group's Martell,
California, assets that included a sawmill and a particleboard plant, and a $60
million, or $0.66 per share, one-time, after-tax charge for an accounting
change.
Selling, general and administrative expense ("SG&A") was $1,105 million in 1998,
compared with $1,137 million in 1997. The cost reduction is the result of
overhead reduction plans initiated in 1996 and implemented through 1997.
Interest expense was $372 million in 1998, compared with $381 million in 1997.
The reduction is the result of lower average debt levels and lower average
interest rates.
The Georgia-Pacific Group reported pretax income of $198 million and an income
tax provision of $87 million for the year ended December 31, 1998, compared with
a pretax loss of $118 million and an income tax benefit of $32 million for the
year ended December 31, 1997. The effective tax rate used to calculate the
provision or benefit 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 business
acquisitions.
In 1997, the Group adopted Financial Accounting Standards Board ("FASB")
Emerging Issues Task Force 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," which resulted in a one-time, after-tax charge of $60 million.
The remaining discussion refers to the "Selected Operating Segment Data" table
below.
SELECTED OPERATING SEGMENT DATA
Georgia-Pacific Corporation _ Georgia-Pacific Group
<TABLE>
<CAPTION>
Year ended December 31
---------------------
(In millions) 1998 1997 1996
-------------------------------------------------------------
<S> <C> <C> <C>
Net sales<PAGE>
Building products $ 5,792 $ 5,545 $ 5,752
Distribution 4,333 4,406 4,563
Containerboard and packaging 2,104 1,817 1,976
Pulp and paper 3,548 3,701 3,620
Other* (2,554) (2,490) (3,001)
--------------------------------------------------------------
Total net sales $ 13,223 $ 12,979 $12,910
==============================================================
Operating profits
Building products $ 603 $ 490 $ 567
Distribution 1 (171) (220)
Containerboard and packaging 106 (6) 127
Pulp and paper 133 201 250
Other (273) (251) (282)
--------------------------------------------------------------
Total operating profits 570 263 442
Interest expense 372 381 354
Provision (benefit) for
income taxes 87 (32) 54
--------------------------------------------------------------
Income (loss) before
extraordinary items and
accounting change 111 (86) 34
Extraordinary items,
net of taxes (13) - (5)
Cumulative effect of
accounting change,
net of taxes - (60) -
--------------------------------------------------------------
Net income (loss) $ 98 $ (146) $ 29
==============================================================<PAGE>
</TABLE>
*Includes the elimination of intersegment sales.
BUILDING PRODUCTS. The Georgia-Pacific Group's building products segment
reported net sales of $5.8 billion and operating profits of $603 million for
the
year ended December 31, 1998, compared with net sales of $5.5 billion and
operating profits of $490 million in 1997. Return on sales was 10.4 percent in
1998 and 8.8 percent in 1997. The 1997 results included unusual one-time 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 primary components of the increase in 1998 sales and operating profits were
45 percent higher oriented strand board prices and 6 percent higher gypsum
prices. Demand and volume were also higher in 1998 for both of these products
than in the prior year. These increases were offset slightly by 12 percent lower
lumber prices and 9 percent higher log costs. Favorable economic conditions and
sustained high housing starts should continue to provide profitable results for
the building products segment in 1999.
DISTRIBUTION. The Georgia-Pacific Group's building products distribution
segment reported operating profits of $1 million in 1998 (including gains on
asset sales of $20 million) compared with a loss of $171 million in 1997
(including gains on asset sales of $26 million). The 1997 results included
restructuring charges of $80 million. The improvement in the distribution
segment's operating results reflects the implementation of the division's
restructuring plan, which began in the 1997 fourth quarter. This plan included
disposition of its millwork fabrication facilities nationwide and of a number of
distribution centers located in the Western United States. The millwork
fabrication facilities have been divested and the targeted distribution centers
have been sold or closed. The Georgia-Pacific Group expects continued
improvement in its distribution segment in 1999.
CONTAINERBOARD AND PACKAGING. The Georgia-Pacific Group's containerboard and
packaging segment reported net sales of $2.1 billion and operating profits of<PAGE>
$106 million for the year ended December 31, 1998, compared with net sales of
$1.8 billion and a loss of $6 million in 1997. Return on sales increased to 5.0
percent compared with (0.3) percent for the same period a year ago, principally
due to a 19 percent increase in average prices for containerboard and an average
6 percent price increase for packaging products. During 1998, the Georgia-
Pacific Group took approximately 270,000 tons of downtime at its containerboard
mills to avoid building inventories. It anticipates slightly stronger pricing
for containerboard and packaging in 1999 but may continue to take downtime
depending on overall demand for these products.
PULP AND PAPER. The Georgia-Pacific Group's pulp and paper segment reported net
sales of $3.5 billion and operating profits of $133 million for the year ended
December 31, 1998, compared with net sales of $3.7 billion and operating profits
of $201 million in 1997. Return on sales decreased to 3.7 percent compared with
5.4 percent for the same period a year ago, principally due to a slight decrease
in average prices for almost all of the Group's pulp and paper products.
Excluding a one-time, $12 million charge in 1998 primarily for the closure of a
hardwood market pulp operation, return on sales was 4.1 percent. Average pulp
prices were approximately 9 percent below year ago levels. Tissue prices
decreased approximately 3 percent due to lower fiber costs and new capacity.
Average prices of communication papers for 1998 were approximately 2 percent
below year ago levels.
Compared with a year ago, the Georgia-Pacific Group has reduced inventories for
most pulp and paper products, incurring downtime when necessary. During the
second half of 1998, the Georgia-Pacific Group took significant market-related
downtime due to continued weakness in demand and pricing for pulp and paper,
primarily stemming from market conditions in Asia. In the 1998 third quarter,
the Georgia-Pacific Group indefinitely shut down the hardwood market pulp
portion of its operations at Port Hudson, Louisiana, resulting in closure of
approximately 260,000 tons of annual production capacity. Additionally, the
Corporation took approximately 300,000 tons of downtime in 1998 at its pulp
mills to avoid building inventories. The Georgia-Pacific Group has experienced<PAGE>
increased activity in foreign markets for pulp in recent months. However, demand
and pricing for most of its pulp and paper products are expected to remain weak
for much of 1999.
Prices for most of the Group's commodity paper products have been declining
since the fourth quarter of 1995. Historically, prices for all the Group's paper
products have been highly volatile, and it is expected that this trend will
continue through 1999.
OTHER. The operating loss for the "Other" nonreportable segment, which includes
some miscellaneous businesses, certain goodwill amortization, unallocated
corporate operating expenses and the elimination of profit on intersegment
sales, increased by $22 million to a loss of $273 million in 1998 from a loss of
$251 million in 1997. This increase was primarily a result of higher litigation
and environmental remediation costs.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Georgia-Pacific Group generated cash from operations
of $1,686 million during 1998. The Group's cash provided by operations in 1997
was $1,254 million. The increase is due primarily to higher net income and lower
working capital levels in 1998.
INVESTING ACTIVITIES. Capital expenditures for property, plant and equipment,
excluding acquisitions, during 1998 were $632 million compared with $715 million
in 1997. Expenditures in 1998 included $186 million in the building products
segment, $12 million in the distribution segment, $84 million in the
containerboard and packaging segment, $305 million in the pulp and paper segment
and $45 million of other and general corporate. The Georgia-Pacific Group
expects to make capital expenditures for property, plant and equipment of
approximately $700 million in 1999, excluding the cost of any acquisitions.
During 1998, the Georgia-Pacific Group invested $90 million for pollution
control and abatement. The Group's 1999 capital expenditure budget currently<PAGE>
includes approximately $160 million for environment-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.
On April 15, 1998, the U.S. Environmental Protection Agency (the "EPA")
promulgated a set of regulations known as the "Cluster Rule" that establishes
new requirements for air emissions and wastewater discharges from pulp and paper
mills. The Georgia-Pacific Group estimates it will make capital expenditures up
to approximately $550 million over the next eight years in order to comply with
the Cluster Rule's requirements. Of that total, about $365 million will be spent
by the end of 2000. One of the main components of the Cluster Rule requires that
pulp and paper mills use only elemental chlorine free ("ECF") technology, which
requires the complete substitution of chlorine dioxide for elemental chlorine in
the pulp bleaching process. Approximately $183 million of the amount required to
be spent in the next two years will go toward ECF conversion at mills located in
Ashdown, Arkansas; Crossett, Arkansas; Bellingham, Washington; and Palatka,
Florida. The bulk of the remaining expenditures within the next two years will
be for additional air emission controls at the Georgia-Pacific Group's 14 pulp
and paper facilities.
Cash paid for timber was $475 million in 1998 compared with $481 million in
1997.
On June 30, 1998, the Georgia-Pacific Group completed its acquisition of CeCorr
Inc. ("CeCorr"), a leading independent producer of corrugated sheets in the
United States. The Group paid approximately $93 million in cash and issued
approximately 1.6 million shares of Georgia-Pacific Group stock valued at
$57.875 per share for all the outstanding shares of CeCorr. In addition, the
Georgia-Pacific Group assumed approximately $58 million of CeCorr's debt. On
July 2, 1998, a former owner of CeCorr exercised his right to resell to the<PAGE>
eorgia-Pacific Group approximately 1.1 million shares of Georgia-Pacific Group
stock issued in the transaction.
During 1998, the Georgia-Pacific Group received $67 million from the sale of
assets, principally various distribution facilities. During 1997, the Georgia-
Pacific Group received proceeds of $107 million from the sale of assets, $38
million of which was from the sale of its Martell operations.
FINANCING ACTIVITIES. At December 31, 1998 and 1997, the Corporation's total
debt was $5.55 billion and $5.49 billion, respectively, of which $4.57 billion
and $4.52 billion, respectively, of such total debt was Georgia-Pacific Group'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, 1998 was 7.2% including outstanding interest rate exchange
agreements. The Georgia-Pacific Group's debt increases or decreases 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.
In conjunction with the sale of the Corporation's Martell operations in March
1997, the Corporation received notes receivable from the purchaser. 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 balances of the notes
receivable, which are classified as "Other assets," and notes payable, which are
classified as "Other long-term liabilities," were both $270 million on the
Corporation's December 31, 1998 and 1997 balance sheets.
During 1998, the Corporation issued $300 million of 7.25% Debentures Due June 1,
2028 and a $14 million floating rate note due September 30, 2003. In January
1998, the Corporation redeemed $200 million of 9 3/4% Sinking Fund Debentures<PAGE>
Due January 15, 2018. In February 1998, the Corporation redeemed $200 million of
9 1/2% Debentures Due February 15, 2018.
At December 31, 1998, the Corporation had outstanding borrowings of $637 million
under certain industrial revenue bonds. Approximately $11 million from the
issuance of these bonds was held by trustees at December 31, 1998 to refund a
like amount of bonds maturing on January 4, 1999. The corresponding amount held
by trustees is classified as "Other current 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. The agreement will terminate in 2001. As of December 31, 1998,
$570 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, which has been approved by the Board of Directors (the "Board").
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 tables below present principal (or notional) amounts and related weighted
average interest rates by year of expected maturity for the Corporation's debt
obligations as of December 31, 1998 and 1997. For obligations with variable
interest rates, the tables set forth payout amounts based on current rates and
do not attempt to project future interest rates.
Georgia-Pacific Corporation _ Georgia-Pacific Group
<TABLE>
<CAPTION>
(In millions) 1999 2000 2001 2002
------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt
Commercial paper and other
short-term notes $ - $ - $ - $ -
Average interest rates - - - -
Notes and debentures $ - $ - $ - $ 300
Average interest rates - - - 10.0%
Revenue bonds $ 21 $ 21 $ 1 $ 75
Average interest rates 4.2% 4.4% 6.5% 5.1%
Other loans $ 2 $ 13 $ - $ -
Average interest rates 7.7% 7.9% - -
Accounts receivable sale program $ - $ - $ - $ -
Average interest rates - - - -
Notional principal amount of
interest rate exchange
agreements $ 56 $ 100 $ - $ -
Average interest rate paid
(fixed) 8.8% 8.4% - -
Average interest rate received
(variable) 5.0% 5.8% - -
------------------------------------------------------------
</TABLE>
Georgia-Pacific Corporation _ Georgia-Pacific Group
<TABLE>
<CAPTION>
Fair value
December 31,
(In millions) 2003 Thereafter Total 1998
------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt
Commercial paper and other
short-term notes $ - $ 929 $ 929 $ 929
Average interest rates - 5.8% 5.8% 5.8%
Notes and debentures $ 300 $ 2,900 $ 3,500 $ 3,783
Average interest rates 5.5% 8.6% 8.4% 8.4%
Revenue bonds $ 1 $ 518 $ 637 $ 587
Average interest rates 6.5% 5.2% 5.2% 5.2%
Other loans $ 14 $ - $ 29 $ 29
Average interest rates 5.8% - 6.9% 6.9%
Accounts receivable sale
program $ - $ 280 $ 280 $ 280
Average interest rates - 5.7% 5.7% 5.7%
Notional principal amount of
interest rate exchange
agreements $ 300 $ - $ 456 $ 14
Average interest rate paid
(fixed) 5.9% - 6.8% 6.8%
Average interest rate received
(variable) 5.7% - 5.7% 5.7%<PAGE>
------------------------------------------------------------
</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 2003.
Georgia-Pacific Corporation _ Georgia-Pacific Group
<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<PAGE>
(variable) 5.8% 5.7% 5.9% -
------------------------------------------------------------
</TABLE>
Georgia-Pacific Corporation _ Georgia-Pacific Group
<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%<PAGE>
------------------------------------------------------------
</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, 1998, the Corporation had interest rate exchange agreements that
effectively converted $456 million of floating rate obligations with a weighted
average interest rate of 5.7% to fixed rate obligations with an average
effective interest rate of approximately 6.8%. These agreements increased
interest expense by $11 million, $16 million and $17 million for the three years
ended December 31, 1998, 1997 and 1996, respectively. As of December 31, 1998,
these agreements have a weighted average maturity of approximately 3.5 years. As
of December 31, 1998, 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 and
commodity futures and swaps, the amounts of which were not material to the
financial position of the Group at December 31, 1998.
As of December 31, 1998, the Corporation had registered for sale up to $500
million of debt securities under a shelf registration statement filed with the
Securities and Exchange Commission.
The Board has adopted a policy that earnings and cash flows 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 January 1998, the Board authorized management to make purchases of Georgia-
Pacific Group stock on the open market or in private transactions so long as the
Group's total debt remains below $4.75 billion and the Corporation's total debt
remains below $5.75 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 1998, Georgia-Pacific Group purchased 7.7 million shares of Georgia-
Pacific Group stock (including 1.1 million shares related to the CeCorr
acquisition) at an aggregate price of $427 million ($55.51 average per share) on
the open market, of which 6.8 million shares were held as treasury stock at
December 31, 1998. Cash paid in 1998 related to stock repurchases totaled $436
million, which included $9 million for shares purchased but not settled in 1997.
Subsequent to year-end 1998 through February 5, 1999, the Georgia-Pacific Group
purchased 224,200 shares of Georgia-Pacific Group stock at an aggregate price of
$15 million ($66.42 average per share) on the open market. The Georgia-Pacific
Group expects to repurchase stock throughout 1999 as long as debt levels are
below the established thresholds.
In 1999, 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. During the second quarter of 1998, the Georgia-Pacific Group and The
Timber Company revised the operating policy, which they had entered into in
1997, with respect to sales of timber. The revised policy is discussed in Note
13 of the Notes to Combined Financial Statements.<PAGE>
The Georgia-Pacific Group employs approximately 44,500 people. The majority are
members of unions. The Georgia-Pacific Group considers its relationship with its
employees to be good. Twenty union contracts are subject to negotiation and
renewal in 1999, including one at a large paper facility.
In June 1997, the FASB issued Statement of Financial Accounting Standards
("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 adopted
SFAS No. 130 in the 1998 first quarter.
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. SFAS No. 131 also requires entitywide 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 adopted SFAS No. 131 in 1998; prior period information was
restated to conform with the provisions of SFAS No. 131.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Post-retirement Benefits," which requires additional pension-
related disclosures. The objective of the statement is to provide sufficient
information to understand the changes in benefit obligations or to analyze the
quality of earnings of the Corporation. SFAS No. 132 requires disclosure of
additional information about the changes in the benefit obligation and the fair
value of plan assets during the period, including unrecognized gains and losses.
The Corporation adopted SFAS No. 132 in 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting<PAGE>
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities on the
balance sheets and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Corporation will be required to
adopt the new statement in 2000; early adoption is encouraged, but no prior
period restatement is permitted. Management is evaluating the effect of this
statement on the Corporation's derivative instruments, primarily interest rate
swaps and foreign currency forward contracts. The impact of adjustments to fair
value is not expected to be material to the Georgia-Pacific Group's financial
position.
The Georgia-Pacific Group is working to resolve the effects of the Year 2000
problem on its information systems, the operating systems used in its
manufacturing operations as well as its facilities systems. The Year 2000
problem, which is common to most businesses, concerns the inability of such
systems to properly recognize and process dates and date-sensitive information
on and beyond January 1, 2000. In 1996, the Corporation began a companywide
assessment of the vulnerability of its systems to the Year 2000 problem. Based
on such assessment, Georgia-Pacific Group has developed a Year 2000 plan, under
which all key systems are being tested, and noncompliant software or technology
is being modified or replaced. Georgia-Pacific Group is also surveying the Year
2000 compliance status and compatibility of customers' and suppliers' systems
that interface with Georgia-Pacific Group's systems or could otherwise impact
the Georgia-Pacific Group's operations.
Georgia-Pacific Group completed the necessary revisions and unit testing to most
systems and processes in 1998 with a few systems scheduled for revision in early
1999. Full integration testing and verification of such systems and processes
for Year 2000 compliance will continue and be completed during 1999. Early in
1998, Georgia-Pacific Group completed an inventory of the process control
systems and embedded chips used in its manufacturing operations, and currently<PAGE>
believes that only a small percentage of such systems and chips could be subject
to Year 2000 problems. Georgia-Pacific Group currently expects to have these
affected manufacturing systems replaced or corrected by mid-year 1999 and to
complete testing and verification of such systems for Year 2000 compliance
throughout 1999. Since completion of the original inventories, some additional
systems and devices have been discovered and added to the inventory list for
testing and, if necessary, remediation. Due to system acquisitions and the
number and complexity of existing systems, the Group expects some continuing
additions of noncritical systems to the inventory list. The Georgia-Pacific
Group has contacted each of its critical suppliers to ascertain their respective
levels of readiness to address and remediate Year 2000 problems and is currently
reviewing their responses. The Group has identified and contacted critical
customers to ascertain their respective levels of Year 2000 readiness and will
be assessing the need for testing with customers as appropriate. While Georgia-
Pacific Group currently believes that it will be able to modify or replace its
affected systems in time to minimize any detrimental effects on its operations,
failure to do so, or the failure of Georgia-Pacific Group's major customers and
suppliers to modify or replace their affected systems, could have a material
adverse impact on Georgia-Pacific Group's results of operations, liquidity or
combined financial position in the future. The most reasonably likely worst-case
scenario of failure by Georgia-Pacific Group or its customers or suppliers to
resolve the Year 2000 problem would be a temporary slowdown or cessation of
manufacturing operations at one or more of the Georgia-Pacific Group's
facilities and a temporary inability on the part of Georgia-Pacific Group to
process orders and billings in a timely manner and to deliver finished products
to customers. Georgia-Pacific Group's individual business units are currently
identifying and considering various contingency options, including
identification of alternate suppliers, vendors and service providers, and manual
alternatives to systems operations, which will allow them to minimize the risks
of any unresolved Year 2000 problems on their operations and to minimize the
effect of any unforeseen Year 2000 failures. Contingency plans will be finalized
by mid-year 1999.
Georgia-Pacific Group currently estimates the incremental cost of the work
needed to resolve the Year 2000 problem at approximately $60 million (including
approximately $10 million of capital costs), of which $20 million is included
for the impact of contingency planning activities and unexpected events.
Approximately $13 million has been incurred to date. In addition, Georgia-
Pacific Group expects to incur internal costs totaling approximately $20 million
related to the Year 2000 problem, of which approximately $11 million has been
incurred to date. The bulk of the incremental costs relates to replacement or
modification of affected process control systems in the Group's manufacturing
operations and is projected to be incurred in the second and third quarters of
1999. The majority of the internal costs relates to code remediation and testing
and is projected to be incurred through 1999. These incremental and internal
costs will be expensed as incurred, except for new systems purchased that will
be capitalized in accordance with corporate policy. Such costs may be material
to the Group's results of operations in one or more fiscal quarters or years,
but are not expected to have a material adverse effect on the long-term results
of operations, liquidity or combined financial position of the Group.
For a discussion of commitments and contingencies refer to Note 12 of the Notes
to Combined Financial Statements.
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
($9 million after taxes) from the sale of the Group's Martell operations 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<PAGE>
facilities. An extraordinary, after-tax loss of $5 million was recorded in 1996
for the early retirement of debt.
SG&A expense was $1,137 million for 1997, compared with $1,354 million in 1996.
The cost reduction was largely the result of a voluntary early retirement
program initiated in 1996 and overhead reduction plans implemented through 1997.
Interest expense was $381 million in 1997 compared with $354 million in 1996.
The increase was the result of higher average debt levels and higher average
interest rates.
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.
BUILDING PRODUCTS. The Georgia-Pacific Group's building products segment
reported net sales of $5.5 billion and operating profits of $490 million for
1997, compared with net sales of $5.8 billion and operating profits of $567
million in 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 1996 results
included an unusual pretax gain of $39 million from the sale of two gypsum
wallboard facilities. Return on sales decreased to 8.8 percent in 1997 from 9.9
percent in 1996. A 10 percent increase in lumber prices, combined with a 10
percent increase in gypsum prices, more than offset approximately 22 percent
lower prices for oriented strand board and an increase in log costs.
DISTRIBUTION. Operating losses for the Georgia-Pacific Group's distribution
segment were $171 million for 1997, compared with losses of $220 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
percent in 1997 compared with 1996.
CONTAINERBOARD AND PACKAGING. The Georgia-Pacific Group's containerboard and
packaging segment reported net sales of $1.8 billion and an operating loss of $6
million in 1997, compared with net sales of $2.0 billion and operating profits
of $127 million in 1996. Return on sales decreased to (0.3) percent for 1997
compared with 6.4 percent in 1996, primarily as a result of substantially lower
average prices for containerboard and packaging products.
PULP AND PAPER. The Georgia-Pacific Group's pulp and paper segment reported net
sales of $3.7 billion and operating profits of $201 million for 1997, compared
with net sales of $3.6 billion and operating profits of $250 million in 1996.
The 1997 results included unusual one-time charges of $6 million for information
systems write-offs. Return on sales decreased to 5.4 percent in 1997 compared
with 6.9 percent in 1996, primarily as a result of lower overall average prices
for pulp and paper products in 1997.
OTHER. The operating loss for the "Other" nonreportable segment decreased by
$31 million to a loss of $251 million in 1997 from a loss of $282 million in
1996, primarily as a result of lower profit elimination on intersegment sales in
1997.
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 Group's production capacity continuing to exceed
demand for its pulp and paper products, necessitating market-related downtime;<PAGE>
the ability of the Group, and its customers and suppliers to address the Year
2000 problem in a timely and efficient manner; changes in the productive
capacity and production levels of other building products and pulp and paper
producers; the effect on the Group of changes in environmental and pollution
control laws and regulations; the general level of economic activity in U.S. and
export markets, particularly the Asian markets; 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 filings with the Securities and
Exchange Commission, including the Corporation's Form 10-K dated December 31,
1998 and the Corporation's Form 8-K dated October 17, 1996
REPORT ON MANAGEMENT'S RESPONSIBILITIES 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 accompanying financial statements 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<PAGE>
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, 1998, 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 5, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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, 1998 and 1997 and the related combined
statements of income, shareholders' equity, comprehensive income, and cash flows
for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.<PAGE>
As explained in Note 1 of the Notes to Combined Financial Statements, effective
December 31, 1997, the Georgia-Pacific Group changed their 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 5, 1999
COMBINED STATEMENTS OF INCOME
Georgia-Pacific Corporation--Georgia-Pacific Group
<TABLE>
<CAPTION>
Year ended December 31
---------------------
(In millions, except per
share amounts) 1998 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 13,223 $12,979 $12,910
---------------------------------------------------------------
Costs and expenses
Cost of sales, excluding
depreciation and cost of
timber harvested shown below
The Timber Company 89 75 109
Third parties 10,248 10,258 9,810
---------------------------------------------------------------
Total cost of sales 10,337 10,333 9,919<PAGE>
---------------------------------------------------------------
Selling, general and
administrative 1,105 1,137 1,354
Depreciation and cost of timber
harvested
The Timber Company 320 350 315
Third parties 891 910 880
---------------------------------------------------------------
Total depreciation and cost of
timber harvested 1,211 1,260 1,195
---------------------------------------------------------------
Interest 372 381 354
Other income - (14) -
---------------------------------------------------------------
Total costs and expenses 13,025 13,097 12,822
---------------------------------------------------------------
Income (loss) before income taxes,
extraordinary items and
accounting change 198 (118) 88
Provision (benefit) for
income taxes 87 (32) 54
---------------------------------------------------------------
Income (loss) before
extraordinary items and
accounting change 111 (86) 34
Extraordinary items, net of taxes (13) - (5)
Cumulative effect of accounting
change, net of taxes - (60) -
---------------------------------------------------------------
Net income (loss) $ 98 $ (146) $ 29
===============================================================
Basic per share:<PAGE>
Income (loss) before
extraordinary items and
accounting change $ 1.23 $(0.94)
Extraordinary items, net of taxes (0.14) -
Cumulative effect of accounting
change, net of taxes - (0.66)
---------------------------------------------------------------
Net income (loss) $ 1.09 $(1.60)
---------------------------------------------------------------
Diluted per share:
Income (loss) before
extraordinary items and
accounting change $ 1.22 $(0.94)
Extraordinary items, net of taxes (0.14) -
Cumulative effect of accounting
change, net of taxes - (0.66)
---------------------------------------------------------------
Net income (loss) $ 1.08 $(1.60)
---------------------------------------------------------------
Average number of shares
outstanding:
Basic 89.9 91.4
Diluted 90.5 91.4
===============================================================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
COMBINED STATEMENTS OF CASH FLOWS
Georgia-Pacific Corporation--Georgia-Pacific Group
<TABLE>
CAPTION
<PAGE>
Year ended December 31
----------------------
(In millions) 1998 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating
activities
Net income (loss) $ 98 $ (146) $ 29
Adjustments to reconcile net income
(loss) to cash provided by operations:
Depreciation 744 785 761
Cost of timber harvested-third
parties 147 125 119
Cost of timber harvested-The
Timber Company 320 350 315
Deferred income taxes 34 34 13
Amortization of goodwill 62 59 59
Stock compensation programs (3) - 20
Cumulative effect of accounting
change, net of taxes - 60 -
Loss (gain) on disposal of
assets, net 1 (5) (40)
Decrease (increase) in receivables 145 (63) 35
Decrease (increase) in inventories 92 101 (4)
Decrease in accounts payable (48) (26) (17)
Change in other working capital 51 6 61
Change in other assets and other
long-term liabilities 43 (26) 25
---------------------------------------------------------------
Cash provided by operations 1,686 1,254 1,376
---------------------------------------------------------------
Cash flows from investing<PAGE>
activities
Property, plant and equipment
investments (632) (715) (1,055)
Timber contract purchases from
third parties (142) (131) (94)
Timber purchases from The
Timber Company (333) (350) (315)
Acquisition (112) - (363)
Proceeds from sales of assets 67 107 105
Other 21 (23) 59
---------------------------------------------------------------
Cash used for investing activities (1,131) (1,112) (1,663)
---------------------------------------------------------------
Cash flows from financing
activities
Share repurchases (436) (13) -
Net (repayments of)
additions to debt (41) (70) 373
Cash dividends paid (90) (92) (91)
Other 9 31 4
---------------------------------------------------------------
Cash (used for) provided by
financing activities (558) (144) 286
---------------------------------------------------------------
Decrease in cash (3) (2) (1)
Balance at beginning of year 8 10 11
---------------------------------------------------------------
Balance at end of year $ 5 $ 8 $ 10
===============================================================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
COMBINED BALANCE SHEETS
Georgia-Pacific Corporation--Georgia-Pacific Group
<TABLE>
<CAPTION>
December 31
------------------
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash $ 5 $ 8
---------------------------------------------------------------
Receivables, less allowances
of $25 and $19, respectively 1,231 1,368
---------------------------------------------------------------
Taxes receivable - 61
---------------------------------------------------------------
Inventories
Raw materials 417 396
Finished goods 760 878
Supplies 310 293
LIFO reserve (209) (212)
---------------------------------------------------------------
Total inventories 1,278 1,355
---------------------------------------------------------------
Deferred income tax assets 61 67
---------------------------------------------------------------
Other current assets 65 52
---------------------------------------------------------------
Total current assets 2,640 2,911
---------------------------------------------------------------
Timber contracts 78 71
---------------------------------------------------------------
Property, plant and equipment
Land and improvements 403 401
Buildings 1,331 1,306
Machinery and equipment 12,338 12,001
Construction in progress 315 364
---------------------------------------------------------------
Property, plant and
equipment, at cost 14,387 14,072
Accumulated depreciation (8,162) (7,795)
---------------------------------------------------------------
Total property, plant and
equipment, net 6,225 6,277
---------------------------------------------------------------
Goodwill, net 1,677 1,599
---------------------------------------------------------------
Other assets 918 921
---------------------------------------------------------------
Total assets $ 11,538 $11,779
===============================================================
</TABLE>
<TABLE>
<CAPTION>
December 31
-----------------
1998 1997
---------------------------------------------------------------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities
Short-term debt $ 1,173 $ 1,462
Accounts payable 553 639
Accrued compensation 243 207
Other current liabilities 412 390
---------------------------------------------------------------
Total current liabilities 2,381 2,698
---------------------------------------------------------------
Long-term debt, excluding
current portion 3,395 3,057
---------------------------------------------------------------
Other long-term liabilities 1,566 1,546
---------------------------------------------------------------
Deferred income tax liabilities 987 959
---------------------------------------------------------------
Commitments and contingencies
Shareholders' equity 3,209 3,519
---------------------------------------------------------------
Total liabilities
and shareholders' equity $ 11,538 $11,779
===============================================================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
Georgia-Pacific Corporation--Georgia-Pacific Group
<TABLE>
CAPTION
<PAGE>
Year Ended December 31
----------------------
(In millions) 1998 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C>
Shareholders' equity balance,
beginning of year $3,519 $3,683 $3,718
Net income (loss) 98 (146) 29
Cash dividends paid (90) (92) (91)
Common stock repurchases (427) (22) -
Other comprehensive income (10) (5) 4
Other common stock activity 119 101 23
---------------------------------------------------------------
Shareholders' equity balance,
end of year $3,209 $3,519 $3,683
===============================================================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
COMBINED STATEMENTS OF COMPREHENSIVE INCOME
Georgia-Pacific Corporation _ Georgia-Pacific Group
<TABLE>
<CAPTION>
Year Ended December 31
---------------------
(In millions) 1998 1997 1996
--------------------------------------------------------------------<PAGE>
<S> <C> <C> <C>
Net income (loss) $ 98 $(146) $ 29
Other comprehensive income
(loss), before tax
Foreign currency
translation adjustments (14) (11) (10)
Minimum pension liability
adjustment (3) 3 16
Income tax (expense) benefit
related to other items of
comprehensive income 7 3 (2)
--------------------------------------------------------------------
Comprehensive income (loss) $ 88 $(151) $ 33
====================================================================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The Corporation, a Georgia corporation, is broadly
engaged in five business operations: the manufacture of 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); the distribution of building products manufactured
by the Corporation or purchased from others; the manufacture of containerboard
and packaging (including linerboard, medium, kraft and corrugated packaging);
the manufacture of pulp and paper (including communication papers, market pulp,
bleached board and tissue); and the growing of timber on the approximately 5.8<PAGE>
million acres of timberlands that the Corporation owns or leases. In 1998, these
timberlands supplied approximately 17 percent of the overall timber 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 were amended and
restated to (i) create a new class of stock designated as Georgia-Pacific
Corporation -Timber Group common stock, $0.80 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, $0.80 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, $0.80 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 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
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, 1998, 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<PAGE>
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 common stock related to
the other group at any time at a 15 percent premium, or at a 10 percent 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. The Corporation's debt was allocated between the groups based upon a
number of factors including expected future cash flows, volatility of earnings,
and the ability to pay debt service and dividends. In addition, the Corporation<PAGE>
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, 1998, $983 million of the Corporation's debt was The Timber
Company's and $4.6 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<PAGE>
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 $278 million, $339 million and $352 million in 1998, 1997 and
1996, 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 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 benefit 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,
"Employers' Accounting for Pensions," and SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," 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 significantly differed from the amounts
reported on the groups' statements of income for the years ended December 31,
1998, 1997 and 1996. 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.<PAGE>
DIVIDENDS. For purposes of the historical financial statements of the Georgia-
Pacific Group and The Timber Company for periods prior to 1998, 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
year ended December 31, 1996 because the Georgia-Pacific Group stock was not
part of the capital structure of the Corporation.
Georgia-Pacific Corporation--Georgia-Pacific Group
<TABLE>
<CAPTION>
Year ended December 31,
(In millions, except shares
and per share amounts) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Basic and diluted income (loss) available
to shareholders (numerator):
Income (loss) before extraordinary
items and accounting change $ 111 $ (86)
Extraordinary items, net of taxes (13) -
Accounting change, net of taxes - (60)
---------------------------------------------------------------
Net income (loss) $ 98 $ (146)
===============================================================
Shares (denominator):
Average shares outstanding 89,882,586 91,430,440
Dilutive securities:
Options 624,715* -**
Employee stock purchase plans 35,810 -**
---------------------------------------------------------------
Total assuming conversion 90,543,111 91,430,440
===============================================================
Per share amounts:
Basic
Income (loss) before extraordinary
items and accounting change $ 1.23 $ (0.94)
Extraordinary items, net of taxes (0.14) -
Accounting change, net of taxes - (0.66)
---------------------------------------------------------------
Net income (loss) $ 1.09 $ (1.60)
---------------------------------------------------------------
Diluted
Income (loss) before extraordinary
items and accounting change $ 1.22 $ (0.94)
Extraordinary items, net of taxes (0.14) -
Accounting change, net of taxes - (0.66)
---------------------------------------------------------------
Net income (loss) $ 1.08 $ (1.60)
===============================================================
</TABLE>
* Options to purchase 11,928 shares of Georgia-Pacific Group stock at $60.50
per share were outstanding during 1998 but were not included in the computation
of diluted earnings per share because the options' exercise price was greater
than the average market price of the common shares.
** Options to purchase 5,355,477 shares of Georgia-Pacific Group stock at
prices ranging from $41.99 per share to $57.29 per share 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 earnings per share.
INVENTORY VALUATION. Inventories are valued at the lower of year-to-date
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 percent of inventories at
both December 31, 1998 and 1997.
TIMBER CONTRACTS. The Georgia-Pacific Group capitalizes purchases of standing
timber related to its timber 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. Amounts are
amortized over five years beginning when the assets are placed in service.
Capitalized costs were $31 million at December 31, 1998 and $48 million at
December 31, 1997. Amounts are included as property, plant and equipment on the
accompanying balance sheets.
In 1997, the Georgia-Pacific Group adopted EITF 97-13, which resulted in a one-
time, after-tax charge of $60 million.
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) 1998 1997 1996
-------------------------------------------------------------
<S> <C> <C> <C>
Total interest costs $ 381 $392 $ 385
Interest capitalized (9) (11) (31)
-------------------------------------------------------------
Interest expense $ 372 $381 $ 354
=============================================================
Interest paid by the Corporation $ 468 $475 $ 488
=============================================================
Portion of interest paid
charged to the
Georgia-Pacific Group $ 397 $391 $ 383
=============================================================
</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 $62 million in 1998 and $59 million in 1997 and 1996.
Accumulated amortization at December 31, 1998 and 1997 was $546 million and $484
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.
ACCOUNTING STANDARDS CHANGE. In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities on the balance sheets and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation. The
Corporation will be required to adopt the new statement in 2000. Management is
evaluating the effect of this statement on the Corporation's derivative
instruments, primarily interest rate swaps and foreign currency forward
contracts. The impact of adjustments to fair value is not expected to be
material to the Group's financial position.<PAGE>
RECLASSIFICATIONS. Certain 1997 and 1996 amounts have been reclassified to
conform with the 1998 presentation.
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 Group 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 Group'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 Group'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 a portion of its timber
needs from its own timberlands (17 percent in 1998), and the remainder from a
large number of other suppliers. Under the operating policy governing sales of
timber by The Timber Company to the Georgia-Pacific Group, The Timber Company<PAGE>
will continue to supply a portion of the Georgia-Pacific Group's timber needs at
least through 2000. For a discussion of this operating policy, see Note 13 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." On April
15, 1998, the EPA promulgated a set of regulations known as the Cluster Rule
that establishes 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 $365 million will be spent by the end of 2000. 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 has four reportable operating segments: building
products, distribution, containerboard and packaging, and pulp and paper.
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 segment sells a wide range of
building products manufactured by the Group or purchased from others. These
segments of the business are 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 containerboard and packaging segment produces linerboard, medium, kraft and
corrugated packaging. The Georgia-Pacific Group's pulp and paper segment
produces communication papers, market pulp, bleached board and tissue. Markets
for these segments are affected primarily by changes in industry capacity, the
level of economic growth in U.S. and export markets, and fluctuations in
currency exchange rates.
The accounting policies of the segments are primarily the same as those
described in the summary of significant accounting policies. The Georgia-Pacific
Group evaluates performance based on profit or loss from operations before
interest and income taxes.
The Georgia-Pacific Group accounts for intersegment sales and transfers as if
the sales or transfers were to third parties, that is, at current market prices.
The Group's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business has different customers and requires different production processes.<PAGE>
The "Other" nonreportable segment includes some miscellaneous businesses,
certain goodwill amortization, unallocated corporate operating expenses and the
elimination of intersegment sales and related profits.
The Georgia-Pacific Group has a large and diverse customer base, which includes
some customers located in foreign countries. No single unaffiliated customer
accounted for more than 10 percent of total sales in any year during the three
years ended December 31, 1998. Sales to foreign markets in 1998, 1997 and 1996
were 7 percent, 8 percent and 8 percent, respectively. These sales were
primarily to customers in Europe, Asia and Latin America. Information for the
Georgia-Pacific Group's operations in foreign markets is as follows:
REVENUES*
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
(In millions) 1998 1997 1996
-------------------------------------------------------------
<S> <C> <C> <C>
United States $ 12,292 $ 11,911 $ 11,872
Foreign countries 931 1,068 1,038
=============================================================
</TABLE>
*Revenues are attributed to countries based on location of customer.
Because a substantial portion of the Georgia-Pacific Group's foreign revenues
are derived from the sale of U.S.-produced products abroad, assets located
outside the United States are not material.
The Georgia-Pacific Group employs approximately 44,500 people at more than 400
facilities primarily located throughout the United States and Canada.
<TABLE>
<CAPTION>
Building Containerboard
(In millions) Products Distribution and packaging
---------------------------------------------------------------
<S> <C> <C> <C>
1998
Net sales to unaffiliated
customers $3,337 $ 4,325 $2,044
Intersegment sales 2,455 8 60
---------------------------------------------------------------
Total net sales $5,792 $ 4,333 $2,104
Operating profit (loss) 603 1 106
Depreciation, cost of timber
harvested and goodwill
amortization 641 45 148
Property, plant and
equipment investments 186 12 84
Timber purchases 475 - -
Acquisitions 19 - 93
Assets 2,517 990 1,871
===============================================================
1997
Net sales to unaffiliated
customers $3,139 $ 4,398 $1,765
Intersegment sales 2,406 8 52
---------------------------------------------------------------
Total net sales $5,545 $ 4,406 $1,817
Operating profit (loss) 490 (171) (6)
Depreciation, cost of timber
harvested and goodwill<PAGE>
amortization 662 48 134
Property, plant and
equipment investments 169 44 132
Timber purchases 481 - -
Acquisitions - - -
Assets 2,452 1,179 1,735
===============================================================
1996
Net sales to unaffiliated
customers $2,841 $ 4,553 $1,921
Intersegment sales 2,911 10 55
---------------------------------------------------------------
Total net sales $5,752 $ 4,563 $1,976
Operating profit (loss) 567 (220) 127
Depreciation, cost of timber
harvested and goodwill
amortization 616 45 130
Property, plant and
equipment investments 250 224 186
Timber purchases 409 - -
Acquisitions 363 - -
Assets 2,467 1,238 1,638
===============================================================
</TABLE>
<TABLE>
<CAPTION>
Pulp and All
(In millions) paper other Combined
---------------------------------------------------------------
S> <C> <C> <C
<PAGE>
1998
Net sales to unaffiliated
customers $3,513 $ 2 $13,223
Intersegment sales 33 (2,556)* -
---------------------------------------------------------------
Total net sales $3,548 $ (2,554) $13,223
Operating profit (loss) 133 (273)** 570
Depreciation, cost of timber
harvested and goodwill
amortization 354 85 1,273
Property, plant and
equipment investments 305 45 632
Timber purchases - - 475
Acquisitions - - 112
Assets 3,808 2,352 11,538
===============================================================
1997
Net sales to unaffiliated
customers $3,675 $ 2 $12,979
Intersegment sales 26 (2,492)* -
---------------------------------------------------------------
Total net sales $3,701 $ (2,490) $12,979
Operating profit (loss) 201 (251)** 263
Depreciation, cost of timber
harvested and goodwill
amortization 386 89 1,319
Property, plant and
equipment investments 306 64 715
Timber purchases - - 481
Acquisitions - - -
Assets 3,951 2,462 11,779
===============================================================
1996
Net sales to unaffiliated
customers $3,593 $ 2 $12,910
Intersegment sales 27 (3,003)* -
---------------------------------------------------------------
Total net sales $3,620 $ (3,001) $12,910
Operating profit (loss) 250 (282)** 442
Depreciation, cost of timber
harvested and goodwill
amortization 385 78 1,254
Property, plant and
equipment investments 248 147 1,055
Timber purchases - - 409
Acquisitions - - 363
Assets 3,930 2,219 11,492
===============================================================
</TABLE>
* Elimination of intersegment sales
** Includes some miscellaneous businesses, certain goodwill amortization,
unallocated corporate operating expenses and the elimination of profit on
intersegment sales.
RECONCILIATION OF SEGMENT OPERATING PROFITS TO COMBINED NET INCOME
Georgia-Pacific Corporation _ Georgia-Pacific Group
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
(In millions) 1998 1997 1996
--------------------------------------------------------------------
<S> <C> <C> <C>
Total operating profits $ 570 $ 263 $ 442
Interest expense 372 381 354
Provision (benefit) for income taxes 87 (32) 54
--------------------------------------------------------------------
Income (loss) before extraordinary
items and accounting change 111 (86) 34
Extraordinary items, net of taxes (13) - (5)
Accounting change, net of taxes - (60) -
--------------------------------------------------------------------
Net income (loss) $ 98 $ (146) $ 29
====================================================================
</TABLE>
NOTE 4. ACQUISITIONS, DIVESTITURES AND UNUSUAL ITEMS
ACQUISITIONS AND DIVESTITURES. The following acquisition and divestitures were
completed during 1998, 1997 and 1996.
On June 30, 1998, the Georgia-Pacific Group completed its acquisition of CeCorr,
a leading independent producer of corrugated sheets in the United States. On
June 30, 1998, the Group paid approximately $93 million in cash (net of $2
million of acquired cash) and issued approximately 1.6 million shares of
Georgia-Pacific Group stock valued at $57.875 per share for all the outstanding
shares of CeCorr. In addition the Georgia-Pacific Group assumed approximately
$92 million of CeCorr's debt, of which $34 million was owed to Georgia-Pacific
Corporation ($58 million net debt assumed). On July 2, 1998, a former owner of
CeCorr exercised his right to resell to the Group approximately 1.1 million
shares of Georgia-Pacific Group stock issued in the transaction.
The acquisition included 11 CeCorr sheet feeder plants, which manufacture
corrugated sheets that are sold to others for final conversion into corrugated
containers. The acquisition also included a corrugating medium paper mill, and
several specialty operations and support service groups. CeCorr ships<PAGE>
approximately 6 billion square feet of corrugated sheets per year. CeCorr's
results of operations were consolidated with those of the Georgia-Pacific Group
beginning July 1, 1998.
The Georgia-Pacific Group has accounted for this transaction using the purchase
method to record a new cost basis for assets acquired and liabilities assumed.
The allocation of the purchase price and acquisition costs to the assets
acquired and liabilities assumed is preliminary as of December 31, 1998, and is
subject to change pending finalization of appraisals and other studies of fair
value and finalization of management's plans. The finalization of such
appraisals and other studies of fair value and the finalization of management's
plans are expected during the first half of 1999. The difference between the
purchase price and the fair market value of the assets acquired and liabilities
assumed was recorded as goodwill and is being amortized over 40 years. The
preliminary allocation of the purchase price of the acquisition is summarized as
follows (in millions of dollars):
<TABLE>
<CAPTION>
---------------------------------------------------------------
<S> <C>
Current assets $ 46
Property, plant and equipment 153
Goodwill 139
Liabilities (150)
Common stock issued (95)
---------------------------------------------------------------
Net cash paid $ 93
===============================================================
</TABLE>
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 sheets. 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. The amount is reflected in "Other income" on the accompanying statements
of income.
In September 1996, the Georgia-Pacific Group completed the sale of two gypsum
wallboard facilities at Buchanan, New York, and Wilmington, Delaware. The sale
resulted in after-tax cash proceeds of approximately $39 million and the
Georgia-Pacific Group recognized a pretax gain of $39 million ($24 million after
taxes). This amount is reflected 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 reflected in "Other income" on the accompanying statements
of income.
DISTRIBUTION SEGMENT RESTRUCTURING. In December 1997, the Georgia-Pacific Group
began 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. The execution of the plan included separation of approximately 1,770
employees in 1998. The employees included hourly and salaried personnel employed
in the identified millwork fabrication facilities and distribution centers, and
associated sales and administrative personnel. The Group also accrued related
pension, outplacement and retention expenses for these employees. The total
amount of the 1997 charge related to employee severance was $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 was 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
and for impairment of continuing facilities.
The following table provides a rollforward of the $70 million reserves for
business restructurings from December 31, 1997 to December 31, 1998:
<TABLE>
<CAPTION>
Type of Cost December 31, December 31,
1997 1998
(In millions) balance Additions Usage balance
---------------------------------------------------------
<S> <C> <C> <C> <C>
Employee separation $ 15 $ - $ (15) $ -
Facility closing costs
and asset impairments 55 - (53) 2
---------------------------------------------------------
Total $ 70 $ - $ (68) $ 2
===============================================================
</TABLE>
Prior to 1996, the Georgia-Pacific Group implemented a program to change and
improve certain processes in the distribution segment. The Georgia-Pacific Group
expensed $10 million of termination benefits in 1997 related to this program. As
a result of this program, approximately 720 employees were terminated in 1997.
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,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
December 31
------------
(In millions) 1998 1997
--------------------------------------------------
<S> <C> <C>
Receivables
Trade $ 1,169 $ 1,277
Other 87 110
--------------------------------------------------
1,256 1,387
Less allowances 25 19
--------------------------------------------------
Receivables, net $ 1,231 $ 1,368
==================================================
</TABLE>
The Corporation's accounts receivable sale program is accounted for as a secured
borrowing. The $280 million of receivables outstanding under the program at both
December 31, 1998 and 1997 and the corresponding debt are included as current
receivables and short-term debt, respectively, on the Corporation's balance
sheets. 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 $17 million in 1998, $19 million in 1997 and $20
million in 1996, is included in interest expense on the Corporation's 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. The program has
been extended to May 1999.
NOTE 6. INDEBTEDNESS
The Corporation's indebtedness includes the following:
<TABLE>
<CAPTION>
December 31
---------------
(In millions) 1998 1997
-------------------------------------------------------
<S> <C> <C>
Debentures, 8.7% average rate,
payable through 2028 $ 3,100 $ 3,200
Notes, 5.9% average rate,
payable through 2006 400 517
Revenue bonds, 5.2% average rate,
payable through 2027 637 659
Other loans, 6.9% average rate,
payable through 2008 29 13
Less: unamortized discount (19) (23)
-------------------------------------------------------
4,147 4,366
Less: long-term portion of debt 4,125 3,713
-------------------------------------------------------
Current portion of long-term debt 22 653
Commercial paper and other
short-term notes,
5.8% average rate 929 621
Accounts receivable sale program,
5.7% average rate 280 280
Bank overdrafts, net 195 223
-------------------------------------------------------
Total short-term debt 1,426 1,777
-------------------------------------------------------
Total debt $ 5,551 $ 5,490
=======================================================
Georgia-Pacific Group's portion of
Corporation debt:
Short-term debt $ 1,173 $ 1,462
Long-term debt, excluding
current portion 3,395 3,057
-------------------------------------------------------
Georgia-Pacific Group's total debt $ 4,568 $ 4,519
=======================================================
The Timber Company's portion of
Corporation debt:
Short-term debt $ 253 $ 315
Long-term debt, excluding
current portion 730 656
-------------------------------------------------------
The Timber Company's total debt $ 983 $ 971
=======================================================
Weighted average interest rate on
Corporation debt at year end 7.2% 7.8%
=======================================================
</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: $22 million in 1999, $34 million in 2000, $1 million in
2001, $375 million in 2002 and $315 million in 2003.
NOTES, DEBENTURES AND OTHER LOANS. During 1998, the Corporation issued $300
million of 7.25% Debentures Due June 1, 2028 and a $14 million floating rate
note due September 30, 2003. In January 1998, the Corporation redeemed $200
million of 9 3/4% Sinking Fund Debentures Due January 15, 2018. In February
1998, the Corporation redeemed $200 million of 9 1/2% Debentures Due February
15, 2018. The Corporation recorded an after-tax extraordinary loss of
approximately $14 million related to these redemptions, of which $12 million was
allocated to the Group based on the ratio of the Group's debt to the
Corporation's total debt.
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, all of which was allocated
to the Georgia-Pacific Group.
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, 1998, $570 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, 1998, $929 million was borrowed under the credit
agreement at a weighted average interest rate of 5.8%. Amounts outstanding under
the revolving credit facility are included in "Commercial paper and other short-
term notes" on the Corporation's 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, 1998, the
Corporation's leverage ratio was 2.8 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 1999.
REVENUE BONDS. At December 31, 1998, the Corporation had outstanding borrowings
of approximately $637 million under certain industrial revenue bonds. During
1998, approximately $254 million of floating rate bonds were replaced. $241
million of these bonds were refunded by fixed rate instruments and $13 million<PAGE>
were retired early. Approximately $11 million from the issuance of these bonds
was held by trustees at December 31, 1998 to refund a like amount of bonds
maturing on January 4, 1999. The corresponding amount held by trustees is
classified as "Other current assets" on the Corporation's balance sheets. During
1998, the Corporation recorded an after-tax extraordinary loss of approximately
$1 million as a result of various refundings and early retirements of industrial
revenue bond instruments, all of which was allocated to the Georgia-Pacific
Group. In January 1999, the Corporation issued approximately $24 million of
fixed rate industrial revenue bonds. These bonds were issued to refund a like
amount of floating rate bonds in March 1999.
OTHER. At December 31, 1998, the amount of long-term debt secured by property,
plant and equipment and by timber and timberlands was not material.
Prior to 1996, 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 the
inception of the agreement, the Georgia-Pacific Group 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, 1998, the related deposit and lease obligation balances were
both $358 million. Of these amounts, approximately $18 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 Corporation's balance sheets.<PAGE>
As of December 31, 1998, the Corporation had registered for sale up to $500
million of debt securities under a shelf registration statement filed with the
Securities and Exchange Commission.
NOTE 7. FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of the Corporation's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
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) $ 929 $ 929 $ 621 $ 621
Accounts receivable sale
program (Note 5) 280 280 280 280
Notes and debentures
(Note 6) 3,500 3,783 3,717 4,055
Revenue bonds (Note 6) 637 587 659 637
Other loans (Note 6) 29 29 13 13
Interest rate exchange
agreements * 14 * 10
----------------------------------------------------------------
</TABLE>
*The Corporation's balance sheets at December 31, 1998 and 1997 included accrued
interest of $1 million and $5 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, 1998, the Corporation
had outstanding interest rate exchange agreements that effectively converted
$456 million of floating rate obligations with a weighted average interest rate
of 5.7% to fixed rate obligations with an average effective interest rate of
approximately 6.8%. These agreements increased interest expense by $11 million,<PAGE>
$16 million and $17 million for the years ending December 31, 1998, 1997 and
1996, respectively. As of December 31, 1998, these agreements have a weighted
average maturity of approximately 3.5 years. As of December 31, 1998, the
Corporation's total floating rate debt, including the accounts receivable sale
program, exceeded related interest rate exchange agreements by $1,327 million.
The estimated fair value of the Corporation's liability under interest rate
exchange agreements at December 31, 1998 and 1997 was $14 million and $10
million, respectively, and represents the estimated amount the Corporation could
have paid to terminate the agreements. The fair value at December 31, 1998 and
1997 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 also enters into foreign currency exchange agreements and
commodity futures and swaps, the amounts of which were not material to the
consolidated financial position of the Corporation at December 31, 1998 and
1997.
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 (benefit) for income
taxes consists of the following:
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
(In millions) 1998 1997 1996
---------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes:
Current $ 44 $ (50) $ 37
Deferred 33 24 11
State income taxes:
Current 9 (16) 4
Deferred 1 10 2
---------------------------------------------------------
Provision (benefit)
for income taxes $ 87 $ (32) $ 54
=========================================================
</TABLE>
Income taxes paid by the Corporation during 1998 are net of refunds of
approximately $81 million, primarily related to a 1997 federal overpayment.
Income taxes paid by the Corporation during 1997 were net of refunds of
approximately $45 million, primarily related to a 1996 federal overpayment.
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
(In millions) 1998 1997 1996
---------------------------------------------------------
<S> <C> <C> <C>
Income taxes paid by the
Corporation, net of refunds $ 21 $ 51 $ 135
=========================================================
</TABLE>
The federal statutory income tax rate was 35 percent. 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) 1998 1997 1996
---------------------------------------------------------
<S> <C> <C> <C>
Provision for income taxes
computed at the federal
statutory tax rate $ 69 $ (42) $ 31
State income taxes, net
of federal benefit 4 (5) 4
Goodwill amortization 24 23 23
Foreign sales corporation (6) (8) (7)
Other (4) - 3
---------------------------------------------------------
Provision (benefit) for
income taxes $ 87 $ (32) $ 54
=========================================================
</TABLE>
The components of the Georgia-Pacific Group's net deferred income tax
liabilities are as follows:
<TABLE>
CAPTION
<PAGE>
December 31
------------------
(In millions) 1998 1997
-------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Compensation related accruals $ 275 $ 273
Other accruals and reserves 59 84
Other - 3
------------------------------------------------------------
334 360
Valuation allowance - -
-------------------------------------------------------------
334 360
-------------------------------------------------------------
Deferred income tax liabilities:
Property, plant and equipment (1,172) (1,206)
Timber contracts - (2)
Other (88) (44)
-------------------------------------------------------------
(1,260) (1,252)
-------------------------------------------------------------
Deferred income tax
liabilities, net $ (926) $ (892)
=============================================================
Included in the balance sheets:
Deferred income tax assets* $ 61 $ 67
Deferred income tax liabilities** (987) (959)
-------------------------------------------------------------
Deferred income tax
liabilities, net $ (926) $ (892)
=============================================================
</TABLE>
* Net of current liabilities of $9 million and $6 million at December 31, 1998
and 1997, respectively.
** Net of long-term assets of $235 million and $256 million at December 31,
1998 and 1997, 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, 1998 and 1997, $101 million and $79 million,
respectively, of noncurrent prepaid pension cost was included in "Other assets."
Accrued pension cost of $78 million and $68 million at December 31, 1998 and
1997, respectively, was included in "Other long-term liabilities."
Pursuant to the provisions of SFAS No. 87, intangible assets of $5 million and
$2 million were recorded as of December 31, 1998 and 1997, respectively, in
order to recognize the required minimum liability.
The following table sets forth the change in projected benefit obligation and
the change in plan assets for the solely administered plans allocated as
described in Note 1 of the Notes to Combined Financial Statements under
"Allocation of Employee Benefits":
<TABLE>
<CAPTION>
December 31,
(In millions) 1998 1997
----------------------------------------------------------------
<S> <C> <C>
Change in projected benefit obligation
Projected benefit obligation at
beginning of year $1,614 $1,530
Service cost 82 83
Interest cost 113 107
Plan amendments 12 26
Actuarial gains 72 -
Foreign currency exchange
rate changes (2) -
Benefits paid (108) (132)
----------------------------------------------------------------
Projected benefit obligation at
end of year $1,783 $1,614
================================================================
Change in plan assets<PAGE>
Fair value of assets at
beginning of year $1,919 $1,721
Actual return on plan assets 229 303
Employer contributions 23 26
Foreign currency exchange rate changes (2) -
Benefits paid (108) (131)
----------------------------------------------------------------
Fair value of assets at end of year $2,061 $1,919
================================================================
</TABLE>
The funded status and the amounts recognized on the accompanying balance sheets
for the solely administered plans are set forth in the following table:
<TABLE>
<CAPTION>
December 31,
(In millions) 1998 1997
----------------------------------------------------------------
<S> <C> <C>
Funded status $ 280 $ 305
Unrecognized actuarial gain (313) (352)
Unrecognized prior service cost 68 65
Unrecognized net (asset) obligation - -
----------------------------------------------------------------
Net prepaid benefit cost $ 35 $ 18
================================================================
Amounts recognized on the balance
sheets consist of:
Prepaid pension cost $ 101 $ 79
Accrued pension liability (78) (68)
Intangible asset 5 2
Accumulated other comprehensive income 7 5<PAGE>
----------------------------------------------------------------
Net amount recognized $ 35 $ 18
================================================================
</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) 1998 1997 1996
---------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned $ 82 $ 83 $ 82
Interest cost on projected benefit
obligation 113 107 105
Expected return on plan assets (182) (163) (161)
Amortization of gains (13) (7) (5)
Amortization of prior service cost 8 6 5
Amortization of net transition
obligation - (9) (9)
Contributions to multiemployer
pension plans 4 4 4
---------------------------------------------------------
Net periodic pension cost $ 12 $ 21 $ 21
=========================================================
</TABLE>
The following assumptions were used:
TABLE
<PAGE>
<CAPTION>
Year ended December 31
----------------------
1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C>
Discount rate used to determine
the projected benefit
obligation 6.5% 7.0% 7.0%
Rate of increase in future
compensation levels used to
determine the projected benefit
obligation 5.6 5.5 5.5
Expected long-term rate of return
on plan assets used to determine
net periodic pension cost 9.5 9.5 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 $51 million in 1998,
$47 million in 1997 and $49 million in 1996.
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 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
hat 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 tables set forth the change in projected benefit obligation and
the amounts recognized on the accompanying balance sheets:
<TABLE>
<CAPTION>
December 31,
(In millions) 1998 1997
----------------------------------------------------------------
<S> <C> <C>
Change in projected benefit obligation
Projected benefit obligation at
beginning of year $ 413 $ 529
Service cost 7 7
Interest cost 26 26
Actuarial gains (losses) 6 (123)
Benefits paid (21) (26)
----------------------------------------------------------------
Projected benefit obligation at
end of year $ 431 $ 413
================================================================
Funded status $ (431) $(413)
Unrecognized actuarial gain (67) (75)
Unrecognized prior service cost 11 12
Unrecognized net (asset) obligation - -
----------------------------------------------------------------
Net accrued benefit cost $ (487) $(476)
================================================================
Amounts recognized on the balance
sheets consist of:
Prepaid benefit cost $ - $ -
Accrued benefit liability (487) (476)
----------------------------------------------------------------
Net amount recognized $ (487) $(476)
================================================================
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
Year ended December 31
--------------------
(In millions) 1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned $ 7 $ 7 $ 10
Interest cost on accumulated
postretirement benefit obligation 26 26 29
Amortization prior service cost 1 1 -
Amortization of (gain) loss (2) (3) -
--------------------------------------------------------
Net periodic postretirement
benefit cost $ 32 $ 31 $ 39
========================================================
</TABLE>
For measuring the expected postretirement benefit obligation, an 8 percent, 9
percent and 10 percent annual rate of increase in the per capita claims cost was
assumed for 1998, 1997 and 1996, respectively. The rate was assumed to decrease
1 percent per year to 5.5 percent in 2001 and remain at that level thereafter.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 6.0 percent at December 31, 1998 and 6.5
percent at both December 31, 1997 and 1996.
If the annual health care cost trend rate were increased by 1 percent, the
accumulated postretirement benefit obligation would have increased by 10 percent
as of December 31, 1998, 9 percent as of December 31, 1997 and 14 percent as of
December 31, 1996. The effect of this change on the aggregate of service and
interest costs would be an increase of 11 percent for 1998, 14 percent for 1997
and 11 percent for 1996.
If the annual health care cost trend rate were decreased by 1 percent, the
accumulated postretirement benefit obligation would have decreased by 9 percent
as of December 31, 1998, 9 percent as of December 31, 1997 and 12 percent as of
December 31, 1996. The effect of this change on the aggregate of service and
interest cost would be a decrease of 10 percent for 1998, 13 percent for 1997
and 12 percent for 1996.
NOTE 10. 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, 1998, 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 $0.80 per share
and 93,282,000 and 92,249,000 shares were issued as of December 31, 1998 and
1997, respectively. The Timber Company common stock has a par value of $0.80 per
share and 92,785,000 and 92,607,000 shares were issued as of December 31, 1998
and 1997, respectively.
At December 31, 1998, the following authorized shares of common stock were
reserved for issue:
<TABLE>
<CAPTION>
Georgia-Pacific Group 1998
--------------------------------------------------
<S> <C>
1997 Long-Term Incentive Plan 4,410,300
1997 Employee Stock Purchase Plan 791,400
1995 Outside Directors Stock Plan 169,556
1995 Shareholder Value Incentive Plan 3,967,200
1994 Employee Stock Option Plan 182,800
--------------------------------------------------
Common stock reserved 9,521,256
==================================================
</TABLE>
<TABLE>
<CAPTION>
The Timber Company 1998
--------------------------------------------------
<S> <C>
1997 Long-Term Incentive Plan 2,296,700
1997 Employee Stock Purchase Plan 791,400
1995 Outside Directors Stock Plan 169,556
1995 Shareholder Value Incentive Plan 3,969,888
1994 Employee Stock Option Plan 222,150
--------------------------------------------------
Common stock reserved 7,449,694
=================================================
</TABLE>
1997 LONG-TERM INCENTIVE PLANS. The Corporation initially reserved 4,500,000
shares of Georgia-Pacific Group common stock for issuance under the Georgia-
Pacific Group 1997 Long-Term Incentive Plan (the "Georgia-Pacific Group Plan").
Options totaling 1,469,250, 17,000 and 13,800 were granted under the Georgia-
Pacific Group Plan on January 29, March 2 and July 29, 1998, respectively. These
grants have a ten-year term and vest ratably over a three-year period.
The Corporation initially reserved 2,300,000 shares of The Timber Company common
stock for issuance under The Timber Company 1997 Long-Term Incentive Plan ("The
Timber Company Plan"). Options totaling 1,010,600 were granted under The Timber
Company Plan on December 17, 1997. These grants have a ten-year term and vest
ratably over a four-year period.
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.<PAGE>
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 (the "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
tatements. 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 981,240 shares were vested
as of December 31, 1998.
Compensation expense allocated to the Georgia-Pacific Group was $7 million in
1998, $15 million in 1997 and $28 million in 1996 related to the 1990 Incentive
Plan.
As a result of the Letter Stock Recapitalization, each share of restricted
Existing Common 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 (the "1997 Purchase Plan") offered employees a right to subscribe for
Existing Common Stock at a subscription price of $78.09 per share, representing
85 percent of the mean of the high and low prices of the Corporation's Existing<PAGE>
Common Stock on September 2, 1997. The subscription period expired on November
14, 1997. A subscriber had to purchase and pay for shares subscribed not later
than November 30, 1999, but prior to the time of the subscriber's last
contribution he/she could obtain a refund of his/her payments plus interest at a
rate of 6 percent 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, 1998, the Corporation had 791,400 shares of Georgia-Pacific
Group stock and 791,400 shares of The Timber Company stock reserved for issuance
under the 1997 Purchase Plan. Accordingly, $33 million is reflected as "Other
current liabilities" on the accompanying balance sheets. Approximately 5,900
subscribers remained in the 1997 Purchase Plan at December 31, 1998.
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.
1995 OUTSIDE DIRECTORS STOCK PLAN. The Corporation initially reserved 200,000
restricted shares of Existing Common Stock for issuance under the 1995 Outside
Directors Stock Plan (the "Directors Plan"), which provides for the issuance of
shares of common stock to nonemployee directors of the Corporation on a
restricted basis. Each nonemployee director was issued 392 restricted shares
each of Georgia-Pacific Group stock and The Timber Company stock in 1998 and 482
shares of Existing Common Stock in 1997.
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<PAGE>
an equal number of shares of The Timber Company stock (subject to the same
restrictions as the original restricted shares) were distributed. Each
director's annual grant consists 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
related to this conversion was 15,702.
EMPLOYEE STOCK OPTION PLANS. The 1995 Shareholder Value Incentive Plan (the
"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 (the "1994 Option Plan") provided for the
granting of stock options to certain nonofficer key employees.<PAGE>
Following the Letter Stock Recapitalization, each outstanding stock option under
the SVIP and the 1994 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>
Year ended December 31
1998 1998
-------------------------------------------------------
Georgia-Pacific Group The Timber Company
-------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
-------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding
at January 1 4,903,100 $ 53.32 5,913,700 $ 22.21
Options granted 1,500,050 56.46 - -
Options exercised/
surrendered (318,600) 54.43 (180,400) 21.52
Options cancelled (524,200) 53.39 (533,962) 21.60
-------------------------------------------------------
Options outstanding
at December 31 5,560,350 $ 54.09 5,199,338 $ 22.30
Options available
for grant at
December 31 2,999,950 1,289,400
-------------------------------------------------------
Total reserved shares 8,560,300 6,488,738
=======================================================
Options exercisable
at December 31 852,550 $ 57.27 1,120,325 $ 23.64
Average remaining life of
options outstanding 8.2 years 7.7 years
Option prices per share:
Granted $ 56-61 $ -
Exercised/surrendered $ 42-57 $ 17-23
Cancelled $ 42-57 $ 17-25
Outstanding $ 52-61 $ 21-25
=======================================================
</TABLE>
<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 5.6 years 5.6 years
Option prices per share (December 17
through December 31):
Granted $ - $ 25
Exercised/surrendered $ 42 $ 17
Outstanding $ 42-57 $ 17-25
=======================================================
</TABLE>
<TABLE>
<CAPTION>
Period ended Year ended
December 16, December 31,
1997* 1996
-------------------------------------------------------
Georgia-Pacific Corporation
-------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
-------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding
at January 1 4,158,500 $ 74.53 2,217,000 $ 75.61
Options granted 1,746,000 74.25 2,150,500 72.63
Options exercised/
surrendered (514,950) 69.94 (117,400) 57.15
Options cancelled (486,150) 75.05 (91,600) 75.45
-------------------------------------------------------
Options outstanding
at period end 4,903,400 $ 74.93 4,158,500 $ 74.53
Options available
for grant at
period end 3,531,200 4,811,000
-------------------------------------------------------
Total reserved shares 8,434,600 8,969,500
=======================================================
Options exercisable
at period end 334,600 $ 73.53 869,0000 $ 71.41
=======================================================
Option prices per share:
Granted $ 74 $ 73-77
Exercised/surrendered $ 59-75 $ 39-75
Cancelled $ 59-81 $ 39-81
=======================================================
</TABLE>
*All shares and prices reflect the Corporation's Existing Common Stock through
December 16, 1997.
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 percent 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 percent<PAGE>
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 1998, the Corporation purchased on the open market 7.7
million shares of Georgia-Pacific Group stock (including 1.1 million shares
related to the CeCorr acquisition) at an aggregate price of $427 million ($55.51
average per share), of which 6.8 million shares were held as treasury stock at
December 31, 1998. Cash paid in 1998 related to stock repurchases totaled $436
million, which included $9 million for shares purchased but not settled in 1997.
During 1997, the Corporation purchased on the open market 358,400 shares of
Georgia-Pacific Group stock at an aggregate price of $22 million ($60.63 average
per share).
Subsequent to year-end 1998 through February 5, 1999, Georgia-Pacific Group
purchased 224,200 shares of Georgia-Pacific Group stock at an aggregate price of
$15 million ($66.42 average per share) on the open market.
The resolution of the Board authorizing such repurchases allows 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.
OTHER. The Georgia-Pacific 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 1997 Purchase Plan.
Had compensation cost for these plans been determined based on the fair value at
the grant dates in 1998, 1997 or 1996 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) 1998 1997 1996
--------------------------------------------------
Income
Income Net (loss) Income
Net per income per Net per
income share* (loss) share* income share*
--------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Georgia-Pacific Corporation
As reported $ 274 $ 69 $ 156 $ 1.72<PAGE>
Pro forma $ 252 $ 62 $ 144 $ 1.59
Georgia-Pacific Group
As reported $ 98 $ 1.09 $(146) $(1.60) $ 29
Pro forma $ 77 $ 0.86 $(153) $(1.68) $ 17
The Timber Company
As reported $ 176 $ 1.95 $ 215 $ 2.35 $ 127
Pro forma $ 175 $ 1.94 $ 215 $ 2.35 $ 127
--------------------------------------------------
</TABLE>
* Represents basic earnings per share. Pro forma diluted income (loss) per share
was $0.85 and $1.93 in 1998 and $(1.68) and $2.33 in 1997 for the Georgia-
Pacific Group and The Timber Company, respectively, and $1.58 in 1996 for the
Corporation.
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 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1997 1996
Options Options ESPP* Options
<S> <C> <C> <C> <C>
-------------------------------------------------------------
Georgia-Pacific Corporation
Risk-free interest rate 5.7%
Expected dividend yield 2.0%
Expected life 10 years
Expected volatility 0.30
Option forfeiture rate 3%
-------------------------------------------------------------
Georgia-Pacific Group
Risk-free interest rate 5.8% 6.6% 5.8% 5.7%
Expected dividend yield 1.8% 2.7% 2.3% 2.0%
Expected life 10 years 10 years 2 years 10 years
Expected volatility 0.39 0.30 0.37 0.30
Option forfeiture rate 3% 3% 28% 3%
-------------------------------------------------------------
The Timber Company
Risk-free interest rate 5.9% 6.4% 5.8% 5.7%
Expected dividend yield 3.9% 3.2% 2.3% 2.0%
Expected life 10 years 10 years 2 years 10 years
Expected volatility 0.37 0.27 0.29 0.30
Option forfeiture rate 3% 3% 28% 3%
-------------------------------------------------------------
</TABLE>
*1997 Purchase Plan.
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 $26.88 and $8.55,
$23.74 and $7.54, and $18.98 and $6.42 for 1998, 1997 and 1996, respectively.
The weighted average grant date fair value per share of shares subscribed under
the 1997 Purchase Plan was $17.69 for the Georgia-Pacific Group and $6.52 for
The Timber Company. The total pro forma compensation cost calculated under SFAS<PAGE>
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. OTHER COMPREHENSIVE INCOME
Georgia-Pacific Group's accumulated other comprehensive income includes the
following:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
Minimum Accumulated
Foreign pension other
(In millions) currency liability comprehensive
items adjustment income
--------------------------------------------------------
<S> <C> <C> <C>
December 31, 1996 $(21) $ (7) $(28)
Activity, net of taxes (7) 2 (5)
--------------------------------------------------------
December 31, 1997 $(28) $ (5) $(33)
Activity, net of taxes (8) (2) (10)
--------------------------------------------------------
December 31, 1998 $(36) $ (7) $(43)
=======================================================
</TABLE>
NOTE 12. COMMITMENTS AND CONTINGENCIES
The Georgia-Pacific Group is subject to various legal proceedings and claims
that arise in the ordinary course of its business. As is the case with other
companies in similar industries, the Georgia-Pacific Group faces exposure from
actual or potential claims and legal proceedings involving environmental<PAGE>
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 144 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 44 percent are being investigated,
approximately 28 percent are being remediated and approximately 28 percent are
being monitored (an activity that occurs after either site investigation or
remediation has been completed). The ultimate costs to the Corporation for the
investigation, remediation and monitoring of many of these sites cannot be
predicted with certainty, due to the often unknown magnitude of the pollution or
the necessary cleanup, the varying costs of alternative cleanup methods, the
amount of time necessary to accomplish such cleanups, the evolving nature of
cleanup technologies and government regulations, and the inability to determine
the Corporation's share of multiparty cleanups or the extent to which
contribution will be available from other parties. The Corporation has
established reserves for environmental remediation costs for these sites in
amounts that it believes are probable and reasonably estimable. Based on
analysis of currently available information and previous experience with respect
to the cleanup of hazardous substances, the Corporation believes that it is
reasonably possible that costs associated with these sites may exceed current
reserves by amounts that may prove insignificant or that could range, in the<PAGE>
aggregate, up to approximately $60 million. This estimate of the range of
reasonably possible additional costs is less certain than the estimates upon
which reserves are based, and in order to establish the upper limit of such
range, assumptions least favorable to the Corporation among the range of
reasonably possible outcomes were used. In estimating both its current reserve
for environmental remediation and the possible range of additional costs, the
Corporation has not assumed it will bear the entire cost of remediation of every
site to the exclusion of other known potentially responsible parties who may be
jointly and severally liable. The ability of other potentially responsible
parties to participate has been taken into account, based generally on the
parties' financial condition and probable contribution on a per site basis.
The Corporation and many other companies are defendants in suits brought in
various courts around the nation by plaintiffs who allege that they have
suffered personal injury as a result of exposure to asbestos-containing
products. These suits allege a variety of lung and other diseases based on
alleged exposure to products previously manufactured by the Corporation. In many
cases, the plaintiffs are unable to demonstrate that they have suffered any
compensable loss as a result of such exposure, or that any injuries they have
incurred in fact resulted from exposure to the Corporation's products.
The Corporation generally settles asbestos cases for amounts it considers
reasonable given the facts and circumstances of each case. The amounts it has
paid to date to defend and settle these cases have been substantially covered by
product liability insurance. The Corporation is currently defending claims of
approximately 71,000 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 has also established a
receivable for expected insurance recoveries.
On May 6, 1998, suit was filed in state court in Columbus, Ohio, against the
Corporation and Georgia-Pacific Resins, Inc., a wholly owned subsidiary of the
Corporation. The lawsuit was filed by eight plaintiffs who seek to represent a
class of individuals who at any time from 1985 to the present lived, worked,
resided, owned, frequented or otherwise occupied property located within a
three-mile radius of the Corporation's resins manufacturing operation in
Columbus, Ohio. The lawsuit alleges that the individual plaintiffs and putative
class members have suffered personal injuries and/or property damage because of
(i) alleged "continuing and long-term releases and threats of releases of
noxious fumes, odors and harmful chemicals, including hazardous substances" from
the Corporation's operations and/or (ii) a September 10, 1997 explosion at the
Columbus facility and alleged release of hazardous material resulting from that
explosion. Prior to the lawsuit, the Corporation had received a number of
explosion-related claims from nearby residents and businesses. These claims were
for property damage, personal injury and business interruption and were being
reviewed and adjusted on a case-by-case basis. The Corporation has denied the
material allegations of the lawsuit. While it is premature to evaluate the
claims asserted in the lawsuit, the Corporation believes it has meritorious
defenses.
In May 1997, the Corporation and nine other companies were named as defendants
in a suit brought by the Attorney General of the State of Florida alleging that
they engaged in a conspiracy to fix the prices of sanitary commercial paper
products, such as towels and napkins, in violation of federal and state laws.
Approximately 45 similar suits have been filed by private plaintiffs in federal
courts in California, Florida, Georgia and Wisconsin, and in the state courts of
alifornia, Wisconsin, Minnesota and Tennessee. On October 15, 1997, the Federal<PAGE>
Judicial Panel on Multi-District Litigation consolidated all federal court cases
in the federal district court in Gainesville, Florida. On July 24, 1998, the
court certified the suit as a class action consisting of nongovernmental direct
Purchasers of the defendants' products. Discovery in the federal and state cases
is ongoing. The Corporation has denied that it has engaged in any of the illegal
conduct alleged in these cases and intends to defend itself vigorously.
The Corporation's facility in Port Hudson, Louisiana, has notified the State of
Louisiana of the emitting of noncondensable gases in violation of its air
permit. The State has assessed a penalty against the Corporation of $425,000,
which the Corporation has paid.
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 13. 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.
During the second quarter of 1998, the Georgia-Pacific Group and The Timber
Company revised the operating policy, which they had entered into in 1997, with
respect to sales of timber by The Timber Company to the Georgia-Pacific Group.
These revisions arose from sharp changes in the prices of timber from the first
quarter to the second quarter of 1998, a significant decrease in the volume of
timber purchased by the Georgia-Pacific Group in the second quarter, and other
issues in the policy. At the time these revisions were negotiated, The Timber
Company sold a timber deed to the Georgia-Pacific Group in the amount of
approximately $23 million, and the Georgia-Pacific Group made a one-time $3
million payment to The Timber Company for 1998 second quarter adjustments due
under the revised policy. The Timber Company recognized revenues and earnings
from this timber deed, and other contracts to sell timber to the Georgia-Pacific
Group, as the timber was cut.
Under the revised policy, beginning July 1, 1998, the prices for Southern timber
sold by The Timber Company are adjusted monthly, rather than quarterly, and
represent the average of prices paid by the Georgia-Pacific Group for timber
purchased from third parties in a particular forest over the most recent three-
month period. In most of The Timber Company's Southern forests, it must offer 80
percent of its projected annual harvest from those forests to the Georgia-
Pacific Group, and the Georgia-Pacific Group must purchase not less than 60
percent nor more than 80 percent of that projected annual harvest. In addition,
premiums charged by The Timber Company for the right to harvest a significant
percentage of wood from its Southern forests have been reduced.
In two key Southern forests, the price paid by the Georgia-Pacific Group for
timber purchased from The Timber Company will be based on the average prices
paid over the most recent three months by the Georgia-Pacific Group for timber
purchased from third parties, and prices received by The Timber Company for
timber sold to third parties, in each forest. In those same forests, the
Georgia-Pacific Group has agreed to purchase, each quarter, 20 percent of the
annual volume of timber it has committed to purchase from The Timber Company
during that year. The revised policy reduces the volume of timber that the
Georgia-Pacific Group can purchase in these same two forests from 80 percent to
70 percent of The Timber Company's annual harvest in those forests, and also
reduces the Georgia-Pacific Group's minimum annual purchase obligation in those
forests from 60 percent to 50 percent of the annual harvest in 1999 and 2000.<PAGE>
These changes are intended to cause prices paid by the Georgia-Pacific Group for
timber sold by The Timber Company to more quickly reflect market prices in
particular forests, to allow the Georgia-Pacific Group more flexibility in
purchasing wood from third parties, and to allow The Timber Company greater
flexibility in the timing of sales of its annual harvest on the open market. The
revised policy also contains additional provisions that resolve issues related
to certain operating practices of The Timber Company and the Georgia-Pacific
Group. This policy will remain in effect through 2000.
The Georgia-Pacific Group has given The Timber Company notice, pursuant to the
policy, of its desire to renegotiate the terms of the policy for periods after
2000. If negotiations for a revised policy are unsuccessful, the policy will
terminate at the end of 2000. As a result, both the Georgia-Pacific Group and
The Timber Company have a two-year period to find other sellers and purchasers,
respectively, of timber.
As of December 31, 1998, the Georgia-Pacific Group had approximately $12 million
in timber purchases on its balance sheet related to the uncut portion of timber
on timber contracts purchased from The Timber Company. This amount is included
in "Timber contracts" on the accompanying balance sheets.
The Corporation is a 50 percent 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, 1998, GA-MET had an outstanding mortgage loan payable to
Metropolitan in the amount of $147 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 14. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
Georgia-Pacific Corporation--Georgia-Pacific Group
<TABLE>
<CAPTION>
First QuarterSecond Quarter
----------------------------
(In millions, except
per share amounts) 1998 1997 1998 1997
------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 3,193 $3,120 $3,275 $3,301
Gross profit (net sales
minus cost of sales) 694 665 700 668
Income (loss) before extraordinary
items and accounting change 16 (13) 30 (10)
Net income (loss) 4 (13) 29 (10)
Dividends declared per
share 0.25 0.25
Basic and diluted per share
Income (loss) before
extraordinary items
and accounting change 0.17 0.33
Net income (loss) 0.04 0.32
Price range of common stock:
High $ 70.00 $81.00
Low 52.00 54.69
------------------------------------------------------------
<CAPTION>
Third Quarter Fourth Quarter
------------------------------------------------------------
(In millions, except
per share amounts) 1998 1997 1998 1997
------------------------------------------------------------
Net sales $ 3,367 $3,337 $3,388 $3,221
Gross profit (net sales minus
cost of sales) 754 769 738 544
Income (loss) before extraordinary
items and accounting change 39 41 26 (104)
Net income (loss) 39 41 26 (164)
Dividends declared per
share 0.25 0.25
Basic and diluted per share
Income (loss) before
extraordinary items and
accounting change 0.43 0.30 (1.13)
Net income (loss) 0.43 0.30 (1.78)
Price range of common stock:
High $ 60.50 $60.00 $64.00
Low 37.38 44.00 59.00
------------------------------------------------------------
</TABLE>
*1997 amounts are for the period from December 17, 1997 through December 31,
1997.
The first and second quarters of 1998 included an after-tax extraordinary
loss of $12 million ($0.13 per share) and $1 million ($0.01 per share),
respectively, on early extinguishment of debt.
In the first quarter of 1997, the Corporation recorded a pretax gain of
$128 million ($80 million after taxes) from the sale of its Martell, California,
operations. Of this amount, a pretax gain of $14 million ($9 million after
taxes, or $0.10 per share) was recorded by the Georgia-Pacific Group for the
sale of a sawmill and particleboard plant. The remaining gain on the sale of
timberlands was recorded by The Timber Company.
The fourth quarter of 1997 included a one-time, after-tax, noncash charge
of $60 million ($0.65 per share) to comply with a new accounting standard
requiring certain computer system development project charges to be expensed as
incurred. Prior to this accounting change, these charges were capitalized in
accordance with generally accepted accounting principles.
On December 16, 1997, the Corporation recapitalized its former common stock
into Georgia-Pacific Group common stock and The Timber Company common stock.
Therefore, there were no Georgia-Pacific Group common shares issued or
outstanding for periods prior to December 17, 1997.
SELECTED FINANCIAL DATA - OPERATIONS
Georgia-Pacific Corporation--Georgia-Pacific Group
EARNINGS TO FIXED CHARGES
Income (loss) before income taxes, extraordinary items and accounting change
plus total interest cost (interest expense plus capitalized interest) and one-
third of rent expense, divided by total interest cost plus one-third of rent
expense.
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 (benefit) for income taxes divided by income (loss) before income
taxes, extraordinary items and accounting change.
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) 1998 1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net sales $13,223 $12,979 $12,910 $14,204
----------------------------------------------------------------
Costs and expenses
Cost of sales
The Timber Company 89 75 109 145
Third parties 10,248 10,258 9,810 9,772
----------------------------------------------------------------
Total cost of sales 10,337 10,333 9,919 9,917
Selling, general and
administrative 1,105 1,137 1,354 1,328
Depreciation and cost
of timber harvested
The Timber Company 320 350 315 230
Third parties 891 910 880 871
----------------------------------------------------------------
Total depreciation and cost
of timber harvested 1,211 1,260 1,195 1,101
Interest 372 381 354 321
Other income - (14) - -
----------------------------------------------------------------
Total costs and expenses 13,025 13,097 12,822 12,667
----------------------------------------------------------------
Income (loss) before income
taxes, extraordinary
items and accounting
change 198 (118) 88 1,537
Provision (benefit) for
income taxes 87 (32) 54 616
----------------------------------------------------------------
Income (loss) before
extraordinary items
and accounting change 111 (86) 34 921
Extraordinary items and
accounting change, net
of taxes (13) (60) (5) -
----------------------------------------------------------------
Net income (loss) $ 98 $ (146) $ 29 $ 921
================================================================
Cash provided by
operations $1,686 $ 1,254 $ 1,376 $1,918*
================================================================
Other statistical data
Basic per share
Income (loss) before
extraordinary items and
accounting change $ 1.23 $(0.94)
Extraordinary items and
accounting change, net of
taxes (0.14) (0.66)
----------------------------------------------------------------
Net income (loss) $ 1.09 $(1.60)
----------------------------------------------------------------
Diluted per share
Income (loss) before
extraordinary items and
accounting change $ 1.22 $(0.94)
Extraordinary items and
accounting change, net of
taxes (0.14) (0.66)
----------------------------------------------------------------
Net income (loss) $ 1.08 $(1.60)
================================================================
Average number of shares
outstanding, basic 89.9 91.4
Average number of shares
outstanding, diluted 90.5 91.4
Earnings to fixed charges 1.5 0.7 1.3 5.6
Cash flow to interest 5.4 4.2 4.5 6.2
Effective income tax rate 43.9% 27.1% 61.4% 40.1%
================================================================
</TABLE>
* Excludes the accounts receivable sale program.
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------
(Dollar amounts, except per share,
and shares
are in millions) 1994
----------------------------------------------------------------
<S> <C>
Operations
Net sales $12,633
----------------------------------------------------------------
Costs and expenses
Cost of sales
The Timber Company 87
Third parties 9,510
----------------------------------------------------------------
Total cost of sales 9,597
Selling, general and
administrative 1,157
Depreciation and cost
of timber harvested
The Timber Company 224
Third parties 868
----------------------------------------------------------------
Total depreciation and cost
of timber harvested 1,092
Interest 372
Other income (57)
----------------------------------------------------------------
Total costs and expenses 12,161
----------------------------------------------------------------
Income (loss) before income
taxes, extraordinary items
and accounting change 472
Provision (benefit) for
income taxes 207
----------------------------------------------------------------
Income (loss) before
extraordinary items
and accounting change 265
Extraordinary items and
accounting change, net
of taxes (16)
----------------------------------------------------------------
Net income (loss) $ 249
================================================================
Cash provided by operations $1,145
================================================================
Other statistical data
Basic per share
Income (loss) before
extraordinary items and
accounting change
Extraordinary items and
accounting change, net of
taxes
----------------------------------------------------------------
Net income (loss)
----------------------------------------------------------------
Diluted per share
Income (loss) before
extraordinary items and
accounting change
Extraordinary items and
accounting change, net of
taxes
----------------------------------------------------------------
Net income (loss)
================================================================
Average number of shares
outstanding, basic
Average number of shares<PAGE>
outstanding, diluted
Earnings to fixed charges 2.2
Cash flow to interest 4.0
Effective income tax rate 43.9%
================================================================
</TABLE>
* 1997 amounts are for the period from December 17, 1997 through December 31,
1997.
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 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, net, 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 market 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) 1998 1997 1996 1995
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial position, end of year
Current assets $ 2,640 $ 2,911 $2,611 $2,589
Timber contracts 78 71 58 81
Property, plant and
equipment, net 6,225 6,277 6,535 5,986
Goodwill, net 1,677 1,599 1,658 1,714
Other assets 918 921 630 617
-----------------------------------------------------------------
Total assets $11,538 $11,779 $11,492 $10,987
-----------------------------------------------------------------
Current liabilities $ 2,381 $ 2,698 $2,200 $1,616
Long-term debt 3,395 3,057 3,340 3,479
Other long-term liabilities 1,566 1,546 1,282 1,199
Deferred income taxes 987 959 987 967
-----------------------------------------------------------------
Total liabilities $ 8,329 $ 8,260 $7,809 $7,261
-----------------------------------------------------------------
Shareholders' equity $ 3,209 $ 3,519 $3,683 $3,726
-----------------------------------------------------------------
Working capital $ 259 $ 213 $ 411 $ 973
-----------------------------------------------------------------
Other statistical data
Property, plant and
equipment investments $ 632 $ 715 $1,055 $1,253
Timber contract purchases
from third parties 142 131 94 182
Timber purchases from The
Timber Company 333 350 315 230
Acquisitions 112 - 363 -
Per share*
Market price:
High $ 81.00 $ 64.00
Low $ 37.38 $ 59.00
Year-end $ 58.56 $ 60.75
Book value $ 37.09 $ 38.19
Shares of stock outstanding
at year end 86.5 92.2
Dividends declared per share $ 1.00
Total debt to capital,
book basis 44.5% 43.1% 44.2% 42.3%
Total debt to capital,
market basis 47.4% 44.7%
Current ratio 1.1 1.1 1.2 1.6
=================================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------
(Dollar amounts, except per share,
and shares are in millions) 1994
-----------------------------------------------------------------
<S> <C>
Financial position, end of year
Current assets $ 1,979
Timber contracts 71
Property, plant and
equipment, net 5,464
Goodwill, net 1,773
Other assets 233
-----------------------------------------------------------------
Total assets $ 9,520
-----------------------------------------------------------------
Current liabilities $ 2,012
Long-term debt 2,836
Other long-term liabilities 823
Deferred income taxes 1,012
-----------------------------------------------------------------
Total liabilities $ 6,683
-----------------------------------------------------------------
Shareholders' equity $ 2,837
-----------------------------------------------------------------
Working capital $ (33)
-----------------------------------------------------------------
Other statistical data
Property, plant and
equipment investments $ 843
Timber contract purchases
from third parties 194
Timber purchases from The
Timber Company 224
Acquisitions -
Per share*
Market price:
High
Low
Year-end
Book value
Shares of stock outstanding
at year-end
Dividends declared per share
Total debt to capital,
book basis 48.9%
Total debt to capital,
market basis
Current ratio 1.0
=================================================================
</TABLE>
* 1997 amounts are for the period from December 17, 1998 through December 31,
1998.
INVESTOR INFORMATION
Georgia-Pacific Corporation and Subsidiaries
CORPORATE HEADQUARTERS
Georgia-Pacific Corporation
Georgia-Pacific Center, 133 Peachtree Street, N.E.,
Atlanta, Georgia 30303
(404) 652-4000
STOCK EXCHANGES AND SYMBOLS
Georgia-Pacific Group common stock is listed on the New York Stock Exchange
("NYSE").
The NYSE symbol for Georgia-Pacific Group common stock is "GP."
Georgia-Pacific Group options are traded on the Philadelphia Stock Exchange.
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York<PAGE>
Post Office Box 2500
Jersey City, New Jersey 07303-2500
(800) 519-3111
ENVIRONMENTAL AND SAFETY REPORT
Requests for Georgia-Pacific Corporation's 1998 Environmental and Safety Report
should be addressed to: Corporate Communications, Georgia-Pacific Corporation,
Post Office Box 105605, Atlanta, Georgia 30348. The report can also be viewed
on-line at www.gp.com.
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.
For information on the Plan, contact the Plan agent, First Chicago Trust
Company, a Division of EquiServe, Dividend Reinvestment Plan, Post Office Box
2598, Jersey City, New Jersey 07303-2598, or by telephone at (800) 414-6280.
Internet address: www. fctc.com.
Number of Georgia-Pacific Group shareholders of record at December 31, 1998:
36,092.
FINANCIAL INFORMATION
A copy of the Georgia-Pacific Corporation 1998 Annual Report to the Securities
and Exchange Commission on Form 10-K and the Georgia-Pacific Corporation 1998
Consolidated Financial Statements will be supplied without charge. Annual
statistical updates are also available. For current quarterly financial updates
telephone (800) 340-2384. Copies of corporate news releases are available
through fax-on-demand by telephoning (800) 758-5804, extension 357498.<PAGE>
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 Corporation can also be
found on the Internet at http://www.gp.com.
<TABLE>
<CAPTION>
GEORGIA-PACIFIC CORPORATION -THE TIMBER COMPANY
(Dollar amounts, except per share,
and shares are in millions) 1998 1997
------------------------------------------------------------
<S> <C> <C>
Net sales $ 534 $ 551
Income before extraordinary items 178 215
Basic income per share before
extraordinary items 1.97 2.35
Cash provided by operations 201 212
Timber and timberland investments 64 51
Cash dividends paid 91 92
Total assets at year end 1,174 1,171
Total debt at year end 983 971
Total debt to capital at year end,
book basis 85.6% 83.4%
Total debt to capital at year end,
market basis 32.2% 31.6%
------------------------------------------------------------
Cash dividends paid per share of
common stock $ 1.00
Market price per share of common
stock at year end $23.81 $ 22.69
Shares of common stock outstanding<PAGE>
at year end 87.1 92.6
------------------------------------------------------------
</TABLE>
GEORGIA-PACIFIC CORPORATION -THE TIMBER COMPANY
FINANCIAL REVIEW
FINANCIAL OBJECTIVE: Total shareholder returns.
The overriding mission of The Timber Company is to maximize our shareholders'
returns by investing capital that earns returns exceeding our cost of equity.
These investments generally take the form of silvicultural investments (planting
and productivity improvements) or the purchase of additional timberlands.
Generally, when purchasing land, we seek growth opportunities consisting of
highly productive timberlands (at the right price) that will add to earnings and
cash flows in the near term. The key to our investment decisions is the present
value of cash flows generated from the investment (discounted at an appropriate
risk-adjusted rate).
SEPARATION OF CASH FLOWS. The 1997 letter stock transaction, which resulted in
the creation of The Timber Company - whose equity trades separately from the
common stock of the Georgia-Pacific Group - was part of our commitment to
providing our shareholders with an appropriate rate of return. The cash flows of
The Timber Company are reinvested solely in The Timber Company, or are returned
to our owners in the form of dividends and/or share repurchases - regardless of
the cash needs of the Georgia-Pacific Group. Owners of The Timber Company are
the sole beneficiaries of: the relatively stable cash flows of our business;
possible real growth in future timber prices; anticipated increases in forest
productivity and yield; and strategic growth through optimization of The Timber
Company's timberland portfolio.
CAPITAL STRUCTURE. Our capital structure goal is to balance our mix of debt and
equity to best benefit our shareholders. We achieve this by keeping our weighted
average cost of capital as low as possible, while retaining the flexibility
needed to pay dividends and finance attractive growth opportunities.<PAGE>
Our capital structure decision is influenced by risk factors that contribute to
the volatility of The Timber Company's and the Corporation's cash flows. These
include economic cycles, changes in industry capacity and additional
environmental regulations. Factors that reduce risk and increase borrowing
capacity are the size, diversity and liquidity of The Timber Company's
timberlands and of the Corporation's capital assets. The Timber Company
maintains a level of long-term debt in our capital structure that we consider
both manageable and prudent given our capability to generate cash flows, and one
that is similar to the leverage employed by other timber-related companies.
On December 31, 1998, The Timber Company's debt was $983 million. On a market
value basis, the debt-to-capital ratio was 32 percent. The size and stability of
our cash flows allow us to service this debt and maintain sufficient free cash
for dividends and reinvestment opportunities.
On December 31, 1998, Georgia-Pacific Corporation's total debt was $5.55
billion. The weighted average after-tax cost of debt was 4.4 percent. About 75
percent of this debt was long term, with an average maturity of approximately 19
years. On a combined market value basis, the Corporation's debt-to-capital ratio
was 44 percent. We believe the current debt structure is appropriate and
manageable, considering the Corporation's ability to generate strong cash flows
even at the bottom of industry cycles.
INVESTMENTS AND DIVESTITURES. Ongoing investment at The Timber Company consists
almost exclusively of the acquisition of timberlands and investments in
silviculture. Silvicultural enhancements increase the long-term, cash-generating
potential of our timberlands through planting or treatments to improve growth
and yield. Our 1998 investment profile provides a representative illustration.
Of the $70 million invested, $24 million was direct investment in the
acquisition of timber and timberlands, and $40 million was allocated to
reforestation and silvicultural treatments. The remaining $6 million was
invested primarily in information systems and light trucks. The Timber Company<PAGE>
is committed to maintaining normalized annual capital spending, excluding
acquisitions, in the $50 million range.
From time to time, sizable timberland acreage becomes available for purchase. We
evaluate such potential timberland acquisitions for both estimated financial
returns and strategic attractiveness. Determining strategic attractiveness
involves an evaluation of the property that includes, but is not limited to, the
number, size and long-term viability of customers within economic reach of the
forest; the quality of the land; and the quality and quantity of the standing
inventory. Several traditional valuation techniques are used to triangulate
values for these timberlands, with an emphasis on discounted cash flows.
Strategic acquisitions must provide returns greater than our cost of capital. In
1998, we performed analyses on over one million acres of strategic timberland
acquisitions. However, no major acquisitions could be consummated at a price
that would meet our financial return requirements.
Last year we also began a comprehensive review of our operations and timberlands
to determine their strategic fit within the overall business portfolio of The
Timber Company, and with our overall financial return criteria. We will sell
lands and operations that do not fit our objectives (those not considered
strategic or not expected to deliver adequate returns, or those that can be sold
at a premium for higher and better use). In 1998 we sold our real estate
development business, 61,000 acres of timberlands in West Virginia and more than
16,000 acres of higher-and-better-use lands. These sales generated about $46
million in pretax proceeds. Whenever possible, we will make these sales as tax-
free exchanges so we can upgrade our timber portfolio in the most cash-efficient
manner possible. We expect to identify, market and sell additional nonstrategic
and higher-and-better-use lands in 1999 and in the future. Further, this effort
will be an ongoing process to ensure we maximize returns on every acre of land,
thereby enhancing long-term shareholder value.
DIVIDENDS AND SHARE REPURCHASES. We believe a portion of our cash flows should
be paid to shareholders as regular, sustainable quarterly dividends. Currently,<PAGE>
we pay a $0.25 per share quarterly dividend. Although we do not have plans to
change this in the foreseeable future, our dividend policy is dictated in large
part by our cash flow generation, long-term capital requirements, capital
structure and investor preferences.
As was the case in 1998, there may be periods when The Timber Company generates
cash in excess of opportunities for reinvestment at attractive rates of return
and above our dividend requirements. In such cases, it is our policy to return
excess cash to our shareholders so they can make their own reinvestment choices.
Share repurchases are the preferred method to return this cash to shareholders.
Repurchases can be made so long as the total debt of The Timber Company is below
$1.0 billion and the total debt of the Corporation is below $5.75 billion. In
1998 we repurchased more than 5.7 million shares, a distribution exceeding $121
million in cash to our shareholders. This resulted in a reduction of over 6
percent of outstanding shares since the creation of The Timber Company. We
intend to continue this program as long as cash flows exceed available
investment opportunities for which returns exceed our cost of capital (subject
to the debt limitations discussed above).
GEORGIA-PACIFIC CORPORATION -THE TIMBER COMPANY
OPERATIONS REVIEW
The Timber Company is engaged in the business of growing and selling timber. The
third-largest private timberland owner in the United States, The Timber Company
owns or controls approximately 5.8 million acres in the United States and
Canada. These timberlands are located in three regions: 3.9 million acres of
primarily pine forests in the South; 500,000 acres of primarily Douglas fir and
second- and third-growth redwood forests in Oregon and California; and 1.4
million acres of hardwood and coniferous forests in the northern United States
and New Brunswick, Canada. The timberlands are within economic reach of over
1,000 customers and grow various commercial species of trees for industrial wood
users, including the Georgia-Pacific Group.
The Timber Company also operates six world-class nurseries, producing more than
125 million conifer seedlings each year. It does not own or operate logging
equipment or converting facilities. Logging operations are performed by
independent contractors who work for purchasers of the standing timber or, in
certain circumstances, for The Timber Company.
Additionally, The Timber Company engages in certain businesses related to
ownership and management of its timberlands, including the management of hunting
leases and mineral rights and the continuous evaluation and sale of selected
properties that have greater value as conservation, commercial or recreational
sites.
The Timber Company maximizes shareholder value through the implementation of
strategies that constantly focus on maximizing timberland productivity,
controlling costs, enhancing the quality of our timberland portfolio and
ensuring environmentally sustainable operations.
MAXIMIZING TIMBERLAND PRODUCTIVITY. Harvest plans and inventory projections
reflect the objective of increasing harvest volumes while still increasing the
standing timber inventory. Increased harvests will be effected through the use
of intensive silvicultural treatments in order to improve growth responses, and
through the replanting of harvested acres with faster-growing, higher-quality
trees. The Integrated Forest Management System (IFMS) electronically connects
stand-level data collected in the field with sophisticated forest growth models
and discounted cash flow analysis to "electronically grow and manage" the
forests. This system allows forest management on a site-by-site basis to
maximize the present value of productive lands. Growth rates are expected to
continue to increase in the future through the development and use of
genetically enhanced seedlings, improved fertilization, vegetation control,
thinning and selective harvesting.
FOCUSING ON COST CONTROL. The Timber Company has one of the leanest, most
productive workforces in the industry, generating revenue of approximately $1.4
million per salaried employee. During 1998 SG&A declined by more than $7 million
or 17 percent. While the potential for lower administrative expenses is unlikely
to be a significant value driver going forward, focusing on cost control is a
core operating value embraced as part of the effort to maximize cash flow and
value for shareholders.
ENSURING ENVIRONMENTAL STEWARDSHIP. The Timber Company is dedicated to
environmental stewardship. Its 11-point environmental strategy adopts the
provisions of the American Forest & Paper Association's Sustainable Forestry
Initiative and incorporates its own specific environmental goals. The Timber
Company continues to work closely with federal, state and local authorities on
issues concerning endangered species; clean water; wildlife, flower and fauna
diversity; and conservation set-asides.
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE TIMBER COMPANY
The Timber Company's assets consist 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, substantially all of
which was sold to manufacturing facilities that now constitute the Georgia-
Pacific Group. In 1997 and 1998, The Timber Company and the Georgia-Pacific
Group negotiated an operating policy governing sales of timber through the year
2000, which is more fully described in Note 11 of the Notes to Combined
Financial Statements. In 1999, the Georgia-Pacific Group is expected to purchase
less than 65 percent of The Timber Company's harvest volumes. This will allow
The Timber Company to have more than twice the amount of timber available for
sale to the open market compared to 1998.
The Timber Company's harvest volumes in 1998 were consistent with plan levels.
In 1997, however, harvest volumes were above initial plan 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 reduced mill inventories, as well as continued strong lumber prices. For
1999, harvest volumes are expected to be similar to 1998, although pulpwood
volumes may decline due to mill downtime and related softer markets.
Selected financial data for The Timber Company are shown in the table below.
SELECTED SALES DATA
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
Year ended December 31
------------------
(In millions) 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C>
Volume (in thousand tons)
Southern softwood
sawtimber 6,007 5,986 6,003
Western softwood
sawtimber 1,608 1,539 1,891
Softwood pulpwood 4,289 5,118 5,492
Hardwood sawtimber 436 397 415
Hardwood pulpwood 2,256 2,572 2,359
------------------------------------------------------------
Total volume 14,596 15,612 16,160
==============================================================
Selling prices (per ton)
Southern softwood
sawtimber $ 50 $ 47 $ 42<PAGE>
Western softwood
sawtimber 70 77 76
Softwood pulpwood 14 15 16
Hardwood sawtimber 36 50 34
Hardwood pulpwood 10 11 10
------------------------------------------------------------
Weighted average price $ 35 $ 34 $ 32
==============================================================
</TABLE>
The Timber Company also is engaged in certain businesses related to the
ownership and management of timberlands, including managing the sale of minerals
and mineral rights and the sale of hunting leases. In addition, The Timber
Company was engaged in certain businesses related to real estate development
properties located in South Carolina and Florida. These operations were divested
in the first quarter of 1998 and, as a result, The Timber Company is no longer
engaged in real estate development activities. Revenues from these related
activities are presented in the table below.
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
Year ended December 31
------------------
(In millions) 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C>
Other net sales
Hunting leases $ 12 $ 11 $ 9
Real estate 3 8 10
Minerals 4 6 7
Other 1 1 1
------------------------------------------------------------
Total $ 20 $ 26 $ 27
==============================================================
</TABLE>
1998 COMPARED WITH 1997
The Timber Company reported net sales of $534 million and net income of $176
million, or $1.95 per share, in 1998, compared with net sales of $551 million
and net income of $215 million, or $2.35 per share, in 1997. The 1998 results
include an extraordinary, after-tax loss of $2 million, or $0.02 per share, for
the early retirement of debt. The 1997 results included a $114 million pretax
gain ($71 million after taxes, or $0.78 per share) from the sale of 127,000
acres of timberlands located near Martell, California. 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.
Timber sales decreased $11 million to $514 million in 1998 compared to $525
million in 1997. This decline was due in large part to the fact that one million
fewer tons (7 percent) were harvested in 1998 compared to 1997. This overall
decline in volume was offset somewhat by an increase in Southern sawtimber
prices of 6 percent. After reaching record levels in the first half of 1998 due
to extremely wet weather, prices for Southern sawtimber were closer to 1997
prices by year-end 1998. Southern sawtimber harvest levels were relatively
unchanged in 1998 as compared with 1997. Softwood pulpwood harvest volumes
declined 16 percent in part due to a different harvest plan for softwood
pulpwood in 1998 versus 1997 and in part due to downtime taken by pulp and paper
mills. While causing a decline in total sales revenue, this also resulted in a
higher-margin product mix for 1998. In addition to lower volumes, softwood
pulpwood prices were 7 percent lower in 1998 than in 1997 partially due to
downtime declared by pulp and paper mills. Western softwood sawtimber prices
decreased 9 percent compared to 1997 due to weak demand associated with the
Asian economic problems. Hardwood sawtimber prices decreased in large part due
to the mix of hardwood sawtimber harvested (i.e., a higher proportion of less-<PAGE>
expensive, lower-grade sawtimber being harvested). Excluding the impact of any
severe weather occurrences, prices for most products are anticipated to hold at
or near current levels in 1999. Pulpwood prices are expected to remain under
pressure, especially during the first half of 1999.
Sales from real estate development activities decreased $5 million to $3 million
in 1998, compared to $8 million in 1997, due to the sale of the real estate
development properties located in South Carolina and Florida in the first
quarter of 1998. The Timber Company is no longer engaged in real estate
development activities.
Excluding the 1997 gain on the Martell sale, earnings before interest and taxes
increased $41 million to $364 million in 1998, compared with $323 million in
1997. This increase is a result of a higher-margin product mix coupled with
efforts to reduce costs by optimizing productivity and operating with a
workforce focused on cost control. Cost of sales, excluding depreciation and
cost of timber harvested and gains on asset sales, decreased by $21 million to
$131 million in 1998, compared to $152 million in 1997. Much of the decline in
cost of sales was attributable to lower silvicultural expenses and lower cut and
haul expenses.
Selling, general and administrative expense ("SG&A") was $36 million in 1998,
compared with $43 million in 1997. Excluding a one-time charge of $3 million
related to information systems write-offs in 1997, SG&A decreased $4 million as
a result of the implementation of strategies that focus continually on
controlling costs. Significant SG&A reductions are not expected going forward.
Interest expense declined 15 percent to $71 million in 1998, compared with $84
million in 1997. The primary reason for this decline was a lower level of debt,
which resulted from applying the $270 million proceeds from the sale of the
Martell timberlands. Also contributing to the decline were lower average
interest rates.<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Timber Company generated cash from operations of $201
million during 1998. The Timber Company's cash provided by operations in 1997
was $212 million, of which $57 million was provided as a result of recording a
deferred tax provision related to the sale of the Martell timberlands.
INVESTING ACTIVITIES. Expenditures in 1998 were $70 million, which included $40
million for silvicultural investments and $24 million for timberland purchases.
Expenditures in 1997 totaled $53 million. The Timber Company expects to invest
approximately $50 million in 1999, without considering the cost of any
acquisitions, primarily for silvicultural investments.
During 1998, The Timber Company received $64 million in proceeds from the sale
of assets, principally real estate development properties located in South
Carolina and Florida and timberlands in West Virginia. The Timber Company
expects to continue to evaluate its land base in 1999, selling selected
properties that are nonstrategic and have greater value as conservation,
commercial or recreational sites. During 1997, The Timber Company received $281
million of proceeds from sales of assets. This amount included $270 million of
proceeds from the sale of the Martell timberlands. The timberlands were sold
following a determination that they no longer fit The Timber Company's long-
range strategy.
FINANCING ACTIVITIES. At December 31, 1998 and 1997, the Corporation's total
debt was $5.55 billion and $5.49 billion, respectively, of which $983 million
and $971 million, respectively, was The Timber Company's debt. The slight
increase in debt for The Timber Company for 1998 was due primarily to the use of
funds to repurchase shares. 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, 1998 was 7.2% including outstanding
interest rate exchange agreements. The Timber Company's debt increases or
decreases by the amount of any cash provided by or used for its operating
activities, investing activities, dividend payments, share repurchases or<PAGE>
issuances and other nondebt-related financing activities. See Note 1 of the
Notes to Combined Financial Statements for further discussion of financial
activities.
In conjunction with the Martell sale in March 1997, the Corporation received
notes receivable from the purchaser in the amount of $270 million for
timberlands. These notes are included in "Other assets" on the Corporation's
balance sheets at December 31, 1998 and 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 sheets. These transactions are reflected on the statements
of cash flows of The Timber Company as "Proceeds from sales of assets."
During 1998, the Corporation issued $300 million of 7.25% Debentures Due June 1,
2028 and a $14 million floating rate note due September 30, 2003. In January
1998, the Corporation redeemed $200 million of 9 3/4% Sinking Fund Debentures
Due January 15, 2018. In February 1998, the Corporation redeemed $200 million of
9 1/2% Debentures Due February 15, 2018.
At December 31, 1998, the Corporation had outstanding borrowings of $637 million
under certain industrial revenue bonds. Approximately $11 million from the
issuance of these bonds was held by trustees at December 31, 1998 to refund a
like amount of bonds maturing on January 4, 1999. The corresponding amount held
by trustees is classified as "Other current 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. The agreement will terminate in 2001. As of December 31, 1998,<PAGE>
$570 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, which has been approved by the Board of Directors (the "Board").
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 tables below present principal (or notional) amounts and related weighted
average interest rates by year of expected maturity for the Corporation's debt
obligations as of December 31, 1998 and 1997. For obligations with variable
interest rates, the tables set forth payout amounts based on current rates and
do not attempt to project future interest rates.
Georgia-Pacific Corporation _ The Timber Company
<TABLE>
<CAPTION>
(In millions) 1999 2000 2001 2002
------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt
Commercial paper and other
short-term notes $ - $ - $ - $ -
Average interest rates - - - -
Notes and debentures $ - $ - $ - $ 300
Average interest rates - - - 10.0%
Revenue bonds $ 21 $ 21 $ 1 $ 75
Average interest rates 4.2% 4.4% 6.5% 5.1%
Other loans $ 2 $ 13 $ - $ -
Average interest rates 7.7% 7.9% - -
Accounts receivable sale program $ - $ - $ - $ -
Average interest rates - - - -
Notional principal amount of
interest rate exchange
agreements $ 56 $ 100 $ - $ -
Average interest rate paid
(fixed) 8.8% 8.4% - -
Average interest rate received
(variable) 5.0% 5.8% - -
------------------------------------------------------------
</TABLE>
Georgia-Pacific Corporation _ The Timber Company
<TABLE>
<CAPTION>
Fair value
December 31,
(In millions) 2003 Thereafter Total 1998
------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt
Commercial paper and other
short-term notes $ - $ 929 $ 929 $ 929
Average interest rates - 5.8% 5.8% 5.8%
Notes and debentures $ 300 $2,900 $3,500 $ 3,783
Average interest rates 5.5% 8.6% 8.4% 8.4%
Revenue bonds $ 1 $ 518 $ 637 $ 587
Average interest rates 6.5% 5.2% 5.2% 5.2%
Other loans $ 14 $ - $ 29 $ 29
Average interest rates 5.8% - 6.9% 6.9%
Accounts receivable sale program $ - $ 280 $ 280 $ 280
Average interest rates - 5.7% 5.7% 5.7%
Notional principal amount of
interest rate exchange
agreements $ 300 $ - $ 456 $ 14
Average interest rate paid
(fixed) 5.9% - 6.8% 6.8%
Average interest rate received
(variable) 5.7% - 5.7% 5.7%
------------------------------------------------------------
</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 2003.
Georgia-Pacific Corporation _ The Timber Company
<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 _ The Timber Company
<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, 1998, the Corporation had interest rate exchange agreements that
effectively converted $456 million of floating rate obligations with a weighted
average interest rate of 5.7% to fixed rate obligations with an average
effective interest rate of approximately 6.8%. These agreements increased
interest expense by $11 million, $16 million and $17 million for the three years
ended December 31, 1998, 1997 and 1996, respectively. As of December 31, 1998,
these agreements have a weighted average maturity of approximately 3.5 years. As
of December 31, 1998, 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 and
commodity futures and swaps, the amounts of which were not material to the
financial position of The Timber Company at December 31, 1998.
As of December 31, 1998, the Corporation had registered for sale up to $500
million of debt securities under a shelf registration statement filed with the
Securities and Exchange Commission.
The Board has adopted a policy that earnings and cash flows 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. Proceeds from sales of timberlands
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.
During 1998, The Timber Company purchased on the open market 5.7 million shares
of The Timber Company stock at an aggregate price of $121 million, all of which
were held as treasury stock at December 31, 1998. The average price paid for the
repurchased shares was $21.25 per share. No share repurchases of The Timber
Company stock were made in 1997.
Subsequent to year-end 1998 through February 5, 1999, The Timber Company
purchased 716,900 shares of The Timber Company stock at an aggregate price of
$16 million on the open market. The average price paid for these repurchased
shares was $22.71 per share. The Timber Company expects to repurchase shares of
The Timber Company stock throughout 1999 as long as debt levels are below the
established thresholds.
In 1999, 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. Approximately 44,000 acres of timberlands were affected by forest fires
in Florida in June 1998. This acreage represents approximately 8 percent of the
timberlands owned by The Timber Company in the State of Florida. The Timber
Company is salvaging usable timber and believes that the effects of the forest
fires are likely to impact harvest levels from these timberlands in 1999 and
2000.<PAGE>
During the second quarter of 1998, the Georgia-Pacific Group and The Timber
Company revised the operating policy, which they had entered into in 1997, with
respect to sales of timber. The revised policy is discussed in Note 11 of the
Notes to Combined Financial Statements.
The Timber Company employs approximately 500 people of which there are not a
significant number of union employees.
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("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 adopted SFAS No. 130 in the 1998 first quarter, but it had no
significant impact as The Timber Company has no significant components of
comprehensive income in its financial statements.
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 adopted SFAS No. 131 in 1998, but it had no
significant impact as The Timber Company does not have any reportable segments
under SFAS No. 131.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which requires additional pension-
related disclosures. The objective of the statement is to provide sufficient
information to understand the changes in benefit obligations or to analyze the
quality of earnings of the Corporation. SFAS No. 132 requires disclosure of
additional information about the changes in the benefit obligation and the fair
value of plan assets during the period, including unrecognized gains and losses.
The Corporation adopted SFAS No. 132 in 1998.<PAGE>
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities on the
balance sheets and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Corporation will be required to
adopt the new statement in 2000; early adoption is encouraged, but no prior
period restatement is permitted. Management is evaluating the effect of this
statement on the Corporation's derivative instruments, primarily interest rate
swaps and foreign currency forward contracts. The impact of adjustments to fair
value is not expected to be material to The Timber Company's financial position.
The Timber Company is working to resolve the effects of the Year 2000 problem on
its information systems. The Year 2000 problem, which is common to most
businesses, concerns the inability of such systems to properly recognize and
process dates and date-sensitive information on and beyond January 1, 2000. In
1996, the Corporation began a companywide assessment of the vulnerability of its
systems to the Year 2000 problem. Based on such assessment, The Timber Company
has developed a Year 2000 plan, under which all of its key information systems
are being tested, and noncompliant software or technology is being modified or
replaced. The Timber Company is also surveying the Year 2000 compliance status
and compatibility of customers' and suppliers' systems that interface with The
Timber Company's systems or could otherwise impact The Timber Company's
operations.
The Timber Company has revised most of its systems and processes and expects to
complete testing and verification of such systems and processes for Year 2000
compliance during 1999. The Timber Company has completed an inventory of the
systems and embedded chips used in its operations and currently believes that
only a small percentage of such systems and chips could be subject to Year 2000<PAGE>
problems. The Timber Company currently expects the work needed to resolve the
Year 2000 problem with regard to its operations to be performed as part of its
normal systems maintenance and replacement practices, and does not currently
expect to accelerate its internal maintenance schedule or to incur any
incremental cost for such work. Internal and external costs to resolve the Year
2000 problem are not expected to be significant. The Timber Company is in the
process of identifying critical suppliers and customers and intends to
communicate with each of them to ascertain their level of readiness to address
and remediate Year 2000 problems. The most reasonably likely worst-case scenario
of failure by The Timber Company or its customers or suppliers to resolve the
Year 2000 problem would be a temporary inability on the part of The Timber
Company to process timber sales and billings in a timely manner. The Timber
Company is currently identifying and considering various contingency options,
including identification of alternate suppliers, vendors and service providers,
and manual alternatives to systems operations, which will allow it to minimize
the risks of any unresolved Year 2000 problems on its operations and to minimize
the effect of any unforeseen Year 2000 failures.
For a discussion of commitments and contingencies, see Note 10 of the Notes to
Combined Financial Statements.
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 ($71 million after taxes) 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 percent in
1996. 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.<PAGE>
Harvesting from its timberlands in 1997 continued at the relatively high levels
experienced in 1996. Unusually wet weather in the early part of the year reduced
the accessibility of other suppliers' timber and increased the demand for timber
from The Timber Company. However, harvests trailed off slightly during the
fourth quarter of 1997, particularly for Southern softwood sawtimber, which is
used principally in making plywood and lumber.
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 was primarily the result of a 12 percent increase in Southern
sawtimber prices. Other prices remained relatively stable throughout the year
with the exception of hardwood sawtimber, which increased due in large part to
the mix of hardwood sawtimber harvested (i.e., a higher proportion of more
expensive, high-grade sawtimber being harvested).
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 percent 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.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR' PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. The statements under this
"Management's Discussion and Analysis" and other statements contained herein
that are not historical facts, including statements regarding pricing trends,
expected harvest rotations and The Timber Company's expectations regarding<PAGE>
resolution of issues associated with the Year 2000 problem, are forward-looking
statements (as such term is defined under the Private Securities Litigation
Reform Act of 1995) based on current expectations. The accuracy of such
statements is subject to a number of risks, uncertainties and assumptions. In
addition to the risks, uncertainties and assumptions discussed elsewhere herein,
factors that could cause or contribute to actual results differing materially
from such forward-looking statements include the following: the effect on The
Timber Company of government, legislative and environmental restrictions;
catastrophic losses from fires, floods, windstorms, earthquakes, volcanic
eruptions, insect infestations or diseases; material variations in regional
market demand for timber products; fluctuations in interest rates; the ability
of The Timber Company, and its customers and suppliers, to address the Year 2000
problem in a timely and efficient manner; and other risks, uncertainties and
assumptions discussed in the Corporation's filings with the Securities and
Exchange Commission, including the Corporation's Form 10-K dated December 31,
1998 and the Corporation's Form 8-K dated October 17, 1996.
REPORT ON MANAGEMENT'S RESPONSIBILITIES
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 accompanying
financial statements 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, 1998, 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 5, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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, 1998
and 1997 and the related combined statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1998. 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, 1998 and 1997 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
------------------------
Arthur Andersen LLP
Atlanta, Georgia
February 5, 1999
COMBINED STATEMENTS OF INCOME
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
Year ended December 31
---------------------
(In millions, except per
share amounts) 1998 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C>
Net sales
Timber--Georgia-Pacific Group $409 $ 425 $ 424
Timber--third parties
Delivered 53 87 89
Stumpage 52 13 7
Other 20 26 27
---------------------------------------------------------------
Total net sales 534 551 547
---------------------------------------------------------------
Costs and expenses
Cost of sales, excluding
depreciation and cost of
timber harvested shown below 90 137 132
Selling, general and
administrative 36 43 45
Depreciation and cost of timber
harvested 44 48 57
Interest 71 84 105
Other income--Martell sale - (114) -
---------------------------------------------------------------
Total costs and expenses 241 198 339
---------------------------------------------------------------
Income before income taxes and
extraordinary items 293 353 208
Provision for income taxes 115 138 81
---------------------------------------------------------------
Income before extraordinary items 178 215 127
Extraordinary items-loss from early
retirement of debt, net of taxes (2) - -
---------------------------------------------------------------
Net income $176 $ 215 $ 127
===============================================================
Basic per share:
Income before extraordinary items $1.97 $ 2.35
Extraordinary items, net of taxes (0.02) -
---------------------------------------------------------------
Net income $1.95 $ 2.35
---------------------------------------------------------------
Diluted per share:
Income before extraordinary items $1.96 $ 2.33
Extraordinary items, net of taxes (0.02) -<PAGE>
---------------------------------------------------------------
Net income $1.94 $ 2.33
===============================================================
Average number of shares
outstanding
Basic 90.3 91.4
Diluted 90.8 92.1
===============================================================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
COMBINED STATEMENTS OF CASH FLOWS
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
Year ended December 31
----------------------
(In millions) 1998 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating
activities
Net income $176 $ 215 $ 127
Adjustments to reconcile net income
to cash provided by operations:
Depreciation 5 4 5
Cost of timber harvested 39 44 52
Deferred income taxes 4 66 (6)
Gain on sales of assets, net (41) (129) (23)
Other 18 12 9<PAGE>
---------------------------------------------------------------
Cash provided by operations 201 212 164
---------------------------------------------------------------
Cash flows from investing
activities
Property, plant and equipment
investments (6) (2) (4)
Timber and timberland investments (64) (51) (48)
Change in assets held for
tax-free exchange 5 (3) (5)
Proceeds from sales of assets 64 281 34
---------------------------------------------------------------
Cash provided by (used for)
investing activities (1) 225 (23)
---------------------------------------------------------------
Cash flows from financing activities
Share repurchases (121) - -
Additions to (repayments of) debt 12 (345) (49)
Cash dividends paid (91) (92) (92)
---------------------------------------------------------------
Cash (used for) financing activities (200) (437) (141))
---------------------------------------------------------------
Increase (decrease) in cash - - -
Balance at beginning of year - - -
---------------------------------------------------------------
Balance at end of year $ - $ - $ -
===============================================================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
COMBINED BALANCE SHEETS
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
December 31
------------------
(In millions, except shares
and per share amounts) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Assets
Timber and timberlands
Timberlands $ 303 $ 302
Fee timber 580 608
Reforestation 227 182
Other 30 30
---------------------------------------------------------------
Total timber and
timberlands 1,140 1,122
---------------------------------------------------------------
Property, plant and equipment
Land and improvements 25 24
Buildings 5 4
Machinery and equipment 36 34
---------------------------------------------------------------
Property, plant and equipment, at cost 66 62
Accumulated depreciation (42) (42)
---------------------------------------------------------------
Total property, plant and equipment, net 24 20
Investment in real estate
held for development
and sale - 14
Other assets 10 15
---------------------------------------------------------------
Total assets $1,174 $1,171
===============================================================
</TABLE>
<TABLE>
<CAPTION>
December 31
-----------------
1998 1997
---------------------------------------------------------------
<S> <C> <C>
Liabilities and shareholders' equity
Debt $ 983 $ 971
Other liabilities 32 9
Deferred income
tax liabilities 244 240
---------------------------------------------------------------
Total liabilities 1,259 1,220
---------------------------------------------------------------
Commitments and contingencies
Shareholders' equity (85) (49)
---------------------------------------------------------------
Total liabilities
and shareholders' equity $1,174 $1,171
===============================================================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
Year ended December 31
----------------------
(In millions) 1998 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C>
Shareholders' equity balance,
beginning of year $ (49) $(172) $ (207)
Net income 176 215 127
Common stock repurchases (121) - -
Cash dividends paid (91) (92) (92)
---------------------------------------------------------------
Shareholders' equity balance,
end of year $ (85) $ (49) $ (172)
===============================================================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
GEORGIA-PACIFIC CORPORATION-THE TIMBER COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The Corporation, a Georgia corporation, is broadly
engaged in five business operations: the manufacture of building products<PAGE>
(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); the distribution of building products manufactured
by the Corporation or purchased from others; the manufacture of containerboard
and packaging (including linerboard, medium, kraft and corrugated packaging);
the manufacture of pulp and paper (including communication papers, market pulp,
bleached board and tissue); and the growing of timber on the approximately 5.8
million acres of timberlands that the Corporation owns or leases. In 1998, these
timberlands supplied approximately 17 percent of the overall timber 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 were amended and
restated to (i) create a new class of stock designated as Georgia-Pacific
Corporation -Timber Group common stock, $0.80 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, $0.80 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, $0.80 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 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.<PAGE>
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
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<PAGE>
relative voting rights. As of December 31, 1998, 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 common stock related to
the other group at any time at a 15 percent premium, or at a 10 percent 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<PAGE>
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. The Corporation's debt was allocated between the groups based upon a
number of factors including expected future cash flows, 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, 1998, $983 million of the Corporation's debt was The Timber
Company's and $4.6 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.<PAGE>
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 $4 million, $7 million and $7 million in 1998, 1997 and 1996, 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 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 benefit 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, "Employers'
Accounting for Pensions," and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," 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<PAGE>
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 significantly differed from the amounts
reported on the groups' statements of income for the years ended December 31,
1998, 1997 and 1996. 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<PAGE>
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, for periods prior to 1998, 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, except in the case when The
Timber Company sells a deed to the Georgia-Pacific Group. Such sales are treated
as if they were a cutting contract (see Note 11 of the Notes to Combined
Financial Statements). 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, and any related<PAGE>
advances, is recognized as the purchaser harvests the timber on 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
year 1996 because The Timber Company stock was not part of the capital structure
of the Corporation.
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
Year ended December 31,
(In millions, except shares
and per share amounts) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
The Timber The Timber
Company Company
Basic and diluted income available
to shareholders (numerator):
Income before extraordinary items $ 178 $ 215
Extraordinary items, net of taxes (2) -
---------------------------------------------------------------
Net income $ 176 $ 215
===============================================================
Shares (denominator):
Average shares outstanding 90,313,022 91,444,588
Dilutive securities:
Options 492,549* 677,784**
Employee stock purchase plans 7,575 4,047
---------------------------------------------------------------
Total assuming conversion 90,813,146 92,126,419
===============================================================
Per share amounts:
Basic
Income before extraordinary items $ 1.97 $ 2.35
Extraordinary items, net of taxes (0.02) -
---------------------------------------------------------------
Net income $ 1.95 $ 2.35
---------------------------------------------------------------
Diluted
Income before extraordinary items $ 1.96 $ 2.33
Extraordinary items, net of taxes (0.02) -
---------------------------------------------------------------
Net income $ 1.94 $ 2.33
===============================================================
</TABLE>
* Options to purchase 1,951,130 shares of The Timber Company stock at prices
ranging from $23.21 per share to $25.13 per share were outstanding during 1998
but were not included in the computation of diluted earnings per share because
the options' exercise price was greater than the average market price of the
common shares.<PAGE>
** 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 earnings per share because the options' exercise price
was greater than the average market price of the common shares.
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.
Gains or losses on sales of timberlands are reflected as a reduction of "Cost of
sales" on the accompanying statements of income, with the exception of major
divestitures which are reflected as "Other income."
PROPERTY, PLANT AND EQUIPMENT. Forestry-related property, plant and equipment
is 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 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.
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<PAGE>
over the projects. The Timber Company recognized sales of retail homesites
developed when all conditions, as set forth in SFAS No. 66, "Accounting for
Sales of Real Estate," had occurred.
The Timber Company divested its real estate development properties located in
South Carolina and Florida in the first quarter of 1998. As a result, The Timber
Company is no longer engaged in real estate development activities.
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.
ACCOUNTING STANDARDS CHANGE. In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities on the balance sheets and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation. The
Corporation will be required to adopt the new statement in 2000. Management is
evaluating the effect of this statement on the Corporation's derivative
instruments, primarily interest rate swaps and foreign currency forward
contracts. The impact of adjustments to fair value is not expected to be
material to The Timber Company's financial position.
RECLASSIFICATIONS. Certain 1997 and 1996 amounts have been reclassified to
conform with the 1998 presentation.
NOTE 2. FACTORS AFFECTING THE TIMBER COMPANY'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. Such
demand 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, of 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<PAGE>
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 1998, The Timber Company derived approximately 77
percent of its net sales from sales of timber directly to the Georgia-Pacific
Group. For a description of the terms of sales of timber by The Timber Company
to Georgia-Pacific Group, see Note 11 of the Notes to Combined Financial
Statements. While management of The Timber Company believes that there is
significant demand for The Timber Company's timber products from users other
than the Georgia-Pacific Group, no assurance can be given that such demand will
be equivalent to The Timber Company's planned annual harvest, that The Timber
Company will be able to develop new customers on a timely basis, if at all, or
hat it will be able to sell its products to third parties at market prices. Any
excess supply of timber 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<PAGE>
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 timberlands 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
In March 1998, The Timber Company sold its real estate development properties
located in South Carolina and Florida for $18 million in cash, resulting in a
pretax gain of approximately $1 million.<PAGE>
In December 1998, The Timber Company completed the sale of approximately 61,000
acres of timberlands located in West Virginia. This sale resulted in a pretax
gain of $24 million ($14 million after taxes).
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 sheets. 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 includes the following:
<TABLE>
<CAPTION>
December 31
---------------
(In millions) 1998 1997
-------------------------------------------------------
<S> <C> <C>
Debentures, 8.7% average rate,
payable through 2028 $ 3,100 $ 3,200
Notes, 5.9% average rate,
payable through 2006 400 517
Revenue bonds, 5.2% average rate,
payable through 2027 637 659<PAGE>
Other loans, 6.9% average rate,
payable through 2008 29 13
Less: unamortized discount (19) (23)
-------------------------------------------------------
4,147 4,366
Less: long-term portion of debt 4,125 3,713
-------------------------------------------------------
Current portion of long-term debt 22 653
Commercial paper and other
short-term notes,
5.8% average rate 929 621
Accounts receivable sale program,
5.7% average rate 280 280
Bank overdrafts, net 195 223
-------------------------------------------------------
Total short-term debt 1,426 1,777
-------------------------------------------------------
Total debt $ 5,551 $ 5,490
=======================================================
Georgia-Pacific Group's portion of
Corporation debt:
Short-term debt $ 1,173 $ 1,462
Long-term debt, excluding
current portion 3,395 3,057
-------------------------------------------------------
Georgia-Pacific Group's total debt $ 4,568 $ 4,519
=======================================================
The Timber Company's portion of
Corporation debt:
Short-term debt $ 253 $ 315
Long-term debt, excluding
current portion 730 656<PAGE>
-------------------------------------------------------
The Timber Company's total debt $ 983 $ 971
=======================================================
Weighted average interest rate on
Corporation debt at year end 7.2% 7.8%
=======================================================
</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: $22 million in 1999, $34 million in 2000, $1 million in
2001, $375 million in 2002 and $315 million in 2003.
NOTES, DEBENTURES AND OTHER LOANS. During 1998, the Corporation issued $300
million of 7.25% Debentures Due June 1, 2028 and a $14 million floating rate
note due September 30, 2003. In January 1998, the Corporation redeemed $200
million of 9 3/4% Sinking Fund Debentures Due January 15, 2018. In February
1998, the Corporation redeemed $200 million of 9 1/2% Debentures Due February
15, 2018. The Corporation recorded an after-tax extraordinary loss of
approximately $14 million related to these redemptions, of which $2 million was
allocated to The Timber Company based on the ratio of The Timber Company's debt
to the Corporation's total debt.
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, all of which was allocated
to the Georgia-Pacific Group.
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, 1998, $570 million of<PAGE>
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, 1998, $929 million was borrowed under the credit
agreement at a weighted average interest rate of 5.8%. Amounts outstanding under
the revolving credit facility are included in "Commercial paper and short-term
notes" on the Corporation's 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, 1998, the
Corporation's leverage ratio was 2.8 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 1999.
REVENUE BONDS. At December 31, 1998, the Corporation had outstanding borrowings
of approximately $637 million under certain industrial revenue bonds. During
1998, approximately $254 million of floating rate bonds were replaced. $241
million of these bonds were refunded by fixed rate instruments and $13 million
were retired early. Approximately $11 million from the issuance of these bonds
was held by trustees at December 31, 1998 to refund a like amount of bonds
maturing on January 4, 1999. The corresponding amount held by trustees is
classified as "Other current assets" on the Corporation's balance sheets. During
1998, the Corporation recorded an after-tax extraordinary loss of approximately
$1 million as a result of various refundings and early retirements of industrial
revenue bond instruments, all of which was allocated to the Georgia-Pacific
Group. In January 1999, the Corporation issued approximately $24 million of
fixed rate industrial revenue bonds. These bonds were issued to refund a like
amount of floating rate bonds in March 1999.
ACCOUNTS RECEIVABLE SALE PROGRAM. The Corporation's accounts receivable sale
program is accounted for as a secured borrowing. The $280 million of
receivables outstanding under the program at both December 31, 1998 and 1997 and
the corresponding debt are included as current receivables and short-term debt,
respectively, on the Corporation's balance sheets. A portion of the cost of the
accounts receivable sale program is based on the purchasers' level of investment
and borrowing costs. The Timber Company pays fees based on the Corporation's
senior debt ratings. The total cost of the program, which was $17 million in
1998, $19 million in 1997 and $20 million in 1996, is included in interest
expense on the Corporation's statements of income.
Under the account 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. The program has
been extended to May 1999.
OTHER. At December 31, 1998, the amount of long-term debt secured by property,
plant and equipment and by timber and timberlands was not material.
Prior to 1996, 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 the
inception of the agreement, the Georgia-Pacific Group 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, 1998, the related deposit and lease obligation balances were
both $358 million. Of these amounts, approximately $18 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.
As of December 31, 1998, the Corporation had registered for sale up to $500
million of debt securities under a shelf registration statement filed with the
Securities and Exchange Commission.
INTEREST PAID. The Corporation paid interest of $468 million, $475 million and
$488 million in 1998, 1997 and 1996, respectively, of which $71 million, $84
million and $105 million, respectively, was charged to The Timber Company.
NOTE 5. FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of the Corporation's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- --------------------
Carrying Fair Carrying Fair
(In millions) Amount Value Amount Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Liabilities:
Commercial paper and
other short-term notes
(Note 4) $ 929 $ 929 $ 621 $ 621<PAGE>
Accounts receivable sale
program (Note 4) 280 280 280 280
Notes and debentures
(Note 4) 3,500 3,783 3,717 4,055
Revenue bonds (Note 4) 637 587 659 637
Other loans (Note 4) 29 29 13 13
Interest rate exchange
agreements * 14 * 10
----------------------------------------------------------------
</TABLE>
*The Corporation's balance sheets at December 31, 1998 and 1997 included accrued
interest of $1 million and $5 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.<PAGE>
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, 1998, the Corporation
had outstanding interest rate exchange agreements that effectively converted
$456 million of floating rate obligations with a weighted average interest rate
of 5.7% to fixed rate obligations with an average effective interest rate of
approximately 6.8%. These agreements increased interest expense by $11 million,
$16 million and $17 million for the years ending December 31, 1998, 1997 and
1996, respectively. As of December 31, 1998, these agreements have a weighted
average maturity of approximately 3.5 years. As of December 31, 1998, the
Corporation's total floating rate debt, including the accounts receivable sale
program, exceeded related interest rate exchange agreements by $1,327 million.
The estimated fair value of the Corporation's liability under interest rate
exchange agreements at December 31, 1998 and 1997 was $14 million and $10
million, respectively, and represents the estimated amount the Corporation could
have paid to terminate the agreements. The fair value at December 31, 1998 and
1997 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 and commodity
futures and swaps, the amounts of which were not material to the consolidated
financial position of the Corporation at December 31, 1998 and 1997.
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) 1998 1997 1996
---------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes:
Current $ 95 $ 61 $ 74
Deferred 4 56 (5)
State income taxes:
Current 16 11 13
Deferred - 10 (1)
---------------------------------------------------------
Provision for income taxes $ 115 $ 138 $ 81
=========================================================
</TABLE>
Income taxes paid by the Corporation during 1998 are net of refunds of
approximately $81 million, primarily related to a 1997 federal tax overpayment.<PAGE>
Income taxes paid by the Corporation during 1997 were net of refunds of
approximately $45 million, primarily related to a 1996 federal tax overpayment.
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
(In millions) 1998 1997 1996
=========================================================
<S> <C> <C> <C>
Income taxes paid by the corporation,
net of refunds $ 21 $ 51 $ 135
=========================================================
</TABLE>
The federal statutory income tax rate was 35 percent. 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) 1998 1997 1996
---------------------------------------------------------
<S> <C> <C> <C>
Provision for income taxes
computed at the federal
statutory tax rate $ 103 $ 124 $ 73
State income taxes, net
of federal benefit 12 14 8
---------------------------------------------------------
Provision for income taxes $ 115 $ 138 $ 81
=========================================================
</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) 1998 1997
-------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Other $ 1 $ -
-------------------------------------------------------------
1 -
Valuation allowance - -
-------------------------------------------------------------
1 -
-------------------------------------------------------------
Deferred income tax liabilities:
Machinery and equipment (9) (4)
Timber and timberlands (236) (234)
Other - (2)
-------------------------------------------------------------
(245) (240)
-------------------------------------------------------------
Deferred income tax liabilities, net $ (244) $ (240)
=============================================================
</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.
Benefits under the majority of plans for hourly employees 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 change in projected benefit obligation and
the change in plan assets for the solely administered plans allocated as
described in Note 1 of the Notes to Combined Financial Statements under
"Allocation of Employee Benefits":
<TABLE>
<CAPTION>
December 31,
(In millions) 1998 1997
----------------------------------------------------------------
<S> <C> <C>
Change in projected benefit obligation
Projected benefit obligation at
beginning of year $ 15 $ 14
Service cost 1 1
Interest cost 1 1
Benefits paid (1) (1)
----------------------------------------------------------------
Projected benefit obligation at
end of year $ 16 $ 15
================================================================
Change in plan assets
Fair value of assets at beginning of year $ 20 $ 18
Actual return on plan assets 2 3
Employer contributions - 1
Benefits paid (1) (2)
----------------------------------------------------------------
Fair value of assets at end of year $ 21 $ 20
================================================================
</TABLE>
The funded status and the amounts recognized on the accompanying balance sheets
for the solely administered plans are set forth in the following table:
<TABLE>
<CAPTION>
December 31,
(In millions) 1998 1997
----------------------------------------------------------------
<S> <C> <C>
Funded status $ 6 $ 5
Unrecognized actuarial gain (6) (6)
Unrecognized prior service cost - -
Unrecognized net (asset) obligation - -
----------------------------------------------------------------
Net accrued benefit cost $ - $ (1)
================================================================
Amounts recognized on the balance
sheets consist of:
Prepaid pension cost $ - $ (1)
Accrued pension liability - -
----------------------------------------------------------------
Net amount recognized $ - $ (1)
================================================================
</TABLE>
The Timber Company's share of the net periodic pension cost for solely
administered pension plans included the following:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
(In millions) 1998 1997 1996
---------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned $ 1 $ 1 $ 1
Interest cost on projected
benefit obligation 1 1 1
Expected return on plan assets (2) (2) (2)
---------------------------------------------------------
Net periodic pension cost $ - $ - $ -
=========================================================
</TABLE>
The following assumptions were used:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C>
Discount rate used to determine
the projected benefit obligation 6.5% 7.0% 7.0%
Rate of increase in future
compensation levels used to
determine the projected benefit
obligation 5.6 5.5 5.5
Expected long-term rate of return
on plan assets used to determine
net periodic pension cost 9.5 9.5 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 each in 1998,
1997 and 1996.
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
overnment programs and other group coverage. Effective December 1995, the plans<PAGE>
were funded through a trust established for the payment of 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 following tables set forth the change in projected benefit obligation and
the amounts recognized on the accompanying balance sheets:
<TABLE>
<CAPTION>
December 31,
(In millions) 1998 1997
----------------------------------------------------------------
<S> <C> <C>
Change in projected benefit obligation
Projected benefit obligation at
beginning of year $ 1 $ 2
Actuarial losses - (1)
----------------------------------------------------------------
Projected benefit obligation at
end of year $ 1 $ 1
================================================================
Funded status $ (1) $ (1)
Unrecognized actuarial (gain) loss - -
Unrecognized prior service cost - -
Unrecognized net (asset) obligation - -
----------------------------------------------------------------
Net accrued benefit cost $ (1) $ (1)
================================================================
Amounts recognized on the balance
sheets consist of:
Prepaid benefit cost $ - $ -
Accrued benefit liability (1) (1)
----------------------------------------------------------------
Net amount recognized $ (1) $ (1)
================================================================
</TABLE>
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 $91,849, $95,031 and $119,210 at December 31,
1998, 1997 and 1996, respectively.
For measuring the expected postretirement benefit obligation, an 8 percent, 9
percent and 10 percent annual rate of increase in the per capita claims cost was
assumed for 1998, 1997 and 1996, respectively. The rate was assumed to decrease
1 percent per year to 5.5 percent in 2001 and remain at that level thereafter.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 6.0 percent at December 31, 1998, and 6.5
percent at December 31, 1997 and 1996.
If the annual health care cost trend rate were increased by 1 percent, the
accumulated postretirement benefit obligation would have increased by 10 percent
as of December 31, 1998, 10 percent as of December 31, 1997 and 14 percent as of
December 31, 1996. The effect of this change on the aggregate of service and
interest costs would be an increase of 10 percent for 1998, 13 percent for 1997
and 11 percent for 1996.
If the annual health care cost trend rate were decreased by 1 percent, the
accumulated postretirement benefit obligation would have decreased by 9 percent
as of December 31, 1998, 9 percent as of December 31, 1997 and 12 percent as of
December 31, 1996. The effect of this change on the aggregate of service and
interest cost would be a decrease of 9 percent for 1998, 12 percent for 1997 and
12 percent for 1996.
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, 1998, 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 $0.80 per share
and 93,282,000 and 92,249,000 shares were issued as of December 31, 1998 and
1997, respectively. The Timber Company common stock has a par value of $0.80 per
share and 92,785,000 and 92,607,000 shares were issued as of December 31, 1998
and 1997, respectively.
At December 31, 1998, the following authorized shares of common stock were
reserved for issue:
<TABLE>
<CAPTION>
Georgia-Pacific Group 1998
--------------------------------------------------
<S> <C>
1997 Long-Term Incentive Plan 4,410,300
1997 Employee Stock Purchase Plan 791,400
1995 Outside Directors Stock Plan 169,556<PAGE>
1995 Shareholder Value Incentive Plan 3,967,200
1994 Employee Stock Option Plan 182,800
--------------------------------------------------
Common stock reserved 9,521,256
==================================================
</TABLE>
<TABLE>
<CAPTION>
The Timber Company 1998
--------------------------------------------------
<S> <C>
1997 Long-Term Incentive Plan 2,296,700
1997 Employee Stock Purchase Plan 791,400
1995 Outside Directors Stock Plan 169,556
1995 Shareholder Value Incentive Plan 3,969,888
1994 Employee Stock Option Plan 222,150
--------------------------------------------------
Common stock reserved 7,449,694
==================================================
</TABLE>
1997 LONG-TERM INCENTIVE PLANS. The Corporation initially reserved 2,300,000
shares of The Timber Company common stock for issuance under The Timber Company
1997 Long-Term Incentive Plan ("The Timber Company Plan"). Options totaling
1,010,600 shares were granted under The Timber Company Plan on December 17,
1997. These grants have a ten-year term and vest ratably over a four-year
period.
The Corporation initially reserved 4,500,000 shares of Georgia-Pacific Group
common stock for issuance under the Georgia-Pacific Group 1997 Long-Term
Incentive Plan (the "Georgia-Pacific Group Plan"). Options totaling 1,469,250,
17,000 and 13,800 shares were granted under the Georgia-Pacific Group Plan on
January 29, March 2 and July 29, 1998, respectively. These grants have a ten-
year term and vest ratably over a three-year period.
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.
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 (the "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 981,240 shares were vested as of December 31,
1998.<PAGE>
Compensation expense allocated to The Timber Company was $0.1 million in 1998,
$0.4 million in 1997 and $1 million in 1996 related to the 1990 Incentive Plan.
As a result of the Letter Stock Recapitalization, each share of restricted
Existing Common Stock held in the 1990 Incentive Plan was redesignated as
Georgia-Pacific Group stock, and an equal number of 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 (the "1997 Purchase Plan") offered employees a right to subscribe for
Existing Common Stock at a subscription price of $78.09 per share, representing
85 percent of the mean of the high and low prices of the Corporation's Existing
Common Stock on September 2, 1997. The subscription period expired on November
14, 1997. A subscriber had to purchase and pay for shares subscribed not later
than November 30, 1999, but prior to the time of the subscriber's last
contribution he/she could obtain a refund of his/her payments plus interest at a
rate of 6 percent 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, 1998, the Corporation had 791,400 shares of Georgia-Pacific
Group stock and 791,400 shares of The Timber Company stock reserved for issuance
under the 1997 Purchase Plan. Accordingly, $33 million is reflected as "Other<PAGE>
current liabilities" on the Corporation's balance sheets. Approximately 5,900
subscribers remained in the 1997 Purchase Plan at December 31, 1998.
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.
1995 OUTSIDE DIRECTORS STOCK PLAN. The Corporation initially reserved 200,000
restricted shares of Existing Common Stock for issuance under the 1995 Outside
Directors Stock Plan (the "Directors Plan"), which provides for the issuance of
shares of common stock to nonemployee directors of the Corporation on a
restricted basis. Each nonemployee director was issued 392 restricted shares
each of Georgia-Pacific Group stock and The Timber Company stock in 1998 and 482
shares of Existing Common Stock in 1997.
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. Each
director's annual grant consists 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
related to this conversion was 15,702.
EMPLOYEE STOCK OPTION PLANS. The 1995 Shareholder Value Incentive Plan (the
"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 (the "1994 Option Plan") provided for the
granting of stock options to certain nonofficer key employees.
Following the Letter Stock Recapitalization, each outstanding stock option under
the SVIP and the 1994 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<PAGE>
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>
Year ended December 31
1998 1998
-------------------------------------------------------
Georgia-Pacific Group The Timber Company
-------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
-------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding
at January 1 4,903,100 $ 53.32 5,913,700 $ 22.21
Options granted 1,500,050 56.46 - -
Options exercised/
surrendered (318,600) 54.43 (180,400) 21.52
Options cancelled (524,200) 53.39 (533,962) 21.60
-------------------------------------------------------
Options outstanding
at December 31 5,560,350 $ 54.09 5,199,338 $ 22.30
Options available
for grant at
December 31 2,999,950 1,289,400
-------------------------------------------------------
Total reserved shares 8,560,300 6,488,738
=======================================================
Options exercisable
at December 31 852,550 $ 57.27 1,120,325 $ 23.64
Average remaining life of
options outstanding 8.2 years 7.7 years
Option prices per share:
Granted $ 56-61 $ -
Exercised/surrendered $ 42-57 $ 17-23
Cancelled $ 42-57 $ 17-25
Outstanding $ 52-61 $ 21-25
=======================================================
</TABLE>
<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 5.6 years 5.6 years
Option prices per share (December 17
through December 31):
Granted $ - $ 25
Exercised/surrendered $ 42 $ 17
Outstanding $ 42-57 $ 17-25
=======================================================
</TABLE>
<TABLE>
<CAPTION>
Period ended Year ended
December 16, December 31,
1997* 1996
-------------------------------------------------------
Georgia-Pacific Corporation
-------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
-------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding
at January 1 4,158,500 $ 74.53 2,217,000 $ 75.61
Options granted 1,746,000 74.25 2,150,500 72.63
Options exercised/
surrendered (514,950) 69.94 (117,400) 57.15
Options cancelled (486,150) 75.05 (91,600) 75.45
-------------------------------------------------------
Options outstanding
at period end 4,903,400 $ 74.93 4,158,500 $ 74.53
Options available
for grant at
period end 3,531,200 4,811,000
-------------------------------------------------------
Total reserved shares 8,434,600 8,969,500
=======================================================
Options exercisable
at period end 334,600 $ 73.53 869,0000 $ 71.41
=======================================================
Option prices per share:
Granted $ 74 $ 73-77
Exercised/surrendered $ 59-75 $ 39-75
Cancelled $ 59-81 $ 39-81
=======================================================
</TABLE>
*All shares and prices reflect the Corporation's Existing Common Stock through
December 16, 1997.
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 percent 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 percent
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<PAGE>
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 1998, the Corporation purchased on the open market 5.7
million shares of The Timber Company stock at an aggregate price of $121
million, all of which were held as treasury stock at December 31, 1998. The
average price paid for the repurchased shares was $21.25 per share. No share
repurchases of The Timber Company stock were made in 1997.
Subsequent to year-end 1998 through February 5, 1999, The Timber Company
purchased 716,900 shares of The Timber Company stock at an aggregate price of
$16 million on the open market. The average price paid for the repurchased
shares was $22.71 per share.
The resolution of the Board authorizing such repurchases allows purchases of The
Timber Company stock so long as The Timber Company's debt remains below $1.0
billion and the Corporation's debt remains below $5.75 billion.
OTHER. 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 1997 Purchase Plan. Had
compensation cost for these plans been determined based on the fair value at the
grant dates in 1998, 1997 or 1996 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) 1998 1997 1996
--------------------------------------------------
Income Net Income Income
Net per income (loss)per Net per
income share* (loss) share* income share*
--------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Georgia-Pacific Corporation
As reported $ 274 $ 69 $ 156 $ 1.72
Pro forma $ 252 $ 62 $ 144 $ 1.59
Georgia-Pacific Group
As reported $ 98 $ 1.09 $(146) $(1.60) $ 29
Pro forma $ 77 $ 0.86 $(153) $(1.68) $ 17
The Timber Company
As reported $ 176 $ 1.95 $ 215 $ 2.35 $ 127
Pro forma $ 175 $ 1.94 $ 215 $ 2.35 $ 127
--------------------------------------------------
</TABLE>
* Represents basic earnings per share. Pro forma diluted income (loss) per share
was $0.85 and $1.93 in 1998 and $(1.68) and $2.33 in 1997 for the Georgia-
Pacific Group and The Timber Company, respectively, and $1.58 in 1996 for the
Corporation.
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 1998, 1997 and 1996:<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1997 1996
Options Options ESPP* Options
<S> <C> <C> <C> <C>
-------------------------------------------------------------
Georgia-Pacific Corporation
Risk-free interest rate 5.7%
Expected dividend yield 2.0%
Expected life 10 years
Expected volatility 0.30
Option forfeiture rate 3%
-------------------------------------------------------------
Georgia-Pacific Group
Risk-free interest rate 5.8% 6.6% 5.8% 5.7%
Expected dividend yield 1.8% 2.7% 2.3% 2.0%
Expected life 10 years 10 years 2 years 10 years
Expected volatility 0.39 0.30 0.37 0.30
Option forfeiture rate 3% 3% 28% 3%
-------------------------------------------------------------
The Timber Company
Risk-free interest rate 5.9% 6.4% 5.8% 5.7%
Expected dividend yield 3.9% 3.2% 2.3% 2.0%
Expected life 10 years 10 years 2 years 10 years
Expected volatility 0.37 0.27 0.29 0.30
Option forfeiture rate 3% 3% 28% 3%
-------------------------------------------------------------
</TABLE>
*1997 Purchase Plan.
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 $26.88 and $8.55,
$23.74 and $7.54, and $18.98 and $6.42 for 1998, 1997 and 1996, respectively.
The weighted average grant date fair value per share of shares subscribed under
the 1997 Purchase Plan was $17.69 and $6.52 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. OTHER COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, which establishes standards for
reporting and display of comprehensive income and its components. The Timber
Company adopted SFAS No. 130 in the 1998 first quarter. For the years ended
December 31, 1998, 1997 and 1996, The Timber Company's total comprehensive
income was $176 million, $215 million and $127 million, respectively. Other
comprehensive income was insignificant for The Timber Company during 1998, 1997
and 1996.
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Corporation is a party to various legal proceedings incidental to the
businesses of the Georgia-Pacific Group and The Timber Company and is subject to
a variety of environmental and pollution control laws and regulations in all
jurisdictions in which it operates. As is the case with other companies in
similar industries, the Corporation faces exposure from actual or potential
claims and legal proceedings involving environmental matters. Liability
insurance in effect during the last several years provides very limited coverage
for environmental matters. The management of The Timber Company believes that
the Corporation has established adequate reserves for probable losses with
respect to such environmental matters and legal proceedings. However, holders of
The Timber Company stock are shareholders of the Corporation and are subject to
all of the risks associated with an investment in the Corporation, including the
environmental matters and legal proceedings involving the Georgia-Pacific Group
discussed below.
COMMITMENTS AND CONTINGENCIES WITH RESPECT TO THE TIMBER COMPANY. The Timber
Company is subject to various legal proceedings and claims that arise in the
ordinary course of its business. Although the ultimate outcome of these matters
and legal proceedings cannot be determined with certainty, based on presently
available information, management of the Corporation believes that the final
outcome of such matters and legal proceedings could be material to the operating
results of The Timber Company in any given quarter, 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 144 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 44 percent are being investigated,
approximately 28 percent are being remediated and approximately 28 percent are
being monitored (an activity that occurs after either site investigation or
remediation has been completed). The ultimate costs to the Corporation for the
investigation, remediation and monitoring of many of these sites cannot be
predicted with certainty, due to the often unknown magnitude of the pollution or
the necessary cleanup, the varying costs of alternative cleanup methods, the
amount of time necessary to accomplish such cleanups, the evolving nature of
cleanup technologies and government regulations, and the inability to determine<PAGE>
the Corporation's share of multiparty cleanups or the extent to which
contribution will be available from other parties. The Corporation has
established reserves for environmental remediation costs for these sites in
amounts that it believes are probable and reasonably estimable. Based on
analysis of currently available information and previous experience with respect
to the cleanup of hazardous substances, the Corporation believes that it is
reasonably possible that costs associated with these sites may exceed current
reserves by amounts that may prove insignificant or that could range, in the
aggregate, up to approximately $60 million. This estimate of the range of
reasonably possible additional costs is less certain than the estimates upon
which reserves are based, and in order to establish the upper limit of such
range, assumptions least favorable to the Corporation among the range of
reasonably possible outcomes were used. In estimating both its current reserve
for environmental remediation and the possible range of additional costs, the
Corporation has not assumed it will bear the entire cost of remediation of every
site to the exclusion of other known potentially responsible parties who may be
jointly and severally liable. The ability of other potentially responsible
parties to participate has been taken into account, based generally on the
parties' financial condition and probable contribution on a per site basis.
The Corporation and many other companies are defendants in suits brought in
various courts around the nation by plaintiffs who allege that they have
suffered personal injury as a result of exposure to asbestos-containing
products. These suits allege a variety of lung and other diseases based on
alleged exposure to products previously manufactured by the Corporation. In many
cases, the plaintiffs are unable to demonstrate that they have suffered any
compensable loss as a result of such exposure, or that any injuries they have
incurred in fact resulted from exposure to the Corporation's products.
The Corporation generally settles asbestos cases for amounts it considers
reasonable given the facts and circumstances of each case. The amounts it has
paid to date to defend and settle these cases have been substantially covered by
product liability insurance. The Corporation is currently defending claims of
approximately 71,000 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 has also established a
receivable for expected insurance recoveries.
On May 6, 1998, suit was filed in state court in Columbus, Ohio, against the
Corporation and Georgia-Pacific Resins, Inc., a wholly owned subsidiary of the
Corporation. The lawsuit was filed by eight plaintiffs who seek to represent a
class of individuals who at any time from 1985 to the present lived, worked,
resided, owned, frequented or otherwise occupied property located within a
three-mile radius of the Corporation's resins manufacturing operation in
Columbus, Ohio. The lawsuit alleges that the individual plaintiffs and putative
class members have suffered personal injuries and/or property damage because of
(i) alleged "continuing and long-term releases and threats of releases of
noxious fumes, odors and harmful chemicals, including hazardous substances" from
the Corporation's operations and/or (ii) a September 10, 1997 explosion at the
Columbus facility and alleged release of hazardous material resulting from that
explosion. Prior to the lawsuit, the Corporation had received a number of
explosion-related claims from nearby residents and businesses. These claims were
for property damage, personal injury and business interruption and were being
reviewed and adjusted on a case-by-case basis. The Corporation has denied the
material allegations of the lawsuit. While it is premature to evaluate the
claims asserted in the lawsuit, the Corporation believes it has meritorious
defenses.
In May 1997, the Corporation and nine other companies were named as defendants
in a suit brought by the Attorney General of the State of Florida alleging that
they engaged in a conspiracy to fix the prices of sanitary commercial paper
products, such as towels and napkins, in violation of federal and state laws.
Approximately 45 similar suits have been filed by private plaintiffs in federal
courts in California, Florida, Georgia and Wisconsin, and in the state courts of
California, Wisconsin, Minnesota and Tennessee. On October 15, 1997, the Federal
Judicial Panel on Multi-District Litigation consolidated all federal court cases
in the federal district court in Gainesville, Florida. On July 24, 1998, the
court certified the suit as a class action consisting of nongovernmental direct
purchasers of the defendants' products. Discovery in the federal and state cases
is ongoing. The Corporation has denied that it has engaged in any of the illegal
conduct alleged in these cases and intends to defend itself vigorously.
The Corporation's facility in Port Hudson, Louisiana, has notified the State of
Louisiana of the emitting of noncondensable gases in violation of its air
permit. The State has assessed a penalty against the Corporation of $425,000,
which the Corporation has paid.
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<PAGE>
timberlands at prices intended to reflect fair market prices based on prices
paid by independent purchasers and sellers for similar kinds of timber.
During 1998, The Timber Company sold timber deeds to the Georgia-Pacific Group.
The Timber Company recognizes revenues and earnings from these related-party
timber deeds as the timber is cut by the Georgia-Pacific Group. Had The Timber
Company recognized revenues and earnings on these related-party timber deeds at
the time of the agreement (which is the applicable accounting policy for timber
deeds sold to third parties), pro forma net sales, depreciation and cost of
timber harvested, income before income taxes and extraordinary items, net
income, and basic and diluted earnings per share would have been as follows:
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
Year ended December 31, 1998
-----------------------
(In millions, except
per share amounts) As reported Pro forma
---------------------------------------------------------
<S> <C> <C>
Net sales $ 534 $ 541
Depreciation and cost of
timber harvested 44 45
Income before income taxes
and extraordinary items 293 299
Net income 176 180
Basic earnings per share 1.95 1.99
Diluted earnings per share 1.94 1.98
=========================================================
</TABLE>
* Reported on a pro forma basis as if The Timber Company had recognized revenues
and earnings on timber deeds sold to the Georgia-Pacific Group at the time of
the contract, which is the applicable accounting treatment utilized in the case
of timber deeds sold to third parties.
As of December 31, 1998, The Timber Company had approximately $12 million in
unrecognized earnings related to the uncut portion of timber on timber contracts
sold to the Georgia-Pacific Group. This amount is included on "Other
liabilities" on the accompanying balance sheets.
During the second quarter of 1998, the Georgia-Pacific Group and The Timber
Company revised the operating policy, which they had entered into in 1997, with
respect to sales of timber by The Timber Company to the Georgia-Pacific Group.
These revisions arose from sharp changes in the prices of timber from the first
quarter to the second quarter of 1998, a significant decrease in the volume of
timber purchased by the Georgia-Pacific Group in the second quarter, and other
issues in the policy. At the time these revisions were negotiated, The Timber
Company sold a timber deed to the Georgia-Pacific Group in the amount of
approximately $23 million, and the Georgia-Pacific Group made a one-time $3
million payment to The Timber Company for 1998 second quarter adjustments due
under the revised policy. The Timber Company recognized revenues and earnings
from this timber deed, and other contracts to sell timber to the Georgia-Pacific
Group, as the timber was cut.
Under the revised policy, beginning July 1, 1998, the prices for Southern timber
sold by The Timber Company are adjusted monthly, rather than quarterly, and
represent the average of prices paid by the Georgia-Pacific Group for timber
purchased from third parties in a particular forest over the most recent three-
month period. In most of The Timber Company's Southern forests, it must offer 80
percent of its projected annual harvest from those forests to the Georgia-
Pacific Group, and the Georgia-Pacific Group must purchase not less than 60
percent nor more than 80 percent of that projected annual harvest. In addition,<PAGE>
premiums charged by The Timber Company for the right to harvest a significant
percentage of wood from its Southern forests have been reduced.
In two key Southern forests, the price paid by the Georgia-Pacific Group for
timber purchased from The Timber Company will be based on the average prices
paid over the most recent three months by the Georgia-Pacific Group for timber
purchased from third parties, and prices received by The Timber Company for
timber sold to third parties, in each forest. In those same forests, the
Georgia-Pacific Group has agreed to purchase, each quarter, 20 percent of the
annual volume of timber it has committed to purchase from The Timber Company
during that year. The revised policy reduces the volume of timber that the
Georgia-Pacific Group can purchase in these same two forests from 80 percent to
70 percent of The Timber Company's annual harvest in those forests, and also
reduces the Georgia-Pacific Group's minimum annual purchase obligation in those
forests from 60 percent to 50 percent of the annual harvest in 1999 and 2000.
These changes are intended to cause prices paid by the Georgia-Pacific Group for
timber sold by The Timber Company to more quickly reflect market prices in
particular forests, to allow the Georgia-Pacific Group more flexibility in
purchasing wood from third parties, and to allow The Timber Company greater
flexibility in the timing of sales of its annual harvest on the open market. The
revised policy also contains additional provisions that resolve issues related
to certain operating practices of The Timber Company and the Georgia-Pacific
Group. This policy will remain in effect through 2000.
The Georgia-Pacific Group has given The Timber Company notice, pursuant to the
policy, of its desire to renegotiate the terms of the policy for periods after
2000. If negotiations for a revised policy are unsuccessful, the policy will
terminate at the end of 2000. As a result, both the Georgia-Pacific Group and
The Timber Company have a two-year period to find other sellers and purchasers,
respectively, of timber.
The Corporation is a 50 percent 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, 1998, GA-MET had an outstanding mortgage loan payable to
Metropolitan in the amount of $147 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 12. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
Georgia-Pacific Corporation-The Timber Company
<TABLE>
<CAPTION>
First QuarterSecond Quarter
----------------------------
(In millions, except
per share amounts) 1998 1997 1998 1997
------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 145 $ 137 $ 119 $ 131
Gross profit (net sales
minus cost of sales) 126 103 96 103
Income before
extraordinary items 52 103 38 37
Net income 50 103 38 37
Dividends declared per
share 0.25 0.25
Basic per share
Income before
extraordinary items 0.56 0.41
Net income 0.54 0.41
Diluted per share
Income before
extraordinary items 0.56 0.41
Net income 0.54 0.41
------------------------------------------------------------
Price range of common stock*
High $ 27.25 $27.00
Low 21.25 19.69
------------------------------------------------------------
<CAPTION>
Third Quarter Fourth Quarter
------------------------------------------------------------
(In millions, except
per share amounts) 1998 1997 1998 1997
------------------------------------------------------------
Net sales $ 143 $ 152 $ 127 $ 131
Gross profit (net sales
minus cost of sales) 103 112 119 96
Income before
extraordinary items 41 45 47 30
Net income 41 45 47 30
Dividends declared per
share 0.25 0.25
Basic per share
Income before
extraordinary items 0.46 0.54 0.33
Net income 0.46 0.54 0.33
Diluted per share
Income before
extraordinary items 0.46 0.54 0.32
Net income 0.46 0.54 0.32
------------------------------------------------------------
Price range of common stock*
High $ 23.19 $24.56 $25.88
Low 18.00 17.38 22.50
------------------------------------------------------------
</TABLE>
*1997 amounts are for the period from December 17, 1997 through December 31,
1997.
The first quarter of 1998 included an after-tax extraordinary loss of $2 million
($0.02 per share) on early extinguishment of debt.
In the first quarter of 1997, the Corporation recorded a pretax gain of $128
million ($80 million after taxes) from the sale of its Martell, California,
operations. Of this amount, a pretax gain of $114 million ($71 million after
taxes, or $0.78 per share) was recorded by The Timber Company for the sale of
timberlands. The remaining gain on the sale of a sawmill and particleboard plant
was recorded by the Georgia-Pacific Group.
On December 16, 1997, the Corporation recapitalized its former common stock into
Georgia-Pacific Group common stock and The Timber Company common stock.
Therefore, The Timber Company did not have any common shares issued or
outstanding for periods prior to December 17, 1997.
SELECTED FINANCIAL DATA - OPERATIONS
Georgia-Pacific Corporation--The Timber Company
EARNINGS TO FIXED CHARGES
Income before income taxes and extraordinary items plus total interest cost
(interest expense plus capitalized interest) and one-third of rent expense,
divided by total interest cost plus one-third of rent expense.
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 and
extraordinary items.
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) 1998 1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net sales $ 534 $ 551 $ 547 $ 493
----------------------------------------------------------------
Costs and expenses
Cost of sales 90 137 132 122
Selling, general and
administrative 36 43 45 45
Depreciation and cost
of timber harvested 44 48 57 55
Interest 71 84 105 111
Other income - (114) - -
----------------------------------------------------------------
Total costs and expenses 241 198 339 333
----------------------------------------------------------------
Income before income taxes and
extraordinary items 293 353 208 160
Provision for income
taxes 115 138 81 63
----------------------------------------------------------------
Income before
extraordinary items 178 215 127 97
Extraordinary items,
net of taxes (2) - - -
----------------------------------------------------------------
Net income $ 176 $ 215 $ 127 $ 97
================================================================
Cash provided by operations $ 201 $ 212 $ 164 $ 132
================================================================
Other statistical data
Basic per share
Income before
extraordinary items $ 1.97 $ 2.35
Extraordinary items,
net of taxes (0.02) -
----------------------------------------------------------------
Net income $ 1.95 $ 2.35
----------------------------------------------------------------
Diluted per share
Income before
extraordinary items $ 1.96 $ 2.33
Extraordinary items,
net of taxes (0.02) -
----------------------------------------------------------------
Net income $ 1.94 $ 2.33
================================================================
Average number of shares
outstanding, basic 90.3 91.4
Average number of shares
outstanding, diluted 90.8 92.1
Earnings to fixed charges 5.1 5.2 3.0 2.4
Cash flow to interest 3.8 3.5 2.6 2.2
Effective income tax rate 39.2% 39.1% 38.9% 39.4%
================================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------
(Dollar amounts, except per share,
and shares are in millions) 1994
----------------------------------------------------------------
<S> <C>
Operations
Net sales $ 425
----------------------------------------------------------------
Costs and expenses
Cost of sales 119
Selling, general and
administrative 47
Depreciation and cost
of timber harvested 45
Interest 114
Other income -
----------------------------------------------------------------
Total costs and expenses 325
----------------------------------------------------------------
Income before income taxes
and extraordinary items 100
Provision for income taxes 39
----------------------------------------------------------------
Income before
extraordinary items 61
Extraordinary items,
net of taxes -
----------------------------------------------------------------
Net income $ 61
================================================================
Cash provided by operations $ 76
================================================================
Other statistical data
Basic per share
Income before extraordinary items
Extraordinary items, net of taxes
----------------------------------------------------------------
Net income
----------------------------------------------------------------
Diluted per share
Income before extraordinary items
Extraordinary items, net of taxes
----------------------------------------------------------------
Net income
================================================================
Average number of shares
outstanding, basic
Average number of shares
outstanding, diluted
Earnings to fixed charges 1.9
Cash flow to interest 1.7
Effective income tax rate 39.0%
================================================================
</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, net, 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 market value of
shareholders' equity is the market price of common stock multiplied by the
number of common stock shares outstanding.<PAGE>
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) 1998 1997 1996 1995
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial position, end of year
Timber and timberlands $ 1,140 $ 1,122 $1,279 $1,293
Property, plant and
equipment, net 24 20 25 27
Investment in real estate held
for development and sale - 14 13 16
Other assets 10 15 9 12
-----------------------------------------------------------------
Total assets $ 1,174 $ 1,171 $1,326 $1,348
-----------------------------------------------------------------
Debt $ 983 $ 971 $1,316 $1,365
Other liabilities 32 9 8 10
Deferred income tax liabilities 244 240 174 180
-----------------------------------------------------------------
Total liabilities $ 1,259 $ 1,220 $1,498 $1,555
-----------------------------------------------------------------
Shareholders' equity $ (85) $ (49) $(172) $(207)
-----------------------------------------------------------------
Other statistical data
Property, plant and equipment
investments $ 6 $ 2 $ 4 $ 6
Timber & timberland investments 64 51 48 62
Per share*
Market price:
High $ 27.25 $ 25.88
Low $ 17.38 $ 22.50
Year-end $ 23.81 $ 22.69
Book value $(0.98) $(0.53)
Shares of stock outstanding
at year end 87.1 92.6
Dividends declared per share $ 1.00
Total debt to capital,
book basis 85.6% 83.4% 99.6% 100.0%+
Total debt to capital,
market basis 32.2% 31.6%
=================================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------
(Dollar amounts, except per share,
and shares are in millions) 1994
-----------------------------------------------------------------
<S> <C>
Financial position, end of year
Timber and timberlands $ 1,292
Property, plant and
equipment, net 24
Investment in real estate held
for development and sale 18
Other assets 10
-----------------------------------------------------------------
Total assets $ 1,344
-----------------------------------------------------------------
Debt $ 1,373
Other liabilities 10
Deferred income tax liabilities 178
-----------------------------------------------------------------
Total liabilities $ 1,561
-----------------------------------------------------------------
Shareholders' equity $ (217)
-----------------------------------------------------------------
Other statistical data
Property, plant and equipment
investments $ 7
Timber & timberland investments 37
Per share*
Market price:
High
Low
Year-end
Book value
Shares of stock outstanding
at year end
Dividends declared per share
Total debt to capital,
book basis 100.0%+
Total debt to capital,
market basis
=================================================================
</TABLE>
* 1997 amounts are for the period from December 17, 1997 through December 31,
1997.
INVESTOR INFORMATION
Georgia-Pacific Corporation and Subsidiaries
CORPORATE HEADQUARTERS
The Timber Company
Post Office Box 105210
Atlanta, Georgia 30303
(404) 586-0275
STOCK EXCHANGES AND SYMBOLS
The Timber Company common stock are listed on the New York Stock Exchange
("NYSE").
The NYSE symbol for The Timber Company common stock is "TGP."
The Timber Company 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
ENVIRONMENTAL AND SAFETY REPORT
Requests for Georgia-Pacific Corporation's 1998 Environmental and Safety Report
should be addressed to: Corporate Communications, Georgia-Pacific Corporation,<PAGE>
Post Office Box 105605, Atlanta, Georgia 30348. The report can also be viewed
on-line at www.gp.com.
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 Timber Company shareholders are eligible to participate in the Timber
Group Dividend Reinvestment Plan. For information on the Plan, contact the Plan
agent, First Chicago Trust Company, a Division of EquiServe, Dividend
Reinvestment Plan, Post Office Box 2598, Jersey City, New Jersey 07303-2598, or
by telephone at (800) 414-6280. Internet address: www. fctc.com.
Number of The Timber Company shareholders of record at December 31, 1998:
36,114.
FINANCIAL INFORMATION
A copy of the Georgia-Pacific Corporation 1998 Annual Report to the Securities
and Exchange Commission on Form 10-K and the Georgia-Pacific Corporation 1998
Consolidated Financial Statements will be supplied without charge. Annual
statistical updates are also available. For current quarterly financial updates
telephone (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 Corporation can also be
found on the Internet at http://www.gp.com.
GEORGIA-PACIFIC CORPORATION SUBSIDIARIES
The following table lists each subsidiary of the Registrant as of January 1,
1999 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 Jurisdictio
Securiti n
es
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) Brown Board Holding, Inc. 100 Delaware
E) Brunswick Pulp & Paper Company 100 Delaware
F) Brunswick Pulp Land Company, Inc. 100 Delaware
G) CeCorr, Inc. 100 Indiana
PAGE
<PAGE>
H) Fordyce and Princeton R. R. Co. 100 Arkansas
I) G-P Gypsum Corporation 100 Delaware
1) KMHC, Incorporated 100 California
a) Compania Occidental Mexicana, 49 Mexico
S.A. de C.V.
J) 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.
K) Georgia-Pacific Holdings, Inc. 100 Delaware
L) Georgia-Pacific Investment Company 100 Oregon
M) Georgia-Pacific Pulpwood Company 100 Delaware
N) Georgia-Pacific Resins, Inc. 100 Delaware
1) Maine Timber, Inc. 100 Maine
a) Maine Timber REIT, Inc. 100 Maine
2) Timber, Inc. 100 Delaware
a) Timber REIT, Inc. 100 Delaware
O) Georgia-Pacific Shared Services Corp. 100 Delaware
P) Georgia-Pacific West, Inc. 100 Oregon
PAGE
<PAGE>
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 Finance Company 100 Nova Scotia
5) G-P Canada Holdings, Limited 100 Nova Scotia
a) Beaverwood Finance Company 100 Nova Scotia
b) Georgia-Pacific Canada, Inc. 100 Ontario
i) Flakeboard Canada 100 Nova Scotia
Incorporated
ii) 100 Barbados
Georgia-Pacific (Barbados), Limited
6) G-P Latin America, 100 Barbados
Incorporated
a) Inversiones Georgia-Pacific 100 2
7) Georgia-Pacific Asia, Inc. 100 3 Delaware
a) Georgia-Pacific-Asia (H. K.) 100 Hong Kong
Limited
8) Georgia-Pacific Building 100 New
Materials Sales, Ltd. Brunswick
PAGE
<PAGE>
9) Georgia-Pacific de Mexico, S. de 100 4 Mexico
R. L. de C. V.
10) Georgia-Pacific Foreign Sales 100 Barbados
Corporation
11) Georgia-Pacific Global 100 Oregon
Corporation
a) GPSP, Inc. 100 Delaware
12) Georgia-Pacific S.A. 100 Switzerland
13) Georgia-Pacific U.K. Limited 100 England
14) Georgia Steamship Company, Inc. 100 Delaware
15) St. Croix Pulpwood, Limited 100 New
Brunswick
Q) Georgia Temp, Inc. 100 Delaware
R) Gloster Southern Railroad Company 100 Delaware
S) 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
PAGE
<PAGE>
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
8) Nekoosa Papers Inc. 100 Wisconsin
a) Georgia-Pacific Britain, 100 5 Delaware
L.L.C.
T) Phoenix Athletic Club, Inc. 100 Georgia
U) Saint Croix Water Power Company, The 100 New
Brunswick
V) Southwest Millwork and Specialties, 100 Delaware
Inc.
1) Maderas Howrey S. A. de C. V. 100 6 Mexico
W) Sprague's Falls Manufacturing 100 Canada
Company (Limited), The
X) St. Croix Water Power Company 100 Maine
Y) Thacker Land Company 57 West
PAGE
<PAGE>
Virginia
Z) Tomahawk Land Company 100 Delaware
AA) 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 99% of the stock of Inversiones Georgia-Pacific is issued to G-P Latin
America, Incorporated and the remaining 1% is issued to Georgia-Pacific
(Barbados) Limited.
3 99.9% of the stock of Georgia-Pacific Asia (H.K) is issued to Georgia-
Pacific Asia, Inc. and the remaining 0.1% is issued to Georgia-Pacific
Holdings, Inc.
4 Georgia-Pacific de Mexico, S. de R. L. de C. V. is owned by Georgia-Pacific
West, Inc. and Georgia-Pacific Investment Company.
5 Georgia-Pacific Britain, L.L.C. is owned by Nekoosa Papers, Inc. (90%) and
Great Northern Nekoosa Corporation (10%).
6 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
PAGE
<PAGE>
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
S. A. de C. V. are issued to Southwest Millwork and Specialties, Inc.
PAGE
<PAGE>
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 5, 1999 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
<PAGE>
Statement No. 33-64673; Registration Statement No. 333-01785; Registration
Statement No. 333-35793; Registration Statement No. 333-35813; Registration
Statement No. 333-42597; and Registration Statement No. 333-61665.
/s/Arthur Andersen LLP
-------------------------------------
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 18, 1999
<PAGE>
POWER OF ATTORNEY
<PAGE>
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. 333-61665 and
333-01785 (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
<PAGE>
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, 1998; 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 29th
day of January, 1999.
/s/ROBERT CARSWELL
ROBERT CARSWELL
<PAGE>
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. 333-61665 and
333-01785 (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
<PAGE>
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, 1998; 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 29th
day of January, 1999.
/s/ JANE EVANS
JANE EVANS
<PAGE>
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. 333-61665 and
333-01785 (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
<PAGE>
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, 1998; 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 29th
day of January, 1999.
/s/ DONALD V. FITES
DONALD V. FITES
<PAGE>
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. 333-61665 and
333-01785 (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
<PAGE>
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, 1998; 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 29th
day of January, 1999.
/s/ HARVEY C. FRUEHAUF, JR.
HARVEY C. FRUEHAUF, JR.
<PAGE>
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. 333-61665 and
333-01785 (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
<PAGE>
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, 1998; 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 28th
day of January, 1999.
/s/ RICHARD V. GIORDANO
RICHARD V. GIORDANO
<PAGE>
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. 333-61665 and
333-01785 (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
<PAGE>
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, 1998; 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 29th
day of January, 1999.
/s/ DAVID R. GOODE
DAVID R. GOODE
<PAGE>
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. 333-61665 and
333-01785 (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
<PAGE>
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, 1998; 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 29th
day of January, 1999.
/s/ T. MARSHALL HAHN, JR.
T. MARSHALL HAHN, JR.
<PAGE>
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. 333-61665 and
333-01785 (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
<PAGE>
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, 1998; 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
onfirming 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 29th
day of January, 1999.
/s/ M. DOUGLAS IVESTER
M. DOUGLAS IVESTER
<PAGE>
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. 333-61665 and
333-01785 (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
<PAGE>
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, 1998; 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 29th
day of January, 1999.
/s/ FRANCIS JUNGERS
FRANCIS JUNGERS
<PAGE>
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. 333-61665 and
333-01785 (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
<PAGE>
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, 1998; 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 29th
day of January, 1999.
/s/ LOUIS W. SULLIVAN
LOUIS W. SULLIVAN
<PAGE>
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. 333-61665 and
333-01785 (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
<PAGE>
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, 1998; 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 29th
day of January, 1999.
/s/ JAMES B. WILLIAMS
JAMES B. WILLIAMS
<PAGE>
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. 333-61665 and
333-01785 (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
<PAGE>
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, 1998; 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 29th
day of January, 1999.
/s/ A.D. CORRELL
A D. CORRELL
<PAGE>
POWER OF ATTORNEY
<PAGE>
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. 333-61665 and
333-01785 (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
<PAGE>
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, 1998; 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 29th
day of January, 1999.
/s/ JAMES S. BALLOUN
JAMES S. BALLOUN
<PAGE>
<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-31-1996
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> 969
<ALLOWANCES> 10
<INVENTORY> 1,467
<CURRENT-ASSETS> 2,615
<PP&E> 13,733
<DEPRECIATION> 7,173
<TOTAL-ASSETS> 12,818
<CURRENT-LIABILITIES> 2,490
<BONDS> 4,371
0
0
<COMMON> 73
<OTHER-SE> 3,438
<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> (10)
<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 12 MONTHS ENDED
DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS."
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 8
<SECURITIES> 0
<RECEIVABLES> 1,390
<ALLOWANCES> 19
<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> 3,396
<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> 21
<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 - Basic (1.60)
The Timber Company EPS - Basic 2.35
<F2>Georgia-Pacific Group EPS -Diluted (1.60)
The Timber Company EPS -Diluted 2.33
</FN>
</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, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS."
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 5
<SECURITIES> 0
<RECEIVABLES> 1,258
<ALLOWANCES> 25
<INVENTORY> 1,280
<CURRENT-ASSETS> 2,645
<PP&E> 14,453
<DEPRECIATION> 8,204
<TOTAL-ASSETS> 12,700
<CURRENT-LIABILITIES> 2,648
<BONDS> 4,125
0
0
<COMMON> 75
<OTHER-SE> 3,049
<TOTAL-LIABILITY-AND-EQUITY> 12,700
<SALES> 13,336
<TOTAL-REVENUES> 13,336
<CGS> 10,326
<TOTAL-COSTS> 10,326
<OTHER-EXPENSES> 935
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 443
<INCOME-PRETAX> 491
<INCOME-TAX> 202
<INCOME-CONTINUING> 289
<DISCONTINUED> 0
<EXTRAORDINARY> (15)
<CHANGES> 0
<NET-INCOME> 274
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Georgia-Pacific Group EPS - Basic 1.09
The Timber Company EPS - Basic 1.95
<F2>Georgia-Pacific Group EPS - Diluted 1.08
The Timber Company EPS - Diluted 1.94
</FN>
</TABLE>
