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Reffecting the continued the 1990s. These retailers offer growth of the repair, remod afull line ofhome improve eling and additions market, ment items to the do-it- consumer-onentedhome cen yourselfer, including many ters proliferated during the building products from early 1980s and are expected Georgia-Pacific. to grow m importance during Georgia-Pacific's millwork andspecialty distribution centersfeature hardwood andsoftwood mouldings m hundreds ofpatterns, win dows, doors, stairparts -- anda high level ofcustomer service. We also have branches that specialize in products for the manufactured housing market. SGP 0030254 network of 145 building products distribution centers stocks a variety ofitems pur chasedjrom other manufac turers including insulation, doors andmetalproducts. Oar sales to home centers have grown dramatically over the past ten years. In 1990. those retailers accountedfor 35 percent ofour Distribution Division's sales. Each year, we sell about 32 billion oflumberproducts in a wide range ofspecies, grades and sizes. Lumber decks are popular home improvement protects ~or do-it-yourselfers. Oar national advertising cam paign encourages consumers to Ask for G-P TM Oar name and logo are prominently featured on Georgia-Pacific products at budding materials retailers. . J :,: Profits from our building"products business dediried in 1990. A drop in housing starts J . 'airid weakness in other sectors of the economy resulted in reduced demand and lower ; ^j^pn^form|n|of our building products,particularly softwood plywood. t' ^?^op starts ofprivately owned housing units fell to approximately 1.2 million in ft; .. '^1990,"the lowestlevel since the housing cycle's last trough in 1982. Although the current X |s* ?*"&'.*jri ;( ^. .'slump ^ v * in' new *' 1 home coj-nstruction is ' * ' .* largely, attributable ^ to a 'f weak U.S. economy, demo- : v.w. '..y '?:i ' ' ^ graphic factors suggest that housing starts in the 1990s will fall considerably below the "*/y-Jn'-r ' \t-. < 'vtv 'ly 1 * ", : " .-"'i /\ ' . .... . ' fe'>JTMf^Sn^^S^^^^l^i(mi39Os.,inie.high4CTds ofresidential constructio B.^^^art/^inii^iin'irl.Ar.oS'itmh.ffpr^M^'fimarilv.fMultedfiom household formations by _ Building Products Operating Profits/Housing Starts 1986 to 1990 (millions) ' 1.2. 1.4. 1.5_ Ba&^!^rodumori 6r^ose their miill "Most of Georgia-Pacific's wood products operations are Jlillpfei*'' & - NS" 'v *, ", '?? + '* nf-> > '.3 > ,' / ^ t ., '. .> , ,. , Pbv v. i . located inthe1 South, a region expected to provide an increasing share or this country s |fj- ^`7 . ~ ^ %;]v " ' , '` J ^ ^ < SGP 0030257 .i-vv j*VM '.> i . . . ;'. /V G^V ;V- --V ^ - -o , Despite difficult industry conditions in 1990, our distribution capability and the lower-cost position of our Southern mills allowed us to operate most of our facilities near capacity. However, lower prices have reduced margins. Although RR&A; industrial ; and export markets should continue to provide significant support to our building .-products business during periods of low housing starts, we expect 1991 profits for this . segment to be lower unless demand improves significantly. building Products Distribution Georgia-Pacific is the largest wholesaler of building -products in the United States, with 143 distribution cen ers located in major metro politan, areas in 45 states, We provide a high level of ser ce, quick delivery and a broad ;, consumer- theseipurohases amounted to.apprdxim illiofi".^EurtKiJecl products include wood panels, lumber and roofing, and product lines *%^i$diti6ns market. *1 * thatlwe donot manufacture, such asnailsand other metal products, doors, insulation, '-'v:' .l , " r/.'; qt'.:;*-'< --ny-.-.vinyl siding and adhesives. ; ' ,%pi4ip&-y ?.\ v- ^r'^Consumer-onented home improvement centers have grown in size and number |in recent years, reflecting the growth of the remodeling, repair and additions market. >qpi.rf;.These retailers offer a broad line of home improvement items, many of which are made -y. .- ..and/or distributed by Georgia-Pacific. In 1990, our Distribution Division's sales to . home centers were $1.5 billion. We also have increased our presence abroad, opening t!,: -v- V7 SGP 0030258 16 ' it^our second European building products sales office at Breda, Holland, in September. '"iv. /sk'- '-Ay-r ./' `.This office markets the company's full line of building products to customers in the . J> - Benelux countries,' France, Germany and Scandinavia. Our-office at Epsom, England, ' sj^iconunues to serve the`United Kingdom.' ys^-'V . afc-P annually produces moire_than"6 billion sgu^feg:^f|ttucfural .7C-wob3 panelsat24 facilities located primarily in the southern United States."Ihe largest v- ` :*. ^producer of softwood plywood in the U.S., we account for about 18 percent of domestic 'SJeneeredproducts : - ' continue to move into specialty applications . rjsuc'hjis decorative siding, 1' ; - s- ` ' sandedplywood and, ,,w,, ... .. w ,specialties mduae^PlyFraine?for furnitufe; :,'c - s ' 1 \?jHv ,vr' ' 's*< fc&iil^l^propeities ffib essential, as well as iriisomehoristructiori applicatioha'tErid'uses'iriclude' ^.^f..~?^:|fdmitur'e,>manufa;cnired housing,`shelving,'fibres,'toys, automotive parts and siding if-^ .. p*.7 :..*: .' '. 'SC.-. .. .... . . ^ . ;. ^ ^ i' '*;.v Uff'pSels. Increasing demand for ready-to-assemble furniture has provided a significant "-''c''! ?V'c,5-S?^,vi-"'-'^r"" " v."-rez 'yal.d; fv' : X^emand andpricesfor > ^.'vmafket for the company's particleboard arid hafdboard products. ` ' ; r: ` |^.j % ^.^^y^j^emsuid and prices for plywopd and.o^her^^wood.panejs were lower in 1990`because ".plywood and other wood c\:panels..weje lower in ; , .of lower housing starts and a slowing economy. In Septeriiber, thecompany closed its K--' " I plant in Coquille, Oregon (G-P's only softwood plywood operation in the region), as a I a result of poor market conditions and a continued shortage of timber in the Pacific fhC?ViL ::i??6 because oflower ' . . housing starts and a ' " / .. slowing economy. SGP 0030259 17 V,y> /_$; ^ ia. r: al . fc . . .a,. a w-- . . T 'V - - * . 1* ---' 1"' - ; : ^;'.V'-.' 'Oar IS softwoodplywood Northwest. A trend of production curtailments and plant closures in that region may j . plants are located in the continue because environmental restrictions have resulted in reduced timber availa j . . ';: J southern United States, !' supplies oftimber bility and high log costs. The.company's remaining 18 softwood plywood plants are located in the southern United States, where supplies of timber are more abundant I fffxjfffftre "more abundant and cost less than in the West. Increasingly, we supply many West Coast markets from \ : f.'ipfs'-Sfiar^d cost less. . . , ' our plants in the South. \' Lumber Georgia-Pacific is one of the industry's largest producers of lumber, account ing for about .2.6 billion board feet of lumber annually, or approximately five percent of .- *j>"'` /V i n U.S. lumber production in 1990. Most of our 46 lumber mills are locatec in the southern s ", U.S.'ljh|^<iinpajiy producesiand distributes a wide range of lumber products, including cSou^einliiiin^a of y^jpalaiWari and Southern hard'a^'^&i-g^^.jpie^ure- lce, ppnderosapinemd^pugl^fo. Other products include cut-to-size lumber and Wood I BeamTM (I-shaped beams made of :i? -T- '-1 - s,-.,j. _ are used in some construction applications). \ ^ .i----------J '--u~: is Southern pine lumber protected 'i-Wf^/^maielyfive percent of - ' " - in decks,'porches"and other exposed structures. V-\=y.r.Vr.;..y A: y -) . .... A. \ ` : |US.production, - ' ' ` . *. " V\ " '"Lrumb1 er prices in m19n9n0 -w. ere c-1lose.--to the m1989 average, although prices'fell signifi cantly from the peak levels reached in the l989 fourth quarter, Despite the reduced demand resulting from lower housing starts, we increased shipments of decking, high- 'K*b*SiSii-- grade boards, kiln-dried hardwood lumber.and exports. /` l,i . .." Gypsum Products Georgia-Pacific is the third largest producer of gypsum products in the United States, with manufacturing facilities at 15 locations and an annual capac ity of 3.1 billion square feet of gypsum board. The company has gypsum reserves of SGP 0030260 IS ^ approximately 129 million recoverable tons, which are located at gypsum mines and quarries in seven states and Nova Scotia, Canada. At current production rates, our reserves h h ? .represent approximately a 64-year supply. Gypsum products, primarily used in resi- i* 11-''S'k-' idential and commercial construction, include wallboard, fire door cores, plaster and `fir: : ':v ;v.:-' . " compound : The company's gypsum research and development center in Decatur, Georgia, ; plays a vital role in the continuing development of specialty gypsum products. One > v.,^->-'i'`such-product is Dens-Glass a fiberglass-faced gypsum wallboard that is more resistant fe * r" moisture than paper-faced product.. 'O' , ,ii/- r ' Giypsuni prices remained depressed in'1990, the result of declining residential to ifr'Si-f v hbpennpehftit from G-P s distribution strength and our focus on cost control and higher- O' * . : ft*:. 1 'c T'vv"^- ' fmafgiri specialty products. ' lli/AZ&iS&befnica/s Georgia-Pacific is a leading supplier of resins, adhesives and specialty V: `'i . chemicals to the forest products industry. We produce more than two billion pounds Ac k of-t^dsctaj^^^''a^Myatl'(S^laniBr''G-F^Chfcim62l'P^m6is^'^iarysup-' ! , 'plier of chemicals to our own building products and pulp and paper facilities, and also F^i$l5?^$"K^didjem''with a major source of technical support. In addition to meeting the mw|'if?- ?Company's internal requirements, more than half of our chemical production is sold to $-$? Rf,y' ' . other paper and building products companies. The company also manufactures resins |te.. `for industrial and agricultural uses. - ' ..' * ' We conduct most of our chemical research in laboratories at Decatur, Georgia, and |;V--y Tacoma, Washington. The Chemical Division is developing new products to address \?:< ' >' changes in paper-making technology brought about by the increased use of recycled 'v fiber. In addition, we are exploring the use of substitute raw materials to lessen our A dependence on petrochemical feedstocks. Our research anddevel opment center in Decatur, Georgia, plays a vital role in the developn e. t of specialty gypsum products. SGP 0030261 Ournew $10-million A new formaldehyde manufacturing facility, located adjacent to our resin plant formaldehydefacility at at Beaver Creek, Michigan, started operation in December 1990. The $10-million facil- Beaver Creek, Michigan, features innovative envi- ity has an annual capacity of 145 million pounds of formaldehyde, which is a necessary ingredient in the manufacture of thermosetting resins. The facility features techno - ronmentalcontrolsystems, logically innovative environmental control systems that eliminate more than 99-5 percent of air emissions and treat and recycle (rather than discharge) water from the manufacturing process. Roofing Georgia-Pacific manufactures both fiberglass and wood fiber-based asphalt shingles in a wide range of weights, designs and colors at its five.roofing plants. Because r of an aging U.S. housing stock, an estimated 65 to 75 percent of the industry's asphalt shingles are sold for reroqfing projects. Recognizing this, G-P has implemented a ; marketing program that targets roofing distributors whose primary custodiers are roofing contractors. The roofing market remained very competitive in 1990, -with overcapacity in the industry. Production costs increased in 1990 because the cost of asphalt-related raw f ""iriaterials has'risen with the price of crude oil. v' SGP 0030262 20 NVIRONMENTAL RESPONSIBILITY E "Georgia-Pacific sfuture depends on a healthy environment. That's why we feel compelled to add to our usual comments on operating andfinancial results a discussion ofG-P's environmental concern and actions. We are committedto improving the quality ofair and water; to utilizing solid waste forproducts and energy to conserve our natural resources; and to managing and renewing ourforests in ways that protect the environmental quality ofour timberland resources and meet the demands of the marketplace. Because most ofour employees live, work and enjoy recreation either in or near ourforests, G-P's environmental commitment isn't new, nor is it taken lightly. We believe protecting the environment and sustaining economic growth; and vitality are not mutually exclusive. Each is, in fact, dependent on the other, and enhancing our natural resource assets will add value , to our company !r assets." Ronald IfHogan President and Chiej Operating Officer SGP 0030263 Young Douglas fir on a One ofthe multiple uses of recently reforested slope near log mile. Oregon. Path warU torougn rerns ami Mild rhododendron, .i !)-year-old ,:.ma oj ir \> risible in me G-P timberlandis outdoor recreation. Hunting, fthing, nuking and boating are .,ome ot the more sommon rec reational Pursuits in our ForesterJames Gilbert is responsible for reforestation and forest management j.ans and operation> on arc .a G-P'i halt-million-ae 'or-sm in the L roueit. Acton.a-. area. This southern Arkansas tim berland. consisting primarily oi loblolly tune ana niue.l re.irdwoodi 'ante, among in-: most productive rm-je-growing areas oi w t-orin T'he wbitetail deem one of many species that t.hnve in G-?->'n.inaged rorestu woere vaiying age t.a.ue; ;>u oioihversity arc,vide an lovndance or browse, .over ;nd Sthe "edge effect''important to ilvwulture. the care and wildlife. Edge is the transi development of forests tor tion area between mature, tr commercial use. tan - : maturing, timber ana ecen.pt tmyrove toe yroattc::-: harvested timoertand or of iiir timherlana. agricultural .ana. loblotft .vine cr<j u-.e.. e are the same age -- toe .. .-gu from a managed G-Pforest. Modern silvics include Oretoaring a recently clear-tut ate s.r re time datum > anting genetically improved ,eeanng\ witit jOtuntm etc:tig >9.. I i h; and later thinning oj the timber stand. G-P gener ally managei forest; on a "uwtimber rotation about JO to 40 years in the loath and 10 to tOye.tr; -tong ~oe Pacipc Coast The hydroelectric system ("hoirugatedcontainers seme Wood waste such as bark near G-P's Millinocket. Maine. as collection bins (or recyclable ami sawdust provides an paper mill uses Penobscot Rarer water to generate elec tricity equivalent to a ;arings office castepaper tnroagoout the Atlanta headauarter; ;>id other somoany meations. important fitei source for G-P oian!s Resiau.it r-ooti anil other renewaote energy )f id mutton barren OR mil lion gallons/ oj oil annually. sources account tor )R Percent ej our energy requirements. SGP 0030268 Old corrugated containers Dioxin was discovered in (OCCj serve as an important supplementalfiber source at several G-P containerboara mills. Today. about halt si the nation ; OCC is recycled. paper mill effluent in 1987 u\ing improved detection technology \Voue toe trace quantities pound were wed below levels believed to be jape by most scientists. G-P has reduced dioxin from our paper mills by 81%. The geometric mean effluent concentration at G-? mi.i, :s now 6 Oarlsper qu.hlrotitni . 1 part per quadrillion . > secondm JJ million years. Environmental lab tech nicians at all G-P paper mills constantly monitor water mil ur quality to ensure tom lo anee with discharge syermits 31 parts per quadrillion SGP 0030269 Environmental Review Vjifford Pinchot, the father of American forestry, defined conservation as "the wise use of the Earth and its resources." To us, wise use means not only the conversion of natural resources into thousands of useful products, but also the protection of the environment during growth, removal and processing of those resources. In fact, environmental pro tection is a primary responsibility of all G-P employees, and the company's expectations are formally incorporated in our operating policy. An Environmental Policy Committee, directed by Georgia-Pacific's president and chief operating officer, reports regularly to our board of directors. Georgia-Pacific has had a long-standing concern and commitment to environ mental quality. Many of Georgia-Pacific's and the industry's efforts on behalf of envi ronmental quality predate by many years the 1970 Clear Air Act and the 1972 Clean Water Act, which were among the first environmental laws that formalized the nation's environmental regulatory efforts. Forest Resources Georgia-Pacific owns and manages more than 8 million acres of timberland in North America. We take our stewardship responsibilities seriously. We manage our timberlands for a continuous supply of timber to our mills, while simul taneously maintaining air and water quality. Our timberlands also provide wildlife habitat and are used for millions of hours of recreation. Georgia-Pacific's timberland is geographically diverse, requiring forest manage ment practices best suited to the species, climates, soils and end uses of the timber. Our Northeastern forest, predominantly in Maine, covers nearly 3 million acres. The com pany's 3.9 million acres of Southern timberland, primarily Southern pine, are part of the nation's largest forested region, which stretches from Virginia to East Texas. G-P also owns and manages some of the world's finest hardwood in the Appalachian mountains and other regions of the country. In the West, our holdings include 315,000 acres of (jeorgt'a-Pacific's early efforts on behalfofenvi ronmental quality predate the 1970 Clean Air Act and the 1972 Clean Water Act, SGP 0030271 23 use a variety offorest management practices. Ourforesters follow orexceed best manage mentpractices or state guidelines. prime Douglas fir and hemlock on the Oregon coast; in California, 196,000 acres of coastal redwood and Douglas fir and 126,000 acres of ponderosa and sugar pine in the Sierra mountains. All Georgia-Pacific forest management practices, including harvest decisions, are made with the understanding that new trees will be planted and/or naturally regen erated, and that we must consistently strive to upgrade the economic value while maintaining the environmental quality of the land. Most of Georgia-Pacific's forests are managed for sawtimber. Representing higher value at harvest, these logs usually go to our sawmills or plywood plants. Our pulp and paper mills use residual chips from the wood products facilities. G-P uses as much of each tree as possible, with the bark and other waste providing biomass fuel for our boilers, and sawmill shavings, plywood trim and sawdust processed for making par ticleboard. Even plywood cores, the parts remaining after veneer has been peeled off the logs, are sawed into 2x4 studs or chipped for use at pulp mills. G-P uses a variety of forest management practices, and we require our foresters to follow or exceed best management practices or state guidelines. While in some areas this means selective harvesting, in other areas clearcutting or seed-tree harvests are used to accelerate reforestation. Because valuable softwood species such as loblolly pine and Douglas fir are intolerant to shade, clearcutting is a necessary part of site preparation for a healthy new stand of timber. This method not only facilitates reforestation, but also during the early stages of regeneration, the managed forest provides dramatically increased biodiversity, browse and cover for many species of wildlife. Georgia-Pacific also uses carefully controlled burning, under the right conditions, as a valuable forest management tool. Controlled burning of logging debris or under growth helps reduce litter buildup, lowering the risk of wildfire and improving wildlife habitat. Our foresters use meteorological information to select ideal conditions for small burns in order to reduce smoke and the risk of wildfire. SGP 0030272 24 Nationwide, Georgia-Pacific plants approximately 50 million trees each year. We operate seed orchards, seedling nurseries and greenhouses in most of our forest regions, except where natural regeneration methods predominate. Even with demand for wood fiber increasing by more than 70 percent over the last 30 years, America still grows more timber than it harvests. However, evidence is mounting that shortages of softwood are coming. The conversion of Western commercial forests into wilderness or other limited-use status has caused increasing shortages. Trees are at the heart of our business. We grow trees and protect the land as though our future depends on it--because it does. Aar and Water Quality One of Georgia-Pacific's highest priorities is protecting the health and safety of our employees, the communities where we operate and the con sumers of our products. With 265 manufacturing facilities annually producing almost 9 million tons of pulp, paper and paperboard; nearly 12 billion square feet of panel products and about 2.6 billion board feet of lumber, plus many other products, we must remove enormous quantities of solids and particulate from our emissions into the air and our effluent into waterways. Modern wastewater treatment and emission control facilities are used at each of our plants to accomplish this task. We believe it is essential that sound scientific analyses be used in making decisions regarding environmental issues, and we provide financial support to advance environ mental research. We support the development of realistic health risk assessments, and we are prepared to stand behind sound science in matters concerning our products or manufacturing processes. Georgia-Pacific provides funding for a number of universities and industry and public organizations, such as the National Council for Air and Stream Improvement, that use scientific research to develop advanced processes to reduce adverse envi ronmental impact. These commitments require substantial capital resources. During the past two E ven with demandfor woodfiber increasing over the last 30 years, A merica stillgrows more timber than it harvests. One ofour highest priorities is the health and safety ofour employees, our communities and the consumers ofourproducts. SGP 0030273 25 Cj.eorgta-Pacific annually recycles more than 1 million tons ofpaper andpackaging to produce containerboard and otherproducts. While recycling is important, we must not forget the ultimate objective -- the wise and efficient use ofresources. decades, the pulp and paper industry has spent $8 billion on environmental projects. Georgia-Pacific's capital expenditures for pollution control facilities and equipment were $164 million during the past five years, with additional ongoing expenses incurred to maintain environmental regulatory compliance. Our financial commitment to envi ronmental improvement is significant. That is why v/e believe proper scientific methods rather than theory and emotion must drive environmental policy. Stolid Waste and Recycling Georgia-Pacific is committed to ongoing efforts to utilize manufacturing waste and byproducts efficiently, as v ell as to recycle post-consumer waste. We manufacture paper and building materials util :ing both wastepaper and manufacturing residuals. Over 6Q percent of our energy needs are self-generated from wood waste and other renewable sources. Thirty percent of all paper waste is already recovered and the U.S. paper industry's goal is to achieve 40 percent by 1995. Georgia-Pacific annually recycles more than 1 mil lion tons of paper and packaging to produce products that include sanitary tissue, com munication papers and containerboard. We use 100-percent recycled paperboard to sheathe our gypsum wallboard, and we also use recycled paper fiber in asphalt roofing. In addition, we make several grades of printing paper with secondary fiber, including the ProterraTM used in this annual report that contains 50-percent reprocessed wastepaper. G-P has initiated an office wastepaper collection system, and now employees at our headquarters in Adanta and other locations participate in the recycling effort. While recycling is important, we must not forget the ultimate objective --the wise and efficient use of resources. To solve the problem of shrinking capacity of solid waste landfills, the volume of garbage must be reduced. To achieve this reduction, recycling is an important step, and recycling can take many forms--incineration to energy, com posting, and separation to other products. Recycling legislation must give careful con sideration of the economics involved. For example, mandating percentages of recycled SGP 0030274 26 fiber content of office paper can shorten the effective life of the fiber, limit the uses of that wastestream and limit more efficient uses of waste fibers. An alternative example is Georgia-Pacific's use of office paper waste to make asphalt roofing shingles. Many years after application, when the shingles are removed from a roof, they can be used to make asphalt paving. Thus, the effective life of the original wood fiber can be extended for decades. Environment, Economy and Quality ofLife Georgia-Pacific believes that a num ber of factors contribute to our quality of life--a healthy environment, a safe workplace and the opportunity to maintain or improve our standard of living. We also believe the goal of environmental protection is achieved only when environmental benefits are clearly measurable and the economy continues to grow. One need only look at the poor quality of air and water in Eastern Europe, or the forest practices in some developing countries, to realize that a healthy environment and a healthy economy are inextricably intertwined. To the extent these factors remain in balance, our quality of life will con tinue to improve. Sacrificing the integrity of our economic base to the ever-increasing pursuit of a risk-free environment, however, will damage our economy and reduce our ability to fund environment-enhancing technologies and initiatives. w* believe environmental protection is achieved only when environmental benefits are measurable and the economy con tinues to grow. For more detailed information on Georgia-Pacific s environmental activities write to: Georgia-Pacific Corporation, Environmental Information, P.O. Box 105605, Atlanta, Georgia 30348, Attention: Corporate Communications. 27 SGP 0030275 Financial Table ofContents Financial Strategy 29 Management's Discussion and Analysis 34 Statements of Income 40 Statements of Cash Flows 41 Balance Sheets 42 Statements of Shareholders' Equity 44 Notes to Financial Statements 45 Report of Independent Public Accountants 56 Report on Management's Responsibilities 57 Selected Financial Data 58 Sales and Operating Profits by Industry Segment 62 Operating Statistics 64 Officers 66 Directors 67 Investor Information 68 SGP 0030276 28 SGP 0030277 1n the pastfive years, . Georgia-Pacific and Great Northern Nekoosa gen erated a combined cash flow from operations of $6.5 billion. Qjdsh Flow We believe it is more important to focus on the cash flow generated by our businesses than on net income. In 1990, Georgia-Pacific's cash flow from operations-- excluding $850 million provided by the sale of accounts receivable--declined only 10 percent, to $1.2 billion from a record $1.4 billion in 1989, despite higher interest pay ments and lower prices for many products. The decline in cash flow contrasts with a 45 percent decrease in net income. Net income was reduced by substantial noncash charges, including amortization of goodwill and increased depreciation and depletion resulting from the revaluation of assets acquired with Great Northern Nekoosa. In the past five years, Georgia-Pacific and Great Northern Nekoosa generated a com bined cash flow from operations of $6.5 billion, including a record $1.9 billion in 1989 alone. This internally generated cash flow provided most of the financing for substantial growth through capital expenditures and acquisitions over the same period. We believe that, with progress in debt reduction and the achievement of cost savings synergies, our business will be capable of generating average annual cash flows from operations of more than $1.5 billion over the course of the next economic cycle. Incentive Compensation Flans To reinforce Georgia-Pacific's commitment to increasing shareholder value, we have implemented compensation programs that align our managers' economic interests with those of our shareholders. We believe the value of our shareholders' investment in Georgia-Pacific can only be increased by generating returns that exceed our cost of capital. Our Management Incentive Plan is based on this concept. Compensation under this plan depends upon improvements in economic value added, which take into account the amount of after-tax cash flow, our cost of capital and the amount of capital invested in the business. Another incentive compensation plan directly ties management's interests to our shareholders' interests. Under the 1990 Long-Term Incentive Plan, approximately SGP 0030278 30 2.7 million shares of G-P common stock were allocated to 471 officers and key employees as of December 31,1990. The number of allocated shares that will be earned under this plan depends upon the achievement of specified increases in share price and upon the plan participant's continued employment for a specific time. For example, awards of shares allocated in 1990 are contingent upon $10 increases over an initial share price of $30. When the mean of the daily high/low market price of G-P common shares averages $60 over twenty consecutive trading days, 20 percent of a participant's allocation will be awarded. Subsequent awards are based on share price targets of $70, $80, $90 and, for the full allocation to be earned, $100, being achieved before the plan expires in March 1995. Generally, shares are not vested and cannot be sold by the employee until five years after they are awarded. The 1990 Long-Term Incentive Plan superseded a similar plan that had been adopted in 1988, under which participants earned 80 percent of the initial allocation in less than two years. Although economic conditions and equity prices declined in 1990, we believe the stock price targets under the 1990 Long-Term Incentive Plan present achievable goals for our management and give them a powerful incentive to increase shareholder value by improving efficiencies, generating cash and reducing debt. Capital Investments/Divestitures Our business is capital-intensive. Our ability to add value depends to a large extent on our ability to allocate funds to projects that generate returns in excess of our cost of capital. We routinely evaluate the performance of existing operations, and consider the divestiture of those that are not expected to deliver adequate returns. In the past five years, Georgia-Pacific has invested $7.1 billion in capital assets, including $6.0 billion for property, plant and equipment and $1.1 billion for timber w* have adopted an incentive compensation plan that directly ties management's interests to our shareholders' interests. (eorgia-Pacific has invested$7.1 billion m capital assets in the past five years, primarily in the pulp andpaper segment. SGP 0030279 31 ^ffle expect capital spending to be reduced. New capital expenditure authorizations in 1991 are expected to be less than $400 million. and timberlands. These expenditures include acquisitions of approximately $4.1 billion, including $2.9 billion for capital assets acquired with Great Northern Nekoosa in 1990. Most of our capital investments have been made in the pulp and paper segment. G-P evaluates internal expansion projects and acquisitions by the rate of return of free cash flow expected to be generated over the life of the investment. We define free cash flow as operating profits after taxes paid, plus noncash charges such as depreciation and depletion, minus any new investment in fixed assets or working capital. Our hurdle rate of return takes into account our cost of capital, the relative risk of the investment and other variables that can affect the investment's return. We perform post-completion audits on major projects to measure achieved returns against targeted returns. Other capital projects are defensive in nature, such as those undertaken to maintain our facilities or comply with environmental regulations. We estimate our requirements for such spending to be approximately $300 to $400 million annually. We expect capital spending to be reduced over the next few years as we direct cash toward debt reduction. Following capital spending of $866 million (excluding acqui sitions) in 1990, capital expenditures are expected to decline to approximately $700 million in 1991, including $560 million for projects begun in prior years. The generally excellent condition of our facilities will enable us to reduce capital spending after the completion of those projects. New capital expenditure authorizations for projects to begin in 1991 are expected to be less than $400 million. Given the large number of competitors in our industry and the relatively modest growth in demand projected for most of our products, we believe that large-scale, "greenfield" investment opportunities are limited. For that reason, we expect that our cash flows may often exceed the amounts that can be invested at attractive returns and that we will be in a position to resume our share repurchase program. SGP 0030280 32 Following the acquisition of Great Northern Nekoosa, we sold a portion of our domestic containerboard and packaging business, our G-P Inveresk subsidiary in the United Kingdom, our interests in a containerboard mill and packaging plants in France, several tracts of timberland and other assets. We will continue to review all of our oper ations for performance and strategic fit and may identify other facilities and timberlands that should be sold. Y^ividends andShare Repurchases In the past five years, we have distributed approximately $1.7 billion to our shareholders through a combination of dividends and stock repurchases. Our policy is to pay dividends at a rate of approximately one-third of sustainable earnings, recognizing the cyclical nature of our business. Following four consecutive years with fourth-quarter dividend increases, we left our quarterly dividend unchanged in 1990. We view the dividend payout in conjunction with our share repurchase program. Our board of directors authorized a share repurchase program that began in 1987 as a means of distributing excess cash to our shareholders and maintaining our ratio of debt to capital within a target range, currently set at 40 to 45 percent. In 1989, for example, cash provided by operations exceeded our capital expenditures and dividend payments by $729 million. Of this free cash flow, $468 million was used to repurchase 9.7 million shares of common stock. This brought total share repurchases since 1987 to 26.2 million at a cost of $1.1 billion. In October 1989 we suspended our share repurchase program, anticipating the higher leverage that resulted from the Great Northern Nekoosa acquisition. Our board's authorization to repurchase shares remains in effect, however, and we expect to resume our share repurchase program after we reduce debt to an appropriate level. w continue lo operations forperiormtoKi and strategic fit anti may identify faculties ana ttmberiands that should 'oe so/d. In the past five yean. G-'ti distributed approximately S1.7 billion to shareholders through share repurchases and dividends. SGP 0030281 33 Management's Discussion andAnalysis Georgia-Pacific Corporation and Subsidiaries 1990 Compared with 1989 reduction in the average number of shares outstanding Georgia-Pacific's consolidated net sales of $12.7 billion in due to stock repurchases during 1989. 1990 were 24.5 percent higher than in 1989. Net income Sales in the pulp and paper segment were $6.7 billion fell by 44.8 percent to $365 million in 1990, compared in 1990, 65.8 percent higher than in 1989- Operating with $661 million in 1989. The Corporation's 1990 results profits in 1990 of $979 million were 6.8 percent higher include the results of Great Northern Nekoosa Corpora than $917 million in 1989. Returns on sales fell to 14.6% tion (GNN) beginning on March 9,1990. in 1990, compared with 22.7% in 1989- Increased indus SelectedIndustry Segment Data try capacity, an economic rec. ;sion and lack of consumer (Millions)1990 Year ended December 31 confidence resulted in a busir. ss downturn affecting prices 1989 1988 Net sales Pulp and paper Building products Other operations $ 6,702 5,923 40 $ 4,042 6,088 41 $3,436 6,029 44 and demand for pulp and paper products, particularly market pulp and containerboard. Difficult industry and Total net sales $12,665 $10,171 $9,509 economic conditions are expected to continue in 1991, Operating profits Pulp and paper Building products Other operations Other income Total operating profits General corporate Interest expense Cost of accounts receivable sale program Provision for income taxes Net income $ 979 423 17 48 1,467 (94) (606) $ 917 533 15 - 1,465 (118) (260) $ 616 428 10 _ 1,054 (79) (197) with further price declines and lower profits expected for the pulp and paper segment. The building products segment reported sales of $5.9 billion in 1990, a 2.7 percent decrease from 1989- Operat ing profits of $423 million in 1990 were 20.6 percent lower (48) - - (354) (426) (311) than $533 million in 1989. Re urns on sales were 7.1% and $ 365 $ 661 $ 467 Lower net income resulted from deteriorating economic conditions which affected both the pulp and paper and building products segments, particularly in the fourth quarter of 1990, and from higher interest expense fol lowing the acquisition of GNN. Business conditions weakened further in the first quarter of 1991. Earnings per share declined 42.3 percent to $4.28 in 1990, com pared with $7.42 in 1989, because of lower net income, although this was offset to some extent by a 3.8 million 8.8% in 1990 and 1989, respectively. The housing down turn adversely affected demand and prices for building products, particularly in the Inst half of 1990, as prices for plywood and other wood panels fell sharply. Prices were also lower in 1990 because supplies were not affected by the strikes against competitors and frequent rains which had positively affected wood products prices in 1989- Prices are expected to remain at low levels in 1991, with lower profits expected for the building products segment. SGP 0030282 34 Georgia-Pacific Corporation and Subsidiaries General corporate expense was $94 million in 1990, Investing Activities Excluding acquisitions, capital compared with $118 million in 1989. The decrease was expenditures in 1990 were $866 million, including $723 attributable to reduced expense for compensation pro million in the pulp and paper segment, $102 million in grams tied to the Corporation's common stock price and the building products segment, $33 million for timber financial performance. and timberlands and $8 million for other expenditures. The Corporation's interest expense was $606 million Capital expenditures of approximately $700 million are in 1990, compared with $260 million in 1989. Interest projected for 1991- This includes approximately $560 expense in 1990 was hi ;her as a result of the additional million for projects started prior to 1991- debt associated with tl . acquisition of GNN. The Cor A $580 million expansion project is underway at the poration's cash flow to interest ratio was 2.7 and 5.9 in , Ashdown, Arkansas, paper facility which will add a paper 1990 and 1989, respectively. machine with an annual capacity of 325,000 tons of com The provision for income taxes was $354 million in munication papers. The Ashdown project is expected to 1990 based on a 49.2 percent effective tax rate on income be completed in the second quarter of 1991- An $83 mil before income taxes compared with a 39.2 percent rate in lion recovery boiler project was completed at the Bruns 1989- The higher rate in 1990 was attributable to depreci wick, Georgia, pulp facility in the third quarter of 1990. ation, depletion and goodwill amortization related to the Recovery boiler projects are also underway at the Nekoosa, GNN acquisition which reduced income before income Wisconsin, and Cedar Springs, Georgia, paper facilities. taxes but are not dedu< :ible expenses for tax purposes. Idquidity and Capital Resources The Nekoosa project will cost approximately $69 million and is expected to be completed in the first quarter of Operating Activities In 1990, cash provided by 1991- The Cedar Springs project will cost approximately operations was $2.07 billion, including $850 million net $64 million and is expected to be completed in the proceeds from the sale of accounts receivable, compared second quarter of 1991- with $1.36 billion in 1989. Excluding the sale of accounts In March 1990, the Corporation acquired a controlling receivable, cash provided by operations declined $135 stock interest in GNN through a tender offer which began million compared with 1989. on October 31,1989- InJune 1990, GNN became a wholly SGP 0030283 35 Georgia-Pacific Corporation and Subsidiaries owned subsidiary of the Corporation. The total amount statement of income. In January 1991, $75 million of required to purchase stock and pay related fees and acquisition debt was repaid with the after-tax proceeds expenses was approximately $3.7 billion. from these transactions. GNN was a producer of pulp, communication papers, In January 1991, the Corporation restructured its con newsprint and containerboard, a converter of corrugated tainerboard and packaging business. A linerboard mill boxes and envelopes, and a distributor of communication at Valdosta, Georgia; a corrugating medium mill at and other papers. In addition, GNN owned three wood Tomahawk, Wisconsin; 19 corrugated packaging plants products operations, hydroelectri. plants and 3,436,000 and approximately 540,000 acres of fee timberland were acres of fee timberland and con a lied 233,000 acres sold (and lease rights to 98,000 acres of timberlar, 1 were of leased timberland. assigned) to Packaging Corporation of America, a sub In October 1990, the Corporation sold the stock of its sidiary of Tenneco Inc., and General Electric Capital G-P Inveresk Corporation subsidiary (G-P Inveresk) to Corporation for approximately $740 million cash, subject the management team of that subsidiary for $61 million to certain adjustments. In a separate transaction, the cash. G-P Inveresk manufactured printing and specialty Corporation's interests in a linerboard and corrugating papers at four locations in the United Kingdom. A fourth medium mill, two corrugated packaging plants and two quarter pretax loss of $40 million was recognized on this sheet plants located in France were sold to International sale, which is included in other income in the accom Paper Company for approximately $105 million cash, panying statement of income. In November 1990, $60 subject to certain adjustments. In February 1991, 5600 million of acquisition debt was repaid with the after-tax million of acquisition debt was repaid with the after-tax proceeds from this transaction. proceeds from these transactions. In December 1990, the Corporation sold 119,000 acres Financing Activities In March 1990, the Corporation of fee timberland to institutional investors in two separate borrowed $3.69 billion under a $4.5 billion agreement transactions for $108 million cash. A fourth quarter pre (the Tender Facility) with a banking syndicate headed tax gain of $88 million was recognized on these sales, by Bank of America National Trust and Savings Asso which is included in other income in the accompanying ciation (Bank of America). The Tender Facility was used SGP 0030284 36 Georgia-Pacific Corporation and Subsidiaries to fund the purchase of GNN common stock, pay related with Bank of America and 24 other domestic and inter fees and expenses, refinance debt and meet working national banks. The initial borrowing included $2.5 billion capital needs. as an unsecured term loan, with $1.5 billion available as On June 7,1990, the Corporation sold fractional an unsecured revolving credit facility. The proceeds were ownership interests in a defined pool of trade accounts used to refinance the Tender Facility and certain other receivable for $1 billion. The net cash proceeds were used debt and to pay transaction costs. i to pay down a portion of the Tender Facility. Under a On October 1,1990, the Corporation issued $200 mil three-year agreement, the purchasers have agreed to use lion of 9'A % Notes due October 1,1993- On November 13, the collections of receivables to purchase new receivables. 1990, the Corporation borrowed $100 million under a The purchasers' level of investment, which had been two-year credit agreement with a bank. Borrowings under reduced to $850 million as of December 31,1990, is sub the agreement bear interest at LIBOR plus 5/s%, with the ject to change based on the level of eligible receivables initial borrowing set at 8.625% for one year. The net and restrictions on concentrations of receivables. The proceeds from these borrowings were used to pay down sold accounts receivable are reflected as a reduction of a portion of the Merger Facility term loan. receivables in the accompanying balance sheet. The Cor At December 31,1990, $1,785 billion was outstanding poration pays fees, which were $48 million in 1990, based under the Merger Facility term loan. The revolving credit on its senior debt ratings and the purchasers' level of facility had $355 million of outstanding borrowings and investment and borrowing costs. was being used to support an additional $629 million, '* |. On June 13,1990, the Corporation issued $300 mil of commercial paper and other short-term borrowings, lion of 10% Credit Sensitive Notes due June 15,1997 and leaving $516 million available under that facility. During $300 million of 10.10% Credit Sensitive Debentures due the period the Merger Facility was outstanding in 1990, r June 15,2002. The net cash proceeds were used to pay the weighted average interest rate was 9.71% for the term down a portion of the Tender Facility. loan and 8.57% for the revolving credit facility. In the 1991 On June 26,1990, the Corporation borrowed $2.5 bil first quarter, $675 million of payments were made on the lion under a $4 billion agreement (the "Merger Facility") term loan using the after-tax proceeds from timberland SGP 0030285 Georgia-Pacific Corporation and Subsidiaries sold in December 1990 and containerboard and packaging Directors has approved the registration of an additional assets sold in January 1991. The remaining term loan bal $300 million of debt securities. ance is repayable over seven years, with scheduled matu Cash flow from operations, together with the Corpo rities of $201.8 million in each of the years 1992 through ration's available financing sources, is expected to be 1996 and $101.0 million in 1997. sufficient to make planned capital investments, dividend At December 31, 1990, the Corporation's weighted payments and scheduled debt repayments. average interest rate on total debt, excluding bank over Other Due to inflation, the current values ofproperty, drafts, was 9-80%. The Corporation's exposure to floating plant and equipment and timber and timberlands are rate debt was less than $600 million due to its participa higher than the historical costs reported in the financial tion as the fixed-rate payor in approximately $2.75 billion statements. Accordingly, depreciation and depletion of interest rate exchange agreements. In addition, the expense would be higher if the costs of such assets were Corporation was exposed to interest rate movement adjusted to a current cost basis. The adverse effects result through its accounts receivable sale program, under ing from such an adjustment to income would be offset which the Corporation paid fees at a weighted average to some extent by a gain due to the fact that the Cor rate of 8.45% on the purchasers' $850 million investment poration's net excess of monetary liabilities over monetary as of December 31,1990. assets would be repaid in less costly dollars than the dollars Georgia-Pacific's ratio of total'debt to capital, assum (with higher purchasing power) originally received for ing the $850 million proceeds from the accounts receiv the obligations to be repaid. able sale program will be replaced by debt at the end of For a discussion of commitments aqd contingencies, the program, was 63.6% at December 31,1990, compared see Note 10 of the Notes to Financial Statements. with 40.1% at December 31, 1989- 1989 Compared with 1988 At December 31,1990, the Corporation had registered Georgia-Pacific's consolidated net sales of $10.2 billion for sale up to $200 million of debt securities under shelf in 1989 were 7.0 percent higher than in 1988. Net income registration statements filed with the Securities and rose by 41.5 percent to $661 million in 1989, compared Exchange Commission. The Corporation's Board of with $467 million in 1988. Both the pulp and paper and SGP 0030286 38 Georgia-Pacific Corporation and Subsidiaries building products segments reported higher sales and higher than $428 million in 1988. Returns on sales were operating profits in 1989- Earnings per share increased 55.9 8.8% and 7.1% in 1989 and 1988, respectively. Improved percent to $7.42 in 1989, compared with $4.76 in 1988, operating profits were primarily the result of higher prices because of the increase in net income and a 9.0 million for structural panels during most of 1989- Tight timber reduction in the average number of outstanding shares supplies in the Pacific Northwest, resulting from envi due to stock repurchases. ronmental restrictions, had a positive effect on plywood Sales in the pulp and paper segment were $4.0 billion pricing. Supplies and prices were also affected by strikes in 1989,17.6 percent higher than in 1988. Operating against competitors and frequent rains, which hampered profits in 1989 of $917 million were 48.9 percent higher logging activities. By the end of 1989, however, plywood than $616 million in 1988. Returns on sales improved to prices had fallen substantially from the peak levels 22.7% in 1989, compared with 17.9% in 1988. Improved reached at the beginning of the 1989 fourth quarter. results in 1989 were primarily attributable to higher General corporate expense was $118 million in 1989, volume resulting from the acquisition of the Brunswick, compared with $79 million in 1988. The increase was Georgia, pulp mill and the start-up of a new paper primarily attributable to a $31 million increase in expense machine at Port Hudson, Louisiana (both in the middle for compensation programs tied to the Corporation's of the 1988 third quarter). Higher prices in major product common stock price and financial performance. lines during much of 1989, particularly market pulp and The Corporation's interest expense was $260 million communication papers, contributed significantly to this in 1989, compared with $197 million in 1988. Interest segment's increased profits. In the latter part of 1989, expense in 1989 was higher primarily due to a higher level however, prices for communication papers and linerboard of average debt in 1989. As a result of the Corporation's weakened. Tissue operations had better results in 1989 decision to maintain a higher ratio of total debt to as a result of internal improvements and strong demand. capital, the level of debt was increased during 1988 and The building products segment reported sales of $6.1 remained near that increased level during most of 1989- billion in 1989, a 1.0 percent increase from 1988. Oper The Corporation's cash flow to interest ratio was 5.9 in ating profits of $533 million in 1989 were 24.5 percent 1989, compared with 4.8 in 1988. SGP 0030287 39 Statements ofIncome Georgia-Pacific Corporation and Subsidiaries (Millions, exceptper share amounts) Net sales Costs and expenses Cost of sales .................................................................................... .......................................... Selling, general and administrative............................................... ....................................... Depreciation and depletion . ..................................................... .......................................... Interest.............................................................................................. ....................................... Other inrome ................. ....................................... Total costs and expenses Income before income taxes................. ................................ ....................................... Provision for income taxes ......................................................... .......................................... Net income Earningsper share Average number of shares outstanding The accompanying notes are an integralpart ofthesefinancialstatements. Year ended December 31 1990 1989 1988 S 12,665 $10,171 $9,509 9,738 951 699 606 (48) 11,946 719 354 S 365 $ 4.28 85.3 7,621 689 514 260 _ 9,084 1,087 426 $ 661 $ 7.42 89.1 7,452 632 .450 197 _ 8,731 778 311 $ 467 $ 4.76 98.1 SGP 0030288 40 Statements ofCash Flows Georgia-Pacific Corporation and Subsidiaries (Millions) Cash provided by (used for) operations Net income................................................................................................ ................................... Items in net income not affecting cash Depreciation .............................. . .. .......... Depletion ........................................................................................... ................................ Gain on sales of assets .......... .......... Amortization of goodwill.................... . . . .................................. Deferred income taxes............................................................................ .................................. Common stock compensation..................................... ............................................ Other................................................................................................................................ Cash provided by (used for) working capital Receivables .......................................... ..................................... .............................. Inventories.............................................................................................. ................................ Other current assets.................................................................................. .............................. Accounts payable and accrued liabilities............................................ ................................ Cash provided by operations Cash provided by (used for) investment activities Capital expenditures Property, plant and equipment.............................................................. ................................ Timber and timberlands........................................................................ .............................. Total capital expenditures.......................................... Acquisition of Great Northern Nekoosa Corporation Other acquisitions .................................................... Proceeds from sales of assets.......................................... Other............................................................................... Cash (usedforj investment activities Cash provided by (used for) financing activities Additions to long-term debt........................................................................ Repayments of long-term debt..................................................................... Fees paid to issue debt . ................................................................... Net increase (decrease) in bank overdrafts................................................. Net increase (decrease) in commercial paper and other short-term notes Common stock repurchased.......................................................................... Cash dividends paid. Cash providedby (usedfor) financing activities ' Increase (decrease) in cash.......................................................................... .......... .......... Balance at beginning of year................................................................... .................................. Balance at endofyear The accompanying notes are an integralpart ofthesefinancial statements. Year ended December 31 1990 1989 1988 $ 365 622 77 (64) 50 48 4 20 1,122 $ 467 445 69 (27) 10 53 32 72 1,315 392 58 (17) 9 44 6 15 974 929 34 (6) (6) 951 2,073 15 16 (7) 19 43 1,358 (102) (38) 20 11 (109) 865 (833) (33) (866) (3,565) (8) 204 6 (4,229) (447) (46) (493) (23) (6) 66 (44) (500) (697) (14) (711) (468) 74 10 (1,095) 7,111 (5,543) (114) (29) 905 -. (139) 2,191 35 23 $ 58 133 (305) (20) (38) (69) (468) (130) (897) (39) 62 $ 23 1,534 (884) (10) 37 63 (395) (123) 222 (8) 70 $ 62 SGP 0030289 41 Balance Sheets (Millions, except shares andper share amounts) Assets Current assets Cash.................... Receivables, less allowances of $39 and $30 Inventories Raw materials.......................................... Finished goods. . ...................... Supplies ............................................... LIFO reserve............................................ Total inventories Other current assets Total current assets Timber and timberlands, net Property, plant andequipment Land and improvements . . Buildings................................ Machinery and equipment Construction in progress Total property, plant and equipment, at cost................................................. .......... Accumulated depreciation............................................................................... .......................................... Property, plant andequipment, net Goodwill Other assets Total assets December 31 1990 1989 $ 58 409 23 890 379 760 238 (168) 1,209 90 1,766 1,630 299 644 102 (169) 876 40 1,829 1,246 195 871 8,489 493 10,048 (3,707) 6,341 2,042 281 $12,060 151 688 6,016 140 6,995 (3,304) 3,691 91 199 $ 7,056 SGP 0030290 42 Georgia-Pacific Corporation and Subsidiaries Liabilities andshareholders' equity Current liabilities Bankoverdrafts.net...................................................................................................................... Commercial paper and other short-term notes.............................................................. Current portion of long-term debt................................................................................................................. Accounts payable ..................................................................................................................................... Accrued compensation........................ Accrued interest ............................................................................................................... Other current liabilities..................................................................................................................................... Total current liabiliti December 31 1990 1989 $ 136 984 324 550 160 140 241 2.535 $ 100 79 31 - 394 111 58 151 924 Long-term debt, excli ling currentportion.......................................................................................................... Deferredincome taxes........................ Other long-term liabilities..................................................................................................................................... 5,218 928 404 2,336 841 238 Shareholders' equity Common stock, par value $.80; authorized 150,000,000 shares; 86,704,000 and 86,664,000 shares issued................................................................................................................................ Additional paid-in capital................................................................................................................................ Retained earnings............................................................................................................................................... Long-term incentive plan deferred compensation ............................................................. Other................. :...............................................................................................................................................' Total shareholders' equity2,9752,717 Total liabilities andshareholders ' equity$12,060 The accompanying notes are an integralpart ofthesefinancial statements. 69 995 1,939 (30) 2 69 1,009 1,713 (56) (18) $7,056 SGP 0030291 43 Statements ofShareholders'Equity Georgia-Pacific Corporation and Subsidiaries (Millions, except shares) Common stock shares Issued Treasury Total Common stock Additional paid:in capital Retained earnings Treasury stock Long-term incentive plan deferred compensation Other Balance at 111,187,000 6,448,000 December 31,1987 Net income Cash dividends declared Common stock issued: (53,000) Stock option plan Employee stock 4,000 purchase plan I. ng-term 344,000 incentive plan Cot mon stock 10,312,000 repurchased (16,568,000) (16,568,000) Treasury stock retired Ocher $2,680 467 (123) 3 -- 2 (395) -- 1 00 NO $1,215 $1,645 $(263) -- -- 467 -- -- -- (123) " -- 1-- 2 -- -- ---- - 13 -- -- -- -- -- (395) (13) (183) (456) 652 -- -- --- $ - $ (6) -- --~ ---- ---- ;n) -- ---- ---- --1 94,967,000 201,000 125,000 1,045,000 (9,674,000) 86,664,000 12,000 45,000 (17,000) Balance at 139,000 December 51,1988 Net income Cash dividends declared Common stock issued: (139,000) Stock option plan Employee stock purchase plans Long-term incentive plan Common stock repurchased _Oth T Bala, ice at -- December 51,1989 Net income Cash dividends declared Common stock issued: Stock option plan Employee stock purchase plan Long-term incentive plan Other 2,635 661 (130) 17 5 10 (468) (13) 2,717 365 (139) -- 1 10 21 76 1,046 1,533 -- -- 661 -- (130) -- 13 -- -- 5-- 1 54 -- (8) (109) (351) - ---- 69 1,009 1,713 -- ... _ 365 -- -- (139) -- ---- -- 1-- - (16) -- - 1- (4) " 4 -- -- -- -- -- -- -- ~ -- -- -- (ii) (5) ---- ---- ---- ---- (45) -- ---- -- (13) (56) (18) -- ---- ---- -- 26 -- -- 20 86,704,000 Balance at -- December51,1990 $2,975 $ 69 $ 995 $1,939 $ - $(30) $ 2 The accompanying notes are an integralpart ofthesefinancial statements. SGP 0030292 44 Notes to Financial Statements Georgia-Pacific Corporation and Subsidiaries No/* l. Summary ofSignificant Accounting Policies classes are: land improvements -- 5% to 7%; buildings -- Principles, ofConsolidation The consolidated financial 3% to 5%; and machinery and equipment -- 5% to 20%. statements include the accounts of Georgia-Pacific Cor The remainder of property, plant and equipment is poration and subsidiaries (Corporation). All significant depreciated over the estimated useful life of the related intercompany balances and transactions are eliminated asset using the straight-line method. in consolidation. Under the composite method of depreciation, no gain or loss is recognized on normal property dispositions Earnings Per Share Earnings per share are computed because the property cost is credited to the property based on net income and the weighted average number accounts and charged to the accumulated depreciation of common shares outstanding (net of 'estricted stock accounts and any proceeds are credited to the accumu and treasury shares). The effects of assuming issuance lated depreciation accounts. However, when there are of common shares under long-term incentive, stock abnormal dispositions of property, the cost and re! a, ed option and stock purchase plans were insignificant. The depreciation amounts are removed from the accounts number of shares used in the earnings per share com- . and any gain or loss is reflected in income. putations were 85,322,000 in 1990, 89,106,000 in 1989 The Corporation capitalizes interest on projects when and 98,127,000 in 1988. construction takes considerable time and entails major expenditures. Such interest is charged to the property, Inventory Valuation Inventories are valued at the plant and equipment accounts and amortized over the lower of average cost or market. The last-in, first-out (LIFO) approximate life of the related assets in order to properly dollar value pool method is used to value the majority match expenses with revenues resulting from the facilities. of inventories. Inventories valued using the LIFO method Interest capitalized, expensed and paid was as follows: represented approximately 61% and 51%, respectively, of inventories at December 31,1990 and 1989- (Millions) Year ended December 31 1990 1989 1988 Property, Plant and Equipment Property, plant and equipment are recorded at cost. Lease obligations for which the Corporation assumes substantially all the Total interest costs Interest capitalized Interest expense Interest paid $645 (39) $606 $528 $272 (12) $260 $259 $222 (25) $197 $164 property rights and risks of ownership are capitalized. Replacements of major units of property are capitalized Timber and Timberlands The Corporation depletes and the replaced properties are retired. Replacements of its investment in timber based on the total fiber that will minor units of property and repairs and maintenance be available during the estimated growth cycle. Timber costs are charged to expense as incurred. carrying costs are expensed as incurred. The majority of property, plant and equipment is depreciated using composite rates based upon estimated Reclassifications Certain 1989 and 1988 amounts have service lives. The ranges ofcomposite rates for the principal been reclassified to conform with the 1990 presentation. SGP 0030293 45 Georgia-Pacific Corporation and Subsidiaries Note 2. Industry Segment Information 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, mar ket pulp, tissue, groundwood papers and envelopes. Manufactured product lines in the building products segment consist primarily of wood panels (plywood, hardboard, particleboard, oriented strand board,etc.), lumber, gypsum products, chemicals and roofing Timber and timberlands are managed to supply raw materials to both the pulp and paper and building prod ucts segments. Profits from sales of timber and timberlands 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 1988 through 1990, 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 customers in any year during that period. Year ended December 31 (Millions) 1990 1989 1988 Net sales Pulp and paper Building products Other operations $ 6,702 5,923 40 53% 47 - $ 4,042 6,088 41 40% 60 - $3,436 6,029 44 36% 63 1 ,2otal net sales $12,665 100% $10,171 100% $9,509 100% Net income Pulp and paper Building products Other operations Other income* $ 979 67% $ 917 63% $ 616 58% 423 29 533 36 428 41 17 1 15 1 10 1 48 3 -- -- Total operating profits General corporate Interest expense Cost of accounts receivable sale program Provision for income taxes 1,467 {94) (606) (48) (354) 100% 1,465 (118) (260) (426) 100% 1,054 (79) (197) - (311) 100% Net income $ 365 $ 661 $ 467 Depreciation, depletion andgoodwill amortization Pulp and paper Building products Other and general corporate $ 496 66% $ 274 52% $ 227 49% 241 32 240 46 223 49 12 2 10 2 92 Total depreciation, depletion andgoodwillamortization $ 749 100% $ 524 100% $ 459 100% Capital expenditures** Pulp and paper Building products Timber and timberlands Other and general corporate $ 3,210 85% $ 310 62% $ 890 57% 102 3 135 27 216 14 469 12 46 9 ' 437 28 8-- 82 91 Total capital expenditures $ 3,789 100% $ 499 100% $1,552 100% Assets Pulp and paper Building products Timber and timberlands Other and general corporate $ 8,181 68% $ 3,358 47% $3,394 48% 1,762 15 2,176 31 2,226 31 1,630 14 1,246 18 1,289 18 487 3 276 4 206 3 Total assets $12,060 100% $ 7,056 100% $7,115 100% *Other income in 1990 includes an $88 million pretaxgain on timberlandsoldanda $40 million pretax loss on the sale ofaprinting and specialty paper subsidiary. Ifthese amounts hadbeen includedin segment operating profits, pulp andpaper operating profits would have been $939 million andbuilding products operatingprofits wouldhave been $311 million in 1990. **The capital expenditure amounts reportedabove represent additions, at cost, to property, plant and equipment andtimberandtimberlands. 46 SGP 0030294 Georgia-Pacific Corporation and Subsidiaries No/* j. Acquisitions Great Northern Nekoosa Corporation In March 1990, the Corporation acquired a controlling stock interest in Great Northern Nekoosa Corporation (GNN). GNN was a producer of pulp, communication papers, newsprint and containerboard, a converter of corrugated boxes and envelopes, and a distributor of communication and other papers. In addition, GNN owned three wood products operations, hydroelectric 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 $3.7 billion. The results of GNN's operations have been included in the accompanying statements of income and cash flows beginning on March 9,1990. The following unaudited pro forma information shows the results of the Corpora tion's operations, as though the acquisition of GNN had been completed on January 1,1989- (Millions, exceptper share amounts) Net sales Net income Earnings per share Year ended December 31 1990 1989 <13,359 331 3.88 $13,944 627 7.04 The acquisition was recorded using the purchase method. The preliminary values assigned to GNN's assets and liabilities are shown in the following table. 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. (Millions) Cash Receivables Inventories Other current assets Timber and timberlands Property, plant and equipment Goodwill Other assets Total assets Bank overdrafts Current portion of long-term debt Accounts payable and accrued liabilities Long-term debt Deferred income taxes Other long-term liabilities Total liabilities Net assets acquired March 8,1990 $ 96 484 388 44 436 2,480 2,001 64 5,993 65 81 400 1,516 39 193 2,294 $3,699 Brunswick Pulp & Paper Company In August 1988, the Corporation acquired all of the outstanding capital stock of Brunswick Pulp & Paper Company (Bmnswick) and related timber assets. The acquired assets included a softwood pulp and paperboard mill, three pine sawmills and related timber assets. The Corporation paid $245 million in cash and deliv ered $300 million principal amount of 10-year notes to the sellers. The acquisition was recorded using the pur chase method. The purchase price exceeded the fair value of net assets acquired by $18 million. This amount is included in goodwill and is being amortized over 10 years. The results of Brunswick's operations have been included in the accompanying statements of income and cash flows beginning on August 24,1988. Had the acquisition been completed as ofJanuary 1,1988, the Corporation's net sales and income for 1988 would not have been materially affected. SGP 0030295 47 Georgia-Pacific Corporation and Subsidiaries Note 4. Asset Divestitures After the acquisition of GNN, the Corporation announced plans to sell certain assets identified as not strategic to its principal operations. The following divestitures were completed in 1990. The pretax gains and losses associated with these sales are included in other income in the accompanying state ment of income. a In October 1990, the Corporation sold the stock of its G-P Inveresk Corporation subsidiary for $61 million cash. G-P Inveresk Corporation manufactured printing and specialty papers at four locations in the United Kingdom. A pretax loss of $40 million was recognized on this sale. a In December 1990, the Corporation sold 119,000 acres of fee timberland in two separate transactions for $108 mil lion cash. A pretax gain of $88 million was recognized on these sales. Injanuary 1991, the Corporation restructured its containerboard and packaging business by completing the following divestitures: a A linerboard mill at Valdosta, Georgia; a corrugating medium mill at Tomahawk, Wisconsin; 19 corrugated packaging plants and approximately 540,000 acres of fee timberland were sold (and lease rights to 98,000 acres of timberland were assigned) for approximately $740 million cash, subject to certain adjustments. a The Corporation's interests in a linerboard and corrugat ing medium mill, two corrugated packaging plants and two sheet plants located in France were sold for approxi mately $105 million cash, subject to certain adjustments. Note 3. Receivables The Corporation has a large, diversified customer base. As of December 31,1990, the Corporation had sold fractional ownership interests in a defined pool of trade accounts receivable for $850 million. The net cash pro ceeds are reported as operating cash flow in the accom panying statement of cash flows. The sold accounts receivable are reflected as a reduction of receivables in the accompanying balance sheet. Under a three-year agree ment, the purchasers have agreed to use the collections of receivables to purchase new receivables up to $1 billion. The purchasers' level of investment is subject to change based on the level of eligible receivables and restrictions on concentrations of receivables. Receivables of a certain age and uncollectible receivables are not eligible to be included in the pool. The full amount of the allowance for doubtful accounts has been retained because the Cor poration has retained substantially the same risk of credit loss as if the receivables had not been sold. The Corpo ration pays fees based on its senior debt ratings and the purchasers' level of investment and borrowing costs. The fees, which were $48 million for 1990, are included in selling, general and administrative expense in the accom panying statement of income. Note 6. Income Taxes The provision for income taxes is based on pretax financial income which differs from taxable income. Differences generally arise because certain items, such as deprecia tion, are reflected in different time periods for financial and tax purposes. The provision for income taxes and income taxes paid were as follows: Year ended December 31 (Millions) Federal income taxes Current Deferred State income taxes Provision for income taxes Income taxes paid 1990 1989 1988 $255 48 51 $354 $297 $316 53 57 $426 $347 $222 44 45 $311 $295 SGP 0030296 48 Georgia-Pacific Corporation and Subsidiaries The difference between the statutory federal income tax 7. Indebtedness rate and the Corporation's effective income tax rate is The Corporation's indebtedness included the following: summarized as follows: Year ended December 31 1990 1989 1988 Statutory federal income tax rate State income tax, net of federal benefit Depreciation, depletion and goodwill amortization on stock acquisitions, not deductible for income tax purposes Other 34.0% 4.0 11.0 .2 34.0% 4.0 1.0 .2 34.0% 4.6 .5 .9 Effective income tax rate 49.2% 39.2% 40.0% The following summarizes the components of the deferred tax provision: Year ended December 31 (Millions) Excess of tax depreciation over financial depreciation Liability accruals and write-down of certain assets Compensation expense Other Deferred tax provision 1990 $ 95 (22) (25) $48 1989 $ 74 (18) (1) (2) $ 53 1988 $49 (2) (3) $44 December 31 (Millions) 1990 1989 Unsecured term loan, 9.73% average rate, payable through 1997 $1,785 Notes, 9-64% average rate, payable through 2000 1,676 Debentures, 10.07% average rate, payable through 2018 1,486 Commercial paper and other short-term notes, 8.80% average rate 984 Revenue bonds, 7.73% average rate, payable through 2025 345 Other loans, 9X4% average rate, payable through 2037 269 $801 1,189 302 129 43 Less: Current portion of commercial paper and other short-term notes Current portion of long-term debt Unamortized discount 6,545 2,464 984 79 324 31 19 18 Long-term debt $5,218 $2,336 As of December 31,1990, $324 million of long-term debt was scheduled to mature in 1991, including $235 million In December 1987, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 96, "Accounting for Income Taxes," which, among other provisions, will change the method of accounting for deferred income taxes. Companies are now required to adopt the new standard no later than for fiscal years beginning after December 15,1991- The FASB is considering further amendments to Statement under the unsecured term loan. Following the sales of certain timberland in December 1990 and containerboard and packaging assets inJanuary 1991 (Note 4), $675 mil lion of payments were made on the term loan in 1991. The remaining scheduled maturities of long-term debt for the next five years are as follows: $89 million in 1991, $547 million in 1992, $454 million in 1993, $363 million in 1994 and $289 million in 1995. No. 96, including a possible deferral of the required date of adoption. It is anticipated that the Corporation will adopt the new standard in the required period of adoption and that prior periods will not be restated. The amount to be recorded will be dependent upon cumulative net timing differences and statutory tax rates existing at that time, as well as any further amendments to Statement No. 96. Unsecured Term Loan and Revolving Credit Facility On June 26,1990, the Corporation entered into a credit agreement with 25 banks which provided a $2.5 bil lion unsecured term loan and a $1.5 billion unsecured revolving credit facility. The term loan bears 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 1%. The term loan is payable in installments through 1997. SGP 0030297 49 Georgia-Pacific Corporation and Subsidiaries The revolving credit facility bears interest, at the election of the Corporation, at either (a) the higher of the reference rate and the Federal Funds Rate plus t %, (b) LIBOR plus 3/4%, or (c) fixed or floating rates set by competitive bids. There are certain availability, facility and other fees associated with the revolving credit facility. At December 31,1990, the revolving credit facility had $355 million of outstanding borrowings and was being used to support an additional $629 million of commercial paper and other short-term borrowings, leaving $516 million available under that facility. The interest rates payable under the credit agreement are subject to adjustment based on the Corporation's funded debt ratio and debt ratings. The credit agreement contains certain restrictive cov enants. These include a minimum fixed charge coverage ratio, which is calculated on a rolling four quarter basis beginning on April 1,1990, of 1.00 through March 31, 1991, 1.20 throughjune 30,1991,1.45 through June 30, 1992 and increasing thereafter; a maximum leverage ratio of .74 from December 31,1990 through September 29, 199L .72 from September 30,1991 through September 29, 1992 and decreasing thereafter; an overall limit on indebt edness of $8.3 billion and restrictions on the creation of liens on assets. Commercial Paper and Other Short-term Notes As of December 31,1990, $984 million of commercial paper and other short-term notes were outstanding. These borrowings were all classified as current liabilities even though all or a portion of them might be refinanced on a long-term basis in 1991. A recent technical interpretation of gen erally accepted accounting principles does not permit the classification of these borrowings as long-term liabilities due to certain provisions of the Corporation's revolving credit facility. Other At December 31,1990, $117 million of long term debt was secured b property and timber with a net book value of $117 millu. n. At December 31,199c the Corporation had registered for sale up to $200 millim of debt securities under shelf registration statements filed with the Securities and Exchange Commission. At December 31,1990, the Corporation had out standing interest rate exchange agreements which effec tively converted $2.7 billion of floating rate debt with a weighted average interest rate of 9-22% to fixed rate debt with an average effective interest rate of approximately 9-93%. Under the agreements, which have a remaining average maturity of approximately 3.9 years, the Corpo ration makes payments to counterparties at fixed interest rates and in turn receives payments at variable rates. The differential to be paid or received is accmed as interest rates change and is recognized over the lives of the agree ments. The Corporation is exposed to credit risk in the event of nonperformance by the counterparties, but does not anticipate such nonperformance. SGP 0030298 50 Georgia-Pacific Corporation and Subsidiaries Note 8. Retirement Plans DefinedBenefit Pension Plans Most of the Corpora tion's employees participate in noncontributory defined benefit pension plans. These include plans which are administered solely by the Corporation, plans which are administered jointly by the Corporation and labor unions, and union-administt-jd multiemployer plans. The Cor poration's funding policy for solely administered plans is based on actuarial calculations and the applicable require ments of Federal la' Contributions to jointly adminis tered and multiemp oyer plans are generally based on negotiated labor co. Tacts. Benefits under the majority of plans for hourly employees (including multiemployer plans) are primarily related to years of service. The Corporation has separate plans for salaried employees and officers under which benefits are primarily related to earnings and years of service. The officers' plan is not funded and is non qualified for Federal income tax purposes. The table below sets forth the funded status of the solely and jointly administered plans and the amounts recognized in the accompanying balance sheets. (Millions) Accumulated benefit obligation at November 30 Vested portion Nonvested portion Effect of projected future compensation levels Projected benefit obligation at November 30 Plan assets at fair value at November 30 Plan assets in excess of (less than) projected benefit obligation Contributions made in December Unrecognized net (gain) loss Unrecognized prior serv. e cost Unrecognized net asset from initial application of SFAS 87 Adjustment required to recognize minimum liability Prepaid (accrued) pension cost at December 31 Year ended December 31, 1990 Plans having assets in excess of accumulated benefits Plans having accumulated benefits in excess of assets Year ended December 31, 1989 Plans having assets in excess of accumulated benefits Plans having accumulated benefiits in excess of assets $ 843 32 875 14 889 1,018 129 (2) (22) (63) - $ 42 $126 5 131 15 146 89 (57) 1 13 2 (6) *(47) $ 630 27 657 4 661 891 230 8 (108) 32 (90) - $ 72 $ 29 1 30 11 41 8 (33) 9 3 (2) *(23) Plan assets consist principally of common stocks, bonds, mortgage securities, interests in limited partnerships, guaranteed investment contracts, cash equivalents and real estate. At December 31,1990 and 1989, respectively, $42 million and $72 million of noncurrent prepaid pen sion cost was included in other assets. The accrued pen sion cost of $47 million and $23 million at December 31, 1990 and 1989, respectively, was included in other long term liabilities. SGP 0030299 51 Georgia-Pacific Corporation and Subsidiaries Net periodic pension cost for solely and jointly admin behalf of employees who retire in each of the years 1991 istered pension plans included the following: through 1999- The Corporation will continue to share the (Millions) Service cost of benefits earned Interest cost on projected benefit obligation Actual (gain) loss on plan assets Net amortization (deferral) Contributions to multiemployei pension plans Net periodic pension cost Year ended December 31 1990 1989 1988 $ 67 $ 55 $ 31 pre-age 65 cost with retirees, but will no longer pay any of the post-age 65 cost for employees who retire after 1999- In December 1990, the Financial Accounting Standards Board issued Statement of Financial Accounting Stan 82 44 37 dards No. 106, "Employers' Accounting for Postretire 51 (132) (90) ment Benefits Other Than Pensions," which will change (183) 39 22 17 6 the method of accounting for such benefits. The state -- ment requires that the expected cost of the e benefits 2 2 3 be charged to expense during the years that employees $ 19 $ 8 $ 3 render service. Companies are required to t dopt the new The following assumptions were used: standard no later than for fiscal years beginning after December 15, 1992. 1990 1989 1988 It is anticipated that the Corporation will adopt the 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 9.0% 8.5% 9.0% 6.0 6.0 6.0 11.0 11.0 11.0 new standard in 1993 by recording a cumulative catch-up adjustment in the year of adoption. The amount to be recorded has not been determined at this time, but it is not expected to materially affect the Corporation's financial statements. No*? 9. Common Stock. Defined Contribution Plans The Corporation sponsors several defined contribution plans to provide eligible employees with additional ncome upon retirement. The Corporation's contributions to the plans are based on employee contributions and compensation. These contributions totaled $34 million in 1990, $24 million in 1989 and $21 million in 1988. Retiree Health Care andLife Insurance Benefits The Corporation provides certain health care and life insur ance benefits to eligible retired employees and recognizes expense as benefits are provided. The cost of providing these benefits, which has not been material, is shared with retirees. The Corporation will begin transferring its share of the cost of post-age 65 health care benefits to retirees begin ning in 1991- The Corporation will reduce the percentage of the cost of post-age 65 benefits that it will pay on At December 31,1990, the following authorized shares of the Corporation's common stock were reserved for issue: 1990 Long-Term Incentive Plan 1989 Employee Stock Purchase Plan 1984 Employee Stock Option Plan Common stock reserved 4,000,000 642,000 2,258,000 6,900,000 Long-Term Incentive Plans The 1990 Long-Term Incentive Plan (Incentive Plan) initially reserved 4,000,000 shares for issue with 2,733,000 shares allocated to plan participants. Specified portions of the shales allocated under this plan are awarded as restricted stock, at no cost to the employee, based on increases in the average mar ket value of the Corporation's common stock. At the time restricted shares are awarded, the market value of the stock is added to common stock and additional paid-in capital and an equal amount is deducted from shareholders' equity (long-term incentive plan deferred compensation). SGP 0030300 52 Georgia-Pacific Corporation and Subsidiaries Long-term incentive plan deferred compensation is ofcommon stock under the 1987 Employee Stock Purchase amortized over the vesting (restriction) period, generally Plan (which expired on March 31,1989) and 11,000 five years, with adjustments made quarterly for market shares under the 1989 Employee Stock Purchase Plan. price fluctuations. The Incentive Plan replaced the 1988 Long-Term Employee Stock Option Plan The 1984 Employee Incentive Plan (1988 Incentive Plan). As of December 31, Stock Option Plan (Option Plan) provides for the grant 1990, 1,336,000 shares had been awarded to the plan par ing of stock options to certain officers and key employees. ticipants under the 1988 Incentive Plan. These awarded Holders of stock options may be granted cash awards, shares will vest based on the provisions in the Incentive payable upon exercise of an option, of an amount not Plan. The Corporation recognized Incentive Plan com to exceed the amount by which the market value of ,he pensation expense of $14 million in 1990, $14 million in common stock, as defined, exceeds the option price. In 1989, and $3 million in 1988. Additions' information addition, holders may be granted rights to surrender all relating to the Incentive Plan is as follows: or part of the related stock option in exchange for common Year ended December 31 1990 1989 1988 Shares allocated but not awarded atjanuary 1 Shares allocated Previously allocated shares cancelled Shares awarded Previously awarded shares cancelled 536,000 2,841,000 1,401,000 290,000 1,835,000 (661,000) (110,000) (90,000) - (1,063,000) (357,000) 17,000 18,000 13,000 Shares allocated but not awarded at December 31 2,733,000 Shares available for allocation at December 31 1,267,000 536,000 1,401,000 1,075,000 1,255,000 Total shares reserved 4,000,000 1,611,000 2,656,000 stock with a fair market value equal to the amount by which the market value of the common stock, as defined, exceeds the option price. Compensation resulting from stock options and cash awards is initially measured at the grant date based on the market value of the common stock, with adjustments made quarterly for market price fluctuations. The Cor poration recognized Option Plan compensation expense (income) of $(7) million in 1990, $25 million in 1989 and $5 million in 1988. Additional information relating to the Option Plan is as follows: Year ended December 31 1990 1989 1988 Employee Stock Purchase Plans At December 31,1990, the 1989 Employee Stock Purchase Plan (Purchase Plan) had reserved for issue 642,000 shares of common stock at a subscription price of $34.90. Subscribers have the option to receive their payments plus interest at the rate of 8% per annum in lieu of stock. Additional shares can Options outstanding at January 1 Options granted Options exercised /surrendered Options cancelled 832,000 422,000 (34,000) (29,000) 1,370,000 358,000 (860,000) (36,000) 1,239,000 338,000 (141,000) (66,000) Options outstanding at December 31 Options available for grant at December 31 1,191,000 832,000 1,370,000 1,067,000 1,460,000 1,781,000 no longer be subscribed under the Purchase Plan, which Total reserved shares 2,258,000 2,292,000 3,151,000 expires on April 30,1991. Approximately 4,400 subscribers remained in the Purchase Plan at December 31,1990. During 1990, the Corporation issued 45,000 shares of common stock under the 1989 Employee Stock Purchase Plan. During 1989, the Corporation issued 114,000 shares Options exercisable at December 31 Option prices per share: Granted Exercised/surrendered Cancelled 791,000 488,000 1,042,000 $44 $21-$46 $26-446 $41 $21--$46 $21-$46 $34 $21--$26 $26--$46 SGP 0030301 53 Georgia-Pacific Corporation and Subsidiaries Shareholder Rights Plan On July 31,1989, the Cor poration adopted a Shareholder Rights Plan. Preferred stock purchase rights were distributed, as a dividend at the rate of one Right for each share of common stock held, to shareholders of record as of the close of business on August 10,1989 and expire after 10 years. 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 5,000,000 shares were reserved for issue at December 31,1990. At December 31,1990, 25,000,000 shares of no par valueJunior Preferred Stock were authorized. Due to the nature of its Dividend, liquidation and voting rights, the economic value of one one-hundredth of a share ofJunior 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 cor poration 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 Cor poration is involved in a merger or other business com bination transaction with another person after which its common stock does not remain outstanding, or the Cor poration sells 50% or more of its assets or earning power. each Right will entitle its holder to purchase, at the thencurrent exercise price, shares of the other party's common stock with a market value of twice the exercise price. Note 10. Commitments and Contingencies The Corporation is a party to various legal proceedings generally incidental to its business. Although the ultimate disposition of these proceedings is not presently deter minable, management does not expect the outcome of these proceedings to have a material adverse effect on the financial condition of the Corporation. The Corporation is involved in certain claims related to fire retardant treated plywood which was sold through the Corporation's building products distribution centers between 1979 and 1988. Such plywood has been used to meet building codes on multifamily residential structures primarily on the East Coast of the United States. It has been alleged that the chemical treatment applied to such plywood by independent treaters has caused the plywood to lose its structural integrity under some circumstances. Management believes that, to the extent the Corporation has responsibility for such claims, it is entitled to be indemnified by the treaters of the plywood and their insurance carriers, but there can be no assurance that the treaters will have the financial ability to satisfy such claims. Additionally, the Corporation has substantial insurance coverage which it believes should apply to these claims. Although the ultimate disposition of these claims is not determinable at this time, management does not expect the outcome of these claims to have a material adverse effect on the financial condition of the Corporation. The Corporation is expected to be required over the next several years to meet the cost of environmental clean-up programs undertaken by its various operating units, to conform its operations to increasingly stringent environmental standards, and to discharge environmental SGP 0030302 54 Georgia-Pacific Corporation and Subsidiaries obligations which it retained in connection with the dis position of certain operations. The Corporation has met similar requirements in the past without material adverse effect, and although the cost of meeting these require ments is expected to progressively increase in the future, management believes the Corporation can continue to do so without material adverse effect on its financial condition The Corporation is self-insured for general liability claims up to $25 million per occurrence. The Corporation is a 50% partner in a joint venture (GA-MET) with Metropolitan Life Insurance Company (Metropolitan). GA-MET owns and operates the Corpo ration's office headquarters complex in Adanta, Georgia. The Corporation accounts for its investment in GA-MET under the equity method. During 1986, GA-MET borrowed $170 million from Metropolitan for the primary purpose of retiring debt incurred from the acquisition and construcdon of the Atlanta headquarters complex. The note bears interest at 9% % and requires monthly payments of principal and interest with a final installment due in 2011. The note is secured by the land and building of the Atlanta head quarters complex. In the event of foreclosure, each part ner has severally guaranteed payment of one-half of any shortfall of collateral value to the outstanding secured indebtedness. Based on the present market conditions and building occupancy, the likelihood of any obligation to the Corporation with respect to this guarantee is considered remote. No/j 11. Unaudited Selected Quarterly Financial Data First Quarter Second Quarter Third Quarter (Millions, exceptper share amounts) 1990 1989 1990 1989 1990 1989 Net sales Gross profit (net sales minus cost of sales) Net income Earnings per share Dividends declared per common share Price range of common stock High Low $2,659 625 101 1.18 .40 $2,447 622 154 1.65 .35 $3,519 835 107 1.25 .40 $2,640 660 172 1.90 .35 $3,430 782 95 1.11 .40 $2,646 667 178 2.03 .35 52.13 40.88 43.13 36.63 46.38 38.88 47.50 42.13 48.13 32.75 62.00 42.88 The results ofGreat Northern Nekoosa Corporation have been included beginning on March 9, 1990. Fourth Quarter 1990 1989 $3,057 685 62 .74 .40 $2,438 601 157 1.84 .40 39.50 25.38 61.50 46.13 SGP 0030303 55 Report ofIndependent 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 .31,1990 and 1989 and the related statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31,1990. These financial statements are the respon sibility 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 dis closures 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 31,1990 and 1989 and the results of their operations and their cash flows for each of the three years in the period ended December 31,1990 in conformity with generally accepted accounting principles. A'divuA> AvdLuiut*s\ $ Co. Atlanta, Georgia February 15,1991 SGP 0030304 56 Report on Management's Responsibilities Georgia-Pacific Corporation and Subsidiaries Management of Georgia-Pacific Corporation is responsible for the accurate and objective preparation of the consoli dated financial statements and the estimates and judgments upon which certain amounts in the financial statements are based. Management is also responsible for preparing the other financial information included in this annual report. In our opinion, the financial statements on the preceding 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 an adequate internal control system which encompasses policies, procedures and controls directly related to, and designed to provide reasonable assurance as to, the integrity and reliability of the financial reporting process and the financial statements generated therefrom. An independent evaluation of the system is performed by the Corporation's internal audit staff in order to confirm that the system is adequate and operating effectively. The Corporation's independent public accountants also con sider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. Management has considered any significant recommendations regarding the internal control system which have been brought to its attention by the internal audit staff or inde pendent public accountants and has taken the steps it deems appropriate to maintain a cost-effective internal control system. Management believes that as of December 31,1990, the internal control system is adequate and effective in all material respects. The Audit Committee of the Board of Directors, consisting of five outside directors, provides oversight in the areas of financial reporting and internal control and approves fees paid to the independent public accountants for both audit and non-audit services. 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. James E. Terrell Vice President and Controller (Chief Accounting Officer) James C. Van Meter Executive Vice President-Finance and Chief Financial Officer February 15,1991 T. Marshall Hahn, Jr. Chairman and Chief Executive Officer SGP 0030305 57 Selected Financial Data--Operations Cash dividends to earnings Cash dividends declared (common and preferred) divided by net income. Cashflow to interest Cash provided by continuing operations plus interest expense divided by total interest cost (interest expense plus capitalized interest). In the 1990 calculation, $850 million of proceeds from the accounts receivable sale program were excluded from cash provided by continuing operations and the $48 mil lion cost of that program was included in interest expense. Earnings to interest Income from continuing operations before income taxes and extraordinary items plus interest expense divided by total interest cost (interest expense plus capitalized interest). In the 1990 calculation, the $48 million cost of the accounts receivable sale program was included in interest expense. Effective income tax rate Provision for income taxes divided by income from continuing operations before income taxes and extraordinary items. (Dollar amounts, exceptper share, andshares are in millions) Operations Net sales Costs and expenses Cost of sales................................................................ .. Selling, general and administrative............................................... Depreciation and depict;............................................................. Interest.......................................................................... .. Other (income) expense................................................................ Total costs and expenses Income from continuing o orations before unusual items, income taxes and extraor iinary items.......................................... Unusual items................. ......................................................... Provision for income taxes ........................................................... Income from continuing operations before extraordinary items . Income (loss) from discontinued operations, net of taxes............... Extraordinary items, net of taxes...................................................... Net income Cash provided by continuing operations** Other statistical data Per common share Income from continuing operations before extraordinary items . Income (loss) from discontinued operations............................. Extraordinary items........................................................................ Net income Dividends declared ........................................................................ Average shares of common stock outstanding.................................. Shares of common stock out tanding at year end............................... Cash dividends to earnings ............................................................... Earnings to interest............................................................... Cash flow to interest ........................................................ .......... Effective income tax rate ......................................... .......................... *Not available. **ln 1990, cash provided by continuing operations excludes $85 0 million of proceedsfrom the accounts receivable sale program. SGP 0030306 58 Georgia-Pacific Corporation and Subsidiaries 1990 1989 1988 1987 Year ended December 31 1986 1985 1984 1983 1982 1981 1980 $12,665 $10,171 $9,509 $8,603 $7,223 $6,716 $6,682 $6,040 $5,003 $4,914 $4,554 ............ ............ ............ ............ 9,738 951 699 606 (48) 11,946 7,621 689 51 ' 260 -- 9,084 7,452 632 450 197 _ 8,731 6,777 583 387 124 - 7,871 5,783 511 339 138 - 6,771 5,553 431 310 132 - 6,426 5,441 426 282 156 - 6,305 4,978 374 289 157 135 5,933 4,206 359 275 186 30 5,056 4,131 304 228 125 -- 4,788 3,737 282 223 79 -- 4,321 ............ 719 ............. ............ 354 365 -- -- $ 365 $ 1,223 1,0 S7 -- 4-6 661 -- -- $ 661 $ 1,358 778 -- 311 467 -- -- $ 467 $ 865 732 66 340 458 -- -- $ 458 $ 781 452 33 189 296 -- - $ 296 $ 575 290 19 102 207 (30) 10 $ 187 $ 771 377 19 143 253 (134) - $ H9 $ 509 107 32 75 30 - $ 105 $ 460 (53) 79 6 20 32 101 $ 153 $ 367 126 38 88 72 -- $ 160 $ 276 233 -- 72 161 83 -- $ 244 $* ............ .......... i... ............ ; . ... :.. . . $ 4.28 -- -- $ 4.28 $ 7.42 -- -- $ 7.42 $ 4.76 -- -- $ 4.76 $ 4.23 -- -- $ 4.23 $ 2.70 -- -- $ 2.70 $ 1.84 (29) .10 $ 1.65 $ 2.28 (1-31) - $ -97 $ .53 .30 - $ .83 $ (.01) .32 1.01 $ 1-32 $ -69 .73 - $ 1-42 $ 1.48 .84 -- $ 2.32 $ 1.60 $ 1.45 $ 1.25 $ 1.05 $ .85 $ .80 $ .70 $ .60 $ 1.05 $ 1.20 $ 1.20 85.3 89.1 98.1 107.5 104.1 103.0 102.2 101.5 99.9 98.9 98.7 86.7 8. .7 - 94.8 104.7 107.3 103.2 102.5 101.5 101.3 98.9 98.8 38.1% 2.0 2.7 19.7% 5.0 5.9 26.3% 4.4 4.8 25.1% 6.9 6.8 32.8% 4.2 4.9 49.7% 2.7 5.6 71.4% 3.3 4.0 72.4% 1.6 3.8 77.8% 1.0 2.7 82.5% * * 53.3% * * 49.2% 39.2% 40.0% 42.6% 39.0% 33.0% 36.1% 29.9% 23.1% 30.2% 30.9% SGP 0030307 yj Selected FinancialData--FinancialPosition, End of Year Book value per common share Shareholders' equity minus the unamortized discount on redeemable preferred stock, divided by shares of common stock out standing as of the end of the year. Current ratio Current assets divided by cum it liabilities as of the end of the year. Return on capital employed Income from continuing opt ations before extraordinary items plus intei ;st expense (net of taxes) and deferred in< ome tax expense, divided by capital e. .ployed as of the beginning of the year. Capital employed is calculated as total assets, excluding net assets of discontinued operations, minus noninterest-bearing current liabilities. Return on equity Income from continuing operations before extraordinary items divided by shareholders' equity as of the beginning of the year. Total debt to capital Total debt divided by the sum of total debt, deferred income taxes, other long-term liabilities, redeemable preferred stock and shareholders' equity as of the end of the year. In the 1990 calculation, $850 million of sold accounts receivable we re included in total debt. (Dollar amounts, exceptper share, are in millions) Financialposition, end ofyear Current assets................................................. Timber and dmberlands, net...................... Property, plant and equipment, net............ Net assets of discontinued operations.......... Goodwill......................................................... Other assets...................................................... Total assets Current liabilities............................................ Long-term debt............................................... Deferred income taxes................................ Other long-term liabilities........................... Redeemable preferred stock........................... Shareholders' equity Working capital Other statistical data Capital expenditures (including acquisitions)** Capital expenditures (excluding acquisitions)** . Per common share Market price: High .................................... Low ......................................... \fear-end .................................... Book value.................................... ................................................ Return on capital employed ..................................................... Return on equity ..................................................................................... Total debt to capital Current ratio .................................................................................. 1 . *Not available. **The capital expenditure amounts reportedabove represent additions, at cost, to property, plant andequipment andtimber andtimberlands. SGP 0030308 60 Georgia-Pacific Corporation and Subsidiaries 1990 1989 1988 1987 Year ended December 31 1986 1985 1984 1983 1982 1981 1980 .......... .................... .................... .................... .................... .................... .... .................... .................... .................... $ 1,76(5 1,630 6,341 2,042 281 12,060 2,535 5,218 928 404 - $ 2,975 $ (769) $1,829 1,246 3,691 -- 91 199 7,056 924 2,336 841 238 - $2,717 $ 905 $1,892 1,289 3,723 -- 101 110 7,115 1,013 2,514 788 165 - $2,635 $ 879 $1,729 915 3,048 -- 92 86 5,870 996 1,298 744 152 - $2,680 $ 733 $1,420 844 2,691 -- -- 159 5,114 837 893 695 124 113 $2,452 $ 583 $1,291 804 2,606 11 -- 154 4,866 631 1,257 606 69 156 $2,147 $ 660 $1,406 840 2,270 158 -- Ill 4,785 640 1,383 503 34 190 $2,035 $ 766 $1,268 753 1,989 653 69 4,732 612 1,453 413 26 215 $2,013 $ 656 $1,176 748 2,214 651 -- 130 4,919 716 1,618 365 22 209 $1,989 $ 460 $1,175 752 2,200 626 -- 93 4,846 846 1,487 384 -- 203 $1,926 $ 329 $1,051 682 1,959 579 -- 46 4,317 710 1,227 311 -- 169 $1,900 $ 341 ................... ................... S 3,789 866 $ 499 493 $1,552 711 $ 825 550 $ 482 444 $ 642 624 $ 710 403 $ 188 184 $ 207 203 $ 609 472 $ 495 495 ................... ................. ................... |................... l................... /.................. ................... ;................... 52.13 25.38 37.25 34.31 12.4% 13.4% 63.6% .7 62.00 36.63 48.50 31.35 13.6% 25.1% 40.1% 2.0 42.88 30.75 36.88 27.79 12.1% 17.4% 44.1% 1.9 52.75 22.75 34.50 25.59 12.6% 18.7% 31.4% 1.7 41.25 24.75 37.00 22.70 10.4% 13.8% 26.3% 1.7 27.38 20.50 26.50 20.59 8.7% 10.2% 32.0% 2.0 25.75 18.00 25.00 19-58. 11.7% 12.6% 35.7% 2.2 31.88 22.38 24.75 19.48 4.2% 3.8% 37.4% 2.1 27.25 13.25 26.25 19.22 2.5% 1.0% 42.1% 1.6 32.38 17.75 20.13 18.99 6.8% 4.6% 43.3% 1.4 34.88 21.50 25.00 18.93 * 9.0% 39.3% 1.5 SGP 0030309 61 Sales and Operating Profits by Industry Segment (Millions) Net sales Pulp and paper Containerboard and packaging............ . . . Communication papers........................... ... Market pulp............................................... .......... Tissue......................................................... .......... Groundwood papers................................... .......... Paper distribution and envelopes . Other........................................................... .......... Building products Wood panels.......................................... Lumber.................... ............ Gypsum products..................................... Chemicals................................................. Roofing...................................................... Other......................................................... . .... .... .. . Other operations Continuing operations 1990 1989 1988 1987 % 2,440 1,360 779 719 305 1,027 72 6,702 19% 11 6 6 2 8 1 53 $ 1,578 983 728 679 -- -- 74 4,042 15% 10 7 7 -- -- 1 40 $1,433 796 533 590 -- -- 84 3,436 15% 8 6 6 -- -- 1 36 $1,246 621 314 539 -- -- 90 2,810 15% 7 4 6 -- -- 1 33 2,296 1,966 270 247 192 952 5,923 40 $12,665 18 16 2 2 2 7 47 - 100% 2,488 2,109 299 253 194 745 6,088 41 $10,171 24 21 3 3 2 7 60 -- 100% 2,442 2,134 305 241 189 718 6,029 44 $9,509 26 22 3 2 2 8 63 1 100% 2,355 2,002 361 189 194 654 5,755 38 $8,603 28 23 4 2 2 8 67 - 100% Operating profits* Pulp and paper.............................................. .... % 979 Building products......................................... .... 423 Other operations........................................... 17 Other income (expense)**........................... .......... 48 67% 29 1 3 $ 917 533 15 -- 63% 36 1 - $ 616 428 10 -- 58% 41 1 -- $ 383 533 10 - 41% 58 1 -- Continuing operations $ 1,467 100% $ 1,465 100% $1,054 100% $ 926 100% *Operating profits are before income taxes, interest, cost ofaccounts receivable sale program, general corporate expenses, unusual items and extraordinary items. **Other income (expense) includes an $88 million pretaxgain on timberlandsoldin 1990, a $40 million pretax loss on sale ofaprinting andspecialty paper subsidiary in 1990 andpretax restructuring charges of$135 million and$18 million, respectively, in 1983 and1982. Ifthese amounts hadbeen included in segment operating profits, pulp andpaper operating profits would have been $939 million in 1990, $13 million in 1983 and$41 million in 1982; building products operating profits would have been $511 million in 1990, $277 million in 1983 and $128 million in 1982; andother operations operatingprofits would have been $13 million in 1983 and $25 million in 1982. SGP 0030310 62 Georgia-Pacific Corporation and Subsidiaries Year ended December 31 1986 1985 1984 1983 1982 1981 1980 $1,029 461 221 302 15% 6 3 7 $1,037 356 157 514 15% 5 2 8 $ 909 44 5 225 507 13% 7 3 8 $ 647 450 191 449 11% 7 3 7 $ 605 437 187 429 12% 9 4 8 $ 569 375 248 388 12% 7 5 8 $ 319 267 245 369 11% 6 5 8 68 2,281 1 32 70 2,134 1 31 25 2,111 -- 31 31 1,768 1 29 29 1,687 1 34 37 1,617 1 33 31 1,431 1 31 1,864 1,676 375 155 230 553 4,853 89 $7,223 26 23 5 2 3 8 67 1 100% 1,666 1,434 377 173 260 560 4,470 112 $6,716 25 21 6 3 4 8 67 2 100% 1,637 1,461 360 186 268 540 4,452 119 $6,682 25 22 5 3 4 8 67 2 100% 1,560 1,424 269 162 222 506 4,143 129 $6,040 26 24 4 3 4 8 69 2 100% 1,217 1,003 183 136 197 450 3,186 130 $5,003 24 20 4 3 4 9 64 2 100% 1,230 1,017 193 139 144 438 3,161 136 $4,914 25 20 4 3 3 9 64 3 100% 1,154 993 196 112 129 415 2,999 124 $4,554 25 22 4 3 3 9 66 3 100% $ 146 500 35 - $ 681 22% 73 5 - 100% $ 29 391 35 -- $ 455 6% 86 8 -- 100% $ 202 379 20 -- $ 601 34% 63 3 -- 100% $ 71 354 13 (133) 23% 117 4 (44) $ 303 100% $ 44 136 32 23% 70 16 (18) (9) $ 194 100% $ 118 141 33 -- $ 292 41% 48 11 _ 100% $ 146 176 27 -- $ 349 42% 50 8 -- 100% SGP 0030311 63 Operating Statistics Pulp andpaper Paper (t.tons) Containerboard and packaging Linerboard and medium ............ Other paperboard ........................ Kraft paper .................................. Communication papers ................... Groundwood papers ........................ Tissue .............................................. Market pulp (t.tons) Total paper and market pulp Converting Corrugated packaging (m.sq.ft.) . . . Tissue (t.tons).................................... Envelopes (billion envelopes) .......... Other ........................ ........................ Total paper, market pulp and converting Distribution centers............................... As of December 31,1990 Number of Facilities Annual Capacity 4** 5 2 8 2 5 7 33 2,936** 629 342 1,913 690 567 1,856 8,935 38** 6 17 15 109 82 28,627 593 15 Building products Wood panels Softwood plywood (W) (m.sq.ft.) . Hardwood plywood (sm) (m.sq.ft.) Hardboard (V&") (m.sq.ft.) .............. Particleboard (s/4") (m.sq.ft.) .......... Oriented strand board (%") (m.sq.ft.) Panelboard (Vfe *) (m.sq.ft.).............. Softboard (Vi") (m.sq.ft.) ................. Fiberboard (Vi") (m.sq.ftj .............. 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 products Distribution centers ............................. 18 5,198 2 410 8 1,394 8 1,148 4 952 1 300 1 250 1 100 46 2,723 4 45 10 3,063 5 9,484 12 1,805 16 2,650 17 153 143 Other operations 3 Resources (as of December 31) North American timberlands (t.acres) Owned in fee ............................................................................................................................................ Controlled ................................................................................................................................................. *The production ofGreat Northern Nekoosafacilities has been included beginning on March 9,1990. * *Adjusted to exclude two linerboardand medium mills with a capacity of 765 thousand tons, 19 corrugatedpackaging plants with a capacity of12,720 million squarefeet, 540,000fee acres and98,000 controlledacres oftimberlandsoldinJanuary 1991. SGP 0030312 64 Georgia-Pacific Corporation and Subsidiaries Production 1990* 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 3,139 544 354 1,780 531 553 1,667 8,568 31,356 497 12 1,419 555 350 1,161 519 1,194 5,198 16,640 467 1,297 458 356 970 511 870 4,462 16,577 462 1,318 393 . 348 868 490 718 4,135 15,750 446 1,146 368 394 731 496 611 3,746 14,572 437 976 368 452 552 476 587 3,411 13,703 432 740 374 529 574 486 629 3,332 452 377 541 518 487 601 2,976 11,880 422 8,427 422 410 321 500 475 456 576 2,738 412 361 487 433 419 648 2,760 7,680 393 6,291 368 396 345 508 348 420 631 2,648 5,742 360 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 3,653 405 360 423 _ 443 212 55 1,418 -- 1,835 3,704 1,039 1,156 3,084 392 445 415 -- 439 232 -- 1,318 -- 1,835 2,028 981 1,008 8,203** 1,047** 5,430 670 5,480 1,010 4,910 670 4,700 530 4,760 480 4,920 480 4,630 530 4,630 510 4,620 510 4,500 600 sm = surface measure basis tm = millions SGP 0030313 Georgia-Pacific Corporation Officers T. Marshall Hahn, Jr. Chairman and Chief Executive Officer HaroldL. Airington Vice Chairman Ronald R Hogan President and Chief Operating Officer A.D. Correll Executive Vice President-Pulp and Paper Davis K. Mortensen Executive Vice President-Building Products James C. Van Meter Executive Vice President-Finance and Chief Financial Officer W.E. Babin Senior Vice President-Containerboard and Packaging James G. Crump Senior Vice President-Communication Papers Diane Durgin Senior Vice President-Law Donald L. Glass Senior Vice President-Building Products Manufacturing George A. MacConnell Senior Vice President-Distribution and Specialty Operations Daniel A. Martinez Senior Vice President-Pulp and Bleached Board David W. Reynolds Senior Vice President-Human Resources and Administration Carroll T. Tolar Senior Vice President-Engineering Willie L. Duke Group Vice President-Wood Products Manufacturing Maurice W. Kring Group Vice President-Packaged Products Francis G. Walker * Group Vice President-Buder Paper and Mail-Well J Wayne Amy Vice President-Distribution Division Southwest Region Joseph J. Armetta Vice President-Distribution Division Midwest Region James E. Bostic, Jr. Vice President-Buder Pt _r and Mail-Well Gerard R. Brandt Vice President-Manufacturing Communicadon Papers DavidS. Dimling Vice President-Sales an 1 Markeung Communicadon Papers Duncan B. Facey Vice President-Distribudon Division Northeast Region DavidR. Fleiner Vice President-Wood Products Sales William C. Howard Vice President-Manufacturing Southern Pulp and Paper Clifford T. Howlett, Jr. Vice President-Environmental and Government Affairs Stephen K.Jackson Vice President-Distribution Division Marketing and Advertising Clint M. Kennedy Vice President-Sales and Marketing Pulp and Bleached Board John E. Masaschi Vice President-Industrial Wood Products Division John F. McGovern Vice President-Finance RobertJ. Millikan Vice President-Manufacturing Containerboard Dewey L. Mobley Vice President-Western Wood Products Manufacturing Division William B. Nagle, Jr. Vice President-Mid-Continent Wood Products Manufacturing Division *Through March 31,1991 SGP 0030314 66 Kelly E. Powell, Jr. Vice President-Distribution Division Western Region John F. Rasor Vice President-Eastern Wood Products Manufacturing Division William D. Rose Vice President-Mi!'~ork and Specialties Robert A. Starling Vice President-Distribution Division Southeast Region RichardB.Spitzn. tr Vice President-Cc mpensation and Benefits Wayne 1. Tamblyn Vice President ana Treasurer James R. Taylor Vice President-Chemical Division RaymondH. Taylor Vice President-Northern Paper James E. Terrell Vice President and Controller Douglas A. Thom Vice President-Packaging Michael A. Vidan Vice President-Gypsum and Roofing Division MichaelB. Wilson Vice President-Sales and Marketing Consumer and Commercial Paper Products Georgia-Pacific Corporation Directors T. Marshall Hahn, Jr.1 Chairman and Chief Executive Officer Harold L. Airington Vice Chairman Ronald P. Hogan President and Chief Operating Officer James C. Van Mei ;r Executive Vice President-Finance and Chief Financial Officer Willard S. Boothbyjr. L 3 Managing Director, PaineWebber Incorporated; Investment Bankers; New York, New York Robert Carswell4-5 Senior Partner, Shearman & Sterling; Attorneys; New York, New York Robert B. Claytor '2'3 Chairman of the Executive Committee, Norfolk Southern Corporation; Norfolk, Virginia Harvey C. Fruehauf, Jr l-4 President, HCF Enterprises, Inc.; Private Investment Company; St. Clair Shores, Michigan Clifton C. Garvin,Jr. Chairman and Chief Executive Officer (retired), Exxon Corporation; New York, New York Richard V. Giordano -3'4 Chairman, The BOC Group pic; Windlesham, England FrancisJungers2 Vice Chairman of Riedel Environmental Technologies, Inc.; business consultant; Portland, Oregon F. James McDonald3'5 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 Pace 4-5 President, Economic Consulting and Planning, Inc.; New York, New York Robert A. Schumacher4-5 President and Chief Operating Officer (retired); Georgia-Pacific Corporation; Darien, Connecticut James B. Williams 4-5 President and Chief Executive Officer, SunTrust Banks, Inc.; Atlanta, Georgia 1 Executive Committee 2 Audit Committee 3 Stock Option Plan andManagement Compensation Committee 4 Finance Committee 3 Nominating Committee SGP 0030315 67 Investor Information Corporate Headquarters 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 Exuiange ("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 r ,*wspapers. G-P options are traded on the Philadelph a Stock Exchange. Transfer Agent andRegistrar First Chicago Trust Company of New York Post Office Box 3981 Church Street Station New York, New York 10008-3981 Shareholder Information 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 Di\ idend Reinvestment Plan. For information on the Plan, contact the Plan agent, First Chicago Trust Company of New York, Post Office Box 3506, Church Street Station, New York, New York 10008-3506. Financial Information A copy of the Georgia-Pacific 1990 Annual Report to the Securities and Exchange Commission on Form 10-K will be supplied without charge. Annual Statis tical Updates are also available. Requests for financial information should be directed to: Investor Relations, Georgia-Pacific Corporation, P.O. Box 105605, Adanta, Georgia 30348, or telephone (404) 521-5555. Georgia-Pacific is an equal opportunity employer. 68 SGP 0030316 Thematic Photo Descriptions Market pulp in process!page 5 Linerboard and corrugating medium /photo spread Communication paper /page 6 Southern pine plywood /page 13 Lumber /photo spread Oriented strand board ipage 14 Loblolly pine /page 21 Ponderosa and sugar pine timberlands near Martell, California /photo spread Douglas fir seedling /page 22 . 1991 Georgia-Pacific Corporation. All tights reserved. Angel Soft, Big'nPretty, Big'nSoft, Big'nThirsty, Coronet, Delta, Dens-Glass, Hopper, MD, Ply Frame, Sparkle, Tapestry, and Ultimatic are registered trademarks and Featherweight, Flamebreak, G-P Truckliner, Proterra, Ultima and Wood I Beam are trademarks of Georgia-Pacific Corporation. Printed on Georgia-Pacific papers: Cover -- Hopper Carrara White Tapestry, Vellum, 80 lb. cover. Text -- Hopper Coastal White ProterraTM, Vellum, 80 lb. text; Consolidated Reflections, gloss 110 lbs., which contains Georgia-Pacific Nekoosa 90 bleached softwood kraft pulp from Ashdown, Arksansas. Design: Samata Associates Typography: Fine Print Typography, Inc. Lithography: George Rice and Sons Lithography in the United States of America 133 Peachtree Street, N.E. Atlanta; Georgia 30303 SGP 0030318