Document RpyjBORka7b4QrL9zaMQYQyaa

Georgia-Pacific Annual Report 1992 SGP 0001714 p* r a !' i ci[ i-C~ Georgia--PPaacciiffiicc wwaass fiuouunuduedi->a.s-ba :v -.(iff ,.>f hardwood lumber in Augus^ ,.rcKi. The company has grown through acquisitions to become one ;*x worlds leading manufacturers and ijocifsol building products, pulp and . Cu-firgia-Pacific employsapproximately : re?) pfopic at more than '>00 facilities - tonufanv also owns or c nntrols more million acres oft cimberland'in the v! Siatcs and Canada. CO "holders ' mal Issues. . merit's Discussion and A res ol Income 1 ! if Caisj? Flows. . , SGP 0001715 Georgia-Fbcific Corporation 133 Peachtree Street, N.E. (30303) P.0. Box 105605 Atlanta, Georgia 30348-5605 Telephone (404) 521-4000 March 16, 1992 Dear Shareholder: Enclosed is the Georgia-Pacific Corporation 1991 Annual Report to Shareholders, which includes, on pages 30-48, financial statements of the Corporation for the three years ended December 31, 1991 and the report of our auditors, Arthur Andersen & Co., dated February 14, 1992, on such financial statements. On or about February 28, 1992, after the Annual Report was printed, certain litigation was instituted against the American Paper Institute and 33 paper manufacturers, including a wholly-owned subsidiary of the Corporation. The Corporation believes the allegations made in this lawsuit are without merit and intends to defend this action vigorously. In addition, although there can be no assurance in this regard, based on information presently available the Corporation believes that the outcome of this litigation will not have a material adverse effect on the consolidated financial condition of the Corporation. Accordingly, we have added an additional note to our 1991 financial statements expressing this belief, and Arthur Andersen & Co. have updated and reissued their opinion to include the additional disclosure. The text of the additional note, and the unqualified opinion of Arthur Andersen & Co. issued in replacement of the opinion included in the Annual Report, are attached to this letter. I hope you will take a moment to review this information along with the Annual Report. Sincerely, T. Marshall Hahn, Jr. Chairman and Chief Executive Officer SGP 0001716 GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES NOTE 13 TO THE FINANCIAL STATEMENTS For the Years Ended December 31, 1991, 1990 and 1989 NOTE 13. Subsequent Event As described in Note 10 to the Financial Statements, the Corporation is involved in numerous lawsuits filed in Mississippi related to the alleged discharge of dioxin into the Leaf River from a pulp mill owned by a subsidiary of the Corporation. On or about February 28, 1992, a lawsuit was filed in state court in Texas against 33 pulp and paper companies, including a wholly-owned subsidiary of the Corporation, and the American Paper Institute. The suit purports to be a class action on behalf of all persons in the United States who live down river of a bleached kraft pulp mill. The suit seeks personal and property damages of $100 billion resulting from an alleged conspiracy by the defendants to suppress information about the allegedly harmful effects of dioxin on health, as well as from trespass, nuisance, infliction of emotional distress and strict liability. This suit has been brought by the same attorneys who have filed the Mississippi dioxin cases referred to in Note 10 and, by such attorneys' own admission, is part of their strategy to force the Corporation to settle the Mississippi dioxin cases. The Corporation and certain of its other subsidiaries own bleached kraft pulp mills. Based on the threats of such plaintiffs' attorneys, there is a reasonable probability that the Corporation and such subsidiaries will also be named as defendants. The Corporation believes that the allegations of this suit are without merit and intends to defend this action vigorously. Although there can be no assurance as to the ultimate result, based on the information presently available, the Corporation believes that it has meritorious defenses and that the outcome of this lawsuit will not have a material adverse effect on the consolidated financial condition of the Corporation. SGP 0001717 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and the Board of Directors of Georgia-Pacific Corporation: We have audited the balance sheets of Georgia-Pacific Corporation (a Georgia corporation) and subsidiaries as of December 31, 1991 and 1990 and the related statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1991 (not presented herein). 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 financial statements referred to above present fairly, in all material respects, the financial position of Georgia-Pacific Corporation and subsidiaries as of December 31, 1991 and 1990 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1991 in conformity with generally accepted accounting principles. As explained in Notes 1 and 8 to the financial statements, effective January 1, 1991, the Corporation changed its methods of accounting for certain manufacturing supplies and for postretirement health care and life insurance benefits. Atlanta, Georgia February 14, 1992 (Except with respect to the matter discussed in Note 13, as to which the date is March 12, 1992) ARTHUR ANDERSEN & CO. SGP 0001718 Significant Events Operating profits in our building products segment reached record-high levels in 1992. Weak demand and high capacity in the industry depressed pulp and paper segment profits. We reduced capital expenditures and working capital and took steps to lower our costs. Our free cash flow was used to reduce debt by $332 million and to make dividend payments. 1 SGP 0001719 H I G lights Georgia-Pacific Corporation and Subsidiaries (Dollar amounts, except per share, and shares are in millions) Net sales.......................................... ....................... 1992 $11,847 1991 $11,524 Increase (Decrease) 3% Net loss* . ... ... . ........................... (60) (34) 76 Loss per share*....................................................................... (.69) (.40) 73 Cash provided by operations** ........................................... 868 905 (4) Cash dividends paid.............................. ....................... . . 140 140 - Total assets at year end ........... 10,890 10,622 3 Total debt at year end*** 5,767 6,099 (5) Total debt to capital at year end ......................................... Cash dividends paid per share of common stock................ 56.6% $ 1.60 59.5% $ 1.60 -% Shares of common stock outstanding at year end ......... 88.1 87.4 1 Shareholders of record at year end..................................... . . 44,000 47,000 (6) * Before extraordinary item and cumulative effect of accounting changes. "Excludes the accounts receivable sale program and taxes on asset sales for 1991. 2 *** Includes the proceeds from the accounts receivable sale program under the assumption that at the end of the program the proceeds will be replaced by debt. SGP 0001720 Letter to Shareholders Considering our expectations when the year began, Georgia-Pacific's performance was disappointing in 1992. Although operating profits for our building products business were double 1991 levels, the increase was offset by a decline in pulp and paper profits. By focusing on cash flow, however, we reduced capital expenditures and working capital levels and identified additional opportunities to reduce operating costs. While your com pany reported a net loss for the year, we generated free cash flow of more than $500 million for debt reduction and for dividends. Financial Results Excluding the effects of asset sales in 1991, extraordinary items and accounting changes, Georgia-Pacific reported a loss of $60 million ($.69 a share) in 1992, compared with a loss of $106 million ($1.24 a share) in 1991. Sales in 1992 were $11.8 bil lion, compared with $11.5 billion in 1991- The pulp and paper segment reported an operating loss of $8 million, compared with a profit of $362 million in 1991- Excess indus try capacity and weak economies in the U.S. and abroad kept prices for key grades under pressure. Prices for communication papers were lower in 1992 than in 1991- A stronger dollar reduced the cost advantage of U.S. market pulp producers; and, after improving for much of the year, prices fell sharply in the fourth quarter. Our adoption of a new income tax accounting standard in 1992 increased depreciation expense for this segment by $65 million. In contrast, our building products busi ness reported record profits of $691 million in 1992, compared with $344 million in 1991Environmental restrictions on logging forced more mill closures in the Pacific Northwest, resulting in very tight supplies and higher prices for plywood and lumber. Housing starts and home improvement activity also increased in 1992. In 1992 our operating cash flow of $868 million, supplemented with $59 million in proceeds from asset sales, covered capital spending and dividends and enabled us to reduce debt by $332 million to $5.77 billion. We believe that success in our industry depends on our ability to keep costs low. While our assets are among the world's best and we rank among the industry's lowest cost producers, we continuously strive to become even more efficient. In 1992, we announced a plan to focus our Wisconsin paper mills on premium, specialty and technical grades of communication papers. SGP 0001721 We currently are reviewing production, reflect the balance required to protect the marketing and administrative functions environment, while enabling the industry to throughout our pulp and paper operations, remain competitive globally and to meet the and we have identified opportunities to demand for wood and paper products. Some reduce costs further. of the significant issues facing our industry invest ments Capital expenditures in 1992 were are discussed in the Environmental Issues $384 million. Most projects were undertaken section of this report. to maintain our facilities, enhance safety or Executive Assignments At its January 27, comply with environmental regulations. 1993 meeting, your board of directors elected Working capital was also reduced during the A.D. "Pete" Correll to succeed me as chief year. We expect to continue tight control of executive officer effective in May and become the allocation of cash in 1993. chairman following my retirement in In May, we purchased a softwood lumber December. The board also named James C. mill in Philomath, Oregon, to process logs Van Meter vice chairman and chief financial from company-owned timberlands. Also last officer and W.E. "Ed" Babin executive vice year, we announced plans to construct an president-pulp and paper. The board oriented strand board plant in West Virginia, selected Pete because of his excellent and we purchased an option on a Virginia analytical abilities and his unsurpassed site for another. A project to convert capacity operating experience in the industry. Under from paper-grade market pulp to higher- his superb leadership, I am confident that value fluff pulp at our Brunswick, Georgia, our talented management team will con mill is expected to be completed in May. tinue to move this company toward We continue to review our operations for even greater success. fit and performance and will offer for sale those that are not strategic. 7'"' ^ Environmental Issues In 1992, We adopted T. Marshall Hahn, Jr. the environmental and forest stewardship Chairman and Chief Executive Officer principles established by the American Forest and Paper Association. These principles February 11, 1993 SGP 0001722 A.D. Correli T. Marshall Hahn, Jr. President and Chairman and Chief Operating Officer Chief Executive Officer SGP 0001723 i' l! 6 DtSTHIBUnON SGP 0001724 /%, f /.yr-. &v 4;T>\ V.v `it; ' 239 distribution centers and more than 1,100 trucks, we supply a broad line ofbuilding products to customers nationwide. f. <, #, Building Products Georgia-Pacific is the leading manufacturer and distribu tor of building products in the United States. The com pany produces plywood, oriented strand board and other wood panels, lumber, gypsum wallboard, chemicals and other products at 150 facilities in the United States and 2 in Mexico. The company also is the country's largest building products wholesaler, with distribution centers serving U.S. markets. The company's building products business is affected by the level of housing starts; the level of home repairs, remodeling and additions; commercial building activity; the availability and cost of mortgage funds and changes in the industry's capacity. Georgia-Pacific's building products profits reached record levels in 1992. Although the economy was slug gish, lower mortgage interest rates helped to support an increase in housing construction. Prices for structural panels and lumber rose to record-high levels as logging restrictions on government lands resulted in more mill closures in the West and a tightening supply/ demand balance. Distribution Georgia-Pacific is the leading wholesaler of building products in the United States, with 139 distri bution centers located in 46 states. The centers serve traditional lumberyards, consumer-oriented home cen ters, makers of mobile homes and other manufacturers. Eleven of these are millwork and specialty centers that primarily sell wood mouldings, doors and windows. SGP 0001725 To supplement Georgia-Pacific's production and offer customers a broader line of building products, our distri bution centers also purchase products from other manu facturers. In 1992, these purchases were approximately $2.1 billion, almost one-half of all materials sold at our centers. Purchased products include wood panels, lum ber and roofing, as well as product lines that we do not manufacture, such as nails and other metal products, doors, insulation, vinyl siding and adhesives. G-P's building products exports were $141 million in 1992 and are expected to grow in the coming years. We ship building products to 60 countries and have building products sales offices in Europe and Mexico. While our largest export markets are in the Caribbean and Europe, Mexico has been our fastest-growing market in the past two years. wood Panels Georgia-Pacific is the largest producer of structural wood panels in the United States, accounting for about 20 percent of domestic structural panel capac ity. Our 24 plywood and oriented strand board plants, located primarily in the Southern U.S., can produce 6 billion square feet of panels per year. About 60 per cent of our plywood production is devoted to specialty applications such as decorative siding, sanded plywood and concrete form. Georgia-Pacific is also a major producer of manufactured board products for many industrial and construction applications. Hardboard, particleboard, panelboard, softboard and fiberboard are made from G-P is the largest producer of structural woodpanels in the United States, with about 20 percent of domestic capacity. SGP 0001726 SGP 0001727 Our 43 mills produce about 2.6 bil lion board feet oflum ber annually, approxi mately 5 percent of domestic production. logs, sawdust, shavings and chips at 19 mills. Applica tions include furniture, housing, shelving, fixtures, toys, automotive parts and siding panels. Oriented strand board (OSB) is a nonveneered struc tural panel made from strands of wood that are arranged in layers with perpendicular orientation and bonded with resin. OSB serves many of the same uses as plywood, including roof decking, sidewall sheathing and floor underlayment. In 1992, Georgia-Pacific announced plans to construct its fifth OSB facility at Mt. Hope, West Virginia. The plant will have an annual capacity of 325 million square feet. lumber Georgia-Pacific is the second-largest lumber producer in the U.S. The company produces about 2.6 billion board feet of lumber annually, approximately 5 percent of domestic lumber production. Most of our 43 lumber mills are located in the South. Our products include Southern pine, a variety of Appalachian and Southern hardwoods, cypress, redwood, cedar, spruce, Western pine, Douglas fir and pressure-treated Southern pine. In 1992, Georgia-Pacific purchased a softwood lumber mill in Philomath, Oregon, to process Douglas fir and Western hemlock logs from company-owned timberlands. gypsum products Georgia-Pacific is the third-largest pro ducer of gypsum products in the United States. Our 10 gypsum board plants have an annual capacity of 3.1 billion square feet of gypsum board. G-P's gypsum products include wallboard, fire-door cores, plaster and joint compound and are primarily used in residential 11 SGP 0001729 and commercial construction. The company owns gypsum reserves of approximately 125 million recoverable tons. Chemicals Georgia-Pacific is one of the forest products indus try's leading suppliers of resins, adhesives and paper chemicals. The company ships more than 2 billion pounds of thermosetting resins annually from its 16 plants to G-P mills and outside customers. G-P also produces chemicals for use in other industries and agriculture. In 1992, the company enhanced its presence in the specialty resins market with the purchase of a phenolic resins coatings business, which includes highly specialized resins used in marine varnishes, metal cans and tanks, food containers and other products. Timber awd Timber l. a n s Georgia-Pacific Owns Ot controls more than 6 million acres of timber and timberlands in the U.S. and Canada. Located near our mills, approximately 70 percent of our timber is in the South, 20 percent in the East and 10 percent in the West. The company's timber holdings include Southern pines and hardwoods; Douglas fir, hemlock and other species in the Pacific Northwest; redwood, Douglas fir, true firs and Western pines in Northern California; and numerous species of hardwoods and softwoods in Maine, New Brunswick, West Virginia and Wisconsin. Fee-owned timberlands and other timber (controlled through long-term contracts) supply a substantial part of G-P's wood fiber requirements. The rest consists of logs purchased in the open market, plant byproducts such as chips and shavings and other recyclable materials. Most ofour I timn berland> Ml arr locatedin 'J-Mei South ); >) tdmg our milh uith a significant irt of their 'fVieoodfiber requirements. SGP 0001730 SGP 0001731 SGP 0001732 V 3s* lp\' ;/U v'V'5 Ourfour containerboard mills have a combined annual capacity of3 million tons oflinerboard and corrugat ing medium. Pulp and Paper Georgia-Pacific Corporation produces conrainerboard and packaging, communication papers, market pulp, tissue and envelopes at 103 facilities in the United States and 1 in Canada. The company's pulp, paper and paperboard capacity of 8.6 million tons represents about 8 per cent of the total annual capacity in the United States. G-P's Butler Paper subsidiary is one of the country's largest paper distributors. Markets for Georgia-Pacific's pulp and paper products are affected primarily by changes in industry capacity as well as by the level of economic growth in the United States, currency exchange rates and foreign market con ditions. In 1992, sluggish demand in the U.S. and export markets and excess capacity and inventories in the industry combined to keep prices and profits depressed in this segment. CONTAIWERBOARD AND PACKAGING Georgia-Pacific produces containerboard, corrugated containers and packaging, bleached board and kraft paper. The com pany is the second-largest producer of containerboard in the United States. Our four containerboard mills have a combined annual capacity of 3 million tons of linerboard and corrugating medium, about 12 percent of U.S. capacity. Approximately 30 percent of G-P's containerboard production is transferred to the company's 37 corrugated packaging plants and the balance is sold to indepen dent converters. In addition to conventional corrugated ; ! 1 SGP 0001733 containers, G-P's packaging plants manufacture doubleand triple-wall containers and packaging, bulk bins, water-resistant packaging and high-finish and preprinted packaging for point-of-sale displays. Approximately 15 percent of its containerboard is exported, primarily to Central America, Western Europe and the Far East. The company can annually produce 364,000 tons of bleached paperboard, for use in frozen food containers, food service items and other products. Approximately 350,000 tons of kraft paper are produced each year, primarily for use in grocery and multiwall bags. In 1992, Georgia-Pacific opened the industry's most advanced facility for packaging design and testing. G-P's Technology and Development Center, near Atlanta, Georgia, employs the latest technology to design packaging that meets the needs of our customers. The center tests the performance of packaging by simulating a variety of climatic and shipping conditions. Communication Papers The Company IS the largest producer of uncoated free-sheet paper in the United States. G-P's eight uncoated free-sheet paper mills have a combined annual capacity of 2.2 million tons, approxi mately 16 percent of the U.S. industry total. Such papers are used in office reprographics and commercial printing, business forms, stationery, tablets, envelopes and checks. Market conditions in this business have been poor since the spring of 1991- Industry capacity of uncoated free-sheet paper increased approximately 9 percent in the past two years, while demand has been weak. During G-P is the nation's larg; estproducer ofuncoated free-sheet paper, with an annual capacity of 2.2 million tons. SGP 0001734 C OMMUNICATIO Papers 17 SGP 0001735 SGP 0001736 In addition to paper- grade market pulp, the company is one ofthe world's lead- `i\ ' ing suppliers : p^fl^ffpulpflf andspecialty Plps IH 'is#* this period, prices for some grades have fallen more than $200 per ton. In 1992, after a thorough study of the buying criteria and brand familiarities of merchants, printers and other end-users, Georgia-Pacific began consolidating its com munication papers product lines. To improve brand recognition, business and printing paper products are now marketed as Georgia-Pacific Papers. The Nekoosa name is used by the company's Hopper Paper Division, which markets cover and text and specialty papers. Market Pulp Georgia-Pacific's seven market pulp mills have an annual capacity of 1.9 million tons of market pulp, approximately 20 percent of U.S. capacity. The company is the world's second-largest market pulp producer. We produce Southern softwood, Southern hardwood and Northern hardwood pulps for use in the manufacture of many paper grades, and we are a major supplier of fluff pulp and other specialty pulps. The increasing use of recycled fiber in the U.S. is expected to limit growth in domestic demand. Increased paper consumption in export markets, however, is expected to boost total market pulp demand. G-P exports approximately 65 percent of its market pulp, employing its direct sales force at pulp sales offices in France, Germany, Italy, Japan, Switzerland, Taiwan and the United Kingdom. A conversion project underway at G-P's Brunswick, Georgia, pulp mill will expand the company's production of fluff pulp to approximately 550,000 tons per year 19 SGP 0001737 by mid-1993. Fluff pulp is used primarily in disposable diapers and other sanitary items, products that are experiencing growing demand, particularly in devel oping countries. Tissue Georgia-Pacific is the fifth-largest producer of tissue in the United States, with approximately 9 percent of the industry's capacity. We annually manufacture over 300,000 tons of tissue at five mills. Consumer and commercial tissue products made at our six converting facilities include paper towels, napkins and bath tissue. Most of G-P's consumer products are sold under our brand names Angel Soft! Sparkle, Coronet, MD and Delta by major retailers of food and general merchan dise. G-P also produces commercial tissue products for industrial, food-service, office, hotel, motel and hospital markets. Demand for tissue products tends to be relatively stable through economic cycles, although competition in the industry is intense. Paper Distribution and Envelopes Georgia-Pacific's Butler Paper Company operates 80 distribution centers in 31 states and ranks among the biggest paper distrib utors in the United States. Butler's customers include commercial printers, in-plant printers, copy centers and major corporations. Butler sells printing, writing and industrial papers obtained from many manufacturers, including our own mills. The company's Mail-Well Envelope Division is one of the nation's largest envelope manufacturers, with 17 plants capable of producing 13 billion envelopes each year. The company markets a line ofcon sumer and , commercial tissue .products, including paper towels, napkins and bath tissue. SGP 0001738 T ISSUE 21 ik: SGP 0001739 !;i i SGP 0001740 Environmental Issues will also be chairman of the company's Envi- Georgia-Pacific's highest priority is to protect ronmental Policy Committee. In this position, the health and safety of our employees and he will have direct access to Georgia-Pacific's customers and the communities near our board of directors and regularly will provide facilities. We are committed to responsible the board with environmental reports. forest practices and conservation methods. A discussion of some of the most sig We encourage research directed toward nificant issues facing Georgia-Pacific and development of a scientific understanding the industry follows. of the environmental impact of our opera forest m a w ag tme;v r Georgia-Pacific manages tions. We support regulations that benefit more than 6 million acres of timberland in the environment, human health and safety North America. Timber is the heart of our based on sound science and prudent business. We have developed extensive forest economic analysis. management guidelines to protect wildlife, Georgia-Pacific expects its managers to be maintain water and soil quality and address aware of the environmental impact of their aesthetic concerns as well as to ensure the operations and to direct their operations to sustainability of harvest yields. Many of protect employees, customers, the local com the provisions of our "Forestry for the '90s" munity and natural resources. Georgia-Pacific plans exceed current legal requirements and is committed to operate all of its facilities in address the public's environmental concerns. compliance with applicable environmental Under these guidelines, which are specific for laws, regulations and permits. Through an each region where the company operates, we environmental audit program we monitor participate in air and stream improvement compliance with this policy. projects, limit the size of clearcuts in certain In March 1993, Lee M. Thomas will join areas and exceed state tree planting require Georgia-Pacific as senior vice president- ments. The plans also require employing environmental and government affairs. wildlife biologists to help develop manage Mr. Thomas, former administrator of the ment programs that are compatible with pres U.S. Environmental Protection Agency (EPA), ervation of wildlife. In addition, we provide 23 SGP 0001741 ongoing training on environmental and wildlife issues for Georgia-Pacific foresters. Among the more significant forest man agement issues facing Georgia-Pacific and the industry are conservation of wetlands and endangered species. Wetlands Wetlands support plant and animal species, help control flooding, improve water quality and offer recreational opportunities. Much of the wetlands in the United States are held by private landowners, ranging from forest products companies to individual woodlot owners. Most are under active forest management. 24 The Clean Water Act of 1972 legislated federal control of wetlands. Normal silvicul tural activities, conducted in accordance with approved Best Management Practices (BMPs), were exempted from wetlands regulation by amendments to the Act. BMPs are guidelines that protect soil and water by governing site preparation, road construction, harvesting methods, drainage and protection of streams. The definition of wetlands used by the U.S. Environmental Protection Agency is "those areas that are inundated or saturated by surface or ground water at a frequency and duration sufficient to support, and that under normal circumstances do support. a prevalence of vegetation typically adapted for life in saturated soil conditions. Wetlands generally include swamps, marshes, bogs and similar areas." However, a much broader definition of wetlands was proposed by federal regulators in their Delineation Manual published in 1989- It included under the definition of "jurisdictional wetlands" dryer upland and transition areas not typically associated with wetlands, including great inland portions of the Atlantic and Gulf coastal states, and effectively doubled the acreage subject to federal regulation. Now some groups are seeking elimination of the silvicultural exemption, and a number of proposed revisions to the manual are being debated. Georgia-Pacific and the forest products industry are concerned that an expanded definition of wetlands and/or elimination of, or changes to, the silvicultural exemp tion could impose costly and unnecessary restrictions on forest management activ ities and reduce private timberland value. Georgia-Pacific believes that modern forest management practices are compatible with an environmentally sound wetlands SGP 0001742 policy and that the silvicultural exemption should be maintained. esoangered Species Many animals and plants with habitats native to timberlands are protected (or recommended for protection) as endangered species under the federal Endangered Species Act of 1973. The federal government has a mandate to set aside public lands to provide ample habitat for endangered species populations to recover and increase. In order to maintain the exist ing population on private lands, landowners must not harm or harass an endangered species or negatively affect their habitat. Two protected species have had the most significant impact on forestry--the Northern spotted owl in the Pacific Northwest and the red-cockaded woodpecker in the South. Some 8.2 million acres have been set aside as critical habitat for the owl, and timber harvest levels have been drastically reduced. In the South, harvesting on federal lands is prohibited within three-quarters of a mile of a redcockaded woodpecker colony. Georgia-Pacific's plan to protect redcockaded woodpeckers on G-P lands has been recognized by the U.S. Fish and Wildlife Service as the most progressive program for private land in the South. Under the plan, our foresters mark habitat areas of active col onies to control harvesting and prevent site disruption. We also are conducting several studies to determine the impact of our forest management practices on endangered species and the amount of habitat required for them. We believe that proper forest management can protect both wetlands and endangered species and that severe restrictions on pri vately owned timberlands violate the rights of landowners. r amd Wafer ceuality Georgia-Pacific's operations are subject to very extensive government regulation pertaining to air emissions, wastewater discharges and solid waste disposal. Over the years, G-P has made significant capital and operating expendi tures to comply with environmental regula tions. While environmental compliance costs in future years will depend on regulatory and technological developments that cannot be predicted, we expect costs to increase as regulations become more stringent. oxins awd Chlorinated Organics An issue facing the pulp and paper industry relates to questions about the environmental impact of dioxins and other chlorinated 25 SGP 0001743 organics, which are unintended byproducts would be no measurable environmental or of the pulp bleaching process. Dioxins are public health benefits from a conversion to a family of chemical compounds. One form, totally chlorine-free bleaching. The cost of 2,3,7,8-TCDD, has been alleged to be a pos alternative bleaching methods would be sible human carcinogen after certain labo staggering -- as much as $10 billion for the ratory animals exposed to massive doses (far industry--and such important qualities in excess of amounts associated with pulp of pulp and paper as strength, durability, and paper mills) developed cancers during absorbency and softness would be diminished. tests in the 1970s. Georgia-Pacific is committed to producing The paper industry has moved swiftly high-quality, environmentally sound pulp to find ways to reduce its inadvertent gen and paper products at the lowest possible cost. eration of dioxins and other chlorinated Solid Waste Management Georgia-Pacific organics. At 9 of our 10 bleached pulp mills, is committed to making a significant reduc Georgia-Pacific has reduced the concentra tion of America's solid waste by minimizing tion of 2,3,7,8-TCDD in its effluent to levels waste at its source, by utilizing manufac so minute they are not quantifiable using turing wastes efficiently and by recycling EPA-approved procedures. Ongoing process post-consumer waste. changes at the tenth mill will accomplish a In our plants and mills, we often use tree similar reduction. These reductions were bark, sawdust, other wood wastes and spent achieved in large part by substituting chlorine pulping liquors for a constant, low-cost dioxide for the molecular chlorine previously source of energy. Approximately 60 percent used in pulp bleaching processes. The pro of the company's energy requirements are cess changes also reduced the levels of other generated internally. Wood chips from our chlorinated organics in the mills' wastewater. building products facilities are shipped to Nevertheless, certain environmental groups our pulp and paper mills for conversion to have called for the complete elimination of pulp and paper. Solid-wood byproducts also chlorine and chlorine compounds in the are used in the production of particleboard. pulp bleaching process. We believe that there Wastes that cannot be used internally are SGP 0001744 properly managed and disposed of in compliance with state and federal laws. Georgia-Pacific supports the industry's goal to increase the recovery rate for wastepaper in the United States to 40 per cent by 1995. We are one of the nation's top paper recyclers, processing more than a million tons of wastepaper each year. Most of this is in the form of old corrugated con tainers used at our containerboard mills to manufacture linerboard and corrugat ing medium. We also make 100-percent recycled paperboard to sheathe our gypsum wallboard, and we produce several lines of communication papers using post consumer wastepaper. Energy recovery offers a large market for recovered paper, especially the low-quality, mixed paper that cannot be economically converted to new paper products. In 1992, G-P introduced an innovative pilot program to recover paper and convert it into economical, clean-burning supplemental fuel pellets for industrial plant boilers. We believe the use of paper fuel pellets can help save landfill space, lessen reliance on non-renewable fossil fuels and improve air quality by reducing certain emissions associated with coal. For additional information about these and other cm ironmental issue'; alien ing Georgia-Pacilic and the paper and forest products industry, please write to: Georgia-Pacific Corporation Environmental Information Attention: Corporate Communications P.O. Box 103005 Atlanta, Georgia 30348 27 SGP 0001745 9 Financial Strategy rating to BBB- from BB+ and the commer Georgia-Pacific's emphasis is on generating cial paper rating to A--3 from B. superior returns to our shareholders. The During 1992 the company continued to way we operate our business, allocate capital restructure its debt, issuing a total of $750 mil funds, compensate our employees and lion in 30-year debentures. At year-end the manage our capital structure are focused on weighted average interest rate on total debt. that objective. We believe that under the including the accounts receivable sale pro appropriate capital structure, excess cash gram, was 9-3%. Our participation as the should be returned to our shareholders fixed-rate payer in interest rate exchange if it cannot be invested in projects at agreements limits the impact of interest attractive returns. rate changes on our interest expense. The acquisition of Great Northern Nekoosa We try to balance the amount of debt and Corporation (GNN) in 1990 increased our equity in a way that will benefit our share debt substantially. Since then, we have made holders, keep our cost of capital low and significant progress toward reducing debt provide the flexibility we need to finance and achieving a capital structure that will attractive internal projects or acquisitions. provide more financial flexibility. We think that an appropriate level of debt Capital Structure On December 31, 1992, for our mix of businesses and operations is Georgia-Pacific's debt was $5.77 billion, probably in the range of $5.0 to $5.5 billion. including $800 million in proceeds from the A more detailed discussion of our financ accounts receivable sale program. In less than ing activities in 1992 is included in Manage three years since the GNN acquisition, we ment's Discussion and Analysis. have reduced our total debt by approxi Cash Flow Georgia-Pacific's strong cash flow sup mately $2 billion --despite the recession ports our continued ability to fund necessary and difficult conditions in our industry. capital investments, to pay dividends and In November 1992, Standard and Poor's interest and to make debt repayments on Corporation announced an upgrade of schedule. We believe that the key to improv Georgia-Pacific's senior unsecured debt ing the value of our shareholders' investment SGP 0001746 is to maximize free cash returns from our operations. We define free cash flow as cash from operations plus proceeds from asset sales less capital expenditures. In 1992, our free cash flow was $535 mil lion, including cash from operations of $868 million and proceeds from asset sales of $59 million, less capital expenditures and other investments of $392 million. Cash from operations exceeded net income by $992 mil lion, primarily because of noncash deprecia tion, depletion and goodwill amortization charges. Free cash flow was used to pay divi dends of $140 million and to reduce debt. Although the level of free cash flow gen erated by the company depends on business conditions, we also have been able to increase free cash by careful allocation of cash for capital expenditures and working capital and by selling nonstrategic or underper forming assets. In aC A P I al Investments/Divestitures capital-intensive business, our ability to add value depends to a large extent on the allo cation of funds to projects with attractive returns. We also routinely evaluate the performance and strategic fit of existing operations --and consider the divestiture of those that are nonstrategic or not expected to deliver adequate returns. We evaluate capital projects and acquisi tions by the rate of return of free cash flow expected to be generated over the life of the investment. Our hurdle rate of return takes into account risk factors that can affect the project's return. In 1992, capital spending was $384 mil lion. Most of our recent capital projects have primarily been defensive in nature, such as those undertaken to maintain our facilities, to comply with environmental regulations or to ensure the safety of our employees. We havencentive Compensation Plans implemented compensation programs that align our managers' economic interests with those of our shareholders. These programs include a short-term incentive plan based on annual performance and a long-term plan that is linked to the company's share price. Cash bonuses under our Management Incen tive Plan for 1992 and 1993 are based on free cash flow, with a minimum target established at the beginning of the year. Under our 1990 Long-Term Incentive Plan, awards of G-P common stock depend upon achieving specified increases in share price 29 SGP 0001747 and upon the plan participant's continued employment for a specific time. During 1992 , 538,000 shares of restricted G-P com mon stock were awarded after the initial share price targets of $60 or more were achieved. Most of the future awards are based on achieving share price targets of $70, $80, $90 and $100 before the plan expires in March 1995. ManDividends and Share Repurchases aging and reinvesting in our core businesses to add value for the shareholder is our pri mary responsibility. To the extent that we cannot identify satisfactory investment opportunities, however, we are committed to returning cash to our shareholders through dividends or share repurchases. Our policy is to pay dividends at a rate of approximately one-third of sustainable earnings. We consider sustainable earnings to be the average earnings expected over a cycle. Recognizing the cyclical nature of our busi ness, we do not intend to adjust dividends based on short-term swings in earnings. Our board of directors authorized a share repurchase program that began in 1987 as a means of distributing cash to our share holders and of maintaining our ratio of debt to capital within a target range. During 1987, 1988 and 1989, we repurchased 26.2 million shares of common stock at a total cost of $1.1 billion. In 1989, we suspended our share repurchase program, anticipating the higher leverage that resulted from the GNN acquisition. We anticipate that share repur chases will again be an option for the use of excess cash after we reduce debt to an appropriate level. SGP 0001748 Management's Discussion and Analysis Georgia-Pacific Corporation and Subsidiaries 1992 Compared with 1991 Georgia-Pacific's consolidated net sales of $11.8 bil lion in 1992 were 2.8 percent higher than 1991 net sales of $11.5 billion. The Corporation's net loss in 1992 was $124 million ($1.43 per share), which includes a $55 million (64 cents per share) after-tax charge for an accounting change and a $9 million (10 cents per share) after-tax loss on the early extinguishment of debt. The Corporation's net loss in 1991 was $142 mil lion ($1.65 per share), including $72 million (84 cents per share) of after-tax gains on asset sales, a $45 million (52 cents per share) net after-tax loss on early extin guishment of debt and a $63 million (73 cents per share) net after-tax charge for accounting changes. The Corporation adopted Financial Accounting Standard Number 109, "Accounting for Income Taxes," (FAS 109) effective January 1, 1992. In addition to the one-time, after-tax charge of $55 million for the cumu lative effect of the adoption of FAS 109, the pretax loss for 1992 includes an additional charge for depreciation and depletion of $69 million, which was offset by a reduction in income tax expense of approximately $83 million, as a result of the accounting change. The $55 million charge resulted primarily from providing deferred income taxes for differences between the remaining net book values and the tax bases of net assets acquired in purchase transactions other than the acquisition of Great Northern Nekoosa Corporation (GNN), partially offset by a reduction in previously provided deferred taxes to reflect the lower current statutory income tax rate. Also as a part of the adoption of FAS 109, the Corporation recorded adjustments to various balance sheet accounts which resulted from adjusting to pretax amounts the carrying values of cer tain assets and liabilities related to the Corporation's acquisition of GNN in March 1990. These adjustments are detailed in Note 5 of the Notes to Financial State ments. The adjusted carrying values resulted in addi tional depreciation and depletion expense of $4 million for the building products segment and additional depreciation of $65 million for the pulp and paper segment for 1992. The Corporation adopted Financial Accounting Standard Number 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effectivejanuary 1, 1991. This resulted in a one-time, after-tax charge of $119 million in 1991- Also effectivejanuary 1,1991, the Corporation changed its accounting policy to include in inventory certain supplies that were previously expensed. The cumulative effect of this change for years prior to 1991 was to increase income by $56 million after taxes in 1991. In November 1992, the Financial Accounting Standards Board issued Financial Accounting Stan dard Number 112, "Employers' Accounting for Post employment Benefits," which requires recognition of benefits provided by an employer to former or inactive employees after employment but before retirement. Companies are required to adopt the new standard no later than for fiscal years beginning after December 15, 1993. The Corporation has not determined the period in which the new standard will be adopted or the impact of adoption. Selectso Industry Segment Data (Millions) Net sales Building products Pulp and paper Other operations Total net sales Operating profits Building products Pulp and paper Other operations Other income Total operating profits General corporate Interest expense Cost of accounts receivable sale program (Provision) benefit for income taxes Income (loss) before extraordinary item and accounting changes Extraordinary item, net of taxes Cumulative effect of accounting changes, net of taxes Net income (loss) Year ended December 31 1992 1991 1990 $ 6,112 5,711. 24 $ 5,405 6,089 30 $11,847 $11,524 $ 5,923 6,702 40 $12,665 $ 691 $ 344 $ 423 (8) 362 979 9 17 17 - 344 48 692 (166) (565) 1,067 (165) (584) 1,467 (94) (606) (35) (59) (48) 14 (293) (354) (60) (34) 365 (9) (45) (55) (63) $ (124) $ (142) $ 365 SGP 0001749 Georgia-Pacific Corporation and Subsidiaries The building products segment reported sales of $6.1 billion in 1992,13.1 percent higher than $5.4 bil lion in 1991. Operating profits in 1992 of $691 million were significantly higher than $344 million in 1991. The return on sales was 11.3% and 6.4% in 1992 and 1991, respectively. The increase in operating profits is primarily the result of average prices for 1992 being higher for most of the Corporation's building products compared with 1991. Supply constraints caused by environmental restric tions on logging in the West resulted in higher prices during most of 1992. More recently, the wet weather in the South has further reduced log inventories through out the industry, thus tightening an already restricted supply. Although significant changes in demand are not expected in the near future, supply constraints are expected to continue to favorably impact prices for most of the Corporation's building products in 1993. Sales in the pulp and paper segment declined 6.2 percent to $5.7 billion in 1992 compared with $6.1 billion in 1991. Pulp and paper reported an operat ing loss in 1992 of $8 million compared with operating profits of $362 million in 1991- In 1992, continuing excess industry capacity and weak market conditions have resulted in lower prices for most of the Corpora tion's pulp and paper grades. Bleached board, kraft paper and communication papers average prices were lower in 1992 compared with 1991, and average market pulp, containerboard and packaging prices in 1992 were approximately the same compared with 1991. Prices for most of these pulp and paper products, however, finished the year lower than average prices for all of 1992. Pulp and paper's 1992 operating results were also impacted by additional depreciation expense of $65 million due to the adoption of FAS 109 and, in the fourth quarter, a $28 million charge for the write down of certain facilities to net realizable value. The Corporation does not expect demand to increase enough to absorb the excess capacity in the pulp and paper industry in 1993. Additionally, movements in exchange rates could result in price reductions for certain of the Corporation's products. As a result, prices for most of the Corporation's pulp and paper products are not expected to improve significantly in the near future. The Corporation will continue its reengineering of operating and administrative processes to achieve greater efficiencies and reduce costs. Additionally, the Corporation will continue to review its business units to identify those that are not strategic to its principal oper ations. Efforts to reduce working capital employed in the business were successful in the second half of 1992 and will continue throughout 1993. The Corporation reported a $74 million pretax loss for 1992 before the extraordinary item and the cumula tive effect of the accounting change. The 1992 tax benefit of $14 million resulted in an effective tax rate of 18.9 per cent. The pretax loss on which tax expense was com puted, excluding the cumulative effect of accounting changes, was approximately $51 million. This amount differs from the 1992 reported pretax loss by $37 million primarily because of nondeductible goodwill amortiza tion expense associated with past business acquisitions. Excluding asset sales, the extraordinary item and the cumulative effect of accounting changes, the Corpora tion reported a pretax loss of $85 million for 1991- The 1991 tax provision of $293 million resulted in an effec tive tax rate of 113.1 percent. Income on which the 1991 tax provision was computed, excluding asset sales, the extraordinary item and the cumulative effect of account ing changes, was approximately $57 million. This amount differs from the 1991 reported pretax loss by $142 mil lion primarily because of nondeductible depreciation, depletion and goodwill amortization expenses associated with the revaluation of assets in past business acquisi tions. The lower effective tax rate in 1992 is primarily a result of the adoption of FAS 109- During 1991, the Corporation sold assets for com bined cash proceeds of approximately $1.2 billion and recognized a pretax gain of $344 million ($72 million after taxes) which is included in other income in the accompanying statements of income. The Corporation had no major divestitures in 1992. The Corporation's interest expense and cost of accounts receivable sale program were a combined $600 million in 1992, compared with $643 million in 1991- Interest expense includes $4 million in 1992 and $35 million in 1991 of noncash amortization. Lower expense in 1992 compared with 1991 is primarily the result of a reduction in debt of $332 million. SGP 0001750 Georgia-Pacific Corporation and Subsidiaries Liquidity and Capital Resources Operating Activities In 1992, cash provided by operations was $868 million compared with $580 mil lion in 1991- Excluding the reduction of the accounts receivable sale program by $50 million in 1991, and tax payments on asset sales of approximately $275 million in 1991, cash provided by operations decreased $37 mil lion in 1992 compared with 1991- During 1992, the Corporation reached a settlement with the Internal Revenue Service (IRS) to resolve all pending income tax issues related to Georgia-Pacific Corporation for the years 1984 through 1988. As a result of this settlement, $155 million in additional taxes and interest will be paid in 1993. For further discussion, refer to Note 9 of the Notes to Financial Statements. Investment Activities Capital expenditures in 1992 were $384 million, including $217 million in the pulp and paper segment, $111 million in the build ing products segment, $37 million for timber and timberlands and $19 million of other expenditures. Capital expenditures of approximately $500 million are currently projected for 1993. This includes approxi mately $280 million for projects started prior to 1993. During 1992, capital expenditures for pollution control facilities and equipment were approximately $72 million. The Corporation's 1993 capital expenditure budget includes approximately $134 million for pollu tion control facilities and equipment. Certain other capital projects which are being undertaken for the primary reasons of achieving financial returns or improving safety will also include expenditures for pollution control facilities and equipment. The Cor poration is expected to be required to increase its environmental capital expenditures over the next several years in order to conform its operations to increasingly stringent standards for compliance with air, water and solid and hazardous waste regulations. The amount of the increase will be affected by expen ditures which may be required in order to reduce dis charges of dioxin and other chlorinated organics under the Clean Water Act and to comply with the Clean Air Act of 1990. In order to reduce its discharges of dioxins, the Corporation's operating strategy has been, and con tinues to be, to increase the use of chlorine dioxide and decrease the amounts of elemental chlorine used in its pulp and paper bleaching processes. The U.S. Environ mental Protection Agency (EPA) is currently reassessing federal standards for dioxin and other chlorinated organics. Although new federal standards are not expected to be proposed until 1993, management believes that the Corporation's mills are likely to be in substantial compliance with the new proposed stan dards as a result of amounts already spent for chlorine dioxide substitution. Significant capital expenditures could be required over a several-year period in order to comply with air pollutant emission standards established by the Clean Air Act of 1990. The amount of the increase cannot be reasonably estimated at this time because the EPA has not developed specific guidelines for the pulp and paper industry. Final standards are expected to be issued in 1995, with compliance required in 1998. In October 1992, the Corporation announced that it has reached an agreement in principle with Borregaard Industries Limited, for the purchase by Borregaard of the Corporation's lignosulfonate and alcohol processing operations at Bellingham, Washington for approximately $41 million. The transaction is subject to various con ditions, including negotiation of a definitive agreement, receipt of antitrust and other necessary government approvals and authorization by both companies' boards of directors. Delays have been experienced in the antitrust approval process and the Corporation does not expect that the transaction will be com pleted as originally contemplated. In November 1992, the Corporation announced its intent to sell its roofing manufacturing business. The Corporation intends to continue as a distributor of roofing products. During 1991, the Corporation recognized a combined pretax gain of $344 million ($72 million after taxes) on asset sales. For a discussion of the individual transactions, see Note 4 of the Notes to Financial Statements. 33 SGP 0001751 Georgia-Pacific Corporation and Subsidiaries Financing Activities During 1992, the Corporation reduced total debt by $332 million to approx imately $5.8 billion. This includes a net reduction in commercial paper and other short-term notes of approximately $519 million offset by a $187 million increase in long-term debt. Significant financing trans actions during 1992 were as follows: Issuance of $250 million of 9%% Debentures Due March 15, 2022, Issuance of $250 million of 9'/2% Debentures Due May 15, 2022, Issuance of $250 million of 9Vs% Debentures Due July 1, 2022, Redemption in full of $125 million aggregate principal amount of 11.30% Discount Term Debentures Due 2015, Redemption in full of $50 million aggregate principal amount of 9%% Notes due 1995, Repurchase of approximately $32 million of 10.5% Debentures Due 2018, and Refunding of $73 million of 11.25% industrial revenue bonds. On December 31,1991, the Corporation refinanced its existing revolving credit facility by entering into a new agreement with Bank of America National Trust and Savings Association and 24 other domestic and international banks which provides a three-year unsecured revolving credit facility of $1.5 billion. The revolving credit facility is being used as support for commercial paper and other short-term borrowings, including bid borrowings made under the agreement. As of December 31, 1992, $809 million was available in excess of all short-term borrowings outstanding under or supported by the facility. The revolving credit agreement contains certain restrictive covenants which were amended effective October 15, 1992, as described in Note 8 of the Notes to Financial Statements. The Corporation was in compli ance with these covenants at December 31,1992. At December 31,1992, the Corporation's weighted average interest rate on total debt, including the $800 million accounts receivable sale program, was 9-3%- At December 31,1992, the Corporation had out standing interest rate exchange agreements which effec tively converted $1.9 billion of floating rate obligations with a weighted average interest rate of approximately 3 6% to fixed rate obligations with an average effective interest rate of approximately 9-0%. As of December 31, 1992, the Corporation's total floating rate debt, includ ing the accounts receivable sale program, exceeded related interest rate exchange agreements by approxi mately $205 million. Georgia-Pacific's ratio of total debt to capital, assum ing the proceeds from the accounts receivable sale pro gram will be replaced by debt at the end of the program, was 56.6% at December 31,1992, compared with 59-5% at December 31,1991- The 1992 ratio decreased pri marily as a result of the adoption of FAS 109 which significantly increased deferred income taxes. Cash flow from operations, together with the Corpo ration's available financing sources, is expected to be sufficient to make planned capital investments, divi dend payments and scheduled debt repayments. The Corporation has disclosed the fair value of its short- and long-term debt and its interest rate exchange agreements in accordance with Financial Accounting Standard Number 107, "Disclosures about Fair Value of Financial Instruments," in Note 8 of the Notes to Financial Statements. The fair value of these liabilities is greater than the carrying value due to the current low interest rate environment. Other In January 1993, the Corporation's board of directors announced the election of A.D. "Pete" Correll as Chief Executive Officer effective May 4,1993. Mr. Correll, currently President and Chief Operating Officer, will become Chairman and Chief Executive Officer following the retirement of T. Marshall Hahn, Jr. on December 2, 1993. Mr. Hahn will continue as a director following his retirement. Due to inflation, the current values of property, plant and equipment and timber and dmberlands are higher than the historical costs reported in the financial statements. Accordingly, depreciation and depletion expense would be higher if the costs of such assets were adjusted to a current cost basis. The adverse effects resulting from such an adjustment to income would be offset to some extent by a gain due to the fact that the Corporation's net excess of monetary liabilities over monetary assets would be repaid in less costly dollars than the dollars (with higher purchasing power) origi nally received for the obligations to be repaid. For a discussion of commitments and contingencies, see Note 12 of the Notes to Financial Statements. SGP 0001752 Georgia-Pacific Corporation and Subsidiaries 1991 Compared with 1990 Georgia-Pacific's consolidated net sales of $11.5 billion in 1991 were 9 percent lower than in 1990. The Corpo ration's net loss in 1991 was $142 million ($1.65 per share), including $72 million (84 cents per share) of after-tax gains on asset sales, a $45 million (52 cents per share) net after-tax loss on early extinguishment of debt and a $63 million (73 cents per share) net after-tax charge for accounting changes. Net income in 1990 was $365 million ($4.28 per share), including $30 million (35 cents per share) of after-tax gains on asset sales. The 1990 results reflect the acquisition of GNN beginning on March 9,1990. The Corporation adopted Financial Accounting Standard Number 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective January 1,1991- This resulted in a one-time, after-tax charge of $119 million. An additional pretax accrual of $23 million ($14 million after taxes) was made against operations in 1991- Also effective January 1,1991, the Corporation changed its accounting policy to include in inventory certain supplies that were previously expensed. The cumulative effect of this change for years prior to 1991 was to increase income by $56 million after taxes in 1991- This change had no effect on 1991 operations. The building products segment reported sales of $5.4 billion in 1991, 8.7 percent lower than $5.9 billion in 1990. Operating profits in 1991 of $344 million were 18.7 percent lower than $423 million in 1990. The return on sales was 6.4% and 7.1% in 1991 and 1990, respectively. Operating profits were lower in 1991 due to weak demand for building products. Although housing starts in 1991 dropped to their lowest level since 1946, average prices for plywood and lumber remained near 1990 average price levels primarily due to tight log supplies caused by environmental restrictions on logging in the West. Sales in the pulp and paper segment declined 9-1 per cent to $6.1 billion in 1991, compared with $6.7 billion in 1990, primarily as a result of the containerboard and packaging assets sold in January 1991 and lower prices. Operating profits in 1991 of $362 million were 63 per cent lower than $979 million in 1990. The return on sales fell to 5.9% in 1991, from 14.6% in 1990. The economic recession and increased industry capacity resulted in lower prices for grades that make up most of the Corporation's production and a sharp decline in pulp and paper operating profits. Prices for market pulp, communication papers and containerboard declined during most of 1991 and were significantly lower than 1990 levels, although containerboard and communication papers prices improved in the latter part of the year. Other income in 1991 reflects a $344 million pretax gain on asset sales. Excluding asset sales, the extra ordinary item and the cumulative effect of accounting changes, the Corporation reported a pretax loss of $85 million and an income tax provision of $21 million in 1991- The income on which the tax provision was computed, excluding asset sales, extraordinary item and the cumulative effect of accounting changes, was approximately $57 million. This amount differs from the 1991 reported pretax loss by $142 million primarily because of nondeductible depreciation, depletion and goodwill amortization expenses associated with the revaluation of assets in past business acquisitions. Other income in 1990 reflects a $48 million pretax gain on asset sales. Excluding asset sales, the Corpora tion reported pretax income of $671 million and income tax expense of $336 million in 1990. Income on which tax expense was computed, excluding asset sales, was approximately $884 million. This amount differs from 1990 reported pretax income by $213 million primarily because of nondeductible depreciation, depletion and goodwill amortization expenses associated with the revaluation of assets in past business acquisitions. General corporate expense was $165 million in 1991, compared with $94 million in 1990. The increase was primarily attributable to compensation programs tied to the Corporation's common stock price. The Corporation's interest expense and cost of accounts receivable sale program were a combined $643 million in 1991, compared with $654 million in 1990. Interest expense includes $35 million in 1991 and $31 million in 1990 of noncash amortization. SGP 0001753 Statements of Income Georgia-Pacific Corporation and Subsidiaries (Millions, except per share amounts) Net sales Costs and expenses Cost of sales................................................................................................ Selling, general and administrative........................................................ Depreciation and depletion.................................................................... Interest..................................................................................................... Other income.............................................................................................. Total costs and expenses Income (loss) before income taxes, extraordinary item and accounting changes............................................................................. Provision (benefit) for income taxes............................................................. Income (loss) before extraordinary item and accounting changes......... Extraordinary item -- loss from early retirement of debt, net of taxes . Cumulative effect of accounting changes, net of taxes.............................. Net income (loss) Per share: Income (loss) before extraordinary item and accounting changes Extraordinary item, net of taxes............................................................... Cumulative effect of accounting changes, net of taxes.......................... Net income (loss) Average number of shares outstanding The accompanying notes are an integral part of these financial statements. Year ended December 31 1992 1991 1990 $11,847 $11,524 $12,665 9,432 1,135 789 565 - 11,921 9,199 1,102 724 584 (344) 11,265 9,738 951 699 606 (48) 11,946 (74) (14) (60) (9) (55) $ (124) 259 293 (34) (45) (63) $ (142) 719 354 365 -- -- $ 365 $ (.69) (.10) (.64) $ (1.43) 86.4 $ (.40) (-52) (73) $ (1.65) 85.8 $ 4.28 -- -- $ 4.28 85.3 SGP 0001754 Statements of Cash Flows Georgia-Pacific Corporation and Subsidiaries Year ended December 31 (Millions) 1992 1991 1990 Cash provided by (used for) operations Net income (loss)......................................................................................... $(124) Adjustments to reconcile net income (loss) to cash provided by operations: Depreciation.............................................................................................. 747 Depletion.................................................................................................. 42 Deferred tax provision (benefit)............................................................. (133) Amortization of goodwill......................................................................... 59 Cumulative effect of accounting changes, net of taxes.......................... 55 Stock compensation programs................................................................. 42 Gain on sales of assets................................................................................ (33) Amortization of debt issue costs, discounts and premiums.................. 6 Other income........................................................................................... -- Extraordinary item, net of taxes............................................................... - (Increase) decrease in receivables ............................................................. (87) (Increase) decrease in inventories.......................................................... 61 Change in other working capital............................................................... 206 Change in other assets and other long-term liabilities.......................... 27 Cash provided by operations 868 $ (142) 673 51 (25) 60 63 67 (38) 35 (344) 45 92 (43) 43 43 580 $ 365 622 77 48 50 4 (16) 31 (48) -- 929 34 (12) (H) 2,073 Cash provided by (used for) investment activities Capital expenditures Property, plant and equipment................................................................. Timber and timberlands........................................................................... . . (347) (37) (490) (38) (833) (33) Total capital expenditures............................................................................. Acquisition of Great Northern Nekoosa Corporation................................. Proceeds from sales of assets........................................................................... Other................................................................................................................ (384) 59 (8) (528) (7) 1,251 30 (866) (3,565) 204 (2) Cash provided by (used for) investment activities (333) 746 (4,229) Cash provided by (used for) financing activities Repayments of long-term debt...................................................................... Additions to long-term debt......................................................................... Fees paid to issue debt.................................................................................... Increase (decrease) in bank overdrafts.......................................................... Increase (decrease) in commercial paper and other short-term notes . . . . Cash dividends paid...................................................................................... (566) 754 (7) (50) (519) (140) (2,055) 610 (4) 27 226 (140) (5,543) 7,111 (114) (29) 905 (139) Cash provided by (used for) financing activities (528) (1,336) 2,191 Increase (decrease) in cash.................................................................................. 7 (10) 35 Balance at beginning of year........................................................................... 48 58 23 OO | Balance at end of year $ 55 $ 58 The accompanying notes are an integral pan of these financial statements. Refer to Note 5 for supplemental cash flow information. SGP 0001755 Balance Sheets Georgia-Pacific Corporation and Subsidiaries December 31 (Millions, except shares and per share amounts) 1992 1991 Assets Current assets Cash ........................................................................................................................................ $ 55 $ 48 Receivables, net........................................................................................................................ 331 228 Inventories............................................................................................................................... 1,192 1,228 Other current assets............................................................................................................................... 2958 Total current assets1,6071,562 Timber and timberlands, net..................................................................................................... 1,402 1,377 Property, plant and equipment, net......................................................................................... 5,831 5,567 Goodwill........................................................................................................................................ 1,891 1,949 Other assets................................................................................................................................... ............ 159167 Total assets $10,890 $10,622 Liabilities and shareholders' equity Current liabilities Bank overdrafts, net................................................................................................................ $ 121 Commercial paper and other short-term notes.................................................................... 691 Current portion of long-term debt...................................................................................... 257 Taxes payable............................................................................................................................ 193 Accounts payable..................................................................................................................... 563 Other current liabilities......................................................................................................... ............627504 Total current liabilities2,4522,722 Long-term debt, excluding current portion............................................................................. Other long-term liabilities......................................................................................................... Deferred income taxes .............................................................................................................. 4,019 709 1,202 $ 171 1,210 346 3 488 3,743 626 795 Commitments and contingencies Shareholders' equity Common stock, par value $.80; authorized 150,000,000 shares; 88,111,000 and 87,421,000 shares issued.................................................................................................... Additional paid-in capital.................................................................................................... Retained earnings.................................................................................................................. Long-term incentive plan deferred compensation............................................................. Other....................................................................................................................................... Total shareholders' equity Total liabilities and shareholders'equity The accompanying notes are an integral pan of these financial statements. 70 1,094 1,393 (39) (10) 2,508 $10,890 70 1,045 1,657 (28) (8) 2,736 $10,622 SGP 0001756 Statements of Shareholders' Eouitv Georgia-Pacific Corporation and Subsidiaries (Millions, except shares) Common srock shares issued 86,664,000 12,000 45,000 (17,000) 86,704,000 145,000 580,000 (8,000) 87,421,000 186,000 112,000 392,000 88,111,000 Balance at December 31,1989 Net income Cash dividends declared-! 1.60 per common share Common stock issued: Stock option plan Employee stock purchase plan Long-term incentive plan Other Balance at December 31,1990 Net loss Cash dividends declared-$1.60 per common share Common stock issued: Stock option plan Employee stock purchase plans Long-term incentive plan Other Balance at December 31,1991 Net loss Cash dividends declared- 1.60 per common share Common stock issued: Stock option plan Employee stock purchase plan Long-term incentive plan Other Balance at December 31,1992 Total Common stock $2,717 365 $69 -- (139) 1 10 21 2,975 (142) _ _ _ -- 69 -- (140) 8 20 25 (10) 2,736 (124) _ 1 _ -- 70 -- (140) 12 4 22 (2) $2,508 _ _ _ -- $70 The accompanying notes are an integral part of these financial statements. Additional paid-in capital Retained earnings Long-term incentive plan deferred compensation Other $1,009 -- $1,713 365 $(56) -- $(18) -- (139) __ 1 (16) 1 _ _ -- 995 1,939 -- (142) __ __ 26 _ -- 20 (30) -- 2 -- 8 19 23 - 1,045 -- (140) _ _ _ -- 1,657 (124) __ __ 2_ -- (10) (28) -- (8) -- (140) 12 _ 4_ 33 _ - -- $1,094 $1,393 __ __ (11) -- _ (2) $(39) $(10) SGP 0001757 Notes to Financial Statements Georgia-Pacific Corporation and Subsidiaries Note i. Summary of Significant property are capitalized and the replaced properties are Accounting Policies retired. Replacements of minor components of property v. The 'i : n c ; e s of C o w s o c i o a t i o m COn- and repair and maintenance costs are charged to solidated financial statements include the accounts expense as incurred. of Georgia-Pacific Corporation and subsidiaries (the Depreciation is computed by the straight-line Corporation). All significant intercompany balances method over the estimated useful lives of the related and transactions are eliminated in consolidation. assets. Useful lives are 20 years for land improvements, Revenue R f.cogivition The Corporation recog 20 to 33 years for buildings and 3 to 20 years for nizes revenue when title to the goods sold passes to the machinery and equipment. Upon retirement or dis buyer, which is generally at the time of shipment. position of assets, cost and accumulated depreciation 1 N c o jvi e ^ toss) p eh s h a p c Income (loss) per are removed from the related accounts and any gain share is computed based on net income (loss) and the or loss is included in income. weighted average number of common shares outstand Effective January 1,1991, the Corporation changed its ing (net of restricted stock). The effects of assuming depreciation method from the composite rate method issuance of common shares under long-term incentive, to providing depreciation expense on an item basis. The stock option and stock purchase plans were either Corporation believes this method is preferable because insignificant or antidilutive. The number of shares it provides a better matching of costs and related reve used in the income (loss) per share computations nues. The effect of this change on the accompanying were 86,402,000 in 1992 , 85,837,000 in 1991 and financial statements was not material. 85,322,000 in 1990. The Corporation capitalizes interest on projects i (J V . h' T o s Y Va 1 u ay : o k Inventories are valued when construction takes considerable time and entails 40 at the lower of average cost or market and include the major expenditures. Such interest is charged to the cost of materials, labor and manufacturing overhead. property, plant and equipment accounts and amortized The last-in, first-out (LIFO) dollar value pool method over the approximate life of the related assets in order is used to value approximately 49% and 54%, respec to properly match costs with revenues resulting from tively, of inventories at December 31, 1992 and 1991- the facilities. Interest capitalized, expensed and paid Effective January 1,1991, the Corporation changed was as follows: its accounting policy at certain manufacturing facilities to include in inventory certain supplies that were previously expensed. The Corporation believes this method is preferable because it provides a better match ing of costs and related revenues and is more consistent with the Corporation's tax reporting method. The cumulative effect of this change for years prior to 1991 (Millions) Total interest costs Interest capitalized Interest expense Interest paid Year ended December 31 1992 1991 1990 $567 (2) $598 (14) $645 (39) $565 $584 $606 $544 $585 $528 was to increase net income by $56 million in 1991 after t i m , a ft! 0 timbtri. anus The Corporation related income tax expense of $35 million. This change depletes its investment in timber based on the total had no effect on 1991 operating results after recording fiber that will be available during the estimated growth the cumulative effect for years prior to 1991- The pro cycle. Timber carrying costs are expensed as incurred. forma effect of the change on years prior to 1991 lAMUfiLis a tv o l a a o o .-j .> The Corporation was not determinable. accrues for landfill closure costs over the periods ~ > i: -r v . P <,, X id V A !V D E O. U 5 0 M M T that benefit from the use of the landfill and accrues Property, plant and equipment are recorded at cost. for lagoon dean-out costs over the useful period Lease obligations for which the Corporation assumes between clean-outs. substantially all the property rights and risks of owner ft ec . *ss- >icm ions Certain 1991 and 1990 ship are capitalized. Replacements of major units of amounts have been reclassified to conform with the 1992 presentation. SGP 0001758 Georgia-Pacific Corporation and Subsidiaries Note 2. Industry Segment Information Manufactured product lines in the building products segment consist primarily of wood panels (plywood, hardboard, particleboard and oriented strand board), lumber, gypsum products, chemicals and roofing. Manufactured product lines in the pulp and paper segment consist primarily of containerboard and pack aging (linerboard, medium, bleached board, kraft paper and corrugated packaging), communication papers, market pulp, tissue and envelopes. Timber and timberlands are managed to supply raw materials to both the pulp and paper and building prod ucts segments. Profits from sales of logs and chips to the pulp and paper segment and to outside customers in the ordinary course of business are included in the operating profits of the building products segment. During the years 1990 through 1992, sales to foreign markets represented less than 10% of total sales to unaffiliated customers. No single customer accounted for more than 10% of total sales to unaffiliated cus tomers in any year during that period. (Millions) Net sales Building products Pulp and paper Other operations Total net sales Net income (loss) Building products Pulp and paper Other operations Other income* Total operating profits General corporate Interest expense Cost of accounts receivable sale program (Provision) benefit for income taxes Income (loss) before extraordinary item and accounting changes Extraordinary item -- loss from early retirement ofdebt, net of taxes Cumulative effect of accounting changes, net of taxes Net income (loss) 1992 Year ended December 31 1991 1990 $ 6,112 5,711 24 $11,847 52% 48 - 100% $ 5,405 6,089 30 $11,524 47% 53 - 100% $ 5,923 6,702 40 $12,665 47% 53 - 100% $ 691 (8) 9 - 692 (166) (565) (35) 14 (60) (9) (55) $ (124) 100% (1) 1 - 100% $ 344 362 17 344 1,067 (165) (584) (59) (293) (34) (45) (63) $ (142) 32% 34 2 32 100% $ 423 979 17 48 1,467 (94) (606) (48) (354) 365 - $ 365 29% 67 1 3 100% `Other income represents the results of various asset divestitures as described in Note 4. If these amounts had been included in segment operating profits, pulp and paper operating profits would have been $346 million in 1991 and $939 million in 1990 and building products operating profits would have been $504 million in 1991 and $511 million in 1990. 41 SGP 0001759 Georgia-Pacific Corporation and Subsidiaries (Millions) Depreciation, depletion and goodwill amortization Building products Pulp and paper Other and general corporate Total depreciation, depletion and goodwill amortization Capital expenditures** Building products Pulp and paper Timber and timberlands Other and general corporate Total capital expenditures Assets Building products Pulp and paper Timber and timberlands Other and general corporate Total assets 1992 Year ended December 31 1991 1990 $ 206 626 16 $ 848 24% 74 2 100% $ 232 537 15 $ 784 30% 68 2 100% $ 241 496 12 $ 749 32% 66 2 100% S ill 217 37 19 $ 384 29% 56 10 5 100% $ 43 436 38 11 $ 528 8% 83 7 2 100% $ 102 3,210 469 8 $ 3,789 3% 85 12 - 100% $ 1,634 7,414 1,402 440 $10,890 15% 68 13 4 100% $ 1,681 7,208 1,377 356 $10,622 16% 68 13 3 100% $ 1,762 8,181 1,630 487 $12,060 15% 68 14 3 100% ** The capita) expenditure amounts reported above represent additions, at cost, to property, plant and equipment and timber and timberlands. Note 3. Acquisition In March 1990, the Corporation acquired a controlling stock interest in Great Northern Nekoosa Corporation (GNN), a producer of pulp, communication papers, newsprint and containerboard; a converter of cor rugated boxes and envelopes; and a distributor of com munication and other papers. At the acquisition date, GNN also owned three wood products operations, hydro-electric plants and 3,436,000 acres of fee timberland and controlled 233,000 acres of leased timberland. The amount required to purchase the stock and pay related fees and expenses was approximately $37 bil lion. The results of GNN's operations have been included in the accompanying statements of income and cash flows beginning on March 9,1990. The acquisition was recorded using the purchase method. The purchase price exceeded the fair value of net assets acquired by approximately $2.0 billion. This amount is included in goodwill and is being amortized over 40 years. Note 4. Asset Divestitures The Corporation had no major divestitures in 1992. The following divestitures were completed in 1991 and 1990. The pretax gains and losses associated with these sales are included in other income in the accom panying statements of income. In December 1991, the Corporation completed the sale of an 80 percent ownership interest in two groundwood paper mills, the hydro-electric assets that power those mills, a sawmill and approximately 2.1 million acres of fee timberland for approximately $303 million in cash. A pretax gain of $52 million ($15 million after taxes) was recognized on this transaction. In July 1992, the Corporation received $22 million less working capital settlements of approximately $12 million related to the remaining 20 percent ownership interest. In June 1991, the Corporation sold 49,000 acres of fee timberland in Washington for $48 million in cash. A pretax gain of $46 million ($29 million after taxes) was recognized on this transaction. SGP 0001760 Georgia-Pacific Corporation and Subsidiaries In January 1991, the Corporation sold two domestic containerboard mills, 19 corrugated packaging plants and approximately 540,000 acres of fee timberland (and lease rights to 98,000 acres of timberland) for $725 million in cash and, in a separate transaction, sold its interests in a foreign containerboard mill, two corrugated packaging plants and two sheet plants for $102 million in cash. A combined pretax gain of $246 million ($28 million after taxes) was recognized on these transactions. In December 1990, the Corporation sold 119,000 acres of fee timberland in Washington, Arkansas and Mississippi in two separate transactions for $108 million in cash. A pretax gain of $88 million ($55 million after taxes) was recognized on these transactions. In October 1990, the Corporation sold its interests in four printing and specialty papers manufacturing facilities located in the United Kingdom for $61 million in cash. A pretax loss of $40 million ($25 million after taxes) was recognized on this transaction. Note s. Supplemental Cash Flow I N F O R M AT I o N The noncash effect of the adoption of Financial Account ing Standard Number 109 (Note 9) as ofJanuary 1, 1992 was as follows: (Millions) Increase (decrease) in: Receivables Inventories Timber and timberlands Property, plant and equipment, net Other assets Increase) decrease in: Taxes payable Other current liabilities Long-term debt, excluding current portion Other long-term liabilities Deferred income taxes $3 25 39 676 (6) (177) (9) 3 (112) (442) $- Note e. Supplemental Balance Sheet I N F O R M AT I O N Supplemental information on certain balance sheet items is as follows: (Millions) Receivables Trade Other Less estimated allowances Inventories Raw materials Finished goods Supplies LIFO reserve Property, plant and equipment Land and improvements Buildings Machinery and equipment Construction in progress Accumulated depreciation Other current liabilities Accrued compensation Accrued interest Other December 31 1992 1991 $ 270 $ 172 96 92 366 264 35 36 $ 331 $ 228 $ 318 $ 329 784 779 282 284 (192) (164) $ 1,192 $ 1,228 $ 247 1,101 9,420 64 $ 214 986 8,521 54 10,832 (5,001) 9,775 (4,208) $ 5,831 $ 5,567 1 179 $ 153 132 112 316 239 $ 627 $ 504 Note 7. Receivables The Corporation has a large, diversified customer base. The Corporation had sold fractional ownership interests in a defined pool of trade accounts receivable for $800 million as of December 31,1992 and 1991 and $850 million as of December 31,1990. The net cash proceeds are reported as operating cash flow in the accompanying statements of cash flows. The sold SGP 0001761 Georgia-Pacific Corporation and Subsidiaries accounts receivable are reflected as a reduction of Not es and Debentures During 1992, the receivables in the accompanying balance sheets. Under Corporation issued $250 million of 95/s% Debentures the agreement, which expires in June 1994, the maxi Due March 15, 2022, $250 million of 9%% Debentures mum amount of the purchasers' investment is currently Due May 15, 2022 and $250 million of 9Vis% Deben $800 million and is subject to change based on the level tures Due July 1, 2022. of eligible receivables and restrictions on concentrations During the fourth quarter of 1992, the Corporation of receivables. The full amount of the allowance for redeemed in full $125 million aggregate principal doubtful accounts has been retained because the amount of its 11.30% Discount Term Debentures Due Corporation has retained substantially the same risk 2015 and $50 million aggregate principal amount of its of credit loss as if the receivables had not been sold. 93/4% Notes due 1995 in accordance with their early A portion of the cost of the accounts receivable sale redemption provisions. In addition, approximately program is based on the purchasers' level of investment $32 million of the Corporation's 10.5% Debentures and borrowing costs. Additionally, the Corporation Due 2018 were repurchased in October 1992. The Cor pays fees based on its senior debt ratings. The total cost poration has reflected an extraordinary loss of $14 mil of the program, which was $35 million, $59 million lion ($9 million after taxes) related primarily to and $48 million for 1992,1991 and 1990, respectively, premiums paid on early retirement of debt. is included in selling, general and administrative The estimated fair value of the Corporation's notes expense in the accompanying statements of income. and debentures at December 31,1992 was $4,046 mil Note 8. Indebtedness lion compared with a carrying amount of $3,817 million. The Corporation's indebtedness included the following: The fair value was estimated primarily by obtaining quotes from brokers for these or similar issues. For notes 44 December 31 and debentures for which there are no quoted market (Millions) 1992 1991 prices, the fair value was estimated by calculating the Debentures, 9.7% average rate, payable through 2022 Notes, 8.2% average rate, payable through 2000 $2,579 $1,986 1,238 1,521 present value of anticipated cash flows. The discount rates used were estimated borrowing rates for similar debt instruments with like maturities. Commercial paper and other short-term Unsecured Term Loan and Revoiving notes, 4.1% average rate Revenue bonds, 4.5 % average rate, payable through 2026 Other loans, 7.8% average rate, payable through 2008 691 1,210 Credit Facility In connection with the acqui sition of GNN, the Corporation had entered into a 371 278 credit agreement dated June 26,1990, which provided 121 326 a $2.5 billion seven-year unsecured term loan and a 5,000 5,321 $1.5 billion three-year unsecured revolving credit facil Less: ity. During the 1991 fourth quarter, the Corporation Commercial paper and other short-term notes Current portion of long-term debt Unamortized discount Long-term debt 691 257 33 $4,019 1,210 346 22 $3,743 prepaid the outstanding portion of the term loan. On December 31, 1991, the Corporation refinanced its existing revolving credit facility by entering into a new agreement with Bank of America National Trust and Savings Association and 24 other domestic and The scheduled maturities of long-term debt for the international banks which provides a three-year next five years are as follows: $257 million in 1993, unsecured revolving credit facility of $1.5 billion. The $82 million in 1994, $57 million in 1995, $50 million revolving credit facility is being used as support for in 1996 and $313 million in 1997. commercial paper and other short-term borrowings, SGP 0001762 Georgia-Pacific Corporation and Subsidiaries including bid borrowings made under the credit agreement. As of December 31,1992, $809 million was available in excess of all short-term borrowings outstanding under or supported by the facility. Borrowings under the credit agreement bear interest, at the election of the Corporation, at either (A) the higher of the reference rate and the Federal Funds Rate plus Vi% or (B) LIBOR plus Vs% or (C) fixed or floating rates set by competitive bids. Fees associated with this revolving credit facility include a commitment fee of Vb% per annum on the unused portion of the com mitments and a facility fee of Vis % per annum on the aggregate commitments of the lenders. The revolving credit agreement contains certain restrictive covenants which were amended effective October 15, 1992. As amended, the covenants include a maximum leverage ratio (funded indebtedness to oper ating cash flow) of 4.5 to 1.0 for measurement periods ending on or beforejune 30,1993 and 4.0 to 1.0 for measurement periods ending on or after September 30, 1993, and a minimum interest coverage ratio (operating cash flow to interest paid) of 2.0 to 1.0 for measurement periods ending on or beforejune 30,1993, 2.5 to 1.0 for measurement periods ending September 30,1993 through June 30,1994, and 3.0 to 1.0 for measurement periods ending on or after September 30,1994. As of December 31,1992, the leverage ratio was 4.2 to 1.0 and the interest coverage ratio was 2.4 to 1.0. The prepayment of the term loan and the refinanc ing of the revolving credit facility in 1991 resulted in the accelerated write-off of approximately $72 million ($45 million after taxes) of capitalized debt issue costs associated with the original borrowings. This loss on early extinguishment of debt is reflected as an extraor dinary item in the accompanying statements of income. Commercial Paper and Other Short- term notes These borrowings are classified as current liabilities although all or a portion of them may be refinanced on a long-term basis in 1993. The carrying amounts approximate fair value because of the short maturity of these instruments. DuringRevenue Bonos and Other Loans 1992, the Corporation refunded $73 million of 11.25% industrial revenue bonds. The estimated fair value of the Corporation's revenue bonds and other loans at December 31, 1992 was $367 million and $121 million, respectively. The fair value was estimated by calculating the present value of anticipated cash flows. The discount rates used were estimated borrowing rates for similar debt instruments with like maturities. Other At December 31,1992, the amount of long term debt secured by property, plant and equipment and timber and timberlands was not material. At December 31,1992, the Corporation had out standing interest rate exchange agreements which effec tively converted $1.9 billion of floating rate obligations with a weighted average interest rate of 3.6% to fixed rate obligations with an average effective interest rate of approximately 9-0%. Under the agreements, which have a remaining average maturity of approximately 3.2 years, the Corporation makes payments to counter parties at fixed interest rates and in turn receives pay ments at variable rates. The differential to be paid or received is accrued as interest rates change and is recog nized over the lives of the agreements. The Corporation is exposed to credit risk in the event of nonperformance by the counterparties, but does not anticipate such nonperformance. As of December 31,1992, the Corpo ration's total floating rate debt, including the accounts receivable sale program, exceeded related interest rate exchange agreements by approximately $205 million. The estimated fair value of interest rate exchange agreements for the Corporation at December 31,1992 was $153 million. The fair value was estimated by obtaining quotes from brokers and represents the esti mated amount the Corporation might have paid to terminate the agreements at December 31, 1992. The Corporation had accrued interest of $37 million at December 31,1992 related to these agreements. The $121 million carrying amount of bank overdrafts approximates fair value. SGP 0001763 Georgia-Pacific Corporation and Subsidiaries Note 9. Income Taxes Effective January 1,1992, the Corporation adopted the provisions of Financial Accounting Standard Number 109, "Accounting for Income Taxes" (FAS 109). FAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the differences between the financial and tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. Prior years' financial statements have not been restated to reflect the provisions of FAS 109- The cumulative effect of the change in the method of accounting for income taxes attributable to years prior to 1992, was to increase the net loss by $55 million. The $55 million charge resulted primarily from providing deferred income taxes for differences between the remaining net book values and the tax bases of net assets acquired in purchase transactions other than the acquisition of GNN, offset by a reduction in previously provided deferred taxes to reflect the lower current statutory income tax rate. Additionally, the Corpo ration recorded adjustments to various balance sheet accounts which resulted from adjusting to pretax amounts the carrying values of certain assets and lia bilities related to the Corporation's acquisition of GNN in March 1990. These adjustments are detailed in the supplemental information on noncash trans actions included in Note 5. The adjusted carrying values resulted in additional depreciation and deple tion expense of $69 million in 1992. The provision (benefit) for income taxes consisted of the following: (Millions) Federal income taxes: Current Deferred State income taxes: Current Deferred Provision (benefit) for income taxes Income taxes paid, net of refunds Year ended December 31 1992 1991 1990 $ 105 (117) $277 (21) $255 44 14 (16) $ (14) $ 68 41 (4) $293 $273 51 4 $354 $297 Income taxes paid includes payments associated with asset sales of approximately $275 million in 1991 and $25 million in 1990. The difference between the statutory federal income tax rate on income (loss) before income taxes, extraordi nary item and accounting changes and the Corpora tion's effective income tax rate is summarized as follows: Year ended December 31 1992 1991 1990 Statutory federal income tax rate State income tax, net of federal benefit Permanent differences resulting from purchase accounting: Goodwill amortization Other Permanent differences on assets sold Foreign sales corporation Interest on tax audits Life insurance, net Other (34.0)% (4.0) 30.2 -- -- (7.9) - (1.8) (1.4) 34.0% 4.0 8.7 19.6 52.2 (2.0) (5.4) (5) 2.5 34.0% 4.0 2.7 8.3 -- (-9) (l) 1.2 Effective income tax rate (18.9)% 113.1% 49 2% During 1992, the Corporation reached a settlement with the Internal Revenue Service (IRS) to resolve all pending income tax issues related to Georgia-Pacific Corporation for the years 1984 through 1988. As a result of this settlement, $155 million in additional taxes and interest will be paid in iy93. This amount, net of the tax benefit related to the deductibility of the interest, is included for 1992 in Taxes Payable in the accompanying balance sheet. The Corporation had adequately reserved for this settlement in prior years. In addition, the IRS has examined GNN's federal income tax returns for the years 1980 through 1984 and is currently examining the years 1985 through 1988. The IRS has proposed certain adjustments, several of which are being contested by the Corporation. In the opinion of management, adjustments resulting from these examinations will not have a material adverse effect on the Corporation's financial condition. SGP 0001764 Georgia-Pacific Corporation and Subsidiaries For 1992, the Corporation recorded alternative mini mum tax of $36 million which may be utilized to offset future tax liabilities to the extent that the Corporation's regular tax liability exceeds the alternative minimum tax liability. The components of the net deferred tax liability as of December 31,1992 were as follows: (Millions) Deferred tax asset: Compensation related accruals Accruals and reserves Other Valuation allowance Deferred tax liability: Property, plant and equipment Timber and timberlands Other Deferred tax liability, net $ 271 78 93 442 - 442 (1,416) (162) (66) (1,644) $(1,202) During 1991 and 1990, deferred income taxes were pro vided for significant timing differences between revenue and expenses for tax and financial statement purposes. Following is a summary of the significant components of the deferred tax provision (benefit): (Millions) Tax over (under) financial depreciation and depletion Liability accruals and write-down of certain assets Compensation expense Financing costs Other Defetrcd tax provision (benefit) Year ended December ?1 1991 1990 $ (5) $ 95 41 (52) (1) (8) 1(25) (22) (25) $ 48 Note 10. Retirement Plans Most ofOrfiNSO Benefit P t n s i o n Plans the Corporation's employees participate in noncon tributory defined benefit pension plans. These include plans which are administered solely by the Corporation and union-administered multiemployer plans. The Corporation's funding policy for solely administered plans is based on actuarial calculations and the applica ble requirements of federal law. Contributions to multiemployer plans are generally based on negotiated labor contracts. For periods prior to 1991, certain employees also par ticipated in noncontributory defined benefit pension plans which were administered jointly by the Corpora tion and labor unions. Contributions to these plans were generally based on negotiated labor contracts. Benefits under the majority of plans for hourly employees (including multiemployer plans) are pri marily related to years of service. The Corporation has separate plans for salaried employees and officers under which benefits are primarily related to compensation and years of service. The officers' plan is not funded and is non-qualified for Federal income tax purposes. Plan assets consist principally of common stocks, bonds, mortgage securities, interests in limited partner ships, cash equivalents and real estate. At December 31, 1992 and 1991, respectively, $46 million and $25 mil lion of noncurrent prepaid pension cost was included in other assets. The accrued pension cost of $34 million and $32 million at December 31,1992 and 1991, respec tively, was included in other long-term liabilities. The following table sets forth the funded status of the solely and jointly administered plans and the amounts recognized in the accompanying balance sheets. 47 SGP 0001765 Georgia-Pacific Corporation and Subsidiaries Year ended December 31,1992 (Millions) Plans having assets in excess of accumulated benefits Plans having accumulated benefits in excess of assets Accumulated benefit obligation at November 30 Vested portion Nonvested portion $ 918 28 $244 12 Effect of projected future compensation levels 946 256 10 11 Projected benefit obligation at November 30 Plan assets at fair value at November 30 956 1,119 267 201 Plan assets in excess of (less than) projected benefit obligation Contributions made in December Unrecognized net (gain) loss Unrecognized prior service cost Unrecognized net asset from initial application of FAS 87 Adjustment required to recognize minimum liability Prepaid (accrued) pension cost at December 31 163 4 (68) (24) (29) - $ 46 (66) 33 22 (15) (8) $(34) Year ended December 31,1991 Plans having assets in excess of accumulated benefits Plans having accumulated benefits in excess of assets $ 866 26 892 15 907 1,032 $197 8 205 10 215 167 125 - (42) (21) (37) - $ 25 (48) 31 8 (16) (7) $(32) Net periodic pension cost for solely and jointly admin The increase in the expected long-term rate of return istered pension plans included the following: on plan assets in 1991 reduced 1991 expense by approxi 48 Year ended December 31 mately $6 million. (Millions) 1992 1991 1990 During 1991, the Corporation recognized an Service cost of benefits earned Interest cost on projected benefit $ 75 $ 73 $ 67 aggregate pretax settlement and curtailment gain of $10 million resulting from pension obligations assumed obligation 96 93 82 by the purchaser in certain asset divestitures (Note 4). Actual (gain) loss on plan assets Net amortization (deferral) Contributions to multiemployer pension plans Net periodic pension cost (157) 11 (206) 70 51 (183) 4 $ 29 4 $ 34 2 $ 19 The CorDcfined Contribution Plans poration sponsors several defined contribution plans to provide eligible employees with additional income upon retirement. The Corporation's contributions to the plans are based on employee contributions and The following assumptions were used: compensation. The Corporation's contributions totaled 1992 1991 1990 $43 million in 1992 and 1991 and $34 million in 1990. Discount rate used to determine the projected benefit obligation Rate of increase in future compensation levels used to determine the projected benefit obligation Expected long-term rate of return on plan assets used to determine net periodic pension cost 8.0% 8.5% 9.0% 6.0 6.0 6.0 11.5 11.5 11.0 R C: t i r e e Health Care a n o Life Insurance bcnsfits The Corporation provides certain health care and life insurance benefits to eligible retired employees. Salaried participants generally become eligible for retiree health care benefits after reaching age 55 with 10 years of service or after reaching age 65. Benefits, eligibility and cost-sharing provisions for hourly employees vary by location and/or bargaining unit. Generally, the medical plans pay a stated percent age of most medical expenses reduced for any deduct ible and payments made by government programs and other group coverage. The plans are unfunded. SGP 0001766 Georgia-Pacific Corporation and Subsidiaries The cost of providing most of these benefits has been shared with retirees. The Corporation began transfer ring its share of the cost of post-age 65 health care benefits to future salaried retirees in 1991- The Corpora tion will continue to reduce the percentage of the cost of post-age 65 benefits that it will pay on behalf of salaried employees who retire in each of the years 1992 through 1999- The Corporation will continue to share the pre-age 65 cost with future salaried retirees, but will no longer pay any of the post-age 65 cost for salaried employees who retire after 1999- The Corporation adopted Financial Accounting Stan dard No. 106, "Employers' Accounting for Postretire ment Benefits Other Than Pensions," as ofJanuary 1, 1991. This statement requires the accrual of the cost of providing postretirement benefits, including medical and life insurance coverage, during the active service period of the employee. The Corporation elected to immediately recognize the accumulated liability, mea sured as ofJanuary 1,1991. This resulted in a one-time, after-tax charge of $119 million (after reduction for income taxes of $73 million) which does not include amounts accrued in prior years for business acquisitions. The effect of this change on 1991 operating results, after recording the cumulative effect for years prior to 1991, was to recognize additional pretax expense of $23 mil lion. The pro forma effect of the change on years prior to 1991 was not determinable. Prior to 1991; the Corpo ration recognized expense in the year the benefits were provided. Postretirement health care and life insurance costs charged to expense in 1990 were not material. The following table sets forth the funded status of the plans, reconciled to the accrued postretirement benefit cost recognized in the Corporation's balance sheet at December 31,1992 and 1991; (Millions) Accumulated postretirement benefit obligation: Retirees Fully eligible active plan participants Other active participants Unrecognized net loss Accrued postretirement benefit cost Year ended December 31 1992 1991 *242 44 131 417 (58) *359 $221 41 100 362 (20) *342 Net periodic postretirement benefit cost for 1992 and 1991 included the following components: (Millions) Service cost of benefits earned Interest cost on accumulated postretirement benefit obligation Net periodic postretirement benefit cost Year ended December 31 1992 1991 $6 $8 27 30 *33 $38 For measuring the expected postretirement benefit obligation, a 14 percent and 15 percent annual rate of increase in the per capita claims cost was assumed for 1992 and 1991, respectively. The rate was assumed to decrease 1 percent per year to 7 percent in 1999 and remain at that level thereafter. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 8.5 percent at January 1,1991, 8.0 percent at December 31,1991 and 7.5 percent at December 31,1992. If the health care cost trend rate were increased 1 percent, the accumulated postretirement benefit obligation as of December 31,1992 and 1991 would have increased by 13 percent. The effect of this change on the aggregate of service and interest cost for 1992 and 1991 would be an increase of 14 percent and 15 percent, respectively. During 1991, the Corporation recognized a pretax settlement gain of $43 million resulting from post retirement benefit obligations assumed by the purchaser in certain asset divestitures (Note 4). Other In November 1992, the Financial Accounting Standards Board issued Financial Accounting Standard Number 112, "Employers' Accounting for Postemploy ment Benefits," which requires recognition of benefits provided by an employer to former or inactive employees after employment but before retirement. Companies are required to adopt the new standard no later than for fiscal years beginning after December 15,1993. The Cor poration has not determined the period in which the new standard will be adopted or the impact of the adoption. 49 SGP 0001767 Georgia-Pacific Corporation and Subsidiaries Note 11. Common and Preferred Stock The Corporation's authorized capital stock consists of 10 million shares of no par value Preferred Stock and 25 million shares of no par value Junior Preferred Stock, of which no shares were issued at December 31,1992, and 150 million shares of Common Stock, par value $.80 per share. At December 31,1992, the following authorized shares of the Corporation's common stock were reserved for issue: 1991 Employee Stock Purchase Plan 1990 Long-Term Incentive Plan 1984 Employee Stock Option Plan Common stock reserved 1992 1,596,000 3,462,000 1,225,000 6,283,000 Stock Purchase Plans At December 31,1992, the 1991 Employee Stock Purchase Plain (Purchase Plan) had reserved for issue 1.596.000 shares of common stock at a subscription price of $35.12. Subscribers have the option to receive a refund of their payments plus interest at the rate of 7% per annum in lieu of stock. Additional shares can no longer be subscribed under the Purchase Plan, which expires on May 31, 1993- Approximately 9.000 subscribers remained in the Purchase Plan at December 31,1992. Under the Purchase Plan, the Corporation issued 112.000 shares and 21,000 shares of common stock in 1992 and 1991, respectively. Under the 1989 Employee Stock Purchase Plan (which expired on April 30,1991), the Corporation issued 559,000 shares of common stock in 1991 and 45,000 shares in 1990. lo.vG.Te Incentive Plans The 1990 Long-Term Incentive Plan (Incentive Plan) initially reserved 4,000,000 shares for issue with 2,310,000 shares allocated but not awarded to plan participants at December 31, 1992. Specified portions of the shares allocated under this plan are awarded as restricted stock, at no cost to the employee, based on increases in the average market value of the Corporation's common stock. At the time awarded shares become vested, the Corporation will pay each participant a cash bonus in the amount of the estimated income tax liability to be incurred by the participant as a result of the award. Long-term incentive plan deferred compensation is amortized over the vesting (restriction) period, generally five years, with adjustments made quarterly for market price fluctuations. The Incentive Plan replaced the 1988 Long-Term Incentive Plan (1988 Incentive Plan). As of Decem ber 31,1992,1,105,000 shares had been awarded to the plan participants under the 1988 Incentive Plan. These awarded shares will vest based on the provisions in the 1988 Incentive Plan. The Corporation recognized Incentive Plan compen sation expense of $51 million in 1992, $43 million in 1991 and $14 million in 1990. Additional information relating to the Incentive Plan is as follows: Shares allocated but not awarded at January 1 Shares allocated Previously allocated shares cancelled Shares awarded Previously awarded shares cancelled Shares allocated but not awarded at December 31 Shares available for allocation at December 31 Total shares reserved Year ended December 31 1992 1991 1990 2,708,000 2,733,000 536,000 400,000 122,000 2,841,000 (407,000) (538,000) (155,000) - (661,000) - 147,000 8,000 17,000 2,310,000 2,708,000 2,733,000 1,152,000 1,292,000 1,267,000 3,462,000 4,000,000 4,000,000 .l, pld v s: 5 , ;; k O p , P' .. a The 1984 Employee Stock Option Plan (Option Plan) provides for the granting of stock options to certain officers and key employees. Holders of stock options may be granted cash bonuses, payable upon exercise of an option, of an amount not to exceed the amount by which the market value of the common stock, as defined, exceeds the option price. In addition, holders may surrender all or part of the related stock option in exchange for common stock with a fair market value equal to the amount by which the market value of the shares covered by the option exceeds the aggregate option exercise price. SGP 0001768 Georgia-Pacific Corporation and Subsidiaries Compensation resulting from stock options and cash bonuses is initially measured at the grant date based on the market value of the common stock, with adjust ments made quarterly for market price fluctuations. The Corporation recognized Option Plan compensa tion expense (income) of $15 million in 1992, $31 mil lion in 1991 and $(7) million in 1990. Additional information relating to the Option Plan is as follows: Options outstanding atJanuary 1 Options granted Options exercised/ surrendered Options cancelled Options outstanding at December 31 Options available for grant at December 31 Total reserved shares Options exercisable at December 31 Option prices per share: Granted Exercised/ surrendered Cancelled Year ended December 31 1992 1991 1990 1,029,000 446,000 1,191,000 461,000 832,000 422,000 (464,000) (30,000) (570,000) (53,000) (34,000) (29,000) 981,000 1,029,000 1,191,000 244,000 1,225,000 659,000 1,688,000 1,067,000 2,258,000 557,000 599,000 791,000 $66 $39--$54 $44 $34-$46 $34-$66 $26-$46 $34--$46 $21--$46 $26--$46 Shareholder Rights Pia n The Corporation has a Shareholder Rights Plan pursuant to which pre ferred stock purchase rights are issued at the rate of one Right for each share of common stock. The Rights expire on July 31,1999, unless redeemed earlier. Each Right entitles the holder to buy, at an exercise price of $175, one one-hundredth of a newly issued share of Series A Junior Preferred Stock of which 5 million shares were reserved for issue at December 31,1992. Due to the nature of its dividend, liquidation and voting rights, the economic value of one one-hundredth of a share of Junior Preferred Stock that may be acquired upon the exercise of each Right should approximate the economic value of one share of common stock. The Rights are exercisable only if a person or group acquires 15% or more of the Corporation's common stock or announces a tender offer for 30% or more of the common stock. If a person becomes the beneficial owner of 15 % or more of the Corporation's outstanding common stock, or if a holder of 15% or more of the Corporation's stock engages in certain self-dealing transactions or a merger transaction in which the Corporation is the surviving Corporation and its common stock remains outstanding, then each Right not owned by such party will entitle its holder to purchase, at the then-current exercise price, shares of the Corporation's Series A Junior Preferred Stock with a market value of twice the exercise price. In addition, if after any person acquires 15% or more of the Corporation's outstanding common stock, the Corporation is involved in a merger or other business combination transaction with another person after which its common stock does not remain outstanding, or the Corporation sells 50% or more of its assets or earning power, each Right will entitle its holder to pur chase, at the then-current exercise price, shares of the other party's common stock with a market value of twice the exercise price. Note 12. Commitments and Contingencies The Corporation is a party to various legal proceedings incidental to its business and is subject to a variety of environmental and pollution control laws and regula tions in all jurisdictions in which it operates. As is the case with other companies in similar industries, the Corporation faces exposure from actual or potential claims and legal proceedings involving environmental matters. The Corporation is self-insured for general liability claims up to $5 million per occurrence. The Corporation is involved in environmental remediation activities at numerous sites where it has been named a potentially responsible party under the Comprehensive Environmental Response, Compensa tion and Liability Act or similar state "superfund" laws and at certain of its own plants. The ultimate costs to the Corporation for the remediation of these sites cannot be predicted with certainty due to the often 51 SGP 0001769 Georgia-Pacific Corporation and Subsidiaries unknown magnitude of the pollution or of the neces sary cleanup, the varying costs of alternative cleanup methods, the evolving nature of cleanup technologies and government regulations, and the inability to pre cisely determine the Corporation's share of multi-party cleanups or the extent to which contribution will be available from other parties. The Corporation has estab lished reserves for environmental remediation costs for these sites in amounts which it believes are probable and reasonably estimable. Based on currently available information and analysis, the Corporation believes that it is reasonably possible that costs associated with these sites may exceed current reserves by amounts that may prove insignificant or that could range, in the aggregate, up to approximately $100 million. This estimate of the range of reasonably possible additional costs is less cer tain than the estimates upon which reserves are based, and in order to establish the upper limit of such range, assumptions least favorable to the Corporation among the range of reasonably possible outcomes were used. In estimating both its current reserves for environmental remediation and the possible range of additional costs, the Corporation has not assumed that it will bear the entire cost of remediation of every site to the exclusion of other known potentially responsible parties who may be jointly and severally liable. The ability of other potentially responsible parties to participate has been taken into account, based generally on the parties' financial condition and probable contribution on a per site basis. No amounts have been recorded for potential recoveries from insurance carriers. In the fourth quarter of 1992, the Corporation filed suit in the State of Washington against numerous insur ance carriers for coverage under comprehensive general liability insurance policies issued by those carriers. The Corporation is seeking a declaratory judgment to the effect that past and future environmental remediation and other related costs with respect to certain of the sites are within the policy provisions. Approximately 211 suits involving approximately 8,815 plaintiffs are currently pending in State Court in Mississippi which primarily allege nuisance, tres pass and infliction of emotional distress caused by the discharge of dioxin into the Leaf River from a pulp mill owned by a subsidiary of the Corporation. Two of these cases have been tried. A total of $241,000 in compensa tory damages and $4 million in punitive damages were awarded to three plaintiffs in these cases with respect to certain claims, and the jury found in favor of the Corporation with respect to a fourth plaintiff. The Corporation has appealed both judgments. Although there can be no assurances as to the ulti mate outcome, the Corporation, based on the opinions of counsel, believes that substantial grounds exist for reversal of the two judgments and that it has meritorious defenses to the remaining claims (the vast majority of which are principally for emotional distress as a result of consuming fish from the rivers). On July 15, 1992, the plaintiffs in one of the pending suits had moved to certify a class action. On October 20, 1992, the court issued an order certifying a class action on behalf of between 8,000 and 13,000 plaintiffs own ing property and businesses on the Leaf, Pascagoula and Escatawpa Rivers as well as persons who have eaten fish from, swam in or made recreational use of the rivers. The order granted an immediate right to appeal the class certification to the Mississippi Supreme Court and specifically encouraged such appeals. The Corpo ration has appealed. Although there can be no assur ance as to the outcome of the appeal or whether the Mississippi Supreme Court will entertain such an appeal immediately, the Corporation believes that because, among other issues, there is no provision in the Mis sissippi rules of procedure for a class action, substantial grounds exist for the reversal of the court's order. On January 23,1992, the mill's primary insurance carrier took the position that these claims are not within its coverage. Suit has been filed against the mill's insurance carriers seeking a declaratory judgment to the effect that such claims are within the policy provisions. Although the ultimate outcome of these legal proceedings cannot be determined with certainty, management believes that any liability resulting from the pending matters, after considering existing reserves, will not have a material adverse effect on the consoli dated financial condition of the Corporation. SGP 0001770 Georgia-Pacific Corporation and Subsidiaries Note 13. Related Party Transaction The Corporation is a 50% partner in a joint venture (GA-MET) with Metropolitan Life Insurance Company (Metropolitan). GA-MET owns and operates the Corporation's office headquarters complex in Atlanta, Georgia. The Corporation accounts for its investment in GA-MET under the equity method. At December 31,1992, GA-MET had an outstanding mortgage loan payable to Metropolitan in the amount of $162 million. The note bears interest at 9%%, requires monthly payments of principal and interest through 2011 and is secured by the land and building of the Atlanta headquarters complex. In the event of foreclosure, each partner has severally guaranteed pay ment of one-half of any shortfall of collateral value to the outstanding secured indebtedness. Based on the present market conditions and building occupancy, the likelihood of any obligation to the Corporation with respect to this guarantee is considered remote. Note it. Unaudited Selected Quarterly Financial Data (Millions, except per share amounts) First Quarter 1992"' 1991U) Second Quarter 1992(`) 1991U) Net sales Gross profit (net sales minus cost of sales) Income (loss) before extraordinary item and accounting changes*01 Income (loss) per share before extraordinary item and accounting changes Net income (loss)01 Net income (loss) per share Dividends declared per common share Price range of common stock High Low $2,830 $2,778 626 547 (3) (-03) (58) (.67) .40 (10) (.12) (73) (.85) .40 72.00 53.50 48.50 36.25 $3,046 $2,981 610 636 4 29 .04 .34 4 29 .04 .34 .40 .40 71.75 57.75 57.75 41.00 Third Quarter 19920 1991U) $3,061 $2,973 634 602 (174) (31) (2.01) (174) (2.01) .40 (36) (31) (-36) .40 62.63 50.13 58.75 51.63 Fourth Quarter 1992 1991 $2,910 $2,792 545 540 113 (22) 1.31 104 1.21 .40 (.26) (67) (.78) .40 62.50 48.25 60.25 46.25 *" As restated to reflect the change in accounting for income taxes (Note 9). ,-'1 As restated to reflect the changes in accounting for inventory (Note 1) and postretirement medical and life insurance benefits (Note 10). 01 Includes after-tax gains (losses) on asset divestitures of $43 million in the 1991 first quarter, $29 million in the 1991 second quarter, $(12) million in the 1991 third quarter and $12 million in the 1991 fourth quarter (Note 4). 53 SGP 0001771 Report of Independent Public Accountants Georgia-Pacific Corporation and Subsidiaries To the Shareholders and the Board of Directors of Georgia-Pacific Corporation: We have audited the accompanying balance sheets of Georgia-Pacific Corporation (a Georgia corporation) and subsidiaries as of December 31,1992 and 1991 and the related statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1992. These financial statements are the responsibility of the Corporation's manage ment. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with gen erally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial state ments are free of material misstatement. An audit includes examining, on a test basis, evidence support ing the amounts and disclosures in the financial state ments. 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 tha? our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Georgia-Pacific Corporation and subsidiaries as of December 31,1992 and 1991 and the results of their operations and their cash flows for each of the three years in the period ended December 31,1992 in conformity with generally accepted accounting principles. As explained in Note 9 to the financial statements, effective January 1,1992, the Corporation changed its method of accounting for income taxes. Also as explained in Notes 1 and 10 to the financial statements, effective January 1,1991, the Corporation changed its methods of accounting for certain manufacturing supplies and for postretirement health care and life insurance benefits. Atlanta, Georgia February 11,1993 <jP C*0. SGP 0001772 Report on Management's Responsibilities Georgia-Pacific Corporation and Subsidiaries Management of Georgia-Pacific Corporation is responsible for the preparation, integrity and fair pre sentation of the consolidated financial statements and the estimates and judgments upon which certain amounts in the financial statements are based. Manage ment is also responsible for preparing the other financial information included in this annual report. In our opinion, the financial statements on the preceeding pages have been prepared in conformity with generally accepted accounting principles, and the other financial information in this annual report is consistent with the financial statements. Management is also responsible for establishing and maintaining a system of internal control over financial reporting, which encompasses policies, procedures and controls directly related to, and designed to provide reasonable assurance as to, the reliability of the pub lished financial statements. An independent evaluation of the system is performed by the Corporation's internal audit staff in order to confirm that the system is ade quate 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 recom mendations regarding the internal control system which have been brought to its attention by the internal audit staff or independent public accountants and has taken the steps it deems appropriate to maintain a cost-effective internal control system. The Audit Committee of the Board of Directors, consisting of five 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 con trol system can provide only reasonable assurance with respect to financial statement preparation. Further more, the effectiveness of an internal control system can vary over time due to changes in conditions. Management believes that as of December 31,1992, the internal control system over financial reporting is adequate and effective in all material respects. James E. Terrell Vice President and Controller Iw G James C. Van Meter Vice Chairman and Chief Financial Officer T. Marshall Hahn, Jr. Chairman and Chief Executive Officer February 11, 1993 SGP 0001773 Selected Financial Data -- O p e rat i o n s Cass-1 O i v ; u *i rt & i) to E a n i w g $ (Dollar amounts, except per share, and shares are in millions) Cash dividends declared (common and preferred) divided by net income (loss). E au.V'NGS to Interest Income (loss) from continuing operations before income taxes, extraordinary items and accounting changes plus interest expense Operations Net sales_____________________________________________ Costs and expenses Cost of sales ................................................................... Selling, general and administrative ........................... Depreciation and depletion ................................ Interest ....................................................................... Other (income) expense .............................................. divided by total interest cost (interest expense Total costs and expenses plus capitalized interest). In the 1992,1991 Income (loss) from continuing operations before and 1990 calculations, respectively, the $35 mil unusual items, income taxes, extraordinary items lion, $59 million and $48 million cost of the and accounting changes ......................................... accounts receivable sale program was included in interest expense. Unusual items ................................................................ Provision (benefit) for income taxes ................................ Income (loss) from continuing operations before C >. o i< cLaW 7 0 I N TERES V Cash provided by continuing operations plus extraordinary items and accounting changes.............. Income (loss) from discontinued operations, net of taxes Extraordinary items and accounting changes, net of taxes interest expense divided by total interest cost Net income (loss) (interest expense plus capitalized interest). In Cash provided by continuing operations** 56 the 1991 and 1990 calculations, respectively, cash provided by continuing operations excludes $(50) million and $850 million from the accounts receivable sale program. In the Other statistical data Per common share Income (loss) from continuing operations before extraordinary items and accounting changes......... 1992,1991 and 1990 calculations, respectively, Income (loss) from discontinued operations.............. the $35 million, $59 million and $48 million Extraordinary items and accounting changes ........... cost of the accounts receivable sale program was included in interest expense. Spfect've Income Tax Rati?. Provision (benefit) for income taxes divided by income (loss) from continuing operations before income taxes, extraordinary items and accounting changes. Net income (loss) Dividends declared ..................................................... Average shares of common stock outstanding.............. Shares of common stock outstanding at year end ......... Cash dividends to earnings .............................................. Earnings to interest ......................................................... Cash flow to interest ....................................................... Effective income tax rate .................................................. * The results of Great Northern Nekoosa Corporation and its subsidiaries have been included beginning on March 9,1990. ** Excludes the accounts receivable sale program. SGP 0001774 Georgia-Pacific Corporation and Subsidiaries 1992 1991 1990* 1989 Year ended December 31 1988 1987 1986 1985 1984 1983 1982 $11,847 $11,524 $12,665 $10,171 $9,509 $8,603 $7,223 $6,716 $6,682 $6,040 $5,003 9,432 9,199 9,738 7,621 7,452 6,777 5,783 5,553 5,441 4,978 4,206 1,135 1,102 951 689 632 583 511 431 426 374 359 . 789 724 699 514 450 387 339 310 282 289 275 565 584 606 260 197 124 138 132 156 157 186 -- (344) (48) -- -- -- -- - -- 135 30 11,921 11,265 11,946 9,084 8,731 7,871 6,771 6,426 6,305 5,933 5,056 j ( j (74) 259 -- (14) 293 719 1,087 778 732 452 290 377 107 (53) -- -- -- 66 33 19 19 -- 79 354 426 311 340 189 102 143 32 6 (60) (34) (64) (108) 365 -- -- $ (124) $ (142) $ 365 $ 868 $ 630 $ 1,223 661 -- -- $ 661 $ 1,358 467 -- - $ 467 $ 865 458 -- -- $ 458 $ 781 296 - -- $ 296 $ 575 207 (30) 10 253 (134) -- 75 30 -- $ 187 $ 119 $ 105 $ 771 $ 509 $ 460 20 32 101 $ 153 $ 367 57 ........... ........... ........... $ (-69) $ (.40) $ -- __ (-74) (1.25) $ (1-43) $ (1-65) $ $ 1.60 $ 1.60 $ 86.4 85.8 88.1 87.4 100%+ 100% + 0.9 1.4 2.4 1.9 18.9% 113.1% 4.28 -- -- $ 4.28 $ 1.60 $ 85.3 86.7 38.1% 2.0 2.7 49.2% 7.42 -- -- $ 4.76 -- -- $ 4.23 - $ 2.70 -- -- $ 1.84 (-29) .10 $ 2.28 (1-31) -- $ .53 .30 -- $ (-01) .32 1.01 7.42 $ 4.76 $ 4.23 $ 2.70 $ 1.65 $ -97 $ .83 $ 1.32 1.45 $ 1.25 $ 1.05 $ .85 $ .80 $ -70 $ .60 $ 1.05 89-1 98.1 107.5 104.1 103.0 102.2 101.5 99.9 86.7 94.8 104.7 107.3 103.2 102.5 101.5 101.3 19.7% 26.3% 25.1% 32.8% 49.7% 71.4% 72.4% 77.8% 5.0 4.4 6.9 4.2 2.7 3.3 1.6 1.0 5.9 4.8 6.8 4.9 5.6 4.0 3.8 2.7 39.2% 40.0% 42.6% 39.0% 33.0% 36.1% 29.9% 23.1% : fer. SGP 0001775 Selected Financial Data -- Financial Position, End of Year 8 o o '< VALijf Per C c m m a iv Share Shareholders' equity minus the unamortized discount on redeemable preferred stock, divided by shares of common stock outstand ing as of the end of the year. Total Dest v o Capital Total debt divided by the sum of total debt, deferred income taxes, other long-term liabili ties, redeemable preferred stock and share holders' equity as of the end of the year. Total debt includes commercial paper and short term notes, current portion of long-term debt, long-term debt and accounts receivable sold. (Dollar amounts, except per share, are in millions) Financial position, end of year Current assets .............................................. Timber and timberlands, net ..................... Property, plant and equipment, net ......... Net assets of discontinued operations . . . Goodwill ..................................................... Other assets ................................................ Total assets Current liabilities ....................................... Long-term debt ............................................ Other long-term liabilities ......................... Deferred income taxes ................................ Redeemable preferred stock ....................... Shareholders' equity Working capital C G K r W t f< A r ' O Current assets divided by current liabilities as of the end of the year. Other statistical data Capital expenditures (including acquisitions)* .............. Capital expenditures (excluding acquisitions)*................ Per common share 58 Market price: High ......................................................... Low........................................................... Year-end .................................................. Book value .................................................................. Total debt to capital ......................................................... Current ratio....................................................................... * Represents additions, at cost, to property, plant and equipment and timber and timberlands. "The financial position of Great Northern Nekoosa Corporation and its subsidiaries has been included beginning March 9,1990. SGP 0001776 Georgia-Pacific Corporation and Subsidiaries 1992 1991 1990** 1989 Year ended December 31 1988 1987 1986 1985 1984 1983 1982 $ 1,607 1,402 5,831 -- 1,891 159 10,890 2,452 4,019 709 1,202 -- $ 2,508 $ (845) $ 1,562 1,377 5,567 -- 1,949 167 10,622 2,722 3,743 626 795 -- $ 2,736 $(1,160) $ 1,766 1,630 6,341 -- 2,042 281 12,060 2,535 5,218 404 928 -- $ 2,975 $ (769) $1,829 1,246 3,691 -- 91 199 7,056 924 2,336 238 841 -- $2,717 $ 905 $1,892 1,289 3,723 -- 101 110 7,115 1,013 2,514 165 788 -- $2,635 $ 879 $1,729 915 3,048 -- 92 86 5,870 996 1,298 152 744 -- $2,680 $ 733 $1,420 844 2,691 -- -- 159 5,114 837 893 124 695 113 $2,452 $ 583 $1,291 804 2,606 11 - 154 4,866 631 1,257 69 606 156 $2,147 $ 660 $1,406 840 2,270 158 Ill 4,785 640 1,383 34 503 190 $2,035 $ 766 $1,268 753 1,989 653 -- 69 4,732 612 1,453 26 413 215 $2,013 $ 656 $1,176 748 2,214 651 -- 130 4,919 716 1,618 22 365 209 $1,989 $ 460 . $ 384 $ 528 $ 3,789 $ 499 $1,552 $ 825 $ 482 $ 642 $ 710 $ 188 $ 207 384 528 866 493 711 550 444 624 403 184 203 . .......... ............. 72.00 48.25 62.38 28.47 56.6 % .7 60.25 36.25 53.63 31.30 59.5 % .6 52.13 25.38 37.25 34.31 63.1% .7 62.00 36.63 48.50 31.35 39.2% 2.0 42.88 30.75 36.88 27.79 42.9% 1.9 52.75 22.75 34.50 25.59 30.0% 1.7 41.25 24.75 37.00 22.70 25.0% 1.7 27.38 20.50 26.50 20.59 32.0% 2.0 25.75 18.00 25.00 19-58 35.7% 2.2 31.88 22.38 24.75 19-48 37.4% 2.1 27.25 13.25 26.25 19.22 42.1% 1.6 59 SGP 0001777 Sales and Operating Profits by Industry Segment (Millions)__________________________________ 1992______________ 1991______________ 1990***___________ 1989 Net sales Building products Wood panels .............................. Lumber....................................... Chemicals..................................... Gypsum products....................... Roofing ....................................... Other............................................ $ 2,543 2,055 240 216 185 873 22% 17 2 2 2 7 $ 2,097 1,819 223 222 183 861 18% 16 2 2 2 7 $ 2,296 1,966 247 270 192 952 18% 16 2 2 2 7 $ 2,488 2,109 253 299 194 745 24% 21 3 3 2 7 6,112 52 5,405 47 5,923 47 6,088 60 Pulp and paper Containerboard and packaging. Communication papers.............. Tissue......................................... Market pulp................................ Paper distribution and envelopes.................................. Other........................................... 2,001 1,070 682 681 1,208 69 17 9 6 6 10 -- 2,008 1,134 664 645 17 10 6 6 1,218 420 10 4 2,440 1,360 719 779 19 11 6 6 1,027 377 8 3 1,578 983 679 728 15 10 7 7 ---- 74 1 5,711 48 6,089 53 6,702 53 4,042 40 Other operations 60 Continuing operations 24 $11,847 -- 100% 30 $11,524 -- 100% 40 $12,665 -- 100% 4l $10,171 -- 100% Operating results* Building products........................... $ 691 100% $ 344 Pulp and paper................................ Other operations.............................. (8) (1) 91 362 17 Other income (expense)** -- 344 32% 34 2 32 $ 423 979 17 48 29% 67 1 3 $ 533 917 15 - 36% 63 1 - Continuing operations $ 692 100% $ 1,067 100% $ 1,467 100% $ 1,465 100% "Operating profits are before income taxes, interest, cost of accounts receivable sale program, general corporate expenses, unusual items, extraordinary items and accounting changes. ""Other income (expense) includes $344 million of pretax gains in 1991 and a net $48 million pretax gain in 1990 resulting from asset divestitures and pretax restructuring charges of $135 million and $18 million, respectively, ip 1983 and 1982. If these amounts had been included in segment operating profits, pulp and paper operating profits would have been $546 million in 1991, $939 million in 1990, $13 million in 1983 and $41 million in 1982; building products operating profits would have been $504 million in 1991, $511 million in 1990, $277 million in 1983 and $128 million in 1982; and other operations operating profits would have been $13 million in 1983 and $25 million in 1982. *** Sales and operating profits of Great Northern Nekoosa Corporation and its subsidiaries have been included beginning on March 9, 1990. SGP 0001778 Georgia-Pacific Corporation and Subsidiaries Year ended December 31 1988 1987 1986 1985 1984 1983 1982 $2,442 2,134 241 305 189 718 6,029 26% 22 2 3 2 8 $2,355 2,002 189 361 194 654 63 5,755 28% 23 2 4 2 8 $1,864 1,676 155 375 230 553 67 4,853 26% 23 2 5 3 8 $1,666 1,434 173 377 260 560 67 4,470 25% 21 3 6 4 8 $1,637 1,461 186 360 268 540 67 4,452 25% 22 3 5 4 8 $1,560 1,424 162 269 222 ' 506 67 4,143 26% 24 3 4 4 8 $1,217 1,003 136 183 197 450 69 3,186 24% 20 3 4 4 9 64 1,433 796 590 533 15 8 6 6 1,246 621 539 314 15 7 6 4 1,029 461 502 221 15 6 7 3 1,037 356 514 157 15 5 8 2 909 13 445 7 507 8 225 3 647 11 450 7 449 7 191 3 605 12 437 9 429 8 187 4 -- 84 1 90 1 68 1 70 1 25 31 3,436 36 2,810 33 2,281 32 2,134 31 `2,111 31 1,768 44 1 38 ~ 89 1 112 2 119 2 129 $9,509 100% $8,603 100% $7,223 100% $6,716 100% $6,682 100% $6,040 1 29 29 1,687 2 130 100% $5,003 1 34 2 100% $ 428 616 10 -- 41% $ 533 58 383 1 10 ---- 58% $ 41 1 500 146 35 ---- 73% $ 391 22 29 5 35 ---- 86% $ 379 6 202 8 20 ---- 63% 34 3 -- $ 354 71 13 (135) 117% 23 4 (44) $ 136 44 32 (18) 70% 23 16 (9) $1,054 100% $ 926 100% $ 681 100% $ 455 100% $ 601 100% $ 303 100% $ 194 100% 61 -i 4 SGP 0001779 Operating Statistics As of December 31,1992 Number of Facilities Annual Capacity Pulp and paper Paper (t.tons) Containerboard and packaging Linerboard and medium ................................................................................................... 4 2,941 Other paperboard .............................................................. 5 629 Kraft paper .......................................................................................................................... 2 342 Communication papers .......................................................................................................... 8 2,223 Tissue ........................................................................................................................................ 5 573 Groundwood papers ....................................................................................................... ---- Market pulp (t.tons) ........................................................................................................................................ 71,891 Total paper and market pulp 31 8,599 Converting Corrugated packaging (m.sq.ft.)............................................................................................ 37 Tissue (t.tons) .......................................................................................................................... 6 Envelopes (billion envelopes) ................................................................................................ 17 Other ................................................................ ,........................................................................................ 13 27,660 578 15 Total paper, market pulp and converting104 Distribution centers..................................................................................................................... 80 Building products 62 Wood panels Softwood plywood (Vs") (m.sq.ft.) ....................................................................................... Hardwood plywood (sm) (m.sq.ft.)....................................................................................... Hardboard ('/") (m.sq.ft.) ..................................................................................................... Particleboard (%") (m.sq.ft.) ................................................................................................ Oriented strand board (3/s") (m.sq.ft.).................................................................................. Panelboard (Vs") (m.sq.ft.)..................................................................................................... Softboard ('A") (m.sq.ft.)....................................................................................................... Fiberboard (W) (m.sq.ft.)..................................................................................................... Lumber(m.bd.ft.) ....................................................................................................................... Moulding (m.bd.ft.) ................................................................................................................... Gypsum board (m.sq.ft.) ............................................................................................................ Roofing--shingles (t.squares)..................................................................................................... Formaldehyde (m.lbs.)................................................................................................................ Thermosetting resins (m.lbs.)..................................................................................................... Other ............................................................................................................................................ Total building products152 Distribution centers .................................................................................................................. 18 5,019 2 495 8 1,395 8 1,148 4 952 1 379 1 250 1 100 43 2,739 3 31 10 3,062 5 9,484 13 1,888 16 2,962 19 139 Other operations Resources (as of December 31) North American timberlands (t.acres) Owned in fee ................................ Controlled .................................. * ** * The production of Great Northern Nekoosa facilities has been included beginning on March 9,1990. ** Excludes 540,000 fee acres and 98,000 controlled acres of timberland sold in January 1991. 4 SGP 0001780 Georgia-Pacific Corporation and Subsidiaries Production 1992 1991 1990* 1989 1988 1987 1986 1985 1984 1983 1982 2,889 526 377 2,002 576 -- 1,829 8,199 2,936 522 358 1,994 556 603 1,793 8,762 3,139 544 354 1,780 553 531 1,667 8,568 1,419 555 350 1,161 519 -- 1,194 5,198 1,297 458 356 970 511 -- 870 4,462 1,318 393 348 868 490 -- 718 4,135 1,146 368 394 731 496 -- 611 3,746 976 368 452 552 476 -- 587 3,411 740 374 529 574 486 -- 629 3,332 452 377 541 518 487 601 2,976 410 321 500 475 456 -- 576 2,738 25,411 521 13 24,010 491 13 31,356 497 12 16,640 467 -- 16,577 462 -- 15,750 446 -- 14,572 437 -- 13,703 432 - 11,880 422 -- 8,427 422 -- 7,680 393 -- 5,133 458 1,330 977 1,011 365 234 92 2,568 23 2,112 7,447 1,614 2,571 4,968 424 1,202 932 851 332 237 79 2,570 22 1,955 7,775 1,540 2,377 5,395 437 1,203 984 969 344 252 88 2,674 36 2,309 7,674 1,547 2,470 5,341 420 1,203 1,062 873 318 242 74 2,426 29 2,403 8,106 1,454 2,372 5,545 456 1,198 1,004 793 330 238 62 2,324 30 2,406 7,155 1,394 2,362 5,050 357 1,159 695 652 295 231 59 1,956 30 2,620 6,976 1,309 2,136 4,706 335 349 425 525 248 241 75 1,784 8 2,473 7,361 1,233 1,805 4,414 311 368 410 173 290 239 76 1,684 -- 2,495 7,789 1,188 1,650 4,443 343 361 381 96 311 243 69 1,650 -- 2,412 7,539 1,169 1,527 4,430 442 346 400 51 299 241 77 1,603 -- 2,242 5,973 1,081 1,451 3,831 444 220 303 -- 301 226 63 1,406 -- 1,681 5,363 966 1,146 63 5,722 927 5,969 922 8,203** 5,430 1,047** 670 5,480 1,010 4,910 670 4,700 530 4,760 480 4,920 480 4,630 530 4,630 510 sm = surface measure basis t = thousands m = millions SGP 0001781 Georgia-Pacific Corporation Officers T. Marshall Hahn, Jr. Chairman and Chief Executive Officer Maurice W. Kring Group Vice President-Packaged Products A.D. Correll President and Chief Operating Officer* John F. Rasor Group Vice President-Forest Resources James C. Van Meter Vice Chairman and Chief Financial Officer J. Wayne Amy Vice President-Metal Products WE. Babin Executive Vice President-Pulp and Paper Joseph J. Armetta Vice President-Distribution Division Midwest Region Davis K. Monensen Executive Vice President-Building Products Diane Durgin Senior Vice President-Law Donald L. Glass Senior Vice President-Building Products Manufacturing and Sales David S. Dimling Vice President-Sales and Marketing Communication Papers David R. Fleiner Vice President-Structural Panels William C. Howard Vice President-Manufacturing Southern Pulp and Paper George A. MacConnell Senior Vice President-Distribution and Millwork 64*- John F. McGovern Senior Vice President-Finance and Treasurer David W. Reynolds Senior Vice President-Human Resources and Administration Lee M. Thomas Senior Vice President-Environmental and Government Affairs Carroll T. Tolar Senior Vice President-Environmental Affairs James E. Bostic, Jr. Group Vice President-Communication Papers Gerard R. Brandt Group Vice President-Butler Paper and Mail-Well Willie L. Duke Group Vice President-Softwood Lumber Duncan B. Facey Group Vice President-Distribution Division Clint M. Kennedy Group Vice President-Pulp and Bleached Board Clifford T. Howlett, Jr. Vice President-Government Affairs Stephen K. Jackson Vice President-Distribution Division Northeast Region Jerry L. Kincaid Vice President-Manufacturing Communication Papers William A. Mamrack Vice President-Taxes John E. Masaschi Vice President-Industrial Wood Products Division Robert J. Millikan Vice President-Containerboard Dewey L. Mobley Vice President-Western Wood Products Manufacturing Division William B. Nagle, Jr. Vice President-Lumber Distribution Kelly E. Powell, Jr. Vice President-Distribution Division Western Region William D. Rose Vice President-Specialty Manufacturing and Sales Robert A. Starling Vice President-Distribution Division Southern Region `Becomes ChiefExecutive Officer effective May 4, 1993 and Chairman effective December 2,1993. SGP 0001782 Richard B. Spitznass Vice President-Compensation and Benefits James R. Taylor Vice President-Chemical Division Raymond H. Taylor Vice President-Engineering James E. Terrell Vice President and Controller Douglas A. Thom Vice President-Packaging Michael A. Vidan Vice President-Gypsum and Roofing Division Carl Wilson Vice President-Information Resources Kenneth F. Khoury Secretary Georgia-Pacific Corporation Directors T. Marshal] Hahn, Jr.1 Chairman and Chief Executive Officer A.D. Correll President and Chief Operating Officer* James C. Van Meter Vice Chairman and Chief Financial Officer Robert Carswell' *'4 Partner, Shearman & Sterling; Attorneys; New York, New York Jewel Plummer Cobb4 5 President Emerita of California State University, Fullerton and Trustee Professor of California State University; Los Angeles, California Donald V. Fites2 * Chairman and Chief Executive Officer, Caterpillar, Inc.; Peoria, Illinois Harvey C. Fruehauf, Jr.14 President, HCF Enterprises, Inc.; Private Investment Management Company; St. Clair Shores, Michigan Clifton C. Garvin, Jr.2! Chairman and Chief Executive Officer (retired), Exxon Corporation; New York, New York Richard V. Giordano'2 * Chairman and Chief Executive (retired), The BOC Group pic; Windlesham, England David R. Goode4 5 Chairman, President and Chief Executive Officer, Norfolk Southern Corporation; Norfolk, Virginia Francis Jungers1,2 Business Consultant; Portland, Oregon F. James McDonald' ' President and Chief Operating Officer (retired), General Motors Corporation; Detroit, Michigan Robert E. McNair2 5 Chairman of the Board and Senior Shareholder, McNair Law Firm, P.A.; Columbia, South Carolina Norma Pace4,5 Chairman, Board of Governors of U.S. Postal Service and President, Economic Consulting and Planning, Inc.; New York, New York James B. Williams' 4 5 Chairman and Chief Executive Officer, SunTrust Banks, Inc.; Atlanta, Georgia 65 'Executive Committee 'Audit Committee 'Stock Option Plan and Management Compensation Committee 'Finance Committee 'Nominating Committee SGP 0001783 Cc oka r t: H c a r: a a n t e s Georgia-Pacific Center, 133 Peachtree Street, N.E., Atlanta, Georgia 30303 Stock Exchanges and Symbols Georgia-Pacific Corporation Common Stock is listed on the New York Stock Exchange ("NYSE") and on the Tokyo Stock Exchange. The Corporation's NYSE symbol is "GP"; however, the stock is quoted as "GaPac" in stock table listings in newspapers. G-P options are traded on the Philadelphia Stock Exchange. T A O, (Vt s * n A ( I IV T AMD ReGSTAR First Chicago Trust Company of New York Post Office Box 3981 Church Street Station New York, New York 10008-3981 <5(>S' S H A R E H O l O E 8 I M F O R M AT I O W For shareholder information, contact the Transfer Agent and Registrar, First Chicago Trust Company of New York, at Post Office Box 3981, Church Street Station, New York, New York 10008-3981, or telephone (212) 791-6422. Registered G-P shareholders are eligible to participate in the G-P Dividend Reinvestment Plan. For information on the Plan, contact the Plan agent, First Chicago Trust Company of New York, Post Office Box 35 06, Church Street Station, New York, New York 10008-3506. P *. W A N O f a Inforwiation A copy of the Georgia-Pacific 1992 Annual Report to the Securities and Exchange Commission on Form 10-K will be supplied without charge. Annual Statistical Updates are also available. Requests for financial information should be directed to: Investor Relations, Georgia-Pacific Corporation, P.O. Box 105605, Atlanta, Georgia 30348, or telephone (404) 521-5555. Georgia-Pacific is an equal opportunity employer. SGP 0001784 1993 Georgia-Pacific Corporation. All rights reserved. Angel Soft, Sparkle, Coronet, MD, Delta, Hopper, Carrara and Cardigan are registered trademarks and Kiana is a trademark of Georgia-Pacific Corporation. Printed on Georgia-Pacific papers: Cover--Hopper Carrara White Kiana" Smooth, 100 lb. cover. Text -- Hopper Cardigan Ramie and Sisal, 80 lb. text. Design: Samata Associates Illustrations: John Youssi Portrait Photography: Marc Norberg Typography: Fine Print Typography, Inc. Lithography: George Rice & Sons Lithography in the United States of America SGP 0001785 Georgia-F&cific 133 Peachtree Street, N.E. Atlanta, Georgia 30303 SGP 0001786