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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 January 1, 2000
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
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GEORGIA-PACIFIC CORPORATION
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(exact name of registrant as specified in its Charter)
Georgia 93-0432081
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(State or other jurisdiction of (I.R.S. Employer identification
Incorporation or Organization number)
133 Peachtree Street, N.E., Atlanta, Georgia 30303
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area (404) 652-4000
code ---------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
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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)
Premium Equity Participating Security
Units---PEPS Units New York Stock Exchange
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 8, 2000, the registrant
had 172,205,444 shares of Georgia-Pacific Group Common Stock outstanding and
82,064,710 shares of Timber Group Common Stock outstanding.
The aggregate market value of the voting stock held by
non-affiliates of the registrant on March 8, 2000 (assuming, for the sole
purpose of this calculation that all executive officers and directors of the
registrant are "affiliates") was $5,806,552,314.87 for Georgia-Pacific Group
Common Stock and $1,743,875,087.50 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 January 1, 2000, portions of which are incorporated by reference
in Parts I, II and IV of this Form 10-K; and
2. The Corporation's definitive Proxy Statement dated March 24, 2000, for
use in connection with the Annual Meeting of Shareholders to be held
on May 2, 2000, 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 January 1, 2000
TABLE OF CONTENTS
PART I Page
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Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 11
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 87
PART III
Item 10. Directors and Executive Officers of the Registrant 88
Item 11. Executive Compensation 90
Item 12. Security Ownership of Certain Beneficial Owners and Management 90
Item 13. Certain Relationships and Related Transactions 90
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 90
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.
Georgia-Pacific 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. The
Georgia-Pacific Group consists of all of the Corporation's manufacturing mills
and plants, its building products distribution business and its paper
distribution business. The 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, chemicals
and other products). The Timber Company consists of approximately 4.7 million
acres of timberlands owned or leased by the Corporation, together with related
facilities and equipment. In 1999, these timberlands supplied approximately 19%
of the overall timber requirements of the Corporation's manufacturing
facilities.
Additional information pertaining to the Corporation's businesses, including
operating segments, is set forth under the captions "Georgia-Pacific Corporation
and Subsidiaries - Management's Discussion and Analysis" and "Georgia-Pacific
Corporation and Subsidiaries - Sales and Operating Profits by Operating Segment
(immediately following Note 14), and in Notes 1 and 2 of the Corporation's
Consolidated Financial Statements, and is presented under Item 8 of this Form
10-K.
GEORGIA-PACIFIC GROUP
The Georgia-Pacific Group has grown through expansion and acquisitions to become
one of the world's leading manufacturers and distributors of building products
and pulp and papers. Among North American producers, the Georgia-Pacific Group
(the "Group") ranks first in the production of industrial panels, wood bonding
resins and industrial thermosetting resins;
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second in the production of structural wood panels, communication papers
(uncoated free-sheet), gypsum wallboard, market pulp; third in lumber products
and tissue products, fourth in linerboard and medium; and fifth in corrugated
packaging. The Group's building products distribution segment leads in supplying
wholesale building products in the United States. The Group's paper
distribution, Unisource, is one of the largest distributors of paper and
supplies in North America. The Corporation's chemicals business also supplies
paper chemicals and tall oil based chemicals.
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 at or
below annual depreciation. After maintenance and environmental spending, the
Group limits investments in property, plant and equipment either to businesses
with higher return opportunities or to projects that lower costs or improve
efficiencies. Investments in property, plant and equipment in 1999 totaled $721
million, just below 1999's depreciation of $746 million. This follows 1998's
reinvestment of $632 million or of 85% of depreciation.
Georgia-Pacific Group operates its production facilities in five operating
business segments: Building Products, Building Products Distribution,
Containerboard and Packaging, Pulp and Paper, and Paper Distribution. 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, chemicals and other products. These products are manufactured at 148
facilities in the U.S., 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 1999
were $144 million (about 2% of segment sales), primarily to the Caribbean and
Europe.
Wood Panels. A leading 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 in
excess of 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
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.
Early in 1999 the Georgia-Pacific Group began construction of a new OSB plant in
Calhoun County Arkansas. The new facility will produce approximately 410 million
square feet (3/8") of OSB with start-up scheduled for late 2000. The plant will
ultimately replace older, less efficient structural panel capacity within the
segment.
The building products segment leads in production of manufactured board products
for industrial and construction applications. Nineteen 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. In 1999 the segment
closed its Bemidji, Minnesota hardboard plant. In January 2000 the
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segment sold its Lebanon, Oregon hardboard plant. The combined capacity of these
facilities was 209 million square feet (1/8" basis).
Lumber. The third-largest lumber producer in North America, the Georgia-Pacific
Group annually manufactures about 2.7 billion board feet or approximately 5
percent of domestic lumber production. Most of the Group's 37 lumber mills are
located in the U.S. South. Lumber products are manufactured from Southern pine,
a variety of Appalachian and Southern hardwoods, cypress, redwood, cedar,
spruce, hemlock and Douglas fir.
In 1999 the segment acquired the operations of four lumber treating facilities
bringing our total to 12. These assets increase the Corporation's capacity to
pressure-treat lumber to more than one billion feet annually, ranking the
Corporation among the top producers of pressure treated lumber in the nation.
Pressure treated lumber is used primarily in construction of outdoor structures
such as decks, fences, bridges and playground equipment.
Demand for the building products segment's engineered lumber products has
increased in recent years as wood I-joists (made from veneer, OSB and sawn
lumber) appear to 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 Georgia-Pacific Group operates 20 gypsum board plants
throughout the U.S. and Canada and is the second-largest producer of gypsum
wallboard in North America, with an annual capacity of 6.55 billion square feet.
Gypsum products include wallboard, Dens specialty panels, fire-door cores,
industrial plaster and joint compound. In addition, the business is vertically
integrated in both paper and gypsum rock operating four recycled gypsum
paperboard mills and ten gypsum quarries/mines. Gypsum reserves are
approximately 309 million recoverable tons, an estimated 48-year supply at
current production rates.
In 1999 the Georgia-Pacific Group's new gypsum wallboard facility at Wheatfield,
Indiana began production. This low-cost facility has an annual capacity of a new
500 million square feet and uses synthetic gypsum, a waste by-product of a
nearby power generation plant, as its primary raw material. This arrangement
provides the business with a new low-cost source of raw material while more than
doubling the amount of this waste recycled in the State of Indiana. In January
2000 one of the business' older technology, higher-cost gypsum wallboard
facilities was closed in Grand Rapids, Michigan.
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 four billion pounds of thermosetting resins,
formaldehyde, pulp chemicals, and paper chemicals annually from 20 plants to
most of the major buyers of these products. It also operates internationally
through joint ventures in South Africa, Argentina, and Chile. The segment also
produces chemicals and resins for use in a variety of specialty applications in
other industries, including roofing, thermal insulation, metalworking, coatings,
fertilizer, and transportation. In 1999 the segment acquired Actrachem, a
manufacturer of specialty chemical additives for a variety of industrial
markets. Also in 1999 the segment closed its chlor/alkali manufacturing
operations at Bellingham, Washington. This closure follows Georgia-Pacific's
decision to convert to pulp bleaching processes that does not use elemental
chlorine. There is an ongoing search for opportunities to leverage our chemicals
technology and other business strengths worldwide.
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BUILDING PRODUCTS DISTRIBUTION
The building products distribution division of the Georgia-Pacific Group is the
leading domestic wholesaler of building products. It sells building products to
independent dealers, industrial customers and large home improvement centers
from 63 locations throughout the U.S. and one in Canada. The building products
distribution business provides a nationwide outlet for a significant portion of
the Georgia-Pacific Group's building products. It also sells building products
purchased from third parties which make up a substantial portion of the
segment's sales. Building Products distribution's geographic coverage and
product breadth are unmatched in North America. The building products
distribution business is affected by the availability and cost of financing, the
pace of new-home construction, and the level of repair and remodel expenditures.
In 1995, the segment began reengineering its organizational, logistical and
information systems. Implementation of these initiatives, however, were 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 division's millwork fabrication facilities and a number of
distribution centers in the Western U.S. These efforts were concluded in 1998
and since the last half of 1998, the segment was profitable. In 1999,
performance continued to improve as cost reduction efforts and strong demand for
building products combined to boost segment operating profits to $63 million.
CONTAINERBOARD AND PACKAGING
The containerboard and packaging segment produces containerboard, corrugated
containers and packaging, bleached paperboard and kraft paper. One of the
largest domestic producers of containerboard, the containerboard and packaging
segment is the second largest supplier of containerboard to independent
converters in the U.S. Annual capacity at the Group's five primary
containerboard mills and two smaller mills totals 4.1 million tons, representing
about 11 percent of total U.S. capacity. The segment's 50 corrugated packaging
plants consume approximately 70 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 the U.S. and export markets. Containerboard exports
totaled 460,000 tons during 1999 compared to 1998's level of 520,000 tons. In
1999, the segment further integrated its linerboard and medium production into
its own packaging plants with the acquisition of Connelly Containers, an
industry leader in the production of triple-wall corrugated packaging and
graphics. Also during the year, the segment closed a corrugated sheet
manufacturing facility in Devens, Massachusetts. In January 2000 the business
sold a packaging plant in Warren County, North Carolina.
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.
The containerboard and packaging segment also produces bleached paperboard for
use in frozen food containers, food service items and other products. Our
bleached paperboard products are sold primarily through our joint venture with
Gulf States Paper Company under the established CartonMate(TM) paperboard
trademark.
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PULP AND PAPER
The pulp and paper segment produces market pulp, communication papers, tissue
and other products at 22 facilities in North America. Combined production
capacity for pulp, paper and tissue is 5.4 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 the U.S. and
export markets, and fluctuations in currency exchange rates. Exports from this
business segment consist chiefly of market pulp bound for Asia, Europe, and
Latin America. In 1999 exports for the pulp and paper segment were $535 million,
about 14% of segment sales.
Market Pulp. The Georgia-Pacific Group ranks second in the production of market
pulp. The pulp and paper segment includes five pulp mills with a combined annual
capacity of 2.0 million tons, approximately 21 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 primarily
in the manufacture of disposable diapers and other sanitary items. Demand
continues to grow for these products, particularly in developing countries.
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 2.3 million tons, approximately 15 percent of U.S.
capacity. These products are sold through our paper distribution segment, other
major paper distributors, office product distributors, printing equipment
manufacturers, retailers and converters. Products are sold under a variety of
names including: Microprint(TM), Quantum(TM), Spectrum(TM), Nekoosa
Solutions(TM), Valorem(TM), Geocycle(TM), HOTS(TM), St. Croix(TM), Re-Comm(TM)
and Westminster(TM).
In 1999, the communication papers business continued to focus on its strategy of
reducing costs and improving customer service levels. This business completed
the introduction of a major systems initiative that management believes will
enable the business to continue to optimize paper machine productivity, decrease
order fulfillment time, and reduce transportation and inventory costs.
Effective October 4, 1999, the Georgia-Pacific Group and Chesapeake Corp.
(Chesapeake) completed a previously announced agreement to create
Georgia-Pacific Tissue, a joint venture in which the two companies have combined
their away-from-home tissue businesses. The Georgia-Pacific Group contributed
substantially all the assets of its commercial tissue business to the joint
venture. The Georgia-Pacific Group controls and manages the joint venture and
owns 95% of its equity. Chesapeake contributed the assets of its Wisconsin
Tissue business to the joint venture for which it received a 5% equity interest
in the joint venture and an initial cash distribution of approximately $755
million. Wisconsin Tissue's results of operations were combined with the
Georgia-Pacific Group's commercial tissue business beginning on October 3, 1999,
when the Georgia-Pacific Tissue joint venture was formed. The combined business
ranks third among North American producers of tissue products, which include
bath tissue, paper towels and napkins made from virgin and recycled fibers.
These products are manufactured at 8 mills and 6 converting plants. Capacity
totals approximately 1.1 million tons annually, over 14 percent of North
American capacity. Approximately 50 percent is
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sold to customers through grocery, drug and mass merchandise retailers. Consumer
brand names include Angel Soft(TM), Sparkle(TM), Coronet(TM), MD(TM) and
Delta(TM). The other 50 percent of production is sold primarily to commercial
and industrial markets through our paper distribution segment, independent paper
distributors, food service and janitorial distributors, and directly to national
fast food accounts. The business' proprietary dispensing system for the
Cormatic(TM), Ultimatic(TM) and Guardian(TM) brands continued to expand in 1999.
The Wisconsin Tissue venture adds several new brand names to the business'
product offering including Park Avenue(TM), Main Street(TM), and Second
Nature(TM).
PAPER DISTRIBUTION
The paper distribution segment was formed with the acquisition of Unisource by
Georgia-Pacific Group in July of 1999. The segment is a leading distributor of
printing and imaging paper, packaging systems, and sanitary maintenance supplies
in North America. Unisource operates primarily in the United States, 26
locations in Canada, and 22 locations in Mexico and is a large distribution
customer for most major paper producers in North America, including the
Georgia-Pacific Group's paper and packaging businesses. The segment operates
from 11 customer service centers, 127 warehouses, and 57 Paper Plus retail store
locations in the United States. The paper distribution segment is affected by
the level of economic activity in the United States, Canada and Mexico and the
pricing environment of paper and paper products.
Unisource sells and distributes high-quality printing, writing and copying
papers to printers, publishers, business forms manufacturers and direct mail
firms, as well as to corporate and retail copy centers, in-plant print
facilities, government institutions and other paper intensive businesses.
Unisource also sells and distributes a broad range of packaging and maintenance
supplies, equipment and services (principally to manufacturers, food processors,
and retailers); maintenance supplies and equipment such as carton erectors,
baggers and filers as well as films, shrink-wrap and cushioning materials;
shipping room supplies such as corrugated boxes, cushioning materials, tapes and
labeling; and food service supplies such as films and food wraps, food
containers and disposable apparel for food service workers. Unisource was an
operating segment of the Georgia-Pacific Group, for the last half of 1999 with
revenues during the period of $3.33 billion. Roughly two thirds of the revenue
was derived from printing and imaging and one third derived from packaging and
supplies.
Additional information pertaining to Georgia-Pacific Group's businesses,
including operating segments, is set forth under the captions "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 1999 Annual Report to Shareholders and set forth in Exhibit 13.1,
and is incorporated herein by reference.
THE TIMBER COMPANY
The Timber Company is engaged in the business of growing and marketing timber.
The Company is one of the largest timberland owners in the United States, owning
or controlling approximately 4.7 million acres. These timberlands are located in
three regions: 4.0 million acres of primarily pine forests in the South; 286,000
acres of primarily Douglas fir forests in Oregon; and 525,000 acres of mixed
hardwood forests in the Appalachian and north central regions of the United
States. These 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. Principal products include softwood sawtimber,
softwood pulpwood, hardwood sawtimber and hardwood pulpwood.
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The Timber Company also operates six world-class nurseries, and plants 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 working for purchasers of the standing timber or, in
certain circumstances, for The Timber Company.
The Company also engages in certain businesses related to ownership and
management of its timberlands including, but not limited to, 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 attempts to maximize shareholder value through the
implementation of strategies that constantly focus on merchandising timber for
maximum return, maximizing timberland productivity, controlling costs, enhancing
the quality of its timberlands portfolio and ensuring environmentally
sustainable operations.
MAXIMIZE TIMBERLAND PRODUCTIVITY
Harvest plans and inventory projections reflect The Timber Company's objective
of increasing harvest volumes while maintaining 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. Forest productivity
initiatives are based on proprietary forest growth systems and processes applied
on a site-by-site basis. 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 into the future through
the development and use of genetically enhanced seedlings, improvements in
responses to fertilization, vegetation control, thinning, and selective
harvesting.
FOCUS ON COST CONTROL
The Timber Company has one of the leanest, most productive workforces in the
industry generating revenue of approximately $1.2 million per salaried employee.
During 1999, The Timber Company continued to manage general and administrative
("G&A") costs. G&A levels in 1999 were similar to those experienced in 1997. G&A
expenses are expected to fall in 2000 consistent with the reduced size of
timberland holdings. While the potential for improvements in administrative
expenses are unlikely to be a significant value driver going forward, a
continuing focus on cost control is a core operating value embraced throughout
The Timber Company as part of our focus on maximizing cash flow and value for
our shareholders.
ENVIRONMENTAL STEWARDSHIP
The Timber Company is dedicated to environmental stewardship. The Timber
Company's 11-point environmental strategy adopts the provisions of the American
Forest and Paper Association's Sustainable Forestry InitiativeSM 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, flora and fauna diversity, and
conservation set asides.
Additional information pertaining to The Timber Company's business is set forth
under the captions "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
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Corporation's 1999 Annual Report to Shareholders and set forth in Exhibit 13.2
hereto, and is incorporated herein by reference.
TIMBER RESOURCES
The principal raw material used by the Corporation is raw wood. During 1999, The
Timber Company supplied 19% of the overall timber requirements of
Georgia-Pacific Group's facilities. The prices and terms of the transactions
between The Timber Company and Georgia-Pacific Group were determined on an arms
length basis pursuant to supply contracts put in place in 1997 at the time of
the Corporation's recapitalization which created two separate classes of common
stock; The Timber Group and Georgia-Pacific Group.
Additional information pertaining to the Corporation's timber resources is set
forth under the caption "The Timber Company" in this item.
MINERAL RESOURCES
Information pertaining to the Corporation's gypsum resources is set forth under
the captions "Georgia-Pacific Group - Building Products - Gypsum Products" in
this item.
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 Note 12 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," Georgia-Pacific Group's
Note 13 and The Timber Company's Note 11 of the Notes to Combined Financial
Statements contained in the Corporation's 1999 Annual Report to Shareholders and
set forth in Exhibit 13.1 and 13.2, respectively, hereto, and is incorporated
herein by reference.
EMPLOYEES
Information pertaining to persons employed by the Corporation is set forth under
the captions "Georgia-Pacific Corporation and Subsidiaries - Management's
Discussion and Analysis - Liquidity and Capital Resources - Other", 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 1999 Annual Report to Shareholders and set forth in Exhibit
13.1 and 13.2, respectively, hereto, and is incorporated herein by reference.
ITEM 2. PROPERTIES
The geographic location and capacity of the manufacturing facilities by segment
is set forth on Exhibit 99.1 hereto and is hereby incorporated herein by this
reference.
The Corporation's manufacturing and support facilities are designed according to
the requirements of the products to be manufactured. Therefore, the type of
construction varies
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from facility to facility. Management believes that its manufacturing
facilities, taken as a whole, are well maintained and generally adequate for
current operations.
Utilization of a particular facility varies based upon demand for the product.
While it is not possible to measure with any degree of certainty the productive
capacity of a facility we have estimated capacity in Exhibit 99.1.
The Corporation generally owns its manufacturing and other facilities, although
office facilities are often leased. The Corporation examines alternatives for
its higher cost facilities, including modernizing, replacing or closing such
facilities. Due to the Corporation's size, we continually review many business
opportunities and alternatives, including possible acquisitions or sales of
properties.
Information concerning the Corporation's timber and mineral resources is
presented under Item 1 of this Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
Information pertaining to the Corporation's Legal Proceedings is set forth in
Note 12 of the Corporation's Consolidated Financial Statements, and is presented
under Item 8 of this Form 10-K.
Additional information pertaining to the Corporation's Legal Proceedings is set
forth in Georgia-Pacific Group's Note 13 and The Timber Company's Note 11 of the
Notes to Combined Financial Statements contained in the Corporation's 1999
Annual Report to Shareholders and set forth in Exhibit 13.1 and 13.2,
respectively, hereto, 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. There are no legal proceedings that
meets this criteria for this reporting period, except the environmental
proceedings described in the information pertaining to the Corporation's legal
proceedings incorporated into preceding paragraph.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information with respect to the Market for the Corporation's Common Equity and
Related Stockholder Matters is set forth in a table following Note 14 of the
Corporation's Consolidated Financial Statements and under the captions "Selected
Financial Data - Financial Position, End of Year" (following Note 14 to 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 in the Corporation's 1999 Annual Report
to Shareholders under
-9-
the captions "Selected Financial Data - Financial Position, End of Year"
(following Note 15 and Note 13, respectively, of Georgia-Pacific Group's and the
Timber Company's Combined Financial Statements), and set forth in Exhibit 13.1
and 13.2, respectively, hereto, and is incorporated herein by reference.
The Corporation expects to continue to pay quarterly dividends in the amounts
set forth in "Selected Financial Data - Financial Position, End of Year"
following Note 14 to the Corporation's Consolidated Financial Statements, which
Note was incorporated into this item from Item 8 hereof.
As of the close of business on March 24, 2000, the Georgia-Pacific Group stock
price was $38.94 and the Timber Group stock price was $23.81, and there were
approximately 170,968,856 record holders of Georgia-Pacific Group stock and
81,998,510 record holders of the Timber Group stock.
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 "Selected Financial Data - Operations - Georgia-Pacific
Corporation and Subsidiaries" and "-Financial Position, End of Year," (following
Note 14) and is presented under Item 8 of this Form 10-K.
Information with respect to Selected Financial Data for Georgia-Pacific Group is
set forth under the captions "Georgia-Pacific Group - Selected Financial Data -
Operations" (following Note 15) and " - Selected Financial Data - Financial
Position, End of Year" (following Note 15) contained in the Corporation's 1999
Annual Report to Shareholders and set forth in Exhibit 13.1 hereto, 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" (following Note 13) and "- Selected Financial Data - Financial
Position, End of Year" (following Note 13) contained in the Corporation's 1999
Annual Report to Shareholders and set forth in Exhibit 13.2 hereto, and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
-10-
Management's Discussion and Analysis and factors affecting future performance
for the Corporation are set forth under the caption "Management's Discussion and
Analysis - Georgia-Pacific Corporation and Subsidiaries," 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 1999
Annual Report to Shareholders and set forth in Exhibit 13.1 hereto, 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 1999
Annual Report to Shareholders and set forth in Exhibit 13.2 hereto, 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 the
Georgia-Pacific Group is set forth under the captions "Management's Discussion
and Analysis - Georgia-Pacific Group - Liquidity and Capital Resources -
Financing Activities" contained in the Corporation's 1999 Annual Report to
Shareholders and set forth in Exhibit 13.1 hereto, 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 1999 Annual Report to Shareholders and set forth in Exhibit
13.2 hereto, and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and Supplementary Data for the Corporation are set forth
under the captions "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 - Georgia-Pacific Corporation
and Subsidiaries," "Report of Independent Public Accountants" and in the
Corporation's Notes to Consolidated Financial Statements, and is presented
below.
Financial Statements and Supplementary Data for Georgia-Pacific Group are 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
-11-
contained in the Corporation's 1999 Annual Report to Shareholders and set forth
in Exhibit 13.1 hereto, and is incorporated herein by reference.
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 1999 Annual Report to Shareholders and set forth in Exhibit 13.2
hereto, and is incorporated herein by reference.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Georgia-Pacific Corporation and Subsidiaries
Georgia-Pacific 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, its
building products distribution business and its paper distribution business. The
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, chemicals and other products). The
Timber Company consists of approximately 4.7 million acres of timberlands owned
or leased by the Corporation, together with related facilities and equipment. In
1999, these timberlands supplied approximately 19% of the overall timber
requirements of the Corporation's manufacturing facilities.
1999 COMPARED WITH 1998
The Corporation reported consolidated net sales of $18.0 billion and net
income of $1,116 million for 1999, compared with net sales of $13.3 billion and
net income of $274 million in 1998. Included in 1999 are $3.4 billion and $104
million of net sales, respectively, from the recently acquired Unisource
Worldwide, Inc. (Unisource) and Wisconsin Tissue operations. In addition, the
1999 results included pretax gains of $355 million ($215 million after taxes)
from the sales of the Corporation's timberlands located in California, Maine and
New Brunswick, Canada. The 1998 results included an extraordinary, after-tax
loss of $15 million for the early retirement of debt.
Interest expense was $495 million in 1999, compared with $443 million in 1998.
The increase is the result of higher debt levels and the issuance of senior
deferrable notes, more fully described in Note 7 of the Notes to Consolidated
Financial Statements, slightly offset by a decrease in average interest rates.
The Corporation reported pretax income of $1,821 million and an income tax
provision of $705 million for the year ended January 1, 2000, compared with
pretax income of $491 million and an income tax provision of $202 million for
the year ended December 31, 1998. The effective tax rate used to calculate the
provision for income taxes was 38.7% in 1999 and 41.1% in 1998. The reduction in
the 1999 effective tax rate resulted principally from higher pretax income and
an increased utilization of foreign sales corporation tax benefits, which more
than offset nondeductible goodwill amortization expense associated with business
acquisitions.
-12-
The remaining discussion refers to the "Selected Operating Segment Data" table
below.
SELECTED OPERATING SEGMENT DATA
Georgia-Pacific Corporation and Subsidiaries
Year ended
------------------------------------
January 1, December 31,
In millions 2000 1998 1997
===========================================================================================
Net sales
Building products $ 6,164 $ 5,792 $ 5,545
Building products distribution 4,869 4,333 4,406
Timber 526 534 551
Containerboard and packaging 2,391 2,104 1,817
Pulp and paper 3,891 3,554 3,701
Paper distribution 3,336 -- --
Other* (3,200) (2,975) (2,926)
- -------------------------------------------------------------------------------------------
Total net sales $ 17,977 $ 13,342 $ 13,094
===========================================================================================
Operating profits
Building products $ 1,139 $ 603 $ 490
Building products distribution 63 1 (171)
Timber 726 364 437
Containerboard and packaging 344 106 (6)
Pulp and paper 266 133 201
Paper Distribution 78 -- --
Other* (300) (273) (251)
- -------------------------------------------------------------------------------------------
Operating profits
Total operating profits 2,316 934 700
Interest expense 495 443 465
Provision for income taxes 705 202 106
- -------------------------------------------------------------------------------------------
Income before extraordinary items and
accounting change 1,116 289 129
Extraordinary items,
net of taxes -- (15) --
Cumulative effect of accounting
change, net of taxes -- -- (60)
- -------------------------------------------------------------------------------------------
Net income $ 1,116 $ 274 $ 69
===========================================================================================
*Includes the elimination of intersegment sales
BUILDING PRODUCTS The Corporation's building products segment reported net sales
of $6.2 billion and operating profits of $1,139 million for the year ended
January 1, 2000, compared with net sales of $5.8 billion and operating profits
of $603 million in 1998. Return on sales was 18% in 1999 and 10% in 1998. The
primary components of the increase in 1999 sales
-13-
and operating profits were 26% higher average oriented strand board prices; 22%
higher average gypsum prices; 16% higher average plywood prices; and higher
average selling prices for lumber and particleboard. These increases were offset
slightly by lower chemical prices and slightly lower volume for plywood and
lumber. The Corporation expects softening building products markets and lower
levels of housing starts to reduce operating results for the building products
segment in 2000.
BUILDING PRODUCTS DISTRIBUTION The building products distribution segment
reported net sales of $4.9 billion and operating profits of $63 million for
1999, compared with net sales of $4.3 billion and operating profits of $1
million in 1998. The 1998 results included one-time gains, principally on sales
of assets related to the restructuring plan, of approximately $20 million. The
increase in profitability in 1999 is due primarily to higher margins in
commodity and specialty products and lower operating costs. The Corporation
expects a slight improvement in 2000 operating results for the building products
distribution segment related primarily to increased market share, despite an
expected softening of building products markets and lower levels of housing
starts.
TIMBER Net sales and operating profits for the timber segment were $526 million
and $726 million, respectively, in 1999 and $534 million and $364 million,
respectively, in 1998. Excluding the 1999 pretax gains of $355 million from the
sales of timberlands located in California, Maine and New Brunswick, Canada, and
the 1998 pretax gain of $24 million from the sale of certain timberlands located
in West Virginia, the timber segment's operating profits increased by $31
million to $371 million in 1999 compared with $340 million in 1998. This
increase resulted primarily from a $34 million increase in gains on
miscellaneous land sales. Overall, 2% higher total harvest volumes partially
offset the year over year 3% decline in average sales price. Prices for most
products are anticipated to hold at or near current levels in 2000.
CONTAINERBOARD AND PACKAGING The Corporation's containerboard and packaging
segment reported net sales of $2.4 billion and operating profits of $344 million
for the year ended January 1, 2000, compared with net sales of $2.1 billion and
operating profits of $106 million in 1998. Return on sales increased to 14% from
5% in 1998. Average selling prices increased steadily throughout 1999 and ended
the year above 1998 levels. Average selling prices for containerboard products
increased 8% while average selling prices for packaging increased 2%. Cost
decreases for wood fiber and energy as well as higher sales volume also
contributed to the increased profit margins. The Corporation expects continued
price improvement in the containerboard and packaging segment into 2000.
PULP AND PAPER The Corporation's pulp and paper segment reported net sales of
$3.9 billion and operating profits of $266 million for the year ended January 1,
2000, compared with net sales of $3.6 billion and operating profits of $133
million in 1998. Return on sales increased to 7% compared with 4% for the same
period a year ago. Operating profits in 1998 included a one-time, $12 million
charge primarily for the closure of a hardwood market pulp operation. The
increase in profitability in 1999 was due primarily to a 5% improvement in
average pulp selling prices, lower overall wood fiber costs and higher sales
volumes for the tissue business, despite a decrease in average selling prices
for most of the Corporation's paper products. Average selling prices in 1999 for
communication papers and tissue were approximately 2% and 5%, respectively,
below average selling prices in 1998.
In 1999, net sales and operating profits from the segment's tissue business were
$1.1 billion and $134 million, respectively, and included net sales and
operating profits of $104 million and $15 million, respectively, from the
Wisconsin Tissue operations. The Wisconsin Tissue operations
-14-
were combined with the Corporation's commercial tissue business beginning on
October 3, 1999, when the Georgia-Pacific Tissue joint venture was formed. In
1998, net sales and operating profits of the tissue business were $986 million
and $145 million, respectively. Excluding the results of the Wisconsin Tissue
operations in 1999, operating profits from the segment's tissue business
decreased by $26 million related primarily to lower selling prices, despite a 7%
increase in sales volume.
During 1999, the Corporation incurred market-related downtime at its pulp and
paper mills, resulting in a reduction in pulp production of 311,000 tons and
communication papers production of 17,000 tons. In 1998, the Corporation
incurred market-related downtime at its pulp and paper mills resulting in a
reduction in pulp and communication papers production of 300,000 tons and 74,000
tons, respectively. In the third quarter of 1998, 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.
Selling prices for most of the Corporation's pulp and communication papers
products steadily increased during 1999 and ended the year at levels higher than
1998. The Corporation expects the improving selling price trend to continue
through 2000. Historically, selling prices for all of the Corporation's pulp and
paper products have been highly volatile.
PAPER DISTRIBUTION The Corporation's paper distribution segment, which
represents the operating results of Unisource since its acquisition by the
Corporation at the end of the second quarter of 1999, reported net sales of $3.3
billion and operating profits of $78 million for the year ended January 1, 2000.
Unisource sells and distributes high-quality printing, writing and copying
papers to printers, publishers, business forms manufacturers and direct mail
firms, as well as to corporate and retail copy centers, in-plant print
facilities, government institutions and other paper-intensive businesses.
Unisource also sells and distributes a broad range of packaging and maintenance
supplies, equipment and services (principally to manufacturers, food processors
and retailers); maintenance supplies and equipment such as towels, tissues, can
liners and sanitation chemicals; packaging supplies and equipment such as carton
erectors, baggers and filers as well as films, shrink-wrap and cushioning
materials; shipping room supplies such as corrugated boxes, cushioning
materials, tapes and labeling; and food service supplies such as films and food
wraps, food containers and disposable apparel for food service workers.
Operating results for the paper distribution segment have historically been
seasonal, with the strongest operating results occurring in the third quarter.
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 $27 million to a loss of $300 million in 1999 from a loss of
$273 million in 1998. This increase was primarily a result of higher employee
benefit and incentive costs.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES The Corporation generated cash from operations of $1,427
million during 1999 and $1,554 million in 1998. The decrease in 1999 cash
provided by operations was primarily a result of higher working capital levels,
related principally to inventories and to accounts receivable associated with
the increase in revenues, offset somewhat by higher operating results.
INVESTING ACTIVITIES During 1999, capital expenditures for property, plant and
-15-
equipment, excluding acquisitions, were $723 million compared with $638 million
in 1998. Expenditures in 1999 included $265 million in the building products
segment, $16 million in the building products distribution segment, $2 million
in the timber segment, $92 million in the containerboard and packaging segment,
$262 million in the pulp and paper segment, $45 million in the paper
distribution segment, and $41 million of other and general corporate. In 2000,
the Corporation expects to make capital expenditures for property, plant and
equipment, excluding the cost of any acquisitions, that approximately equal
depreciation expense for the year.
During 1999, the Corporation invested $147 million for pollution control
and abatement. The Corporation's 2000 capital expenditure budget currently
includes approximately $260 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 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 through April 2006 in order to comply with the Cluster Rule's
requirements. Of that total, approximately $160 million was spent through 1999
and about $350 million will be spent by the end of 2000. The Cluster Rule
requires that pulp and paper mills become elemental chlorine free (ECF) in the
pulp bleaching process. Approximately $110 million of the amount required to be
spent in 2000 will go toward ECF conversion at mills located in Ashdown,
Arkansas; Crossett, Arkansas; Bellingham, Washington; and Palatka, Florida. The
bulk of the remaining expenditures in 2000 will be for additional air emission
controls at the Corporation's other pulp and paper facilities.
Cash paid for timber and timberlands was $228 million in 1999 compared with
$201 million in 1998.
At the end of the second quarter of 1999, the Corporation, through its
wholly owned subsidiary Atlanta Acquisition Corp., completed a tender offer for
all the outstanding shares of common stock of Unisource, the largest independent
marketer and distributor of printing and imaging paper and supplies in North
America, and acquired 90.7% of the then outstanding shares of Unisource. On July
6, 1999, Atlanta Acquisition Corp. was merged with and into Unisource and, by
virtue of such merger, shares of Unisource that were not tendered to the
Corporation (other than shares held by Unisource and the Corporation and its
subsidiaries) were converted into the right to receive $12.00 per Unisource
share in cash, subject to dissenters' rights. The Corporation is paying for such
untendered shares as they are delivered to the exchange agent. Through January
1, 2000, the Corporation paid approximately $829 million for such shares.
Unisource's results of operations were consolidated with those of the
Corporation beginning July 4, 1999.
Effective October 3, 1999, the Corporation and Chesapeake Corp.
(Chesapeake) completed a previously announced agreement to create
Georgia-Pacific Tissue, a joint venture in which the two companies have combined
their away-from-home tissue businesses. The Corporation contributed
substantially all the assets of its commercial tissue business to the joint
venture. The Corporation controls and manages the joint venture and owns 95% of
its equity. Chesapeake contributed the assets of its Wisconsin Tissue business
to the joint venture, for which it received a 5% equity interest in the joint
venture and an initial cash distribution of approximately $755 million.
Wisconsin Tissue's results of operations were combined with the
-16-
Corporation's commercial tissue business beginning on October 3, 1999, when the
Georgia-Pacific Tissue joint venture was formed.
During 1999, the Corporation also completed the acquisition of a packaging
plant, four treated lumber facilities, a chemical business and lumber
transportation assets for a total consideration of approximately $74 million in
cash.
On June 30, 1998, the Corporation completed its acquisition of CeCorr Inc.
(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 cash acquired) and issued approximately 3.2 million shares
of Georgia-Pacific Group stock valued at approximately $28.94 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 the
Corporation ($58 million net debt assumed). On July 2, 1998, a former owner of
CeCorr exercised his right to resell to the Corporation approximately 2.2
million shares of Georgia-Pacific Group stock issued in the transaction.
CeCorr's results of operations were consolidated with those of the Corporation
beginning July 1, 1998.
During 1999, the Corporation received $104 million from the sale of assets,
principally timberlands, located in New Brunswick, Canada and in Maine. During
1998, the Corporation received proceeds of $131 million from the sale of assets,
principally timberlands, real estate development properties located in South
Carolina and Florida, and various distribution facilities.
In December 1999, the Corporation sold approximately 194,000 acres of its
redwood and Douglas fir timberlands in Northern California for a purchase price
of approximately $397 million. In conjunction with the sale, the Corporation
received notes from the purchaser for the purchase price. These notes are fully
secured by a standby letter of credit with an unaffiliated third-party financial
institution. The Corporation expects to monetize these notes through the
issuance of notes payable in the first half of 2000. The estimated annual
operating profits and capital expenditures for 1999 related to these timberlands
were $30 million and $1 million, respectively. The Fort Bragg sawmill has a wood
supply agreement with The Timber Company through 2000 that was transferred as
part of the sale agreement.
FINANCING ACTIVITIES The Corporation's total debt, excluding senior deferrable
notes, increased by $1,473 million to $7,024 million at January 1, 2000 from
$5,551 million at December 31, 1998. At January 1, 2000 and December 31, 1998,
$6,054 million and $4,568 million, respectively, of such total debt was
allocated to the Georgia-Pacific Group and $970 million and $983 million,
respectively, was allocated to The Timber Company. The debt of each of the
groups bears interest at a rate equal to the weighted average interest rate of
the Corporation's total debt, calculated on a quarterly basis. At January 1,
2000, the weighted average interest rate on the Corporation's total debt,
excluding senior deferrable notes, was 7.2% 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 440,000 acres of the Corporation's Maine
timberlands in June 1999, the Corporation received notes from the purchaser in
the amount of $51 million. In November 1999, the Corporation monetized these
notes through the issuance of notes payable
-17-
in a private placement. Proceeds from the notes received from the purchaser will
be used to fund payments required for the notes payable.
In conjunction with the sale of 194,000 acres of the Corporation's
California timberlands in December 1999, the Corporation received notes from the
purchaser with an estimated fair value of $350 million. The Corporation plans to
monetize these notes through the issuance of notes payable in the first half of
2000. Proceeds from the notes received from the purchaser will be used to fund
payments required for the notes payable.
In June 1999, the Corporation renegotiated its accounts receivable secured
borrowing program and increased the amount outstanding under the program from
$280 million to $750 million. The program expires in April 2000. In connection
with the acquisition of Unisource, the Corporation assumed former Unisource
programs to pledge up to $150 million of certain qualifying U.S. accounts
receivable and up to CN$70 million of certain eligible Canadian accounts
receivable. The U.S. program expires in April 2000 and the Canadian program
expires in May 2004. At January 1, 2000, approximately $948 million was
outstanding under the Corporation's and Unisource's programs in the aggregate.
The receivables outstanding under these programs and the corresponding debt are
included as "Receivables" and "Commercial paper and other short-term notes,"
respectively, on the Corporation's consolidated balance sheets. All programs are
accounted for as secured borrowings. As collections reduce previously pledged
interests, new receivables may be pledged.
Also, in connection with the acquisition of Unisource, the Corporation
assumed former Unisource industrial revenue bonds in the amount of $9 million
and capital leases in the amount of $12 million. Additionally, the Corporation
assumed other long-term debt in the amount of $447 million and bank overdrafts
in the amount of $120 million, and retained the previously described accounts
receivable secured borrowing programs in the amount of $197 million. These
amounts are included in the Corporation's total debt.
In November 1999, in connection with the formation of Georgia-Pacific
Tissue, the Corporation issued $500 million of 7.75% Debentures Due November 15,
2029.
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.
During 1999, the Corporation increased the amount of its unsecured
revolving credit facility from $1.5 billion to $2.0 billion. This unsecured
revolving credit facility is used for direct borrowings and as support for
commercial paper and other short-term borrowings. Under the agreement, $1
billion will terminate in July 2000 and $1 billion will terminate in 2004. As of
January 1, 2000, $1,145 million of committed credit was available in excess of
all short-term borrowings outstanding under or supported by the facility.
On July 7, 1999, the Corporation issued 17,250,000 of 7.5% Premium Equity
Participating Security Units (PEPS Units) for $862.5 million. Each PEPS Unit had
an issue price of $50 and consists of a contract to purchase shares of
Georgia-Pacific Group common stock on or prior to August 16, 2002 and a senior
deferrable note of the Georgia-Pacific Group due August 16, 2004. Each purchase
contract yields interest of 0.35% per year, paid quarterly, on the $50 stated
amount of the PEPS Unit. Each senior deferrable note yields interest of 7.15%
per year, paid quarterly, until August 16, 2002. On August 16, 2002, following a
remarketing of the senior
-18-
deferrable notes, the interest rate will be reset at a rate that will be equal
to or greater than 7.15%. The liability related to the PEPS Units is classified
as "Senior deferrable notes" on the Corporation's consolidated balance sheets
and is not included in the debt amount for purposes of determining the corporate
and Georgia-Pacific Group debt targets. The senior deferrable notes and related
interest expense are allocated specifically to the Georgia-Pacific Group.
In October 1999, the Corporation entered into a financing arrangement to
enhance the return on a deposit made in connection with a 1995 sale-leaseback
transaction by issuing $379 million of 5.74% Debentures Due April 5, 2005 that
were legally defeased with deposits of an equal amount. Accordingly, the
debentures and related deposits are not reflected on the Corporation's
consolidated balance sheets.
The Corporation's senior management establishes the parameters of the
Corporation's financial risk, which have 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 following tables present principal (or notional) amounts and related
weighted average interest rates by year of expected maturity for the
Corporation's debt obligations as of January 1, 2000 and December 31, 1998. 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.
In millions 2000 2001 2002 2003
================================================================================
Debt
Commercial paper and other short-
term notes -- -- -- --
Average interest rates -- -- -- --
Notes and debentures -- -- $ 300 $ 300
Average interest rates -- -- 10.0% 5.7%
Revenue bonds $ 24 $ 6 $ 73 --
Average interest rates 4.5% 5.5% 4.7% --
Capital leases $ 2 $ 3 $ 3 $ 2
Average interest rates 9.8% 9.9% 10.2% 10.4%
Other loans $ 13 -- -- $ 15
Average interest rates 8.0% -- -- 6.7%
Senior deferrable notes -- -- $ 863 $ --
Average interest rates -- -- 7.2% --
Notional principal amount of
interest rate exchange
Agreements $ 177 -- $ 131 $ 300
Average interest rate paid
(fixed) 7.7% -- 6.0% 5.9%
-19-
Average interest rate received
(variable) 5.9% -- 6.0% 5.9%
Fair value
January 1,
In millions 2004 Thereafter Total 2000
- --------------------------------------------------------------------------------
Debt
Commercial paper and other short-
term notes -- $ 2,067 $ 2,067 $ 2,067
Average interest rates -- 6.5% 6.5% 6.5%
Notes and debentures -- $ 3,389 $ 3,989 $ 3,952
Average interest rates -- 8.4% 8.3% 8.3%
Revenue bonds $ 33 $ 517 $ 653 $ 564
Average interest rates 5.4% 5.7% 5.5% 5.5%
Capital leases $ 2 $ 2 $ 14 $ 14
Average interest rates 10.5% 10.5% 10.1% 7.9%
Other loans -- -- $ 28 $ 27
Average interest rates -- -- 7.3% 6.9%
Senior deferrable notes -- -- $ 863 $ 866
Average interest rates 7.2% 7.4%
Notional principal amount of
interest rate exchange
Agreements -- -- $ (608) $ (1)
Average interest rate paid
(fixed) -- -- 6.4% 6.4%
Average interest rate received
(variable) -- -- 5.9% 5.9%
- --------------------------------------------------------------------------------
The Corporation has the intent and ability to refinance commercial paper and
other short-term notes as they mature. Therefore, maturities of these
obligations are reflected as cash flows expected to be made after 2004.
In millions 1999 2000 2001 2002
- --------------------------------------------------------------------------------
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 -- --
-20-
Average interest rates 7.7% 7.9% -- --
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% -- --
- --------------------------------------------------------------------------------
Fair
value
December
In millions 2003 Thereafter Total 31, 1998
- --------------------------------------------------------------------------------
Debt
Commercial paper and other short-
term notes -- $ 1,209 $ 1,209 $ 1,209
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%
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%
- --------------------------------------------------------------------------------
The Corporation has the intent and ability to refinance commercial paper
and other short-term notes as they mature. Therefore, maturities of these
obligations are reflected as cash flows expected to be made after 2003.
At January 1, 2000, the Corporation had interest rate exchange agreements
that effectively converted $608 million of floating rate obligations with a
weighted average interest rate of 5.9% to fixed rate obligations with an average
effective interest rate of approximately 6.4%. These agreements increased
interest expense by $7 million for the year ended January 1, 2000, and $11
million and $16 million for the years ended December 31, 1998 and 1997,
respectively. As of January 1, 2000, these agreements have a weighted average
maturity of approximately 2.6 years. As of January 1, 2000, the Corporation's
total floating rate debt exceeded related interest rate exchange agreements by
$1,957 million.
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 January 1, 2000.
-21-
As of January 1, 2000, the Corporation had registered for sale up to $2.975
billion of debt and equity securities under a shelf registration statement filed
with the Securities and Exchange Commission. The Corporation registered $1.725
billion under such registration statement related to the PEPS Units ($862.5
million of which was received on July 7, 1999 in exchange for senior deferrable
notes, and $862.5 million of Georgia-Pacific Group common stock will be issued
upon exercise of the purchase contracts). The $862.5 million of cash (less
expenses) raised in the sale of the PEPS Units was used to pay for the
acquisition of Unisource. In addition, the Corporation registered $500 million
of 7.75% Debentures Due November 15, 2029 under this shelf registration
statement. Proceeds from the issuance of securities under this shelf
registration statement will be used for general corporate purposes, including
the repayment of short-term debt, acquisitions, investments in, or extension of
credit to, the Corporation's subsidiaries and the acquisition of real property.
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 June 1999, the Board increased the corporate target debt level under
which the Corporation can purchase shares of Georgia-Pacific Group and The
Timber Company common stock on the open market from $5.75 billion to $6.8
billion. In addition, the Board increased the Georgia-Pacific Group's target
debt level from $4.75 billion to $5.8 billion. The Timber Company's target debt
level remains at $1.0 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 1999, the Corporation purchased on the open market approximately 6.2
million shares of Georgia-Pacific Group stock at an aggregate price of $257
million ($41.45 average per share), all of which were held as treasury stock at
January 1, 2000. The Corporation also purchased on the open market approximately
5.3 million shares of The Timber Company stock at an aggregate price of $131
million ($24.72 average per share). Of these purchased shares, approximately
5,343,000 shares of The Timber Company stock were held as treasury stock and
6,000 shares were purchased during 1999 and settled after January 1, 2000.
During 1998, the Corporation purchased approximately 15.4 million shares of
Georgia-Pacific Group stock (including 2.2 million shares related to the CeCorr
acquisition) at an aggregate price of $427 million ($27.73 average per share).
Of these purchased shares, approximately 13.5 million shares were held as
treasury stock and approximately 1.9 million shares were retired. 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. The
Corporation also purchased on the open market approximately 5.7 million shares
of The Timber Company stock at an aggregate price of $121 million ($21.23
average per share), all of which were held as treasury stock at December 31,
1998.
Subsequent to year-end 1999 through February 4, 2000, the Corporation
purchased on the open market 418,700 shares of The Timber Company stock at an
aggregate price of $9.5 million ($22.66 average per share). Subsequent to
year-end 1999 through February 4, 2000, no Georgia-Pacific Group stock was
purchased by the Corporation. The Corporation expects to repurchase
Georgia-Pacific Group and The Timber Company stock throughout 2000 as long as
-22-
debt levels are below the established thresholds.
During 1999 and 1998, the Corporation paid dividends totaling $170 million
and $181 million, respectively.
In 2000, 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 59,800 people, approximately 27,000
of whom are members of unions. The Corporation considers its relationship with
its employees to be good. Forty-nine union contracts are subject to negotiation
and renewal in 2000, including four at large paper facilities.
In July 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 137, providing for a
one-year delay of the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 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 its balance sheet and measure those instruments at fair value.
The Corporation will be required to adopt SFAS No. 133 in 2001. Management is
evaluating the effect of this statement on the Corporation's derivative
instruments, which are primarily interest rate swaps, foreign currency forward
contracts, commodity futures and long-term purchase commitments. The impact of
such adjustments to fair value is not expected to be material to the
Corporation's consolidated financial position.
The Corporation has resolved the effects of the Year 2000 problem on its
key information systems, the operating systems used in its manufacturing
operations and 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.
The Corporation developed a Year 2000 plan, under which all key systems were
tested and noncompliant software or technology was modified or replaced. The
Corporation incurred only minor problems in its key systems related to Year 2000
that were immediately corrected at no incremental cost and with no effect on
operations.
The Corporation incurred approximately $30 million of incremental costs to
resolve the Year 2000 problem (including approximately $4 million of capital
costs). In addition, the Corporation incurred internal costs totaling
approximately $17 million related to the Year 2000 problem. These incremental
and internal costs were expensed as incurred, except for new systems purchased
that were capitalized in accordance with corporate policy. The Corporation will
continue to monitor and test for the effect of Year 2000 on its systems during
the first few months of 2000 and expects to incur related incremental and
internal costs totaling approximately $1 million during the first half of 2000.
For a discussion of commitments and contingencies, see Note 12 of the Notes
to Consolidated Financial Statements.
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 included an extraordinary,
after-tax loss of $15 million for the early retirement of
-23-
debt. The 1997 results included a pretax gain of $128 million ($80 million after
taxes) from the sale of the Corporation's Martell, California, assets and a $60
million one-time, after-tax charge for an accounting change. Interest expense
was $443 million in 1998, compared with $465 million in 1997. The reduction was
the result of lower average debt levels and lower average interest rates.
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 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.
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% in 1998 and 9% 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% higher oriented strand board prices and 6% 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% lower lumber prices and 9%
higher log costs.
BUILDING PRODUCTS 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 building products
distribution segment's operating results reflected 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 were divested and the targeted distribution
centers were sold or closed.
TIMBER Excluding the pretax gain on the sale of certain timberlands in West
Virginia of $24 million in 1998, and the pretax gain on the sale of timberlands
near Martell, California of $114 million in 1997, the timber segment's operating
profits increased by $17 million to $340 million in 1998 compared with $323
million in 1997. This increase was a result of efforts to reduce costs by
optimizing productivity and focusing on cost control. The result of these
productivity and cost control efforts was reflected in lower cost of sales and
general and administrative expenses in 1998.
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
-24-
million in 1997. Return on sales increased to 5% in 1998 compared with (0.3)%
for 1997, principally due to a 19% increase in average prices for containerboard
and an average 6% price increase for packaging products. During 1998, the
Corporation took approximately 270,000 tons of downtime at its containerboard
mills to avoid building inventories.
PULP AND PAPER The Corporation's pulp and paper segment reported net sales of
$3.6 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 4% in 1998 compared with 5% for
1997, principally due to a slight decrease in average prices for almost all the
Corporation's pulp and paper products. Operating profits in 1998 included a
one-time, $12 million charge primarily for the closure of a hardwood market pulp
operation. Average pulp prices were approximately 9% below 1997 levels. Tissue
prices decreased approximately 3% due to lower fiber costs and new capacity.
Average prices of communication papers for 1998 were approximately 2% below 1997
levels.
During the second half of 1998, the Corporation 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 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.
OTHER The operating loss for the "Other" nonreportable segment 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.
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; 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; 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 8-K dated October 17, 1996.
REPORT ON MANAGEMENT'S RESPONSIBILITIES
Georgia-Pacific Corporation and Subsidiaries
-25-
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 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 January 1, 2000, the internal control system
over financial reporting is adequate and effective in all material
respects.
James E. Terrell
Vice President and Controller
Danny W. Huff
Executive Vice President-Finance
and Chief Financial Officer
A.D. Correll
Chairman, Chief Executive Officer
and President
February 4, 2000
-26-
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 January 1, 2000 and
December 31, 1998 and the related consolidated statements of income,
shareholders' equity, comprehensive income, and cash flows for each of the
three years in the period ended January 1, 2000. 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 January 1, 2000 and December
31, 1998 and the results of their operations and their cash flows for each of
the three years in the period ended January 1, 2000 in conformity with generally
accepted accounting principles.
As explained in Note 1 of the Notes to Consolidated Financial Statements,
effective December 31, 1997, Georgia-Pacific 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 4, 2000
CONSOLIDATED STATEMENTS OF INCOME
Georgia-Pacific Corporation and Subsidiaries
Year ended
---------------------------------
January 1, December 31,
In millions, except per share amounts 2000 1998 1997
=========================================================================================================
Net sales $ 17,977 $ 13,342 $ 13,094
- ---------------------------------------------------------------------------------------------------------
Costs and expenses
-27-
Cost of sales, excluding depreciation and cost of timber
harvested shown below 13,333 10,231 10,209
Selling and distribution 817 556 607
Depreciation, amortization and cost of timber harvested 1,013 997 1,017
General and administrative 853 648 689
Interest 495 443 465
Other income (355) (24) (128)
- ---------------------------------------------------------------------------------------------------------
Total costs and expenses 16,156 12,851 12,859
- ---------------------------------------------------------------------------------------------------------
Income before income taxes, extraordinary items and
accounting change 1,821 491 235
Provision for income taxes 705 202 106
- ---------------------------------------------------------------------------------------------------------
Income before extraordinary items and
accounting change 1,116 289 129
Extraordinary items - loss from early retirement of
debt, net of taxes -- (15) --
Cumulative effect of accounting change,
net of taxes -- -- (60)
- ---------------------------------------------------------------------------------------------------------
Net income $ 1,116 $ 274 $ 69
=========================================================================================================
Georgia-Pacific Group
Income (loss) before extraordinary items and
accounting change $ 716 $ 111 $ (86)
Extraordinary items, net of taxes -- (13) --
Cumulative effect of accounting
change, net of taxes -- -- (60)
- ---------------------------------------------------------------------------------------------------------
Net income (loss) $ 716 $ 98 $ (146)
=========================================================================================================
Basic per share:
Income (loss) before extraordinary items and
accounting change $ 4.17 $ 0.62 $ (0.47)
Extraordinary items, net of taxes -- (0.07) --
Cumulative effect of accounting change, net of taxes -- -- (0.33)
- ---------------------------------------------------------------------------------------------------------
Net income (loss) $ 4.17 $ 0.55 $ (0.80)
- ---------------------------------------------------------------------------------------------------------
Diluted per share:
Income (loss) before extraordinary items and
accounting change $ 4.07 $ 0.61 $ (0.47)
Extraordinary items, net of taxes -- (0.07) --
Cumulative effect of accounting change, net of taxes -- -- (0.33)
- ---------------------------------------------------------------------------------------------------------
Net income (loss) $ 4.07 $ 0.54 $ (0.80)
-28-
- ---------------------------------------------------------------------------------------------------------
Average number of shares outstanding:
Basic 171.8 179.8 182.9
Diluted 175.9 181.1 182.9
=========================================================================================================
The Timber Company
Income before extraordinary items $ 400 $ 178 $ 215
Extraordinary items, net of taxes -- (2) --
- ---------------------------------------------------------------------------------------------------------
Net income $ 400 $ 176 $ 215
=========================================================================================================
Basic per share:
Income before extraordinary items $ 4.75 $ 1.97 $ 2.35
Extraordinary items, net of taxes -- (0.02) --
- ---------------------------------------------------------------------------------------------------------
Net income $ 4.75 $ 1.95 $ 2.35
=========================================================================================================
Diluted per share:
Income before extraordinary items $ 4.73 $ 1.96 $ 2.33
Extraordinary items, net of taxes -- (0.02) --
- ---------------------------------------------------------------------------------------------------------
Net income $ 4.73 $ 1.94 $ 2.33
=========================================================================================================
Average number of shares outstanding:
Basic 84.1 90.3 91.4
Diluted 84.6 90.8 92.1
=========================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Georgia-Pacific Corporation and Subsidiaries
Year ended
-----------------------------
January 1, December 31,
In millions 2000 1998 1997
Cash flows from operating activities
Net income $ 1,116 $ 274 $ 69
Adjustments to reconcile net income
-29-
to cash provided by operations:
Depreciation 752 749 789
Cost of timber harvested 192 186 169
Deferred income taxes 73 38 100
Amortization of goodwill 69 62 59
Stock compensation programs 8 (3) --
Cumulative effect of accounting change, net of taxes -- -- 60
Other income (355) (24) (128)
Gain on disposal sales of assets, net (48) (16) (6)
Amortization of debt issue costs, discounts and premiums 9 13 5
(Increase) decrease in receivables (258) 146 (64)
(Increase) decrease in inventories (244) 92 101
Increase (decrease) in accounts payable 4 (47) (24)
Change in other working capital 32 (82) 51
Increase (decrease) in taxes payable 9 136 (45)
Change in other assets and other long-term liabilities 68 30 (20)
- --------------------------------------------------------------------------------------------------------------
Cash provided by operations 1,427 1,554 1,116
- --------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Property, plant and equipment investments (723) (638) (717)
Timber and timberland purchases (228) (201) (175)
Acquisition (1,658) (112) --
Proceeds from sales of assets 104 131 378
Other 29 21 (23)
- --------------------------------------------------------------------------------------------------------------
Cash used for investing activities (2,476) (799) (537)
- --------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Repayments of long-term debt (579) (874) (340)
Additions to long-term debt 624 575 48
Fees paid to issue debt (35) (5) (1)
Decrease in bank overdrafts (18) (33) (28)
Increase (decrease) in commercial
Paper and other short-term notes 656 308 (94)
Senior deferrable notes 863 -- --
Common stock repurchased (388) (557) (13)
Proceeds from option plan exercises 116 9 31
-30-
Cash dividends paid (170) (181) (184)
- --------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities 1,069 (758) (581)
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 20 (3) (2)
Balance at beginning of year 5 8 10
- --------------------------------------------------------------------------------------------------------------
Balance at end of year $ 25 $ 5 $ 8
==============================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
Georgia-Pacific Corporation and Subsidiaries
January 1, December 31
In millions, except shares and per share amounts 2000 1998
================================================================================================================================
Assets
Current assets
Cash $ 25 $ 5
- -----------------------------------------------------------------------------------------------------------------------------
Receivables, less allowances of $25 and $25, respectively 2,298 1,233
- -----------------------------------------------------------------------------------------------------------------------------
Inventories
Raw materials 453 418
Finished goods 1,367 760
Supplies 344 311
LIFO reserve (154) (209)
- -----------------------------------------------------------------------------------------------------------------------------
Total inventories 2,010 1,280
- -----------------------------------------------------------------------------------------------------------------------------
Deferred income tax assets 139 61
- -----------------------------------------------------------------------------------------------------------------------------
Other current assets 87 66
- -----------------------------------------------------------------------------------------------------------------------------
Total current assets 4,559 2,645
- -----------------------------------------------------------------------------------------------------------------------------
Timber and timberlands 1,189 1,210
- -----------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment
Land and improvements 498 428
Buildings 1,634 1,336
Machinery and equipment 13,343 12,374
Construction in progress