Document 2q0XZZYOR37Lw6dQz72LO3OMg

' * -- A ^ ( u- -*->- Georgiaftcific ^ PLAINTIFF'S EXHIBIT i -7~*y'%& ' ir19Z3 Annual Report Growing Now and for the Future X'"3 Has ceen another '.'ear or record crowrh ror Georaia-Pacmc s timber holdings. Todav. our Company-owned ianas. aided bv ad' ancea rorest management techniques. are now srow:nc more rimcer man we harvest ror use in our plants and mills This rapid increase in our timber growth rate has significant^ reduced our dependence on Xanonai Forest timber. Georgia-Pacific is one of the largest private owners of timber and nmberlands in the United States, with over 4.5 million acres of prime commercial timberlands owned in fee. and another 1.25 million acres under cutting rights. This acreage is located close to our manufacturing facilities and in geographic and climatic regions recognized as some of the finest tree growing areas in the world. Of our timberlands owned in fee, 3-3 million acres are in the United States. These holdings range from :he mixed hardwoods and softwoods or the Xortheast to the hr. hemlock and associated species of the Pacific Northwest: from the hardwoods of Appalachia ana me pines and hardwoods of the South to the mixed redwood and hr or Xorthern California. Beneath most ot these ree ianas. we own mineral rights which in some areas are producing oil. natural gas and coal. These underground assets were acquired only incidentally to our acquisition of prime timberlands. our assurance of a continually increasing supply of trees for the future. Another 1.2 million acres of our fee-owned timber is outside the United States. These holdings include stands of exotic hardwood in South America and northern hemlock and spruce in Southeast Canada. The remaining 1.25 million acres of our 5T5 mil lion-acre total consists of prime timberlands under long-term cutting rights. In the United States, these exclusive cutrine nehts are located primariiv in the Southern pine stands or the Mid-South and Southeast, where we nave round that a mixture or tee ownership and harvest richrs on private lands is the most proritable long-rance approach. Overseas, our interests in clude larce turiDer concessions in The Philippines and the Republic of Indonesia. But these vast stands ot timber are just the begin ning of the Georgia-Pacific growth story. It's what we do with our forests that makes the difference. The story actually starts in our research centers and nurseries, because it was here we found the key to sig nificantly increasing the annual growth rate of our trees--through a combination of modern forest man agement. genetically superior seeds, fertilizer and selective thinning. There are a number of ways to reforest commercial timberlands: Nature's wav is to grow trees from seed broadcast by the wind--a slow and haphazard process that often requires several growing seasons before a new crop of seedlings is established. Another is by broadcasting seed over newly harvested areas with the aid of helicopters. Still another technique is the plant ing of nursery-grown bare root seedlings. But this, too, has proved to be a slow and costly process often re sulting in a high seedling mortality rate. So we have developed what we believe is todav s most effective method of reforestation. We produce and carefully nurture a auantitv of geneticallv im proved seeds developed as a result of our decadeslong search for a faster growing, more disease-resist ant tree. Our search for genetically superior seeds started when Georgia-Pacific foresters concluded that the same genetic principles which had resulted in vastlv improved corn and ocner agricultural commodities could be put to work to improve trees. The foresters searched out superior young, second growth trees of seed-producing age company timberlands and at tempted to pass along their characteristics to succeed ing generations. A fev trees were located that had grown faster and con uned better qualitv wood than others of their age g.oup. They also showed better resistance to disease. In order to get better seeds, seed orchards were es tablished where new branch growth from superior parent trees were grafted to small trees, enabling for esters to reach them easily. The seed cones from these superior parent trees were then fertilized with pollen from other superior trees. The trees resulting from these "super seeds'" have proved their worth. In Douglas fir country, a one- G-P southern ptne forest near Crossett. Arkansas SGP 0030442 6 vear-oid seedling from a 'super seed" is rive rimes the size or a naturai seedling. And by the end of the second vear. it looks more like a four-vear-old than a twovear-old tree. Currentiv. Georgia-Pacific is planting thousands of these super seeds" in cone-shaped containers filled \\ ith a mixture or rertiiizer. peat moss and vermiculite. After six to ten months in the nursery, the healthy seedlings, now called plugs, are taken to the planting site. The plugs are carefully removed from their con tainers and planted by a device recently perfected by our foresters. This method allows one man to plant l.'OO seedlings in a day, compared to the 500 bare root seedlings which can be hand-planted in the same time. Today, we re p' inting rive trees for every one we harvest. And to k .ep up with the ever-growing de mand for wood an<1 wood fiber, we ll be planting even more in the future That's why our new system is so important: it allow s each man to plant more and better trees resulting in faster growing, more productive forests. In the past, man let Nature dictate the life cycle of the forests. When trees became old, they were easy prey for disease and insects, lightning and wind-- and finally, fire. Then the few remaining trees would eventually reseed the devastated forest land and the 80 to 100-year cycle would begin anew. But today, by harvesting trees before they get too old and overripe, man utilizes the forests when they are at their prime. And reforesting starts as soon as conditions are favorable, usually within the first year. In many parts of the country, we are replanting har vested areas with g tnetically superior trees which are properly spaced to promote maximum growth. This practice helps us keep our forests vital and productive. Georgia-Pacific research and forest management practices have already shown dramatic results: For esters once talked about 50 to 80-year cycles for grow ing trees. Then it dropped to 40 to 60 years. And now, we feel see can talk confidently of 30 to 40-year cycles. Many of these improvements have been developed at our nurseries and research centers around the coun try. Our newest center, in Mosby Creek, Oregon, is a graphic example of timber management at work. Two logs cut from nearby forests are on display. One is 36 inches in diameter and the other 38 inches. Yet the smaller log, which somehow survived forest fires and windstorms, is 246 years old. The other, larger log, even under the less sophisticated timber manage- C-P mixed softwood and hardwood forest near Woodland, Maine 52-year-old tree from managed forest 246'year-oid tree from unmanaged forest SGP 0030443 I rr.ent or ioast decades, reauired oniv '2 vears to reach harvest size. Today, the resuits of our new forestry techniaues can oe seen on our timberlands v\ here young. vicorous trees have aii but replaced the over-mature, decavmc trees that once covered these iands And as a resuir or reroresranon ana acauisinon. we now have forests in staggered age classes rrom \erv young to mature trees. Our new-growth timber is now adding about IT billion board feet of new fiber annually. A generation ago, the idea of new. harvescable trees coming along every year was still rated an experiment. Today it is a fact, and we have the permanent timber operations to prove it. In the past, mill town came and went with the supply of timber. Today, vith modern forestry tech niques. Georgia-Pacific mills and plants are assured of a continued and increasing supply of timber, be cause our new forests are permanent. As more of our vigorous young trees reach harvest age, we will build new manufacturing facilities to utilize them. And these new mills, like our present ones, will be located near the source of timber, and in areas easily accessible to world markets. As the annual fiber growth on our timberlands in creases, the value of that fiber also advances. A recent study (see chart) shows that timber is increasing in value faster than any other basic commodity. And it will continue to increase. For as the world's supply of natural resources dwindles, the demand for timber-- our renewable resource--will grow even faster. Georgia-Pacific s natural resource position has never been stronger: the vast maioritv of our land is now Dlanted in young, vigorously growing trees, in stag gered age classes to assure a continuing supply of timber. In many of those areas, our modern forest management techniques and genetically superior trees now make it possible to grow two or three crops of trees in the time it once took for a single crop. As a result, we can look forward to a continuous and grow ing supply of timber to help meet the wor'd's increas ing demand for wood products. With our timber growth and value accelerating each year, it's not sur prising that in 1973, the first year of our five-year growth program, Georgia-Pacific performance ex ceeded targets in every area. C-P hardwood forest near Raineile. Virginia Growth in Value: Timber vs. Other Commodities Timber Price Indexes of Timber, selected BLS price groups. Pig Iron, and Copper* Source John McKnight Economic Forecast, October 12. 19'3. Pig Iron Copper Industrial commods. Farm products Textile products 1926 = 100 SGP 0030444 The Year 1973...and Beyond In Retrospect The year was one ot outstanding achievement tor Georiria-Pacim. resuitim: in aii-nme hurhs in sales, net income .md lusd generated from operations. The ^omoination mration and cocernment price con trols made :o-' . most unusual and verv complex vear. Housing starts at the year's beginning were at all- time hurhs. causing shortages in almost all building product lines. At the same time, demand for pulp and paper began its recovery from the devastatingly low- levels of 19~ 1 -~2 in both domestic and w-orld markets. Government control of the Corporation's prices re mained under 19~2 guidelines until April, 1973 when controls were eased somew-hat to the voluntary level prescribed under Phase III. Then in Jun ,\ prices of all products sold by the Corporation were frozen. On August 12. lumber and plywood price controls were removed completely, but all other corporate products remained under price control guidelines set forth by Phase IV. It has been Georgia-Pacifics firm opinion for the past two years that the real solution to our inflation problems is to let the competitive market forces set the price levels of our products. Government regulation in the marketing process oniv serves to thwart the stabilizing erfects of supply and demand. The mark ot a dynamic company, a growth com pany. is to be found in its ability to handle complex and difficult problems. We believe 19~3 afforded the Corporation the opportunity to once again demon strate its ability to carefully develop new manufac turing skills leading to new efficiencies and to new- and better products that enabled the Corporation to pene trate even deeper into all the markets it serves. As we enter the year lWT we again see opportuni ties for continued growth and believe the financial position of the Corporation affords an extremely strong base from which our continued growth can be expanded during the years ahead. Financial Position It has long been the policy of your Corporation to combine debt and equity financing in a manner which G-P Douglas fir forest near Toledo. Oregon provides secuntv jcaiost anv >uaden >w incs in our economic scene and. at the same time. :s ceared to the .ash .needs tr me Corporation. At sear end. m: the nrst time in corporate historv, our totai assets exceeded >2 oiihon Long-term debt nnanced 56h i 4 mil non ot these assets. Included in our long-term dent at sear-end was $9".8 million ot short-term commercial paper, backed up bv our 5120 million revolving line ot credit from commercial banks. The flexibility of this revolving line of credit has enabled the Corporation to pursue either banking channels or other sources of money at the most eco nomic cost over the past years. The average interest rate for long-term debt at year end was approximately 7.8 percent. The financing arrangements for 1974 are finalized. As of March 1, 1974. Georgia-Pacific arranged for a new revolving line of credit with 27 commercial banks in the amount of $225 million. The new line will re place our current $120 million revolving line of credit. The new arrangements will provide for a revolving credit through December 31. 1976, at which time the outstanding amount can be converted to a term ioan providing tor 12 eaual semi-annual installments commencme October !. I9__. The interest rate which s aries w ith chances in the prime rate is fixed at1 s ot 1 percent above the prime rate through December i 1. 19~6 and will be -;s of 1 percent over the prime rate thereatter. It is our current intention to pursue the use of com mercial paper sales using the bank revolving credit line as backing for such commercial paper issued. We be lieve this will afford the Corporation the lowest pos sible cost of money. An important aspect of this type of financing is the advantage we possess in using short-term money with long-term payment require ments. At the same time we have the flexibility of switching sources of money should it prove to be more advantageous. The financial position of Georgia-Pacific is strong and more than capable of meeting the demands of the year ahead. Investing for New Growth Early in 19" rhe obiectives of our new rive-year growth plan uere cleariy speiled out: The minimum target for |o u as esraolished ar sales or S5T billion, net prorirs after raxes or approximately 5200 million, and earnings ret share of approximatelv S3.-'' In order ro acmmriish rhese goals, capital expenditures tor rhe addition or timber and timberlands. together with nev. and continued modernization of facilities, were required. Thus, during 19"3. the Corporation spent 535~ million in pursuit of this policy. Of this total, SI 13 million was used by adding in excess of 200.000 acres of timber and timberlands. mainly in rhe Northern California redwood regions, to further strengthen our raw material base. The 19"3 capital expenditures for property, plant and equipment totaled S224 million and were made for the following principal purposes: Building Products S 88 million Additions in annual capacity of: 467-4 million sq. ft. of Plywood & Specialties 4~1 million bd. ft. of Lumber 292 million sq. ft. of Gypsum Board 12.000 tons of Gypsum Plaster 16.000 tons of Gypsum Joint System Pulp & Paper S -+2 million Addunnu.i: .7; m .'5 Pmu.n \ P:cr .uni PurL, 2'3 u/u.un: -a. V r( nritujic:! P.;. e t^inn PmdIt. ' Chemicals Add n m _ <: ; : > 4' million i - . - ( p- u % (. '/ntniUeU nro ^ iy. 1 ;// . uni ?U:: ,U ,,r Plaijutninnr L.i. rnn/rltx Distribution Facilites \.lJ::rnn .,r 1 '.n u .ir :;nn'tti< u . t nr.: 0-1 ./ iut.it ! 33 11 '.tic' '..Vic '.t.ltltic' cXr.IK.lcU Tyr,i,, 2 mm inn m r, nun. inn -a. ft 5 32 mllion Miscellaneous Operations and Amounts for Defensive Spending for Maintenance and Upgrading of Facilities S 15 million 11 Total S224 million Georgia-Pacific Sales - 19"2 versus 19--3 '-V.- .w.vj. Sales and Contribution to Earnings The real strength ot Georgia-Pacific is two-told. First is the abiiitv to rake raw materials, timber, gyp sum and petrochemicals from tee ow nership and other sources and convert them into usabie products. Sec ond is the Jnersitv ot the markets which see serve as shoes n in the pre\ ious chart. This diversitv or markets goes Georgia-Paciric flexibility and stability through the economic peaks and valleys to adapt to and capitalize on shifts in market opportunities. These are rhe factors which allow the Corporation to utilize its raw materials and converting facilities to its best advantage and give us the confidence to predict that 1974 will be another successful year ot growth. The drama of the relationship of sales and profits for 1973 compared to 1972-can best be summarized by the following table. Contribution to earnings is the net prorit before interest, income taxes, unallocated general and administrative expense and the extraor dinary charge incurred in the settlement of the gypsum lawsuit. Sales-- For the Year Ended December j l 1973 Per Amount Cent 1972 Per Amount Cent ' In Millions i Building Products and Misc. ... S 1.6 si Pulp, Paper and Chemicals . . . ^98 T3C SI.29" 2"T 4" ~ 3 cc Total.................... ^2.229 100'C SI. 4 100(7 Contributions to Earnings-- Building Products and Misc. . . S 2"0 Pulp, Paper and Chemicals ... 83 Total...................... S 3*'3 ""'T 23'7 100T S 203 14 S 21" 93T, -c~r 100T As the foregoing table indicates, the real story which unfolded in 1973 was the dramatic recovery of pulp, paper and chemicals. If you recall, during 19"0-T. demand tor puip tnroughout rhe world lagged tar behind supply. The resuir was a massive inventory accumulation which was liquidated in 19"2. keeping that year s profits under constant pressure be cause or price weakness. During 19"3 an uniikelv Jiam or events resulted in an extremely strong pulp, paper and chemical marker. The first major event rhar affected the industry was rhe devaluation of the ITS. dollar which gave foreign councries a distinct advantage in purchasing power. The second event was rhe continuation or price controls, maintaining prices at lower levels chan foreign markers, thus diverting tonnage away from domestic markets. The third sig nificant event was the occurrence of widespread short ages--a natural resuir > a growing economy that was suffering from market dislocations and no new capac ity. Thus, by the end of 9"3. demand for many ot our pulp, paper and chemu d products exceeded produc tion. complicating our marketing situation. Energy As energy shortages continue to cause concern in many of the nation's industries, we feel the Company is in a particularly advantageous position. Several years ago, in anticipation of possible energy shortages, we launched a search ro find alternate fuel sources. Today the results of those efforts are paying off. Bv utilizing waste products from our mills and plants, we are now generating internally 32 percent of our total fuel requirements and 29 percent of our elec trical energy needs. A few of our operations are more than self-sutficien' and provide energy to local communities. Energy conservation programs range from a com pany-wide information program urging employees to conserve energy both ac home and on the job to re cycling heated water generated in our manufacturing processes. Looking Ahead The plans are now complete for the continuation of our growth storv, and currently it is projected that in 1974 the Company will spend approximately S27^ million on capital additions and upgrading of existing SGP 0030450 -...i.ittes Ma:> r new .mm.- .... .:-.v..ude two new L:r.s:r. nme ~ 'c m Du.-ana. Georgia. V.w..... :...u: -a s~w muBeckiev. West :rc:nu. ^rooucir..' -- mu.;- n twara rest; -- ::;e s^u - mii: it Cittoneile. rivette ana Hurtscoro. Alabama: Gler.wooa ana Starnes. Arkansas, and Camilla. Geor gia. v. ith a total production ot 264 mniion board feet: an aadition to the Roxie. Mississiddi. stud mii 1 or G million board teet: and gypsum piant capacity addi tions ot 116 miilior square reet. In the puip. pape and chemical heid. the Companv '.viil add 15C400 to :s of primary pulp and paper ca pacity at seven ioca .ons. mainiv at Toledo. Oregon: 16.0UO tons of adcitional converted paper products capacity at six locations: and 698.000 tons or chemical products at its Plaauemine. Louisiana, complex con sisting of chlorine, caustic and polyvinyl chloride. Our integrated manufacturing and distribution sys- em continues tv provice a unioue marketing oppor- or.::'. r omr nuiiamg products divisions Our dis- trmution .enters. men msroncailv nave so id more nui.jmg products than we can produce, xeeo our Tuunc.::::: tucinties reranng a: optimum capac- w. At the eno or e; had 128 distribution cen- c-rs During W-t the mumper yv ui increase to 140 Six t the ness oranches cm.: be in Canada, a new and 'ioiulv expanding marxet tor Georgia-Pacific prod ucts. The remaining brar.cnes wiil be located in smaii uroan communities around me L :uted States--in areas v. here our sales have been minimal. These new dis tribution centers will not arfecr sales in our existing centers located nearbv as thev are slated for areas where the greatest growth and greatest demand for our tvpe of products is expected. The move into Canada is particularly exciting for Georgia-Pacific. This is a huge and growing market which is not experiencing any decline in residential construction. By the end of 19~A we expect that Georgia-Pacific Building Materials, Ltd., in Canada, will be generating about SI00 million in new business annually. Building procures ire going to oe under pressure throughout the nrst nair or iy"-L principailv because of the residential construction downturn. Our current outiooK calis tor housing to resume its uptrend, com mencing :r. me second half, thus enaoiing housing starts to average : " million tor the \ear. and the rate or starts rosswiv to reach the J miiiion level bv the end ot tne sear In building products, we iook for increased acnvits m the commercial and industrial sector ot our business, pius additional volume in the repair and remodeling markets. In the agricultural markets, we anticipate good activity as this sector enjoys a return to profitable farming activity. In puip. paper and chemicals, domestic and world demand remains strong Lack of new capacity should make for even stronger markets, thus enabling the dramatic growth ot 19"3 to continue. In viewing 19"4 from this early vantage point, we are confident that the managed growth or Georgia-Pacific will stand the test of 19~4 with all of its uncertainties and problems.