Document reD96n0Lrb7z8N39ZEELow0KG

Georgia-Pacific is committed to acquiring Great Northern Nekoosa. We believe the merger will create a stronger company, enabling us to be more competitive in the global marketplace of the 1990s. Because me transaction was not completed by publication date, you will find this year's annual report limited to manage ment's discussion and analysis, and financial statements showing the record-level results we achieved in 1989- SGP 0030140 About the Company Georgia-Pacific Corporation was founded in Augusta, Georgia, in 1927 as a whole saler of hardwood lumber and is now' a major manufacturer and wholesale distributor *r of building products, indus trial wood products, pulp, paper, p*kaging and related cwmicals. Georgjf-Pacific is one of the world's largest manufacturers of forest products. Our network of building products pro duction facilities and distri bution centers is the industry's most extensive, serving the entire United States and overseas markets. Georgia-Pacific has also become a national presence in the paper industry, with facil ities across the U.S. producing annually five million tons of pulp, printing and writing paper, tissue, paperboard and corrugated containers. Georgia-Pacific currently employs approximately 44,000 people at facilities in 48 states, Brazil, Canada and the United Kingdom. G-P also owns or controls more than six million acres of timberland in North America, as well as reserves of gypsum and other minerals. 1 SGP 0030141 Contents Highlights .................................................................................. 3 Management's Discussion and Analysis.......................................4 Statements of Income ................................................................ 10 Statements of Cash Flows............................................................ 11 Balance Sheets ........................................................................ 12 Statements of Shareholders' Equity 14 Notes to Financial Statements ...................................................15 Report of Independent Public Accountants.............................. 26 Report on Management's Responsibilities f................ 27 Ten-year Selected Financial Data ......................... ' 28 Sales and Operating Profits by Industry Segment .............. 32 Operating Statistics.....................................................................34 Officers 36 Directors .....................................................................................37 Investor Information .................................................................. 38 2 SGP 0030142 Highlights (Dollar amounts, except per share, and shares are in millions) Net sales -. Net income Earnings per share Cash provided by operations Common stock repurchased Cash dividends paid Total assets at year end Return on capital employed Total debt to capital Cash dividends paid per share of common stock Shares of common stock repurchased Shares of common stock outstanding at year end Number of shareholders of record Number of employees Georgia-Pacific Corporation and Subsidiaries 1989 1988 Change $10,171 661 7.42 1,358 468 130 7,056 13.6% 40.1% $9,509 467 4.7 6 865 395 123 7,115 12.1% 44.1% 7% 42 56 57 18 6 (1) $ 1.45 9.7 86.7 49,000 44,000 $ 1.25 10.3 94.8 53,000 44,000 16% (6) (9) (8) -- SGP 0030143 Management's Discussion andAnalysis Georgia-Pacific Corporation and Subsidiaries 1989 Compared with 1988 ating profits were primarily the result of higher prices Georgia-Pacific's consolidated net sales of $10.2 billion for structural panels during most of 1989- Tight timber in 1989 were 7.0 percent higher than in 1988. Net income supplies in the Pacific Northwest, resulting from envi rose by 41.5 percent to $661 million in 1989, compared with ronmental restrictions, had a positive impact on plywood $467 million in 1988. Both the pulp and paper and build pricing. Supplies and prices were also impacted by strikes ing products segments reported higher sales and operating and frequent rains, which hampered logging activities. profits in 1989- Earnings per share increased 55.9 percent By the end of the year, however, plywood prices had fallen to $7.42 in 1989, compared with $4.76 in 1988, because substantially from the peak levels reached at the beginning of the increase in net income and a 0.0 million reduction of the fourth quarter. in the average number of outstanding shares resulting The building products segment's sales and income are from the Corporation's stock repurchase program. affected by changing economic conditions including the Selected Industry Segment Data level of housing starts, the level of repair and remodeling (Millions) Net sates Building products Pulp and paper Other operations Total net sales Operating profits Building products Pulp and paper Other operations Total operating profits General corporate Interest expense Unusual item Income taxes Net income Year ended December 31 1989 1988 1987 % 6,088 4,042 41 $10,171 $6,029 3,436 44 $9,509 $5,755 2,810 38 $8,603 $ 533 917 15 1,465 (118) (260) (426) $ 661 $ 428 616 10 1,054 (79) (197) - (311) $ 467 $ 533 383 10 926 (70) (124) 66 (340) $ 458 of existing housing, commercial building activity and the availability and cost of mortgage funds. Assuming that interest rates and housing starts remain at current levels, we expect that lower prices for structural panels will reduce this segment's profits in 1990. Sales in the pulp and paper segment were $4.0 billion in 1989, 17.6 percent higher than in 1988. Operating profits in 1989 of $917 million were 48.9 percent higher than $616 million in 1988. Returns on sales improved to 22.7% in 1989, compared with 179% in 1988. Improved The building products segment reported sales of $6.1 results in 1989 were primarily attributable to higher vol billion in 1989, a 1.0 percent increase from 1988. Operat ume resulting from the acquisition of our Bmnswick pulp ing profits of $533 million in 1989 were 24.5 percent higher and paper mill and the start-up of a new paper machine than $428 million in 1988. Returns on sales were 8.8% at Port Hudson, Louisiana (both in the middle of the and 7.1% in 1989 and 1988, respectively. Improved oper 1988 third quarter). Higher prices in our major product SGP 0030144 Georgia-Pacific Corporation and Subsidiaries lines during much of 1989. particularly market pulp and Liquidity and Capital Resources printing paper, contributed significantly to this segment's Cash Flow increased profits. In the latter pan of 1989, however, prices In 1989, cash provided by operations was $1.36 billion, for printing paper and linerboard weakened. Tissue oper compared with $865 million in 1988. The $493 million ations had better results in 1989 as a result of internal increase resulted from a $341 million increase in net improvements and strong demand. income after adjustments for items not affecting cash Demand for pulp and paper products correlates closely and a $152 million decrease in cash used for working with real growth in the gross national product, but is also capital. Cash flow from operations during 1989 exceeded affected by industry productive capacity, currency exchange the amount used for capital expenditures and dividend rates and foreign market conditions. We expect that con payments. The excess cash was primarily used to repur tinued sluggish economic growth coupled with incieased chase the Corporation's common stock. industry capacity will result in lower prices and profits for Financing Activities this segment in 1990, particularly for market pulp and, During 1989, the Corporation repurchased 9,674,000 to a lesser extent, printing paper and linerboard. shares of common stock for $468 million, at an average General corporate expense was $118 million in 1989, price of $48.38 per share. The Corporation suspended compared with $79 million in 1988. The increase is pri stock repurchases in connection with its proposal to marily attributable to a $31 million increase in expense acquire Great Northern Nekoosa Corporation ("Great for common stock compensation programs. Northern"), described in "Agreement to Acquire Great The Corporation's interest expense was $260 million Northern," beginning on page 7. If the acquisition is in 1989, compared with $197 million in 1988. Interest consummated, the additional debt incurred would expense in 1989 is higher primarily due to a higher level increase the Corporation's ratio of total debt to capital of average debt in 1989- As a result of the Corporation's substantially beyond the 40% to 45% target established decision to maintain a higher ratio of total debt to capital by the Corporation's board of directors. the level of debt was increased during 1988 and remained Georgia-Pacific's ratio of total debt to capital was near that increased level during most of 1989. The Cor 40.1% at December 31, 1989, compared with 44.1% at poration's cash flow to interest ratio was 5.9 in 1989, December 31, 1988. Effective in the 1989 fourth quarter, compared with 4.8 in 1988. the Corporation's board of directors voted to increase SGP 0030145 Georgia-Pacific Corporation and Subsidiaries the quarterly dividend on common stock from 35 cents Investor Service, Inc. announced that they had placed the to 40 cents per share. ratings of the Corporation's senior debt and commercial At December 31, 1989, the Corporation had registered paper under review for a possible downgrading. for sale up to $500 million of debt securities, including Investing Activities medium-term notes, under shelf registration statements Capital expenditures in 1989 were $499 million, including filed with the Securities and Exchange Commission. $135 million in the building products segment, $310 mil At December 31, 1989, the Corporation had a revolving lion in the pulp and paper segment, $46 million for tim credit agreement with 27 banks which established unse ber and timberlands and $8 million of other expenditures. cured revolving lines of credit totaling $1.5 billion, $750 A new recovery boiler at our Woodland, Maine pulp million of which were active. Bank of America National and paper mill, which resulted in increased pulp capacity Trust and Savings Association ("Bank of America") is the of 23,000 tons annually, was completed in the third quarter agent bank under this agreement, which does not expire of 1989 at a cost of approximately $77 million. A new until June 24, 1991. No amounts were outstanding under recovery boiler at our Brunswick, Georgia pulp and paper this agreement at December 31, 1989- At December 31, mill will cost approximately $84 million and is expected 1989, these bank lines of credit were being used to sup to be completed in the third quarter of 1990. port approximately $302 million of commercial paper Capital expenditures of approximately $565 million are and other short-term borrowings. Management believes projected for 1990, excluding acquisitions (see "Agreement that the Corporation's capacity to generate cash internally, to Acquire Great Northern," beginning on page 7). This together with its existing committed lines of credit and includes approximately $300 million for projects started other available financing sources, is adequate to finance prior to 1990. If the acquisition of Great Northern is growth and meet operating and liquidity needs for the consummated, the Corporation will reevaluate its capital foreseeable future. However, in the event the acquisition spending plans. of Great Northern is consummated, the Corporation will Georgia-Pacific's operations are subject to extensive require additional financing as described in "Agreement regulation by federal, state and local agencies concerning to Acquire Great Northern," beginning on page 7. environmental compliance. The Corporation believes that As a result of the Corporation's proposal to acquire Great it is in substantial compliance with existing applicable Northern, Standard & Poor's Corporation and Moody's environmental laws and regulations. In the past, the 6 SGP 0030146 Georgia-Pacific Corporation and Subsidiaries Corporation has made significant capital expenditures Agreement to Acquire Great Northern to comply with water, air, solid and hazardous waste On February 20, 1990, the Corporation and Great regulations and expects to make significant expenditures Northern entered into a definitive merger agreement in the future to maintain such compliance. During 1989, providing for the Corporation's acquisition of Great capital expenditures for pollution control facilities and Northern. Pursuant to the merger agreement, which has equipment were approximately $39 million, and the been approved by the boards of directors of both com Corporation's 1990 capital expenditure budget includes panies, the Corporation increased the price of its existing approximately $66 million for pollution control facilities tender offer (begun on October 31,1989) for all out and equipment. While the amounts for environmental standing common shares of Great Northern to $65.75 per control equipment and facilities and for compliance in share in cash. It is estimated that the amount required to future years will depend on legal and technological de fund the tender offer will be approximately $3.8 billion, velopments which cannot be predicted at this time, man excluding transaction costs. agement anticipates that these costs are likely to increase Great Northern produces pulp, paper and container- as environmental regulations become more stringent. board and is a major domestic corrugated packaging Other manufacturer, paper distributor and envelope manu Due to inflation, the current values of property, plant facturer. Great Northern also owns several wood products and equipment and timber are higher than the historical operations, hydroelectric plants, timber and timberlands. costs reported in the financial statements. Accordingly, The tender offer is conditioned upon, among other depreciation and depletion expense would be higher if things, the tender of at least a majority of the common the costs of such assets were adjusted to a current cost shares outstanding on a fully diluted basis and the Cor basis. The adverse effects resulting from such an adjust poration having obtained sufficient financing to enable ment to income would be offset to some extent by a it to consummate the offer and pay related fees and gain due to the fact that the Corporation's net excess of expenses. Consummation of the merger is also subject monetary liabilities over monetary assets would be repaid to the satisfaction of certain other conditions, including in less costly dollars than the dollars (with higher pur approval, if required by law, of the merger by Great chasing power) originally received for the obligations to be repaid. Northern's shareholders. SGP 0030147 Georgia-Pacific Corporation and Subsidiaries On October 30, 1989, the Corporation obtained a Northern, to pay anticipated transaction costs and to commitment letter from Bank of America committing provide working capital for the Corporation and Great it to use its best efforts to arrange one or more syndicates Northern. The terms set forth in the commitment letter of banks to provide senior bank credit facilities of up to provide that, of the $5.5 billion available upon the con $5.5 billion (the "Loan Facility"), in two phases. summation of the merger, $5.1 billion will be available In the first phase, the Corporation executed agreements for a term loan and the remainder will be available for on December 28, 1989 with Bank of America and 18 a working capital facility. other domestic and international banks to provide senior The term loan will be repayable over eight years, with bank credit facilities of an aggregate of up to $4.5 billion expected amortiza":on to be $175 million in the first (the "Tender Facility"). The Tender Facility will be avail year, $450 million 11 each of the second and third years, able to finance the tender offer, refinance certain debt $800 million in thi fourth year, $875 million in the fifth of the Corporation and to pay related transaction costs. year, $800 million in each of the sixth and seventh years A commitment fee of 1/2 of 1% per annum is payable on and $750 million in the eighth year. Borrowings will the aggregate unused portion of the commitments. Under bear interest, at the election of the Corporation, at either the Tender Facility, the Corporation's total consolidated (i) the higher of the Bank of America Reference Rate debt will be limited to $8.3 billion, and there may be no plus 1% and the Federal Funds Rate plus lVi% or sales of assets out of the ordinary course of business which (ii) the London Interbank Offered Rate plus 2%. The exceed an aggregate of $50 million without the consent of Loan Facility, when used, will replace the Corporation's the banks. Any borrowings made under these agreements existing $1.5 billion credit facility. will be secured by substantially all of the Corporation's As of December 31,1989, the Corporation had incurred receivables and inventory. The Tender Facility will termi costs of approximately $43 million related to the proposed nate on July 31,1990 unless the tender offer funding occurs acquisition, including approximately $14 million for earlier, in which case it will terminate six months thereafter. 349,900 shares of Great Northern common stock. These In the second phase, an aggregate of up to $5.5 billion costs were included in "Other assets" in the Corporation's will be made available to consummate the merger, to balance sheet. refinance the Tender Facility, to refinance certain portions The Corporation believes that free cash flow from of the outstanding debt of the Corporation and Great operations of the combined entity will be sufficient to S SGP 0030148 Georgia-Pacific Corporation and Subsidiaries allow for the repayment of the combined debt of the percent lower level of housing starts. Lower levels of com Corporation and Great Northern in accordance with its mercial construction resulted in lower gypsum prices and terms. The Corporation may from time to time deter volumes in 1988. mine to prepay certain of such indebtedness; however, Sales in the pulp and paper segment were $3.4 billion no specific plans with respect to such prepayment have in 1988, 22.3 percent higher than in 1987. Operating been adopted. profits in 1988 of $616 million were 60.8 percent higher than $383 million in 1987. Returns on sales averaged 179% 1988 Compared with 1987 and 13.6% in 1988 and 1987, respectively. Improved results Georgia-Pacific's cor alidated net sales of $9.5 billion for in 1988 were primarily attributable to higher prices in 1988 were 10.5 percer t higher than in 1987. Earnings per all of our major product lines, particularly for linerboard, share were $4.76 in 1/ >8 compared with $4.23 in 1987. corrugated packaging and printing paper. Favorable Net income was $46/ million in 1988 compared with currency exchange rates contributed to strong demand $458 million in 1987, which included a $66 million pre from the international sector. tax gain ($41 million after tax) from the liquidation of The Corporation's interest expense was $197 million in investments (reported as an "Unusual item" in the Cor- 1988, compared with $124 million in 1987. The increase potation's financial statements and excluded from oper in 1988 was attributable to higher debt levels and higher ating results). Earnings per share were 12.5 percent higher interest rates as a result of issuing more long-term, fixed- in 1988, primarily due to a 9-4 million reduction in the rate debt. The Corporation's cash flow to interest ratio average number of outstanding shares resulting from was 4.8 in 1988, compared with 6.8 in 1987 the Corporation's stock repurchase program. The provision for income taxes was $311 million in The building products segment reported sales of $6.0 1988, based on a 40.0% effective tax rate, compared with billion in 1988, a 4.8 percent increase from 1987. Oper $340 million, based on a 42.6% rate, in 1987. The effec ating profits of $428 million were 19-7 percent lower than tive tax rate was lower in 1988 due to a reduction in the $533 million in 1987. Returns on sales averaged 7.1% and statutory Federal tax rate. 9.3% in 1988 and 1987, respectively. Average prices for plywood and lumber were lower during 1988. Demand for building products was adversely affected by an 8.2 9 SGP 0030149 Statements ofIncome (Millions, except per share amounts) Net sales Costs and expenses Cost of sales Selling, general and administrative . Depreciation and depletion Interest Total costs and expense Income before unusual item and income taxes Unusual item ... Income before income taxes Provision for income txes .. Net income ... . ... .... .. Earnings per share Average number of shares outstanding The accompanying notes are an integralpart ofthese financial statements. Georgia-Pacific Corporation and Subsidiaries Year ended December 31 1989 $10,171 1988 $9,509 1987 $8,603 7,621 689 514 260 9,084 1,087 - 1,087 426 $ 661 $ 7.42 89.1 7,452 632 450 197 3,731 778 778 311 $ 467 5 4.76 98.1 6,777 583 387 124 7,871 732 66 798 340 $ 4.23 107.5 1 0\T0\ ^apaps SGP 0030150 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 . . Deferred income taxes Common stock compensation Gain on sales of assets Gain on liquidation of investments 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) financing activities Repayments of long-term debt .............................. ... Additions to long-term 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 provided by (usedfor) financing activities Cash provided by (used for) investment activities Capital expenditures Property, plant and equipment ... Timber and timberlands ... ............................................. Total capital expenditures ... Acquisition of Brunswick Pulp & Paper Other acquisitions Proceeds from sales of assets Proceeds from liquidation of investments Other ... ............... .. Cash (usedfor) investment activities Decrease in cash Balance at beginning of year Balance at end ofyear .............................. The accompanying notes are an integralpart ofthese financial statements. .. Year ended December 31 1989 1988 1987 $ 661 $ 467 $ 458 445 69 53 32 (27) 82 1,315 392 58 44 6 (17) 24 974 351 36 49 2 (4) (66) 44 870 15 16 (7) 19 43 1,358 (102) (38) 20 11 (109) 865 (78) (70' (10) 69 (89) 781 (305) 113 (38) (69) (468) (130) (897) (884) 1,534 37 63 (395) (123) 232 (339) 683 (1) (15) (255) (115) (42) (447) (46) (493) (6) 66 - (67) (500) (39) 62 $ 23 (697) (14) (711) (245) (223) 74 - (1,105) (8) 70 $ 62 (532) (18) (550) - (357) 11 125 22 (749) (10) 80 $ 70 11 SGP 0030151 Balance Sheets (Millions, except shares andper share amounts) Assets Current assets Cash Receivables, less allowances of $30 and $29 Inventories Raw materials Finished goods Supplies LIFO reserve Tocal inventories Other current assets Total current assets Timber and timberlands, net Property, plant and equipment Land and improvements Buildings Machinery and equipment ... Construction in progress Total property, plant and equipment, at cost Accumulated depreciation . Property, plant and equipment, net Other assets Total assets December 31 1989 1988 ... $ 23 890 $ 62 905 299 644 102 (169) 876 40 1,829 1,246 288 653 101 (150) 892 33 1,892 1,289 151 688 6,016 140 6,995 ................................................ (3,304) 3,691 290 $ 7,056 152 669 5,698 165 6,684 (2,961) 3,723 211 $ 7,115 m mmm SGP 0030152 mm Georgia-Pacific Corporation and Subsidiaries Liabilities and shareholders' equity Current liabilities Bank overdrafts, 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 liabilities ... .............................. ................................. ... Long-term debt, excluding current portion Deferred income taxes Other long-term liabilities .... ..... ..................... Shareholders' equity Common stock, par value $.80; authorized 150,000,000 shares; 86,664,000 and 94,967,000 shares issued Additional paid-in capital ..... Retained earnings Less --Common stock held in treasury, at cost; 139,000 shares in 1988 . Long-term incentive plan deferred compensation Accumulated translation adjustments .... . Total shareholders ' equity Total liabilities and shareholders' equity The accompanying notes are an integralpart ofthese financial statements. December 31 1989 1988 $ 100 79 31 394 111 58 151 924 2,336 841 238 $ 138 148 32 404 103 58 130 1,013 2,514 788 165 ... 69 1,009 1,713 (56) (18) 2,717 $7,056 76 1,046 1,533 (4) (11) (5) 2,635 $7,115 13 SGP 0030153 Statements ofShareholders' Equity Georgia-Pacific Corporation and Subsidiaries (Millions, except shares) Common stock shares Issued Treasury 107,987,000 16,000 3,184,000 Balance at 639,000 December 31, 1986 Net income Cash dividends declared Common stock Preferred stock Common stock issued (373,000) Stock option plan Employee stock purchase plan Conversion of preferred stock Common stock 6,182,000 repurchased 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 Long-term 344,000 incentive plan Common stock 10,312,000 repurchased (16,568,000) (16,568,000) Treasury stock retired Other Total Common stock Additional paid-in capital earnings Long-term incentive Accumulated stock compensation adjustments $2,452 $86 - $1,101 - $1,304 $ (19) -- $- -- $(20) -- 0\r0\ CO y/~\ (113) (2) 17 _ 111 (255) 12 2,680 467 (123) 3 _ 2 (395) 1 (113) - - (2) -- _ 6 __ 11 ___ __ __ __ 3 108 __ _ __ __ (255) - - (2) - 89 1,215 1,645 (263) - - 467 - (123) _ 1 __ 2 ___ __ __ ___ _ (13) - 13 _ __ (183) - __ (456) - (395) 652 - -- _ - - _ __ do __ - -- 14 (6) -- _ __ _ ___ 1 94,967,000 201,000 125,000 1,045,000 (9,674,000) 86,664,000 Balance at 139,000 December 31, 1988 Net income Cash dividends declared Common stock issued (139,000) Stock option plan Employee stock purchase plan Long-term incentive plan Common stock repurchased Other Balance at -- December 51, 1989 2,635 661 (130) 17 5 10 (468) (13) $2,717 76 1,046 1,533 -- - 661 (130) 13 __ __ 5 __ l 54 __ (8) (109) (351) - -- (4) - 4 __ __ __ - $69 $1,009 $1,713 $ - (in - _ __ __ (45) __ - $(56) (5) - __ __ _ _ __ (13) $(18) The accompanying notes are an integralpart ofthese financial statements. M SGP 0030154 Notes to Financial Statements Georgia-Pacific Corporation and Subsidiaries Note 1. Summary ofSignificant Accounting Policies Principles ofConsolidation The consolidated financial statements include the accounts of Georgia-Pacific Corporation and subsidiaries (Corporation). All significant intercompany balances and transactions are eliminated in consolidation. Earnings Per Share Earnings per share are computed based on income applicable to common stock (after preferred stock divi dends and discount accretion in 1987) and the weighted average number of common shares outstanding (net of restricted stock and treasury shares). The effects of assum ing issuance of common shares under long-term incentive, stock option and stock purchase plans and conversion of redeemable preferred stock were insignificant. The num ber of shares used in the earnings per share computa tions were 89,106,000 in 1989, 98,127,000 in 1988 and 107,480,000 in 1987. Inventory Valuation Inventories are valued at the lower of average cost or mar ket. Inventory includes costs of materials, labor and plant overhead. The last-in, first-out (LIFO) dollar value pool method of inventory valuation is used for the majority of inventories at manufacturing facilities and the Cor poration's manufactured inventories located at its build ing products distribution centers. The lower of average cost or market method is used for all other inventories. Inventories valued using che LIFO method represented approximately 51% and 50%, respectively, of inventories at December 31, 1989 and 1988. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Lease obligations for which the Corporation assumes substantially all the property rights and risks of ownership are capitalized. Replacements of major units of property are capitalized and the replaced properties are retired. Replacements of minor units of property and repairs and maintenance costs are charged to expense as incurred. Depreciation expense is computed using the straightline method with composite rates based upon estimated service lives. The ranges of composite rates for the principal classes are: land improvements--5% to7%; buildings -- 3% to 5%; and machinery and equipment --5% to 20%. Under the composite method of depreciation, no gain or loss is recognized on normal property dispositions because the property cost is credited to the property accounts and charged to the accumulated depreciation accounts and any proceeds are credited to the accumu lated depreciation accounts. However, when there are abnormal dispositions of property, the cost and related depreciation amounts are removed from the accounts and any gain or loss is reflected in income. The Corporation capitalizes interest on projects when construction takes considerable time and entails major expenditures. Such interest is charged to the property, plant and equipment accounts and amortized over the approximate life of the related assets in order to properly match expenses with revenues resulting from the facilities. Interest capitalized, expensed and paid was as follows: (Millions) Total interest costs Interest capitalized Interest expense Interest paid Year ended December 31 L989 1988 1987 $272 (12) $222 (25) $134 (10) $260 $197 $124 $259 $164 $116 Timber and Timberlands The Corporation depletes its investment in timber based on the total fiber that will be available during the esti mated growth cycle. Timber carrying costs are expensed as incurred. Reclassifications Certain 1988 and 1987 amounts have been reclassified to conform with the 1989 presentation. 15 SGP 0030155 Georgia-Pacific Corporation and Subsidiaries Note 2. Industry Segment Information (Millions) Net sales Building products Pulp and paper Other Total net sales Net income Building products Pulp and paper Other Total operating profits General corporate Interest expense Unusual item Income taxes Net income Depreciation and depletion Building products Pulp and paper Other and general corporate Total depreciation and depletion Capital expenditures Building products Pulp and paper Timber and timberlands Other and general corporate Total capital expenditures Assets Building products Pulp and paper Timber and timberlands Other and general corporate Total assets 1989 Year ended December 31 1988 1987 $ 6,088 4,042 41 $10,171 60% 40 10C J $6,029 3,436 44 $9,509 63% 36 1 100% $5,755 2,810 38 $8,603 67% 33 - 100% $ 533 917 15 1,465 (118) (260) (426) $ 661 36% 63 10 i% $ 428 616 10 1,054 (79) (197) - (311) $ 467 41% 58 1 100% $ 533 383 10 926 (70) (124) 66 (340) $ 458 58% 41 1 100% $ 232 272 10 $ 514 45% 53 2 100% $ 215 226 9 $ 450 48% 50 2 100% $ 188 191 8 $ 387 49% 49 2 100% $ 135 310 46 8 $ 499 27% 62 9 2 100% $ 216 890 437 9 $1,552 14% 57 28 1 100% $ 301 397 108 19 $ 825 37% 48 13 2 100% $ 2,176 3,358 1,246 276 $ 7,056 3x% 47 18 4 100% $2,226 3,394 1,289 206 $7,115 31% 48 18 3 100% $2,134 2,561 915 260 $5,870 36% 44 16 4 100% Manufactured product lines in the building products segment consist primarily of wood panels (plywood, parti cleboard, hardboard, oriented strand board, etc.), lumber, gypsum products, thermosetting resins and roofing. Manufactured product lines in the pulp and paper segment consist primarily of printing and writing papers, containers and packaging, paperboard, market pulp and tissue. Timber and timberlands are managed to supply raw materials to both the building products and pulp and paper segments. Profits from sales of timber and timberlands are included in the operating profits of the build ing products segment. During the years 1987 through 1989, sales to foreign markets represented less than 10% of total sales to unaffil iated customers. No single customer accounted for more than 10% of total sales to unaffiliated customers in any year during that period. 16 SGP 0030156 Georgia-Pacific Corporation and Subsidiaries Note 3. Agreement to Acquire Great Northern Nekoosa Corporation (Unaudited) On February 20, 1990, the Corporation and Great Northern entered into a definitive merger agreement providing for the Corporation's acquisition of Great Northern. Pursuant to the merger agreement, which has been approved by the boards of directors of both com panies, the Corporation increased the price of its existing tender offer (begun on October 31, 1989) for all out standing common shares of Great Northern to $65.75 per share in cash. It is estimated that the amount required to fund the tender offe vill be approximately $3.8 billion, excluding transaction costs. Great Northern pi duces pulp, paper and containerboard and is a major domestic corrugated packaging manufacturer, paper distributor and envelope manu facturer. Great Northern also owns several wood products operadons, hydroelectric plants, timber and timberlands. The tender offer is conditioned upon, among other things, the tender of at least a majority of the common shares outstanding on a fully diluted basis and the Corporadon having obtained sufficient financing (see Note 5) to enable it to consummate the offer and pay related fees and expenses. Note 4. Income Taxes The provision for income taxes is based on pretax financial income which differs tom taxable income. Differences generally arise because certain items, such as depreciation, are reflected in different time periods for financial and tax purposes. The provisions for income taxes and income taxes paid were as follows: (Millions) Federal income taxes Current Deferred State income taxes Provision for income taxes Income taxes paid Year ended December 31 1989 1988 1987 S316 53 57 $426 $347 $222 44 45 $311 $295 $249 49 42 $340 $255 The difference between the statutory Federal income tax rate and the Corporation's effective income tax rate is summarized as follows: Year ended December 31 Statutory Federal income tax rate State income tax, net of Federal benefit Goodwill amortization Decrease as a result of timber appreciation taxed at capital gains rate Other Effective income tax rate 1989 34.0% 4.0 1.0 _ .2 39.2% 1988 34.0% 4.6 -- _ 1.4 40.0% 1987 40.0% 3.6 - (2.0) 1.0 42.6% The Tax Reform Act of 1986 reduced the statutory Federal income tax rate for 1988 and 1989- However, the effect of the lower tax rate was offset to some extent by a higher capital gains tax rate. 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 Deferred compensation expense Capitalized interest, net Sale of tax benefits Fees paid to terminate interest rate exchange agreements Deferred start-up costs, net Other Deferred tax provision 1989 1988 1987 $ 74 (18) (1) (2) 2 (2) (1) 1 $ 53 $49 (2) 3 2 (2) (2) (4) $44 $64 (6) (2) (4) 2 (2) - (3) $49 In December 1987, the Financial Accounting Standards Board issued Statement of Financial Accounting Stan dards No. 96, "Accounting for Income Taxes," which, among other provisions, will change the method of accounting for deferred income taxes. Companies are required to adopt the new standard no later than for fiscal years beginning after December 15, 1991. It is anticipated that the Corporation will adopt the new standard in 1992 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. SGP 0030157 Georgia-Pacific Corporation and Subsidiaries Note 5. Indebtedness Long-term debt consisted of the following: December 31 (Millions) 1989 1988 Commercial paper and ocher short-term notes Notes Floating rate, currently 8.62% due 1998 9 4% due 1992 10`/8% due 2000, redeemable after May 14, 1995 12j/4% due 1998 13`/2% due 1994, redeemable after July 31, 1991 Debentures 9'/4 % due 201 sinking fund payments commencing 1997 9'/2 % due 201S redeemable under certain core ions 9V4% due 2018, sinking fund payments commencing 1999, redeemable under certain conditions i0'/4% due 2018, redeemable under certain conditions L0V2% due 2018, redeemable under certain conditions Zero coupon, effective interest rates of 10.15% to 10.30%, maturing in 1989 and 1990 Discount term, effective interest rate 11.30% due 2015, redeemable afterjune 14, 1990 Revenue bonds, average interest rate 6.80% with varying annual payments to 2014 Other loans, average interest rate 8.33%, varying payments to 2000 $ 223 300 150 200 51 100 150 200 200 250 250 14 125 129 43 $ 389 300 150 200 57 100 150 200 200 250 250 28 125 132 46 Less: Current portion Unamortized discount 2,385 31 18 2,577 32 31 Long-term debt - $2,336 $2,514 The scheduled maturities of long-term debt for the next five years are as follows: $31 million in 1990, $32 million in 199T $163 million in 1992, $11 million in 1993 and $109 million in 1994. Commercial Paper and Other Short-term Notes As of December 31,1989, the Corporation had a revolving credit agreement with 27 banks which established unse cured revolving lines of credit totaling $1.5 billion, $750 million of which were active. On June 24, 1991, any out standing balance will be converted to a term loan payable in eight equal semiannual installments over the following four years. Commitment fees during the revolving loan period are 1/8 of 1% of the daily average unused lines of credit. Facility fees are 1/16 of 1% of the daily average amount of the active credit lines. The interest rates asso ciated with this agreement are ba^ed, at the Corporation's option, on either the prime rate, toe London Interbank Offered Rate (LIBOR), U.S. dollai :ertificate of deposit rates or competitive bids (fixed or floating rates). At December 31,1989, these bank lines of credit were being used to support $302 million of commercial paper and other short-term borrowings with an average inter est rate of 8.50%. At December 31, 1989, $223 million of commercial paper and other short-term borrowings were classified as long-term debt. Management intends to refinance these borrowings on a long-term basis by either replacing them with long-term debt obligations or by renewing, extending or replacing them with short-term obligations. Notes The interest rate on the floating r; te notes is equivalent to the six-month LIBOR less 32/100 of 1%. The Corporation has entered into four interest rate exchange agreements which effectively fix the interest rate risk on these floating rate notes at 9.11%. 18 SGP 0030158 Georgia-Pacific Corporation and Subsidiaries Two of these agreements provide for payment by the Corporation of interest to the counterparties at an effective fixed rate of 9-53% on notional amounts of $100 million each until August 1998, in exchange for the counter parties' payments of interest on the same amounts at a floating rate equivalent to the six-month LIBOR. The current floating rate for these agreements is 8.88% and is reset on each semiannual settlement date. Under the third agreement, the Corporation will pay interest at an effective fixed rate of 9-36 % on the notional amount of $50 million until August 1998, in exchange for floating rate payments, at the six-month LIBOR, with a current rate of 8.88%, also reset semiannually. Under the fourth agreement, effective 9 ugust 23, 1989, the Corporation will pay interest at an effective fixed rate of 9-09% on the notional amount of $50 million until August 1998, in exchange for floating rate payments, at the six-month LIBOR, with a current rate of 8.88%, to be reset semiannually. Other On December 28, 1989, the Corporation executed agree ments with Bank of America National Trust and Savings Association and 18 other domestic and international banks to provide senior bank credit facilities of an aggre gate of up to $4.5 billion (the "Tender Facility") pursuant to its proposal to acquire Great Northern Nekoosa Cor poration. The Tender Facility will be available to finance the tender offer, refinance certain debt of the Corporation and to pay related transaction costs. A commitment fee of 1/2 of 1% per annum is payable on the aggregate unused portion of the commitments. Under the Tender Facility, the Corporation's total con solidated debt will be limited to $8.3 billion, and there may be no sales of assets out of the ordinary course of business which exceed an aggregate of $50 million with out the consent of the banks. Any borrowings made under these agreements would be secured by substan tially all of the Corporation's receivables and inventory. The Tender Facility will terminate on July 31, 1990 unless the tender offer funding occurs earlier, in which case it will terminate six months thereafter. In 1986, the Corporation terminated two interest rate exchange agreements which were being used as hedges against anticipated future rollovers of $102 million of commercial paper borrowings. The Corporation paid $25 million in termination fees which are being amor tized to interest expense over the periods from termi nation until the original 1991 maturity dates of the terminated agreements. At December 31, 1989, $52 million of long-term debt was secured by property and timber with a net book value of $93 million, including $68 million net book value (original cost $151 million) relating to certain manufac turing and pollution control facilities which were financed with the proceeds from revenue bonds issued by local governmental units and guaranteed by the Corporation. The Corporation leases such facilities from the govern mental units and pays all costs incidental to ownership of the properties. At December 31, 1989, the Corporation had registered for sale up to $500 million of debt securities under shelf registration statements filed with the Securities and Exchange Commission. 19 SGP 0030159 Georgia-Pacific Corporation and Subsidiaries Note 6. Retirement Plans Defined Benefit Pension Plans Most of the Corporation's employees participate in non contributory 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-administered multiemployer plans. The Corporation's funding policy for solely admin istered plans is based on actuarial calculations and the applicable requirements of Federal law. Contributions to jointly administered and multiemployer plans are generally based on negotiated labor contracts. Benefits under the majority of plans for hourly employ ees (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 nonqualified 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) pro]ected benefit obligation Contributions made in December Unrecognized net (gain) loss Unrecognized prior service cost Unrecognized net (asset) obligation from initial application of SFAS 87 Adjustment required to recognize minimum liability Prepaid (accrued) pension cost at December 31 Year ended December 31, 1989 Plans having assets in excess of accumulated benefits Plans having accumulated benefits in excess of assets Year ended December 31, -988 Plans having assets in excess of accumulated benefits Plans having accumulated benefuts in excess of assets $ 630 27 657 4 661 891 230 8 (108) 32 (90) * 72 $ 29 1 30 11 41 8 (33) 9 3 _ (2) $(23) $ 393 35 428 30 458 635 177 -- (54) 28 (103) - $ 21 2 23 7 30 5 (25 1 5 2 1 (2 $(18 ^ 1 100 1 20 SGP 0030160 Georgia-Pacific Corporation and Subsidiaries The discount rates and rates of increase in future com pensation levels used in determining the projected benefit obligation were 8.5 % and 6.0% at November 30, 1989 and 9.0% and 6.0% at November 30, 1988. 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, 1989 and 1988, respectively, $72 million and $48 million of noncurrent prepaid pension cost was included in other assets. The accrued pension cost of $23 million and $18 million at December 31, 1989 and 1988, respectively, was included in other long-term liabilities. The expected long-term rate of return on plan assets used in determining net periodic pension cost was 11.0% in 1989 and was increased to 11.0% in 1988 from 8.5% in 1987. The increase reduced 1988 expense by $13 million. Net periodic pension cost for solely and jointly admin istered pension plans included the following: (Millions) Service cost of benefits earned Interest cost on projected benefit obligation Actual return on plan assets Net amortization and deferral Contributions to multiemployer pension plans Net periodic pension cost Year ended December 31 1989 1988 1987 $ 55 $ 31 $ 30 44 37 32 (132) (90) (10) 39 22 (43) 6- 9 2 $8 3 $3 4 $ 13 Defined Contribution Plan The Corporation sponsors a Savings and Capital Growth Plan (Savings Plan) to provide eligible salaried employees with additional income upon retirement. The Corporation makes annual contributions to the Savings Plan equal to 3% of the first $100,000 of each participant's annual compensation, as defined. The Corporation also matches a portion of voluntary before-tax contributions up to a maximum matching contribution of 3.75 % of a partic ipant's compensation. At December 31, 1989, approx imately 11,700 employees were eligible to participate in the Savings Plan, which had net assets of approximately $226 million. Savings Plan expense was $24 million in 1989, $21 million in 1988 and $16 million in 1987. Retiree Health Care andLife Insurance Benefits The Corporation provides certain health care and life insurance benefits to eligible retired employees. Effective January 1, 1988, the Corporation changed its accounting for these benefits to recognize costs as expense when claims are paid. The Corporation previously fully accrued the actuarially determined cost of benefits for retired employees and accrued the actuarially determined cost of benefits for active employees over their estimated service periods. The effect of this change on the accompanying financial statements was not material. 21 SGP 0030161 Georgia-Pacific Corporation and Subsidiaries Note 1. Common Stock Employee Stock Purchase Plan At December 31, 1989, the following authorized shares of At December 31,1989, the 1989 Employee Stock Purchase the Corporation's common stock were reserved for issue: Plan (Purchase Plan) reserved for issue 940,000 shares of 1988 Long-Term Incentive Plan 1989 Employee Stock Purchase Plan 1984 Employee Stock Option Plan 1,611,000 940,000 2,292,000 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 Common stock reserved 4,843,000 shares can no longer be subscribed under the Purchase Plan, which expires on April 30, 1991. Approximately Long-Term Incentive Plan 6,200 subscribers remained in the Purchase Plan at The 1988 Long-Term Incentive Plan (Incentive Plan) December 31, 1989- initially reserved 3,000,000 shares for issue with 1,835,000 During 1989, the Corporation issued 114,000 shares of shares allocated to the plan participants. Specified por common stock under the 1987 Employee Stock Purchase tions of the shares allocated under this plan are issued Plan (which expired on March 31, 1989) and 11,000 shares as restricted stock, at no cost to the employee, based on under the 1989 Employee Stock Purchase Plan. increases in the average market value of the Corporation's common stock. At the time restricted shares are issued, Employee Stock Option Plan the market value of the stock is added to common stock The 1984 Employee Stock Option Plan (Option Plan) and additional paid-in capital and an equal amount is provides for the granting ofstock options to certain officers deducted from shareholders' equity (long-term incentive and employees. Holders of stock options may be granted plan deferred compensation). Long-term incentive plan cash awards, payable upon exercise of an option, of an deferred compensation is amortized over the vesting amount not to exceed the amount by which the market (restriction) period, generally five years, with adjustments value of the common stock, as defined, exceeds the option made quarterly for market price fluctuations. The Cor price. In addition, holders may be granted rights to sur poration recognized long-term incentive plan compen render all or part of the related stock option in exchange sation expense of $14 million in 1989 and $3 million in for common stock with a fair market value equal to the 1988. Additional information relating to the Incentive amount by which the market value of the common stock, Plan is as follows: . as defined, exceeds the option price. Year ended December 31 Compensation resulting from stock options and cash 1989 1988 awards is initially measured at the grant date based on Shares allocated and unissued at January l Shares allocated Shares cancelled Restricted shares issued, net of cancellations Shares allocated and unissued at December 31 Shares available for allocation at December 31 1,401,000 290,000 (110,000) (1,045,000) 536,000 1,075,000 1,835,000 (90,000) (344,000) 1,401,000 the market value of the common stock, with adjustments made quarterly for market price fluctuations. The Cor poration recognized stock options compensation expense of $25 million in 1989, $5 million in 1988 and $11 mil lion in 1987. 1,255,000 Total shares reserved 1,611,000 2,656,000 22 SGP 0030162 Georgia-Pacific Corporation and Subsidiaries Additional information relating to the Option Plan is If a person becomes the beneficial owner of 15 percent as follows: or more of the Corporation's outstanding common stock, Year ended December 31 or if a holder of 15 percent or more of the Corporation's 1989 1988 stock engages in certain self-dealing transactions or a Options outstanding at January 1 Granted Exercised /surrendered Cancelled Options outstanding at December 31 Options available for grant at December 31 1,370,000 358,000 (860,000) (36,000) 832,000 1,460,000 1,239,000 338,000 (141,000) (66,000) 1,370,000 1,781,000 merger transaction in which the Corporation is the sur viving corporation and its common stock remains out standing, then each Right not own.ed by such party will entitle its holder to purchase, at the then-current exercise price, shares of the Corporation's Series AJunior Preferred Total reserved shares 2,292,000 3,151,000 Stock with a market value of twice the exercise price. Options exercisable at December 31 Option prices per share: Granted Exercised/surrendered Cancelled 488,000 $41 $21~$46 $21-$46 1,042,000 $34 $2l-$26 $26-$46 In addition, if after any person acquires 15 percent or more of the Corporation's outstanding common stock, the Corporation is involved in a merger or other business combination transaction with another person after which its common stock does not remain outstanding, or the Shareholder Rights Rian Corporation sells 50 percent or more of its assets or earn On July 31, 1989, the Corporation adopted a Shareholder ing power, each Right will entitle its holder to purchase, Rights Plan. Preferred stock purchase rights were dis at the then-current exercise price, shares of the other tributed, as a dividend at the rate of one Right for each party's common stock with a market value of twice share of common stock held, to shareholders of record the exercise price. as of the close of business on August 10, 1989 and expire after 10 years. Each Right entitles the holder to buy, at an Other exercise price of $175, one one-hundredth of a newly issued The Georgia Business Corporation Code, revised effective share of Series AJunior Preferred Stock, of which 5,000,000 July 1,1989, eliminates restrictions on the payment of shares were reserved for issue at December 31, 1989. At cash dividends and the redemption of shares out of the December 31, 1989, 25,000,000 shares of no par value Corporation's common stock or additional paid-in Junior Preferred Stock were authorized. Due to the nature capital accounts. of its dividend, liquidation and voting rights, the eco The shares and prices relating to the Incentive Plan, nomic value of one one-hundredth of a share ofJunior the Purchase Plan, the Option Plan and the Shareholder Preferred Stock that may be acquired upon the exercise Rights Plan ate subject to adjustment for certain changes of each Right should approximate the economic value of in the capital structure, including common stock splits one share of common stock. The Rights are exercisable and stock dividends. only if a person or group acquires 15 percent or more of die Corporation's common stock or announces a tender oifer for 30 percent or more of the common stock. SGP 0030163 Georgia-Pacific Corporation and Subsidiaries Note 8. Redeemable Preferred Stock Adjustable rate convertible preferred stock (Millions) Series A Series B Series C Total Balance at December 31, 1986 Shares converted to common stock Shares redeemed Shares repurchased Amortization of the excess of involuntary liquidating value over fair value at issue date $ 61 (61) (1) 1 $ 20 (18) (2) - $ 32 (32) -- (1) $ 113 (111) (3) (1) 12 Balance at December 31, 1987 $ - $- $- $ - The number of shares of adjustable rate convertible preferred stock (redeemable preferred stock) issued and outstanding at December 31, 1986 were 1,656,000 of Series A, 573,000 of Series B and 1,049,000 of Series C. The redeemable preferred stock was recorded at fair mar ket value on the date of issue. The excess of involuntary liquidating value over such fair market value was amor tized by a charge to retained earnings and corresponding credit to redeemable preferred stock. Each share of redeemable preferred stock received cumulative quarterly cash dividends at the annual rate of $2.24. In March 1987, the Corporation called for redemption on April 15, 1987 all of its outstanding redeemable pre ferred stock. Approximately 1,624,000 Series A, 522,000 Series B and 1,038,000 Series C shares were converted to shares of the Corporation's common stock on a one-forone basis. The remaining shares were redeemed at $39 00 per share plus accumulated dividends. Note 9- Acquisition of Brunswick Pulp & Paper On August 23, 1988, the Corporation acquired all of the outstanding capital stock of Brunswick Pulp & Paper Company and related timber assets. The Corporation paid $245 million in cash and delivered $300 million principal amount of 10-year notes to the sellers. The assets acquired and liabilities assumed at the acquisition date were as follows: (Millions) Receivables Inventories Other current assert Timber and timbe inds Property, plant am: rquipment Other assets Total assets Accounts payable 'd accrued liabilities Commercial paper and short-term debt Long-term debt Other long-term liabilities Total liabilities Net assets acquired $ 34 24 2 230 388 33 711 27 37 100 2 166 $545 The acquired assets included a softwood pulp and paperboard mill, three pine sawmills and related timber assets. The acquisition was recorded using the purchase method. The purchase price exceeded the fair value of net assets acquired by $18 million. The excess is included in other assets and is being amortized over 10 years. The results of Brunswick Pulp & Paper's operations have been included in the accompanying Statements of Income from the date of acquisition. Had the operations been acquired as of the beginning of 1987 or 1988, the Corporation's net sales and income for those years would not have been materially affected. 24 SGP 0030164 Georgia-Pacific Corporation and Subsidiaries Note 10. Unusual Item In 1987, the Corporation received cash proceeds of $82 million and recorded a pre-tax gain of $66 million from the liquidation of its remaining $16 million invest ment in preferred stock and warrants of Georgia Gulf Corporation, purchaser of the Corporation's commodity chemicals subsidiary in 1984. Note 11. Commitments and Contingencies The Corporation is a party to various legal proceedings generally incidental to its business. Although the ulti mate disposition of lese proceedings is not presently determinable, mana ;ement does not believe that adverse determinations in at or all of such proceedings would have a material adverse effect upon the financial con dition of the Corporation. The Corporation is self-insured for general liability claims up to $25 million per claim. 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 Atlanta, 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 construction of the Atlanta headquarters complex. The note bears interest at 9'd % 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. Note 12. Unaudited Selected Quarterly Financial Data First Quarter Second Quarter Third Quarter Fourth Quarter (Millions, exceptper share amounts) 1989 1988 1989 1988 1989 1988 1989 1988 Net sales Gross profit (net sales minus cost of sales) Net income Earnings per share Dividends declared per co imon share Price range of common stock High Low $2,447 622 154 1.65 .35 $2,115 461 106 1.02 .30 43.13 36.63 40.00 30.75 $2,640 660 172 1.90 .35 $2,418 501 118 1.21 .30 47.50 42.13 42.63 36.75 $2,646 667 178 2.03 .35 $2,409 520 114 1.19 .30 62.00 42.88 42.88 35.25 $2,438 601 157 1.84 .40 $2,567 575 129 1.36 .35 61.50 46.13 37.88 33.25 The results ofBrunswick Pulp & Paper Company, acquired in the thirdquarter of1988, have been includedfrom the date ofacquisition (Note 9). SGP 0030165 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, 1989 and 1988 and the related statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1989- 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 disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable bas. for our opinion. In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of Georgia-Pacifi Corporation and subsidiaries as of December 31, 1989 and 1988 and the results 'f their operations and their cash fle ws for each of the three years in the period ended December 31, 1989 in conformity with generally accepted accounting principles. Atlanta, Georgia February 12,1990 A**A4amaj flP Ce?. 2( SGP 0030166 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 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 qualified internal audit staff in order to confirm that the system is adequate and operating effectively. The Corporation's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. Management has considered any significant recommendations regarding the internal control system whi h 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, 1989, 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 auditors 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 Controller and Chief Accounting Officer February 12, 1990 James C. Van Meter Executive Vice President-Finance and Chief Financial Officer T. Marshall Hahn, Jr. Chairman and Chief Executive Officer Ten-year Selected Financial Data -- Operations Cash dividends to earnings Cash dividends declared (common and preferred) divided by net income. Cash flow to interest Cash provided by continuing operations plus interest expense divided by total interest cost (interest expense plus capitalized interest). Earnings to interest Income from continuing operations before income taxes and extraordinary items plus interest expense divided by total inter :st cost (interest expense plus capitalized interest). Effective income tax rate Provision for income taxes divided by income from continuing operations before income taxes and extraordinary items. (Dollar amounts, except per share, and shares are in millions) Operations Net sales Costs and expenses Cost of sales * ........................ Selling, general and administrative Depreciation and depletion Interest Total costs and expenses Income from continuing operations before unusual items, income taxes and extraordinary items Unusual items . ... ... Provision for income taxes .. Income from continuing operations before extraordinary items Income (loss) from discontinued operations Extraordinary items ... 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 outstanding at year end Cash dividends to earnings Earnings to interest ... Cash flow to interest ... Effective income tax rate .. * includes provision for restructuring operations ofS3 0 million m 1982 and $133 million in 1983- **Not available. SGP 0030168 IS Georgia-Pacific Corporation and Subsidiaries 1989 1988 1987 1986 Year ended December 31 1985 1984 1983 1982 1981 1980 $10,171 $9,509 $8,603 $7,223 $6,716 $6,682 $6,040 $5,003 $4,914 $4,554 7,621 689 514 260 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 5,113 374 289 157 5,933 4,236 359 275 186 5,056 4,131 304 228 125 4,788 3,737 282 223 79 4,321 1,087 - 426 661 $ 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) - $ 119 $ 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 $ ** $ 7.42 - $ 7.42 $ 1.45 89.1 86.7 19.7% 5.0 5.9 39.2% $ 4.76 - $ 4.76 $ 1.25 98.1 94.8 26.3% 4.4 4.8 40.0% $ 4.23 - $ 4.23 $ 1.05 107.5 104.7 25.1% 6.9 6.8 42.6% $ 2.70 - $ 2.70 $ .85 104.1 107.3 32.8% 4.2 4.9 39.0% $ 1.84 (29) .10 $ 1.65 103.0 103.2 49.7% 2.7 5.6 33.0% QOO $ 2.28 (1-31) - $ .97 $ .70 102.2 102.5 71.4% 3.3 4.0 36.1% $ .53 30 - $ .83 $ .60 101.5 101.5 72.4% 1.6 3.8 29.9% $ (.01) 32 1.01 $ 1.32 I 1.05 99.9 101.3 77.8% 1.0 2.7 23.1% $ .69 .73 -- $ 1.42 $ 1.20 98.9 98.9 82.5% ** ** 30.2% $ 1.48 .84 -- $ 2.32 $ 1.20 98.7 98.8 53.3% ** ** 30.9% 2() SGP 0030169 Ten-year Selected Financial Data --Financial Position, End of Year Book value per common share Shareholders' equity minus the unamortized discount on redeemable preferred stock, divided by shares of common stock outstanding as of the end of the year. Current ratio Current assets divided by current liabilities as of the end of the year. Return on capital employed Income from continuing operations before extraordinary items plus interest expense (net of taxes) and deferred income tax expense, divided by capital employed 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. (Dollar amounts, except per share, andshares in millions) Financialposition, end ofyear Current assets ............... Timber and timberlands, net........................... Property, plant and equipment, net ... Net assets of discontinued operations . . 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 Year-end.................. Book value . . Return on capital employed.............................. Return on equity ........................... Total debt to capital .............................. Current ratio..................... ..................... * *Not available. i() SGP 0030170 Georgia-Pacific Corporation and Subsidiaries 1989 $1,829 1,246 3,691 - 290 7,056 924 2,336 841 238 - $2,717 $ 905 1988 $1,892 1,289 3,723 211 7,115 1,013 2,514 788 165 $2,635 $ 879 1987 $1,729 915 3,048 - 178 5,870 996 1,298 744 152 $2,680 $ 733 1986 Year ended December 31 1985 1984 1983 $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 2,270 158 111 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 1982 $1,176 748 2,214 651 130 4,919 716 1,618 365 22 209 $1,989 $ 460 1981 $1,175 752 2,200 626 93 4,846 846 1,487 384 -- 203 $1,926 $ 329 1980 $1,051 682 1,959 579 46 4,317 710 1,227 311 -- 169 $1,900 $ 341 $ 499 493 62.00 36.63 48.50 31.35 13.6% 25.1% 40.1% 2.0 $1,552 711 42.88 30.75 36.88 27.79 12.1% 17.4% 44.1% 1.9 $ 825 550 52.75 22.75 34.50 25.59 12.6% 18.7% 31.4% 1.7 $ 482 444 41.25 24.75 37.00 22.70 10.4% 13.8% 26.3% 1.7 $ 642 624 27.38 20.50 26.50 20.59 8.7% 10.2% 32.0% 2.0 $ 710 403 25.75 18.00 25.00 19.58 11.7% 12.6% 35.7% 2.2 $ 188 184 31.88 22.38 24.75 19.48 4.2% 3.8% 37.4% 2.1 $ 207 203 27.25 13.25 26.25 19.22 2.5% 1.0% 42.1% 1.6 $ 609 472 32.38 17.75 20.13 18.99 6.8% 4.6% 43.3% 1.4 $ 495 495 34.88 21.50 25.00 18.93 * 9.0% 39.3% 1.5 il SGP 0030171 Sales and Operating Profits by Industry Segment (Millions) Net sales Building products Wood panels Lumber Gypsum products ... ... Thermosetting resins Roofing .... ..................... Other ................................. ... . Pulp and paper Printing and writing papers Containers and packaging Paperboard ... Market pulp . . .. Tissue ... .... Other .... . . Other operations Continuing operations 1989 1988 1987 $ 2,488 2,109 299 253 194 745 6,088 24% 21 3 3 2 7 $2,442 2,134 305 241 189 718 60 6,029 26% 22 3 2 2 8 $2,355 2,002 361 189 194 654 63 5,755 28% 23 4 2 2 8 67 983 839 739 728 679 74 4,042 41 $10,171 10 8 7 7 7 1 40 -- 100% 796 849 584 533 590 84 3,436 44 $9,509 8 9 6 6 6 1 36 1 100% 621 743 503 314 539 90 2,810 38 $8,603 7 9 6 4 6 1 33 -- 100% Operating profits Building products Pulp and paper. Other operations .... $ 533 917 15 36% 63 1 $ 428 616 10 41% 58 1 Continuing operations $ 1,465 100% $1,054 100% Operating profits are before income taxes, interest andgeneral corporate expenses, unusual items and extraordinary items. $ 533 383 10 $ 926 58% 41 1 100% SGP 0030172 Georgia-Pacific Corporation and Subsidiaries Year ended December 31 1986 1985 1984 1983 1982 1981 1980 $1,864 1,676 375 155 230 553 4,853 26% 23 5 2 3 8 67 $1,666 1,434 377 173 260 560 4,4 70 25% 21 6 3 4 8 67 $1,637 1,461 360 186 2 68 540 4,452 25% 22 5 3 4 8 67 $1,560 1,424 269 162 222 506 4,143 26% 24 4 3 4 8 69 $1,217 1,003 183 136 197 450 3,186 24% 20 4 3 4 9 64 $1,230 1,017 193 139 144 438 3,161 25% 20 4 3 3 9 64 $1,154 993 196 112 129 415 2,999 25% 22 4 3 3 9 66 461 619 410 221 502 68 2,281 89 $7,223 6 9 6 3 7 1 32 1 100% 356 627 410 157 514 70 2,134 112 $6,716 5 9 6 2 8 1 31 2 100% 445 514 395 225 507 25 2,111 119 $6,682 7 7 6 3 8 - 31 2 100% 450 513 134 191 449 31 1,768 129 $6,040 7 9 2 3 7 1 29 2 100% 437 478 127 187 429 29 1,687 130 $5,003 9 10 2 4 8 1 34 2 100% 375 429 140 248 388 37 1,617 136 $4,914 7 9 3 5 8 1 33 3 100% 267 390 129 245 369 31 1,431 124 $4,554 6 8 3 5 8 1 31 3 100% $ 500 146 35 $ 681 73% 22 5 100% $ 391 29 35 $ 455 86% 6 8 100% $ 379 202 20 $ 601 63% 34 3 100% $ 277 13 13 $ 303 92% 4 4 100% $ 128 41 25 $ 194 66% 21 13 100% $ 141 118 33 $ 292 48% 41 11 100% $ 176 146 27 $ 349 50% 42 8 100% SGP 0030173 Operating Statistics Building products Wood panels Softwood plywood (Vs") (m.sq.ft.) ... Hardwood plywood (sm) (m.sq.ft.) Hardboard (`A") (m.sq.ft.) ... Particleboard (%") (m.sq.ft.) .................. Oriented stand uoard (V') (m.sq.ft.) Panelboard (Vs") (m.sq.ft.) . . ... Softboard (Vi") (m.sq.ft.) ... Fiberboard (%") (m.sq.ft.) ... ... Lumber (m.bd.fi ........................ ........................ Moulding (m.bd. t.) ... ... ........................... Gypsum board (r .sq.ft.) . . ... Roofing --shingle (t.squares) .................. ... Formaldehyde (rr .lbs.) Thermosetting resins (m.lbs.) .... ... Other . ... ................................................ ............ .. .... ... ........................ .... ... . ... .... Total building products Distribution centers . ................................................................................. .... .... As of December 31, 1989 Number of Facilities Rated Annual Capacity 18 5,282 2 410 8 1,364 8 1,141 4 952 1 300 1 250 1 100 45 2,509 3 36 10 3,063 5 9,587 11 1,660 16 2,650 19 152 144 Pulp andpaper Pulp (t.tons). .... .... .. Paper (t.tons) Linerboard and medium ................................................... Printing and writing papers . . ... Other paperboard .................. .......................................... Tissue and sanitary papers ................................. ... Coarse kraft paper .... ........................... ..................... 5,259 1,562 1,284 618 547 355 * 0r-0j Total paper 4,366 Corrugated pack; ging (m.sq.ft.) .... ... 31 20,165 Tissue products (i tons) .... .... 6 592 Other ...... ... 16 Total pulp and paper 81 Other operations 3 Resources (as of December 31) North American timberlands (t.acres) Owned in fee . . ... ... Controlled . ......................................................... ... * Totalforpulp/paper 3*4 SGP 0030174 Georgia-Pacific Corporation and Subsidiaries 1989 1988 1987 1986 Production 1985 1984 1983 1982 1981 1980 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 ',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 4,915 1,419 1,161 555 519 350 4,004 16,640 467 4,218 1,297 970 458 511 356 3,592 16,577 462 3,876 1,328 868 393 490 348 3,417 . 15,750 446 3,591 1,146 731 368 496 394 3,135 14,572 437 3,258 97 6 552 368 476 452 2,824 13,703 432 3,297 740 574 374 486 529 2,703 11,880 422 2,976 452 518 377 487 541 2,375 8,427 422 2,648 410 475 321 456 500 2,162 7,680 393 2,725 412 433 361 419 487 2,112 6,291 368 2,668 396 348 345 420 508 2,017 5,742 360 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 t = thousands m - millions SGP 0030175 Officers Georgia-Pacific Corporation and Subsidiaries T. Marshall Hahn, Jr. Chairman and Chief Executive Officer Harold L. Ainngton Vice Chairman RonaldP. 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 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 Paper Manufacturing David W. Reynolds Senior Vice President-Human Resources and Administration Carroll T. Tolar Senior Vice President-Engineering WE Babin Group Vice President-Containerboard and Packaging Willie L. Duke Group Vice President-Wood Products Manufacturing Maurice W. Knng Group Vice President-Packaged Products J. Wayne Amy Vice President-Distribution Division Southwest Region Joseph J. Armetta Vice President-Distribution Division Midwest Region David S'. Dimling Vice President-Printing Paper Division Duncan B. Facey Vice President-Distribution Division Northeast Region David R. Fleiner Vice President-Wood Products Sales Clifford T. Howlett, Jr. Vice President-Government Affairs Stephen K. Jackson Vice President-Distribution Division Marketing and Advertising Clint M. Kennedy Vice President-Pulp, Kraft Paper and Containerboard Sales John E. Masaschi Vice President-Industrial Wood Products Division John F. McGovern Vice President-Finance Dennis D. Melstrom Vice President-Packaging Division Dewey L. Mobley Vice President-Western Wood Products Manufacturing Division William B. Nagle, Jr. Vice President-Mid-Continent Wood Products Manufacturing Division 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-Millwork and Specialties Robert A. Starling Vice President-Distribution Division Southeast Region James R. Taylor Vice President-Chemical Division Douglas A. Thom Vice President-Containerboard Manufacturing Michael A. Vidan Vice President-Gypsum and Roofing Michael B. Wilson Vice President-Sales and Marketing Consumer and Commercial Paper Products Wayne I. Tamblyn Treasurer James E. Terrell Controller 5 ft SGP 0030176 Directors Georgia-Pacific Corporation and Subsidiaries T. Marshall Hahn, Jr.1 Chairman and Chief Executive Officer; Atlanta, Georgia HaroldL. Ainngton Vice Chairman; Atlanta, Georgia WillardS. Boothhy,Jr.13 Managing Director, PaineWebber Incorporated; Investment Bankers; New York, New York Robert Carswell2 4 Senior Partner, Shearman & Sterling; Attorneys; New York, New York Robert B. Claytor12 3 Chairman of the Executive Committee, Norfolk Southern Corporation; Norfolk, Virginia Harvey C. BruehaufJr.14 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. Giordano2 3 4 Chairman and Chief Executive, The BOC Group pic; Windlesham, England FrancisJungers12 Private business consultant and investor; 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 3 President and Chief Operating Officer (retired); Darien, Connecticut James B. Williams4 5 Vice Chairman, SunTrust Banks, Inc.; Atlanta, Georgia 1 Executive Committee 2 Audit Committee $ Stock Option Plan and Management Compensation Committee 4 Finance Committee 5 Nominating Committee SGP 0030177 I 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 Exchange ("NYSE") and on the Tokyo Stock Exchange. The Corporation's NYSE symbol is "GP"; however, the stock is quoted as "GaPac" in stock table listings in newspapers. G-P options are traded on the Philadelphia Stock Exchange. Transfer Agent and Registrar 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 Dividend 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 1989 Annual Report to the Securities and Exchange Commission on Form 10-K will be supplied without charge. Annual Statistical Updates are also available. Requests for financial information should be directed to: Cindy Brown, Investor Relations, Georgia-Pacific Corporation, P.O. Box 105605, Atlanta, Georgia 30348, or telephone (404) 521-5555. Georgia-Pacific is an equal opportunity employer. Georgia-Pacific Corporation and Subsidiaries )8 SGP 0030178 133 Peachtree Street, N.E. Atlanta, Georgia 30303