Document zzp5prgd7o80ekXbd3EXnLn4m

G \i 0 R G I A - P A C I F [ C C 0 R P 0 R A T 10 !N \ -\ \ l V L R F P 0 R T i) oO > "As a home center dealer, I depend on Georgia-Pacific.. SGP 0030545 , r* ^ top-quality products at competitive prices with a w i, clo the home center industry--Georgia-Pacific. : '' ' /.--.:'-'i,''` '','J *".`/ ,; - :' Georgia-Pacific Corporation is one ofthe wortd'$ i^adins produeers of.forest piv&ue&& in Augusta, Georgia, in 1927 as a wholesaler ofhard- v'a z*\wrs r. . ', '.'; . : *',;>,''\'.'/'i>C> ) " ' -Si '* Kv : &/-; 'SJ?;- ' , V- ' r 1.X, f^' \* 1 *,,. t < I ^ * - < 4 v ' ' '1986 Georgia-Pacific CofpSration.' Coraliire, Coronet, Delta, Great Possibilities, Hopper, MD and Mr. Big are registered ;,'. ,"'>'::. trademarks of Georgia-Pacific Coqppration.' - "'^'X'i ' : . ';!fv:y<V' : /Dens-Glass, No-Ox, Novasperse and The PaperWorks Collection'are trademarks of : . \ -..Georgia-Pacific Corporation. > ,f \;' ; ' v.- 'vij'ViAmerica Builds on f)ur.Name: is,a service mark of GeoigjarPacific Corporation.'.-;!' . . _ .Georgia-Pacific papers used in this report: Cover--Hopper? Bright White Tapestry ' . /' Damask, 80 lb. cover. Text-Hopper Bright White TapestrySmooth, 80 lb. text, and : , FrenchGray Chambray70lb. text. ' ,.L - "-V . ;#|S, . ' * .' SGP 0030546 Highlights <Dollar amounts. except per .hare, ami shares are in millions) 1985 1984 Percent Change Net sales Income from continuing operations before extraordinary item Net income Per common share --fully diluted Income from continuing operations before extraordinary item Net income Depreciation and depletion Cash provider! by continuing operations Cash di\ idends paid Total assets at year end Return on capital employed1 Return on common erpiitv1 $6,716 36.682 i 207 187 253 1 19 (18) 57 1.80 1.61 310 771 94 4.866 8.1% 10.2 2.24 .97 282 509 86 4.785 9.7% 12.6 (20) 66 10 51 9 2 (16) (19) Casli dividends declared per share of common stock Shares of common stock outstanding at year end Number of common shareholders of record Number of employees $ .80 103 74,000 38,000 8 .70 103 79.000 40.000 14 (6) (51 lTlw methods of < a/cu luting these amounts are described in the Financial Review section In`ginning on lull'll l(). 1985 Sources of Cash (millions) Cnnlmuing <)(it-i.ilicin-. building Pnxliu Pulp Paper i)tlier ()pi:r.uion> 1-miMial 3 Discontinued Operations Debt \dditions Otliei - bi t 280 '58 19 77) n; 358 43 31.289 1985 Uses of Cash (millions) Di?l)l and Preferred Slock Repa\ mem*! 3 Capital Expenditures M Dividends 3 527 642 94 31.263 Contents l MHI Letter to Shareholders 2 Building Products Case Study 4 Building Products Operations 6 Resources 10 Pulp and Paper Case Study 12 Pulp and Paper Operations 14 Financial Review 19 Management's Discussion and Analysis 22 Financial Statements 26 Notes to Financial Statements 30 Independent Auditors' Report 43 Five-Year Selected Financial Data 44 Sales and Operating Profits by Industry Segment 45 Operating Statistics 46 Executive Management Committee 47 Directors & Officers 48 SGP 0030547 Letter to Shareholders "We are committed to keeping costs down and to being innovative and disciplined in production and in the investments we make on your behalf.'1'' The strengths which made Georgia-Pacific a leading forest products company sustained that position during one of the most challenging years the industry has experienced. We retained our position because of our commit ment to being a low-cost, efficient producer of high-quality forest 81 82 83_ 84 85 Net Sates (billions of dollars) products and because we have moved closer to our customers with reliable service, continu ously improving quality and upgrading product mix. We performed well in wood products, despite increased lum ber imports and overcapacity in panel markets. Our perfor mance in pulp and paper was disappointing, in large part because of the strong L.S. dollar against foreign currencies and excess worldwide pulp and paper capacity. Georgia-Pacific is dedicated to the continued growth and strength of its premier building products business. We achieved near-record performance in this area despite severely depressed markets, and believe that success is due to a combination of several factors. We are a low-cost, efficient producer because we have con tinued to make investments in our mills. Our large and efficient Distribution Division adds even greater value to our building products by moving them swiftly to the marketplace. We have con tinued our commitment to serve the needs of new residential construction markets and. at the same time, we have increased our emphasis on the "Do-[t-\'ourself " and remodeling and repair markets. Our gypsum wallboard business continues to be strong, and we recently announced plans to increase our presence with construction of a new gypsum wallboard plant in Nevada to serve the Western region. \ significant factor disrupting the entile building products industry is the continued flood into the l nited States of Cana dian softwood lumber imports, which are promoted by low-cost government stum page prices and other subsidies. This problem is now being addressed through legislative, administrative and diplomatic channels. Success in reducing lumber imports through measures that make trade fairer will help restore the traditional supply/demand balance and help stem the liquidation of manv L.S. producers. Our pulp and paper business was particularly affected by difficult conditions during L985. In 1986. we expect that business to show improvement, although adverse conditions facing the L.S. pulp and paper industry will likely persist. We are. however, seeing improvement in some major markets, particularly unbleached kraft. linerboard and pulp. Our pulp and paper business also experienced some short-term disruptions during 1985 which, while costly, we believe will be beneficial for the long-term. Our 253 Income from Continuing Operations (millions of dollarsl SGP 0030548 investments in new and converted equipment projects at several of our major mills slowed produc tion, but will improve manufac turing efficiencies and increase the value of our paper products. We also experienced a lengthy strike at our major mill at Crossett, Arkansas, which was disruptive to our operations, but furthered our efforts to bring about improvements in productivity. In the important tissue sector, we moved to strengthen our position. We also acquired four disposable diaper plants that manufacture primarily private label products. A number of programs to upgrade quality and expand production have already been undertaken. This addition to our product mix not only furthers our goal toward higher value-added products, but underscores our commitment to customer service and quality. An integral part of both our building products and pulp and paper businesses is our specialty chemical and thermosetting resin division. We enhanced our leader ship in wood product resins with a new spray-dried thermosetting resin facility to supply the grow ing market for waferboard resins. We are also moving forward with plans to construct a resin facility in northern Michigan to serve the growing forest products industry in that region. Earlier in 1985. we agreed to sell or trade, over a three-year period. 134,000 acres of timberlands in the West because it was more useful to the buyer's West ern operations than to our own. We will consider selling additional acreage if we determine that it will benefit our shareholders. The financial structure of the companv has been strengthened over the past few years to accom modate the possibility of acqui sitions. as well as to sustain our internal capital investment pro Hubert A. Schumacher gram. During 1985, our operating cash flow totaled $771 million and capital investments were $642 million. We anticipate investing approx imately $550 million in 1986 to continue improving our manufac turing efficiency and upgrading our product lines. Our level of capital spending, however, will depend upon what changes are made in the tax code. Any reduc tion or elimination of incentives to invest in production facilities would adversely impact our capital investment plans. Our investments are made with the objective of generating improved return to our share holders. For 1986, we look forward to continued efforts to generate increased value for you, our share holders. We are committed to keeping costs down and to being innovative and disciplined in pro duction and in the investments we make on your behalf. We are dedicated to our priori ties of focusing on the strengths of our building products business and improving the strengths of our pulp and paper business. As we move closer to our customers with upgraded products of tile T. Marshall Hahn, Jr, highest quality, we are adding value to your assets. Our ultimate goal is improving the return to our shareholders who have en trusted us with the management of these assets. We know you will join us in thanking the 38,000 G-P em ployees who make this superior performance possible. We have a lean, aggressive and enthusiastic work force. They are members of a winning team --and plan to stay that way. Robert A. Schumacher President and (duel Operating Officer T. Marshall Hahn, Jr. Chairman and Chief Executive Officer February 14. 1986 SGP 0030549 Building Products The Do-It-Yourself Phenomenon/A Marketing Strategy "There's no sense ofaccomplishment like the one Ifeel when I build something myself I've relied on Georgia-Pacific products for years --right down to the smallest house." Georgia-Pacific products for do-ityourselfprojects are available in thousands ofhome centers across the country. INITIATIVE IN ACTION: TWO CASES Georgia-Pacific has built and retained a leadership position in theforest products industry because we have not lost sight of our goal of adding maximum value to our company. We have developed a case studyfor each of ourfiber-based businesses to illustrate how we are managing our assets to increase shareholder value in the challenging envi ronment confronting theforest products industry. DIY STRATEGY America has built much of its housing with building materials made by Georgia-Pacific. During the boom years of the 1960s and "70s, we moved to the forefront of the industry by serving our nation's growing demand for qual ity shelter. Although we continue as the leading supplier of building products to new residential con struction, our sales to remodeling, repair and additions are increas ingly significant. During the 1970s, even while housing construction was fueling the greatest boom our industry has ever known, we recognized that over the longer term we should reduce reliance on this interest-rate-sensitive sector. We saw in remodeling and repair a stable and growing market for building products, which was not as affected by interest rates and which would benefit by several long-term trends. Among them were: Americas aging housing stock that had become prime for remodeling and repair work, creating a market that was grow ing bigger every year. Rising median home prices that were encouraging more people to remodel, rather than move. But opportunities for remodel ing and repair also increase as sales of existing and new homes increase. Housing affordability-- G-P is the largest distributor of nails. based on inflation, interest rates and housing payments as a per centage of family income --is rising again, creating more home improvement opportunities as people buy or change homes. Increased family income is also spurring expenditures for home improvement projects. As Georgia-Pacific established itself as the premier supplier to the home improvement industry, we became strategically positioned to benefit from the phenomenal rise of the do-it-yourself (DIY) market. Currently the most rapidly growing part of the remodeling/repair market, DIY growth is expected to increase more than 12% each year through 1990. According to the DIY Insti tute and the Bureau of Building Marketing Research, the DIY retail market stands today at $52 billion, and is heading rapid ly for $100 billion by the end of the decade. Today, three out of four house holds engage in some type of home improvement work. Home modernization expenditures per family are also increasing as DIYers gain confidence and expertise. SGP 0030550 SGP 0030551 "We found many helpfd ideas in G-P's Great Possi bilities home library. The Paper Works Collection''' prehung paneling is just one ofthe many G-P products that has made a time-saving difference in renovating our older homeMillions ofAmericans choose G-P products for their DIY remodeling projects. One of the vays Georgia-Pacific has stimulated and shaped the positive direction of the DIY trend is with innovative con sumer campaigns. Designed to provide motivation and build confidence--which enhance the overall market--our campaigns also build Georgia-Pacific brand name recognition, brand loyalty and sales. Because we realize that the ultimate user of Georgia-Pacific products is more and more often the homeowner, we have designed "user friend! " packaging and labeling. To h dp retailers mer chandise our products better, we continue to develop new point-ofpurchase displays and literature. Last year, more than 600,000 pieces of literature from our Great Housing Affordafoiliu hidex Tho index is 100 when median famih income equals mortgage qualiivmg income. ' 81 . ' 82 :.83 84 . 85 Possibilitieshome library were put into the hands of consumers. We have a powerful advantage in maintaining and strengthening this position in the remodeling/ repair market: The marketing muscle of our Distribution Divi sion. With more than 140 whole sale distribution centers serving every major metropolitan area in the United States, Georgia-Pacific is closer to its customers than anyone else in the industry. Recently 1,500 building supply and home center retailers were surveyed to define the most impor tant factors influencing their selection of suppliers. Retailers were also asked to identify how well major building material sup pliers were fulfilling their needs. In virtually every attribute. G-P s rating was more than twice that of the second-ranked supplier. Today's demographic and economic environments favor increased remodeling, repair and expansion of existing dwellings. Our plans for the future include increased development and pene tration of the DIY market, with new products and programs. The potential for growth in this sector is impressive and Georgia-Pacific intends I realize that potential through our production and marketing strengths, directed by the building products industry's most experienced and successful G-P is a major gypsum manufacturer. management team and by the industry's leader in distribution to the housing market. '85 OPERATIONS 1985 was the year that proved the strength and depth of out building products business and marked us as the clear leader in this important industry. While many competitors were curtail ing or shutting down operations, we enjoyed excellent results, acquiring and expanding facili ties. and developing new prod ucts and new approaches to serve growing markets. SGP 0030552 Add a Great Possibilities Booklet To Your Do-It-Yourself Library. l or a inr rop\ >( miu ui utir Ororaia-Pacilic i ] O -! (- v) 1J ` i I ijonkh.M.-. pica.v- i'IR'i \ 11 ` 'll Ihr follow 111^ tlllc.-,. __ |)<-( k' and Outdoor Project1 In- Paneling Ouide _. Las\ I .\\ iny; ,'|)an^ ,, I hr Rriouhna Book _ I hr \Xai!v\nrk>` (/iiidr ... !h* i.niiKAri' Place Booklet I hr ."iiakiM "'w ina < .rnir \ tt'Ust' lU-Ch < ill 11. SGP 0030553 SGP 0030554 "When my mother asked me how she might stretch her income a little, I suggested that we increase the efficiency of heating and cooling her home. I installed the same product I had used in my own home -- G-P insulation. We achieved an important savings, at a reasonable expense Our success in building products comes from our ability to control costs and to upgrade manufacturing facilities and product lines for greater profit ability. The marketing muscle of our Distribution Division enables us to move these new products to customers nationwide and to devel op new markets and customers. As outlined in more detail in the case study on pages 4-6, our Distribution Division helped us strengthen our position as a leading supplier to the growing market for remodeling, repair and additions. Our distribution svstem is also tapping the potential of other markets such as commercial and industrial construction and is a powerful vehicle for establishing new products which have greater profitability and growth potential. Recent product additions include composite panels such as oriented strand board (OSB) and waferboard. OSB uses lowercost raw materials than plywood and has received enthusiastic customer reception for many uses. Last year we started up two large OSB plants at Grenada. Missis sippi. and Skippers. \ irginia. which will soon be producing at full capacity. Our annual capacity to produce OSB and waferboard now stands G-P added two large OSB plants in 1985. at 815 million septare feet (3/8 inch basis), allowing us to shift our plywood production toward more profitable specialty products, such as sanded grades, and grades used for siding and concrete form. For example, we began manufacturing nine- and ten-foot plywood siding at Russell ville. South Carolina, in 1985. and will soon begin production at Crossett, Arkansas, as well. Our experience with the produc tion at Russellville has been extremely encouraging. Through the strategic positioning of these facilities and the marketing strength of our Distribution Divi sion. we will successfully penetrate Eastern markets for this longer siding, which have traditionally been served by facilities west of the Rockies. Our Southern pine plywood plants are currently producing more than 50% specialties and that proportion will continue to rise during 1986 and in future years. This plywood diversifi cation strategy has helped G-P maintain leadership and generate superior profits in the produc tion and marketing of plvwood. The productivity improvements in our plywood operations have helped us do well in this part of the business, despite the oversup ply in structural panel markets. Our investments in improved technologies have enabled us to improve timber utilization. For example, wc are currently peeling nearly 70% more veneer from each log as when we pioneered the Southern pine plvwood industry in the 1960s. Although Canadian lumber imports resulted in lower prices than expected during 1985. Georgia-Pacific remained a strong factor in the lumber busi ness. Our distribution strength plavcd a substantial role in SGP 0030555 SGP 0030556 maintaining a superior position in this oversupplied sector, as did the growing market for treated Southern pine lumber and our ability to improve quality, while reducing costs. Virtually all of our sawmills now benefit from thin-kerf saws, which cut a smaller path in the log, resulting in more lumber and less sawdust. In our softwood lumber mills, we are completing installation of computerized trimmer and edger optimizers, which scan each board for maxi mum yield. We acquired two sawmills in Virginia that will improve our service to the growing midAtlantic markets, and we are expanding production at our hi Dorado. Arkansas, sawmill. We also acquired a hardwood lum ber dry kiln and planing facility in western North Carolina to serve the furniture and related indus tries. while adding value to our Appalachian hardwood lumber. Georgia-Pacific is also a leading supplier ol thermosetting resins and adhesive binders to the wood products industry, and we make; many other industrial resins as we II. During 1985. we began to serve the rapidlv growing market for the new composite structural panels with start-up of the nations first spray-dried waferboard resin plant at Crossett. Arkansas. Strong demand continued for gypsum products in 1985. and our performance also benefited from reduced costs and new products. We recently introduced Dens-Glass ' (patents pending), a svstem which uses gypsum wallboard with fiberglass surfacing on the face and back. This new product has waterproofing characteristics that make it Home insulation products are a recent addition to G-P's distribution system. a superior product lor exterior wall applications. We strengthened our gypsum operations with expansions at Acme. Texas, and Brunswick. Georgia: development of a new quarry in Nova Scotia. Canada: and internal improvements that lowered energy use. an important cost component of gypsum manu facturing. In January, the Board of Directors approved a new wallboard plant in southern Nevada. The combination of our strong distribution network and efficient and strategically located manu facturing facilities makes us the leader in building products. As our Distribution Divisions slogan points out: "America Builds on Our Name?"" RESOURCES Georgia-Pacific lias more than five million acres of limberland under management in North America. We manage our limberlands to provide wood supplies to our manufacturing operations and to hedge against periodic market disruptions. Our need lor fee ownership is reviewed regularly iu the light of our requirements lo furnish raw materials to our mills. Early in 1985. Georgia-Pacific agreed to veil 134.000 acres of Douglas fir limber in Oregon lo SGP 0030557 another forest products company or to exchange them for timberlands of equivalent value. During the vitar we transferred or ex changed approximately 80,000 acres, with tlie remainder of the transaction to be completed over the next three vears. Uthough we will consider sellin;; additional acreage if such a sale would benefit our share holders. we have not put large tracts of land on the market. In fact, we have continued to purchase timberlands in close proximity to our manufacturing facilities, when it makes economic sense to do so. Because our lands are well located and because we have managed them effectively. G-P can -till derive good returns bv continuing to manage our lands for sustained timber supply to our plants and mills. Several factors, however, make it unlikely that companies or individuals will accumulate and manage timberlands in the future as tiles have done in the past. There will be a devastating impact on the ability of landow iters to manage their timber if the tax proposal to end capital gains treatment for timber, and to require owners to capitalize forest management expenses, is enacted into law. When coin- Timber Resource Base Ntlllll Xmt'tK'.l laiTC'sl 0"tied m Fre Gmintllcd180,000 4.760.000 6.240.000 billed with the high cost of capi tal. these provisions would be a disincentive to manage timberlands. encouraging liquidation of existing timber and severely' discouraging reforestation. Before capital gains treatment for timber was adopted in the 1940s. valuable forests in entire regions of the country were decimated. Since that time, lores! management programs, encouraged by the lax structure, have helped rebuild our forests and lav the foundation lor sub stantial yield of our renewable nati ml resource. T! timber industry has relic on the rules for expensing of coats since adoption of the tax laws in 1913, and the capital gains rules since 1944. These rules were enacted because the long-term management of forest resources was viewed by Congress as good economic and social policy that would benefit the entire nation --not merely a single industry. A change at this time is, in effect, a penalty against an industry which has invested billions of dollars relying on these laws. We eel strongly that our nation certainly will not benefit by a return to the policies of the past and that those policies will penal ize an industry that can be an enduring source of economic strength for our nation. We are continuing to manage our timberlands on a long-term basis and hope that the government will not provide a tax environment that discourages us from contin uing these long-term programs. n HHH SGP 0030558 Paperboard & Packaging Capitalizing On Opportunity "Our apples travel cross country, and they have to arrive just as they came from the tree. We count on Georgia-Pacific boxes to protect ourfruit --and to carry our name, as well.'' In addition to their strength, G-P boxes are printed to each customer's specification. container growth Georgia-Pacific was already a major presence in the forest products industry when it entered the paper business in 1957. Today. G-P has major posi tions in several paper markets, including corrugated containers and linerboard where we have evolved --in less than five vears -- from a successful regional oper ator to a national presence. During the 1960s and 1970s. we gained a leadership position on the West Coast in the growing market Tor specialty containers for igribusiness. Building on this foundation, we expanded nation ally in 1981 by acquiring nine corrugated container facilities east of the Rockies. In 1984. Georgia-Pacific added another modern linerboard mill and 16 corrugated container plants, along with supporting timberlands. With this acquisi tion. we achieved our objective of adding linerboard manufacturing and converting capacity in the East to complement our Western production at Toledo. Oregon. From the newlv acquired mill, located at Monticello. Mississippi, we can economicalk ship lincr- G-Ps Coralurepackaging helps meet our customers1 marketing needs. board throughout central and eastern United States, as well as to export markets. A recent expansion has provided us with sufficient capacity to be a net seller of linerboard and also to supply our own growing con tainer production. Today. Georgia-Pacific operates 30 corrugated container facilities nationwide. We have grown stead ily in production volume. We are among the industry's lowest-cost producers and are expanding our capabilities to take advantage of the higher profit margins avail able for specialty containers. Our improving profitability in this sector is attributable to our low-cost production and reputa tion as a supplier of high-quality packaging. Investments have been made to assure product quality and to improve cost control, streamlining production anti encouraging a team approach at each stage of manufacturing. A program of statistical quality control is being implemented to eliminate downstream quality deterioration. During 1985. yve began a $46 million modernization pro gram of our Container Division to reduce unit labor costs. It included implementation of robotics at three operations, increasing efficiency by elimi nating much in-plant material handling. Similar robotic equip ment will be installed at our other facilities. Corrugated Container Plants 1961-1080 1981-1988 1984- We also added a high-speed, state-of-the-art corrugator at Modesto. California, that can maintain speeds in excess ol 850 SGP 0030559 SGP 0030560 "As a G-P shareholder, I knew my investment was workingfor me when Ifound out that an innovative by-product ofG-P's papermaking is used as a binder forfeed pellets. And when the multiwall bag says G-P, I know the grain and alfalfa pellets will be fresh.'''' Feed for millions ofanimals is shipped safely in G-P bags. feet per minute. Container sizes can now be changed to me n customer specifications without slowing the machine. To improve quality and to develop important new products, GPs Corrugated Container Market Share we recently invested in a research and development testing labora tory to evaluate performance criteria of raw materials as well as new packaging designs. This laboratory will also allow us to enhance performance charac teristics of packaging through analysis of coatings and additives. The container business has been moving forward quickly, with many opportunities to add value and upgrade product lines to more specialized output. For example, todays retail industry demands ``consumer friendly" packaging that informs customers about the product inside. A significant value-added dimension to G-P containers is direct printing at the container manufacturing site. Many of our facilities already can process pre printed linerboard prior to con tainer construction, and two of our Midwest facilities manufac ture Coralure containers, which are lithographed in up to six colors. Georgia-Pacific is one of the few producers of triple-wall con tainers, used when extraordinary strength is essential for shipment of large, heavy equipment such as computer main frames or farm equipment. We manufacture triple-wall containers in Ohio and New York, and plan to add that capability in the West. We are also a major producer of laminated bulk boxes. Two double-walled laminated layers provide strength for these large containers which can hold from 500 to 2,000 pounds of materials, including petrochemicals, resins and foods such as peanuts, corn and peas. Georgia-Pacific has many other specialty products under develop ment to take advantage of grow ing opportunities for custom and special-use packaging needs. The container busines. has excellent potential for future growth in many markets and G-P has the expertise, the production facilities, the momentum and the determina tion to translate that potential into superior profits and returns for our shareholders. '85 OPERATIONS Georgia-Pacific continued to establish a firmer foundation for profitable growth in the paper business during 1985. We made progress in upgrading product G-P ships its rapidly growing Coronet1* tissue in G-P containers, one of the ways we strengthen two of onr impor tant market groups. lines for greater profitability, even though the strong U.S. dollar and overcapacity conditions made SGP 0030561 SGP 0030562 MMMnwannMBBMHMBMnaKsafisnBBMniBBnBBHnnaMaasss "Managing our large and busy office is a big responsi bility. We copy thousands ofdocuments every day, and require quality results and a ready supply ofpaper. When I have a full stock of G-P paper in store, I know I have increased the efficiency ofmy office, at a reasonable cost." L985 a depressed year for the pulp and paper industry. Our strategy has been to focus on printing and writing papers, linerboard and containers, and tissue, while reducing our expo sure to market pulp by maximiz ing internal uses and by seeking ways to upgrade the pulp we sell to include a greater proportion of specialties. In 1985, for exam ple, we installed equipment for roll pulp at our Bellingham, Washington, sulfite mill, giving us access to the fluff pulp and other specialty markets. A major upgrade and conver sion program at mills in Crossett, Arkansas, and Palatka, Florida, has increased our capacity of 83 84 . 85 86 Pulp & Paper Group Growth and Reconfiguration (thousands of tons of capacity) 3 Mdiki'l I'iilp 91 Priming & l*'m< P.ipiM i a>ai-.< Kialt Pd[)<`!-|><;n (I I'l'-.-.iir & Samian bleached paper grades and reduced our production of lowerinargin unbleached kraft, which is now being made entirely on the more efficient equipment at Palatka. This project was com pleted during 1985, and our future performance will benefit from it. The consolidation of all of our Eastern unbleached kraft produc tion at Palatka has been success ful. In addition to production efficiencies, we have improved the quality of our products and also focused on the more profitable products such as multiwall bags, which are used for feed, concrete mix and many other products. One of the world's largest white paper machines is scheduled for completion at our Port Hudson. Louisiana, pulp mill in the spring of 1986. With 650-tons-perday (tpd) capacity, the machine will allow us to use and add value to thousands of tons of pulp pro duced each year at that mill. Our white paper marketing group has been actively develop ing positions in markets for specialty and technical grades. These sectors will be expanded to fill the space created in our Hopper^ printing papers position G-P in the top quality lithograph paper market. Northern mills by transferring commodity grades to our new costeffective machines in the South. We recently completed a re build of the kraft paper machine at Monticello, Mississippi, to increase our total linerboard production at that mill to 2,100 tpd from 1,800. The top wire former on the rebuilt machine is one of the first of its kind used to manufacture linerboard in the United States. The advanced de sign will provide us with superior quality. The increased capacity firmly establishes Georgia-Pacific as a major producer of containerboard. and will support our strong position in corru gated containers. We continued to expand the market for our brand-name SGP 0030563 SGP 0030564 tissue products such as Coronet Delta MDand Mr. Big In the commercial tissue sector, we have developed many new major accounts in the food service area, with hospitals and other com mercial customers. Disposable diapers and premoistened towelettes are G*P s newest product line. We acquired four disposable diaper and premoistened towelette plants, increasing our potential to expand in consumer products through our existing lines of distri bution. We have been developing products and strategies to compete as a private-label manufacturer. Our pulp by-product chemical business showed improvement again in 1985. We introduced NovasperseTM (patent pending), an emulsified rosin size that provides easier handling in paper mills. which has won strong acceptance within the paper industry. We also began producing a lignosulfonate product marketed under the No-Ox (patent pend ing) trademark, which can be used with road salt to impede cor rosion of bridges and automobiles. Response has been extremely enthusiastic, and the product is currently being used by several state governments to test its effec tiveness in actual application. Despite the current depressed conditions in the paper business, the longer-term outlook for the U.S. industry is bright because of our country's advantages with respect to fiber supply and acces sibility of that supply. As a result G-P's fastest growing paper grades are the commercial tissue products for the fast food industry. of the capital projects that have been undertaken to improve our facilities, our company will enjoy the advantage of modern, efficient facilities producing higher-margin products. The paper industry is currently undergoing a period of consoli dation, and we feel there will be opportunities to benefit our share holders through acquisitions. SGP 0030565 i'.r.ci';:--: y -'y;) ^ CT^-J,k.~vrr ~ , ;.r--- -- ' 'fi^nrgjaiPflr.ihpjraftgnizes as its pnmary;economic respon- 4'J, risibility the needto-improve the return to its shareholders. ' !'4^?^.',^&^'1982,'we^aw|^^sigT)ed our framework for estab- I financial-goals, measuring operatffig performance, J^'iinaldng investment decisions and compensating manage,'fi't' ment'in an,eff6itito:better. focus on the critical problem of .. j K - ' 7 f'\ allocating and managing capital. We can create Value for our shareholders only when the return generated on the capita] we employ is greater than our cost ,of capital. ?While V' i this principle represents our primary financial goal, we ' remain concerned about long-term performance rather than performance in any single year. - v :;V;.,y x4, "s environment'.;, ^ , I' i */*><'-,* " 4 " -V- - I,..., J.- T.. '*7,ha^be'en^a'.chaUengihg period for the U.S. ^ppr^ucte'induslry.'iThe problems we face as ai i indtiMr^Wre accentuated by the deep recession and record f r,i-"^fit^l'*tl!fresl raieS'Of the early 1980s. Currency exchange '* '** ^^^jpntagesIhiexjbort'niafkets and foreign government ife^ompebtors have inhibited performance during ^j.re^nfvrecovety years.' laj5^U',asMhe;rate of that growthbThe uncertainty ;.---"fhas.made us: apply stringent criteria Tqr.iriyest- x r ` .h'i . *3*fS'f*! ll'be most successful over the long term, significant Z,., ,.-,.;'rp--H'KpURN ON CAPITAL'EMPLOYED ; \ \ y \ , ` ' *' y^'^^ljetunron capital employed =is our-most.important perfor- 'a'fcySV'ii^^^fitbiafeurervReturn as .used ,here means .profits after. Igciffal .taxes paidbutbefore , V * j rV"\ /, k '''-Si'* .? -4JJV'tV-'1>. g t'jg^'d^finemcing. charges, dt is-cad^ -''rr.'1 Oulatedsbyradjusting income j ,A * t;^^^^^qmTpontinuing operations*- > ^cludephanges in de- ' 11 ferred iriconfe taxes and - , 1 the after-tax effects of ^unusual.iteins. and interest - vm.expense;dbtal,capital.cm- Rctun, ^ `ployed, met&uredpas of the Employed " ; beginning of.1he year, is defined as the total of common ' '..by-TC.:!' '' : ". -/dPif'.Vr. ' capital investments must be directed towards improving manufacturing efficiencies. It is apparent that the industry restructuring which has been underway will continue The depressed earnings .. levels and low equity prices j ;sent today are^ejydd`lead TTo fijrther'cpnsplidafidn'as cm panies"attempt'tb-better ?V`T; position themselves for the fu ue. . 1, lyWeiafe^positioning'Geprgia Pacific for the future,by . /.-focusing on cost reductions and more efficient capital ~*- v- imanagement, -in an effort to maximize the cash -flows-fromv`'' ; -;our.operaUons and revitalize, on a long-term :andsustain-1 ---, \ y-. - *, `` p, ;: c able basis,- the returns on our invested capital.' We have', / /also made considerable progress in strengthening`'our balance sheet,-wnich Will enable us to take .advantage of ^attractive acquisitioiTopportunities. ir.;t 19 "v shareholders' equity,vredeemable preferred stock/defened // income-taxes and total debt. '* ' ' / '< ,c; :/ /We,have made encouraging progress m revitalizing'our . - * /'-./return on capitid.employed sn 1982/Severely depressed pulp and paper-markets caused our return on capital >'/': - 'employed to declinem4985. We continued our program of divesting underperforming assets, however, and also -adopted a new management incentive compensation plan which is being implemented in 1986. This compensation plan bases incentive awards on return on capital ^employed and clearly aligns our managers' goals with the economic interests of our shareholders. ' ' .. ... ... SGP 0030566 `--'-i x< >\ . : CASH GENERATION Georgia-Pacific's operations have generated a substantial : ' amount of cash in spite of depressed returns over the last five years, which indicates financial strength. While.our yV.?.* ..reported earnings have fluctuated, cash provided Jby con tinuing operations has increased each year since 1981. : .Most recently, c h provided by continuing operations in ! ;. 1985 increased $262 million (51 percent) from 1984 V 1 ! despite a $46 million (18 percent) decline in income from. ; continuing operations. ; ,Our cash:gerierating 20'J ` capacity makes it possible -ior us to iinance^;substan^:^4^ SV~v> '^1 with cash derived 'from intternd^oj3ij^1l^^lsjfle^^*.>^|g ; pastfiy6lye^(-intemmt; ' Cash'Provided by Continuing ii'T'/V * yOperations vs.^ncomc'from : r'J*- ~ 4 Continuing Operations * -' (millions of dollars) ;apprpiqmatpy|64jpercenfj^ '' - f-"' V'-' of Georgia-Pacific's total, CasliProvide^ by ConUnuing Operations \^rCCS of.C^hj With rCCetlt * j /* * p it *n<3v^-f5I!>S^nt'n*ul,lg 9Per^u?ns. - .periods showing higher & -3* -?;S? || sf a. M : }* -#C ^.CAPITAL INVESTMENTS' - - ' - ,m , - Mi*:/>**:? f, The fundamental economic changes which have taken place in our industry have necessitated significant capital : :,: jj investments for restructuring operations. Over the past five ` years, Georgia-Pacific made capital expenditures of almost :&itstaaga her &H)Smw^(is.'/;Ftecej)Vinws6nents in property, plant and equipment have been concentrated in restructuring . .*(, our pulp and paper segment. . `...in 1986, we anticipate spending approximately $550 . million on'capital projects primarily aimed at reducing our cost structure arid upgrading our product lines. Approxi- ^ * H ConPsterh^tKjpi||P^MBg^^^niWft^acn`majoiy,. ' proposed ca!* "TS*-"5 01 tac SGP 0030567 *,.: ?y .$> 1 ' 'i*" ' r-'-', . ** ,^r * , V-,>-vV^M^i*^***^ ^" ' f mp~{v,"p?',, '?' ? 'f? iiv;, vj f S ,, &cVa<.. * -'v ` ^'generated over the life of the investment. We .,; |fifepash flow.as operating profits after taxes paid , y On-cash charges such as depreciatiori,1 minus any SWrCi y " .. ' - . - y^itirierit required. Our definition of new investment jflpS'Working capital requirements as well as capital - -> V' -s pi*- -' fe-. _ /.- -- jSTRUCTURE --\;.Vy expenditures. Discounted cash flow techniques.are used . to'calculate the internal rate of return for each project. Our i- - . i >... ` y-y-ija i.C, policy is to pursue capital investment opportunities having a projected internal rate of return in excess of our cost: of capital '/ mveja target range of 30 to .5 percent for G-P's total :. capital ratio. This range should ensure access to ^jor markets for capital and thereby provide the xmility to take advantage of ' oth internal and external "nehf'dpporturiities as th' arise. We define.this ratio yBt,di|ided by`total ca dial employed as of they.-.,.-,.-,; ^l^yearrThe following i iart illustrates that total ; ; y apital has been'reduo d to 33 percent from 43 P^nce' the end of 1981. During that time,'total debt v;? Itenjheduced to $1.4 billion from $1.9 bilhon. W*---. , .I . Total Debt-to-Capital v y< *1 t r- We plan to fund the : majority^of our operating and capital requirements in 1986 with cash from operations.Tf external- -t <>yfina,r.i.cing fs'jregu ired ,'ldebt > ` V-.Vf- fy f i -* would probably b used u-. - s-1\ __ nrnss..<r.` )ENDS *'' ecpgnize the importance of dividends in addition to ; |aggjk performance as part of the total return to our : shareholders. As can be seen in the chart, we reduced "-T^i^slate'in'-1982 in response to depressed earnings plstiGonsisteht with our guideline ofpaying approximately. i|Sd|&|oI isustainabie eammgs, dividends were mcrea^di ^jl984-*as,.pfro' fita*br ility : impro,ved. .Th*e amou- nt oyf j TOfireldividends will be determined based on capital needs ^^.other'eash requirements an i the prospective returns . ^^ncremerital capital retained in the business. Our . ,-s objectiveSs^lornaxiniize tvota,l .shareholder .returnsover. the 7 `` long term'. ..w-.'J 'b l , -! st.ii.i &J&ifraSSfaslH&Si iUtS'.K ?.-* O.". Divideiida beclared Per Common -i1' 'Share (amounts in`dollars)i___ - i ` ><r < ' / \i ~ rr , t i\ 21 fCTHER SELECTED FINANCIAL RATIOS . 'tfiW'SSstlniaddilioni to the return on capital employed, we consider iS^S^^fiS^^^fK^thi^ee'retuturrhh on common equity to be an important perfor- ^^|manoe:measure. As with any single financial ratio, howeve'h - - 'the return on common equity conveys a limited amount of P'.li information About financial performance. Georgia-Pacific's gl^alesl'^^ets and income levels and capital structure are all *; interrelated factors which affect return on common equity. The following definitions, ratios and discussion attempt sto describe certain of these factors and illustrate their effects on our return on common equity since 1981. Return on Sales--defined as income from continuing operations divided by net sales. It is a measure of the .profit earned on each sales dollar. Asset Turnover.-r defined as net sales divided by total .assets, excluding net assets of discontinued operations,- as . of the beginning of the year. It is a measure,ofjhe sales, - ; volume generated by the assets employed during the year. . . - Return on Assets--defined as return on sales multiplied by asset turnover or, alternatively, income from continuing operations divided by total assets, excluding net assets of discontinued operations, as of the beginning of the year. It is a measure of the profit generated by the assets SGP 0030568 employed during the year. Return on assets can be improved by increasing either return on sales or asset turnover. Assets-to-Common Equity--defined as total assets, excluding net assets of discontinued operations, divided by common shareholders' equity, both measured as of the beginning of the year. It is a measure of financial leverage, or the degree to which we use borrowed money to finance' our assets. Increases in financial leverage will increase return on common equity when earnings are sufficient to cover the cost of borrowed money. . '1 ;; Return on Common Equity--defined as return on assets multiplied by.the assets-to-conmon equity ratio or, alter natively, income from continuing operations divided by common shareholders'equity as of the beginning of the year. It is a measure of the profit generated on our share holders'investment. ' - :. r; Return on Common Equity Analysis 1985 1 1984 1983 ,1982. 1981 Return on Sales Asset Turnover 3.08% 3.79% 1.24% 0.40% 1.79ft 1.45 1.64 1.'42 1.19 l'3l'. Return on Assets Assels-to-Co mmon Equity Ratio 4.47% 6 20% '1.76% 0.47% 2.35%' 2.27 ,-2.03 2.15 2.19 . 1 97 Return on Common Equity 10.2% 12.6% 3.8% 1.0% 4.6% From the table it can be seen that.Georgia-Pacific's return, on common equity improved to 12.6 percent from 1.0 . percent between 1982 and 1984, before dechning tq:lp.2 percent in 1985. The primary reasons for the improvement were increases in sales volume.and profit margin. Increases in both our asset turnover and return on sales during 1983 and 1984 resulted in substantial miprqvements in return. G . on assets in those ye^'.;The'aisets-to-c6mm6h equity ratio' indicates a slight decline inbur finahcial leverage between ; 1982 and 1984, which partially,bfiset the improvement in ''' return on assets. 'f It can also be seen that ... return on assets declined in si '; ' v - t4 , , . 1985 due to a lower return / on sales and, to a lesser--' extent, a slow-down in asset fj . turnover. Return on salesr'a-l : declined due largely "to t J weak pulp ;and paper^rfarJt^P^^^StS^SI^S ^ * ii__ ) '%^Returrion.Commoh Equity .- , kets'in'1985. The decline , /fl -anjretum on assets loyrer^dsthefr^tuni :on;common'equity,v; i-although .the effect(was.tsdmi^diajfdfeef'by.'an increase a-; in financial leverage ''' 'Management^ Discussion -and''Analyse ' 1- ~~ "A*l > S ^ _ **> LIQUIDITY AN D CAPITAL RESOURCES Despitelower earnings caused by weak markets in our pulp and paper segment, cash provided by continuing operations increased 51 percent in 1985 to $771 million from $509 million in 1984. Significant reductions of receivables and inventory levels contributed to this improvement. Cash flow from continuing operations was supplemented with proceeds from sales of discontinued operations and available financing sources, when appropri ate, in order to fund capital expenditures of $642 million, net retirements of debt and preferred stock of $169 million and dividend payments of $94 million. Georgia-Pacific's capacity to generate funds internally, together with committed lines of credit and other available financing sources, is adequate to finance growth and meet our operating and liquidity needs for the foreseeable future. At the end of 1985, our existing domestic, foreign V % f u5* 4v j .....i... , _ , '***>. Tg! -. AS-i\- ._/ * [ and regional bank lines of credit amounted to $700 mil- :;- dwn.ntwhich approximatelyj$247 million Vras being used to support commercial paper and master note borrowings. Also at December 31, 1985, we had $250 million of debt securities registered for sale with the Securities and ; Exchange Commission under a shelf registration state-, merit. The Corporation has maintained this approximate level of registered but unsold debt securities since 1983 to . enable us to react quickly to acquisition opportunities and favorable market conditions forrestriicturingexisting debt! In April, 1985, the Corporation accepted tenders for approximately $40 million of its redeemable preferred stock, including 828,333 Series A shares and 191,946 Series B shares at $39 per share. We expect to complete the next scheduled purchase of 1,288,942 shares of our redeemable preferred stock at $39 per share on April 1, SGP 0030569 - '` V: i/'ftj i ` j. "' * awSS.! % . - ,-s .; - % f"' hJ *v','h x-^ ' - V J*, y. ^'U. 4 ' - *w, a , l id ^% tK ^ 4- rf < , We are projecting capital expenditures of approximately .' $550 million in 1986. ,; . .y '.\* :: - - :7 , Approximately 68 percent of capital expenditures In iyilj'ii;. , . 4985 were in the pulp and paper segment^Other than tjie . acquisition of four diaper manufacturing plants'in'Sepfem-. : ber 1985, the majority of capital expenditures'in .pijlp and .,;7av paper wererfqr prbfi^ improvement programs,at existing .... " facilitiesrihciuding: , ; , cv_- F ^..i^ad^IrtweS'Waturu in thirtv'years, bearing no interest for Continuation of-a project to upgrade theproductlme plft. vftitHfiitet-fiw'yc-ars and'interestatll;30% thereafter The r, U""fjf "3 ^ r. - ." ". ; ' - ' - ppp ..............MistrUCturediin'this manner to obtain a lower . 'V1V>51 ff Sf5' -s-'-;'' ' "''' ' ' -.01 ive^interest'costJthah could have been obtained --C-Sh Wendonal/^125'vmilli6n thirlyryearbond issue.. s.%: ' ^dstwere-applied towara the.early,retirement at our Port Hudsoin,'Louisiana, facility,'which is expected to be completed in mid-1986. This project will increasej -.V' our white paper production and reduce production \ , of market pulp. jj v . y:t'- _ Completion ofmajoriequipment conversion programs y ml; mp* ^8.%%:item>loanst'WhicKWaa?m'e3reclive '. . ; > F' Wc lirdftlOjSl^-due td compensating balance -iSisiandMwereidiieiinfVaryine`installments^^ - at the'Pjilatlca,'Florida,'-arfd Crc^njiArlcansas,-pa(>er:mills','>^^ " -yV -which increased production capacity for more profitable ' , - -t'-irr - \-rf '!-:. , -#.-"i. -^-^.r - ty-.v V- -r - 'bleached grades. - , . reflSL.* l / ^ vh ~~ ;} < ~5* ** * 3c 'C :v . '?'r'`. Completion of a majdr equipment conversion program r*' '' . i ' ' . "t - ty ., ! ' "/ . ' '1^85|:approximately .$22-mijlior{Jpf;poUuy S -iatour:Monticello,'Mississippi, facility-which increased" t *" ' ' 23 snue?bonds>'weiesissued.'on'.JfenMf:oCdie'^^^ Hteg Kififinceitfielaoqpiisition -andIcoifisfinictjonj^if ^ $fc#j lUutionicbntrol`facilities and -to refinance^existingTl#;.? .7s5'-V< >2v -jfi ?* O'^V ^ ' f1 --. 'AT^rS^S' '.if i1' .<;v>-5'b'*-r!r icoritrol revenuelbondsi '.'v 4 - - u . '-'3 v'si'- ' -; '? J 583-Stvve.'announced plans to dispose of certain lines - td r > - j? V'-:'V'^'.VV-- '-3- f; ' ,, -V ^^^Swes^indudiM-all of oiir'jcdmmoHity.chemicals - ' ' V' ' * i':w53-oiand'gas'operatiofis:`-These'.dispositions were com- " i 11 ^ i 1 1 v 4 ,[ t* ' T . - >'* Js ^LpS^.rWith .-the sale^of our ^ /* i '^piuWfStlijif)olystyreifetplant jn^Painesville'; Ohio. During ';^'l1935j,we'^bmplefedithe!saies;of;ourPolymef,.:Iric. subsidy ^ ^ .Tiary,wnose pnncipal-asset-was a;color.concentrate plant f*r ,. - t - *h. ^'fem'FanriihSdale;;NcwiYork;',and duf;Excharige''Oil &'Oas' 3' >!> *- ;'--?y>sr ,v.i '..--'v ' >HfiC6iip6iBSbn'Subsjdiary.(Exchange)yExchange was4sold slinerboard capacity and reduced production of less" ?profitablegra'dek\ 'A-. -Investments in'the building products(segment;represent:l - ed approximatelyj26percent of tdti^ 4'if.' in 1985. The -majority of these investments .wereidiirected,t.'.!^A;'* toward reducing manufacturing costs and waste and shifting 'i . .^production to' higherjmargin .products. .Weicompleted -the - * 'construction ofitwoslarge/orierited strand'board plants , I - 1 ..Jr'.'-''-C ^u?7i > -i / ^?T r in Grenada', (Mississippi, and Skippers, Yiiginiav enabling .*.w. -.-I'd'--jrlt-'.y..- -. ,m;.rv.- -3^m > ty. i i-*;'!. 1* -., ,l>. y .X y A - s j.jy. 1 uslojfurther-shift plywood jproduction\t6 -more >profitable*f.:j^ s. .! Yt{, l 'specialty grades.' Both-plants will be in full production &%?? _/ during most;ofsl986.:- ^ ... ............ - In March 1985 we entered into an agreement to sell or \ ' to^Bwi^.EftSgyJ6omDaaivin,Septeimber'.1985 for approx- `v ^^y^i4S>niil|onv'E'lqwer'price than had originally ; ' exchange.approximately l34,000 acres df Oregon timber- , lands to Weyerhaeuser Company from time to time .over a r-~^^Beyn anticipated due primarily to adverse conditions in three-year period ending April 1, 1988. We sold a portion , natural gais markets. As a result, an additional $30 million of the timberlands under this agreement in the 1985 first ^^,.,jfter-tax^lo^ fnomyhe.sale was recorded in the 1985 third ^^^u^er^After.adjusting for cash received from Exchange S|^|:Rri,9X<`."to-'l|1.e.sale, net cash proceeds were approximately ' ' ' - quarter, resulting in a $19 million pre-tax gain. 'y.i :. At the end of 1985, working capital was, $591 million . and the current ratio,'defined as current assets'divided & -. by current liabilities, was 1.8 to 1, compared to their 19.84 expenditures^in 1985 of $.642 million were ...,, ijelow the 1984 level of $710 million. The 1984 amount, -levels of $732 million'and 2.1 to 1, respectively. This'' decline in working capital is primarily attributable to lower ' 7 v; :bowever, includes approximately $308 million related to receivables and inventory levels at the end of 1985. The . -'y-yya.major'acquisition. Acquisitions of timber and timberlands .^`amounted to $23 million in 1985, with an additional total debt-to-capital ratio was 33 percent at the end of 1985. down from its 1984 level of 36 percent, and within ';,4 -$619 million spent on property, plant and equipment. our target range of 30 to 35 percent. .jjqmi., i| f .ji,i SGP 0030570 S'! 1985 COMPARED WITH 1984 Georgia-Pacific's consolidated net sales were $6.7,billion the return pri shies improved to'.8.7|percenVfrbi'n' 8.5 per-; for both 1985 and 1984. Income from continuing opertions decreased to $207 million ($1.83 per share on ' cent. The improved results were achieved .(despite lower f i__i-- 'Jfrrti.'s.r.cfJi'n ih19o8i 5. a primary basis) in 1985 J ^Competition (from low-cost .Carwdian |umber..imports and . froni $253 million ($2.28 ;cyiexcess industry capacity in'plywo&d'sheathing nfarkets ' p'ershare) in 1984. A $30 million loss from discon sirm* -> hy' '1 ' r. dar levels of demand. Reductions in. ja-Pacific s liber tinued operations, which e- - 'SCCand'Conversion costs arid strong gypstim markets helped was partially offset by a $10 ^..-`(offset tbeleffects of tliese pricing conditiojisi/Gypsum oper- million extraordinary gain . 'atioris" were this segment's most profitable in 1985, although from settlement of a con- j.'.averagetpnces for the y ear were ^slightly'lowerlhan in Sales by Industry Segment (billions of dollars) I Ruilding Products I Pulp & Paper . Otlier . :1,; million ($1.64 per share) . - :->">bA:$134 million loss from - ^.uncham -r,J ..-cepfanceldf riew.stnictufal panel ._ . discontinued operations in 1984 lowered net income in that ''.v^productssuch as oriented stranS'BoaidferidiWafefbbafd * .A ' , f - V ' f-` j - "X: * - . - - . (j. 'w.Avj-l -w ,?r- --,,- g* - . v" ' Y'.v . year to $119.million (^y .cents^per share).*^" - i' 'should continuedo growl ^e^sojpl^ to cdnBnueipuryilfCi,. 4nfl985~anda'$l9 million f v> sales increascftb'$2.1 bjHip|hiriJi85^reflecting a`full-year ;G'i'vA> pre' -tax ga-in )-ontthe.s'.ale?of --L.C. co,rntributi-oyn'fro, 7m the hnefbdafd^kr6paperVand corru-. the Georgia-Pacific building :`^5rfi'Kated.^container operations'pbtain^'tnropgh.an acquisition ( Opei Segment (millions of dollars) Building Products'r.t-^7 Pulp & Paper Other tbandlexces?^orldwi_de:pulpcapacity7made|U.S^ 'mV^npr'iinin-, ment has' been reached in a i value of certain lands acquired by thfe Fefieril gt^rhmeht.'^i^^^^j^i^ll^^'jayerage pncb|ieyeisyi^uetwas'the'only Pursuant to this settlement. Georgia-Pacific expects to'" receive approximately $14 million. A $10 million extraor- : "f^major product for which average'pnces'improvcd in 1985 ' ; as compared to 1984. The 1985 pulp and paper results dinary gain, net of related income taxes of $4 million, was recorded in the 1985 fourth quarter.' The remaining discussion refers to the "Industry Segment Information" presented in Note 5: - . y\. _ were alsq^affected by lost production time caused by a ^strikeat our'iQrqsscU, Arkansas, piilp'ana paper mill dur- " ing most)of the third quarter and major^equipment converVysion projects_at several inins,_particujarly/in the fourth 7. Sales in our building products segment 'were $4.5 billion for both 1985 and 1984. Operating profits increased lo $391 million in 1985 from $379 million in 1984. as quarter. A $12 million oper'atingToss yvas'reported in the J985 fpurth quarter on sales which were 23 percent below the fourth quarter of 1984. We expect the difficult market SGP 0030571 LC 'conditions in pulp and paper to continue at least in early :tl96, glthough some improvement is foreseen in pulp, : . ' 'iTnerBoaixl ancl corrugated container markets. This seg- ;.ment is expected to benefit from the major equipment . ^conversion projects completed during 1985. General corporate charges decreased to $33 million in 51985 from $68 million in 1984. Much of this reduction" is attributable to interest and dividend income ori the debentures and preferred stock obtained from the sale of our commodity chemicals operations in December 1984.' ^ Interest expense declined ltq;$132 million in 1985 from $156 million in 1984. This reduction is primarily' attributable to increased capitalization of interest as a result of our.large capital expenditures program in 1985. v> Our total interest costs of $162 million in 1985 were slightly lower than the'198,4level of $167 million. , ' For a discussion of "Income Taxes" and the "Effects of Inflation," see Notes 10 and 16. t/fr 1984 COMPARED WITH 1983 Georgia-Pacific's consolidated net Sales were $6.7 billion iri::1984,; an increase of.11 percent over. 1983 net sales of $6.0 billion. Income from continuing operations increased to $253 million in 1984 ($2,28 per share on a primary .- basis) from 1$75 millioriin 1983 (53 cents pershare). : : tAfterjeco^nitioh of a $134 milfion loss fifrm discontinued >. ^'peratiphs,.the Corporation reported net income of $119 <in^OT^inJi^84.^N<BrijrKk>TO^:0|C i.i05 milliph in 1983 , , included income from discontinued operations of $30 million. ; - .-Included in the 1984 results of continuing operations was a $19'million pre-tax gain on the sale of the .... Geoigia-Pacific building in Portland, Oregon. The 1983 results .of continuing operations irochitie'a pre-tax chaige of $135 million for asset disposals and write-downs to net resizable :value. Excluding these unusual items,'pre-tax income from continuing operations increased 56 percent: in 1984 to $377 million from $242 million in 1983. The remaining discussion refers' to the "Industry Segment Information" presented iri Note 5: Sales in the building products segment increased 7,0 percent to $4.5 billion in 1984 from $4.1 billion in 1983. Operating profits increased also, to $379 million in 1984 from $354 million in 1983. The segment's performance benefited from strong housing construction in the first half ' . ofT984,;as well as improved technologies at our wood, ' ` i - 'products facilities.-;Gypsum`Sales' were strong ithroughdut''>;)i<t - . 1984 and helped offset soft prices for lumber, which were -' ...v -adversely.affected by Canadian lumber imports, and soft , -U plywood sheathing prices caused in part l^'Kcess^nSustiy^t^S' ; - capacity. Sales to the remodeling market exceeded nevv^^^l ' , residential construction sales. ; ; ifiS>--:;'J;vThe pulp and,papersegmentjreported significant^^,^l|,^` , ..shitther sales and operating profits in 1984. Sales increased r',n :19 percent to $2rl bilhoninT984 from $1;8'billiohJii^^v'^ 1983. Operating profits of.$202 million were almost"three . times higher than the 1983 level of $71 million Thei1984 - results include an approximate six-month contribution t 4 ac-mieom the finerboard,-;kraftpaper and corrugatedusoritaineV1 J, . r`.v>vJoperations!acquired(at?miag'earARnces mcreasedidunngJii/riy;; > <* .'} . . .' ' ;;'vA'.?ir.l984.-for .mai^et pu^-<pnnyng.and writing papers,-kraft,! y<1>: 1 .. linerboard and corrugated containers, although .-some'mar-. '2! ` , kets began to soften after midyear with the slow-down -.~-.*the economy. The impact of a strong U.S. dollar on export r 7-' . markets, whichputidomestic.producers at a competitive' ' > disadvantage compared to foreign competitors, and rising pulp inventories in domestic markets caused market pulp prices to decline in the second half of 1984. 7 - : : V For a discussion of "Income Taxes" and the "Effects of . Inflation" see Notes 10 and 16. SGP 0030572 -' {Millions, exeept per share, amounts) 1983 '"Net sales $6,7i6ff 9 J6.040 Costs and expenses Cos! of sales Selling, general and administrative . Depreciation and depletion Interest 5,553 :V - - '4,978 '- :s; tv 374 / -,.'289 ___ 132 './' ' _ l57 v-6,426i\4Vj&W6-3.05 ' "75,798 Income from continuing operations before unusual items, income taxes and extraordinary item Unusual items .' Income from continuing operations before income taxes and ^extraordinary item yf-`7lVtvifccY'. ' ... .*> *v; ^ fr Provision for income taxes .; i.? '. ' -- Income from continuing operations before extraordinary item . 290 7.: 377 242 V :. 19 / 19 (1.35) .rr; 'T .fi'.. ' >.x .*4 ' . f y 'AyJV '107 -S-y^ f' 102 -'ffr--. ij' _ i`:207#^ ' 14.3 .' ' 32 Discontinued operations ` "'' ' ` i' - yi't ; -Operating income^'net of taxes ' -, ;i ^-`(Ijoss) on.disposaJ, net of taxel (loss) from discontinued operations / ______ - 1 / * 1 >y5 -^(30) , 3C before extraordinary item C, 'VO ` 'A^VJ'l9 .<1 -105 ;>1 Settlement of condemnation suit, net of taxes- Net income "? CCV ,, .it, (> j--. >. - "TY . '.'7- '10a--V-*~V; ' -MW.,'- -- ' , ' ?; "',V %>.>.', ' ? ft- '.Vi? v -1 ,W-; y , $ ; i87j' ifi os. Jw * .'.Vfe -WM; -2=i4i - <V>rir * , A'M'SMY.' /. . Not income \ V- Per common share--fully diluted f ; ;Y' - -- Income from continuing operations before extraordinary item Income (loss) from discontinued operations rivjAil WAV , $ 1,64 *;, $^STXtfe.vl' S /82 ' 3 c Fb'Clv S 1.80 ..f S ,2.24': f . S .54 (-28) f.-i(1.27) .28 Income before extraordinary item .Settlement of condemnation suit Net income * * . , f: .>''8'. cCi'f.'ys-'y ,fv ^ 1.52 : s.^f.97.v ;... ,82 :8- ; s'.': Q9 **J //*.: [ ';* ' ` * _ fyfkf * 1.61 s'.".';: 97 S .82 The1 accompanying notes are an integral part ofthesefinancial slatementk' ..r.f,Y4 ff/'K SGP 0030573 ovided by-(used for) continuing operations If'^'^lncome from continuing operations before extraordinary items bejns in income not affecting cash SytfcDepreciation. Depletion K'k g^Daefred income taxes ' ... ,.V Ij^^gjljhusual items ! -X -, . - -' ~_____._.................... - --Jft'. '" ' Cash provided by (used for) working capital t, - Receivables *i '^'Inventories v;(,-.{fi, I-.Pfeptud^expenses :Sj|gi^Accounls payable and accrued liabihlics . .MV''-'.-.-.'Vi (iM&'if&Cqlb (provided by continuing operations IWigiS fi^^MlijpTOyi^ed by discontinued operations ^^^ih^^pi'ided fiy (used for) extraordinary items - .i SSllSettlementof condemnation suit. net of taxes tfAiltesK :V;l^ltems;jn;cpndemnation settlement not acffrecting cash;. yj* Payment oflitigation settlement - - 5 .V--' - 1Cash (used for) extraordinary items , iiiCaslfprovided by (used for) financing activities ^|>%Repay.mehts of long-term debt a...... V1985 <3 '!v ^'K-.v.-vv'. $207 , 270 40 84 v4oi1 '..''MM'":' -1 $253 > rv ^ At*}* ? ?*; '247, 35 - fi'. '.i.'i.bi , . 90 ! M35l .625 .86 64 4 <ft ** i \ *W,(9) 29 170 ,.771 117 "It,''4' ' (86) ..j*.>, (3D T;.-y (6D :$ 29 ' W^a k- ift^Net;(decrease) in commercial paper and shorMernvno'tes ' Preferred stock purchase offer Cash (used for) financing activities vii? -Gash provided by (used for) investment activities ' 'V Capital expenditures -- ` . Property, plant and equipment ; Timber and timberlands Asset retirements .... , .... Other '' : . V. :: y/ .- .. / . A1'*? ?f X r jS y, T *\ V * ^tm(169) i<u.y n'tfk V< t ?V &*** ` (619) (23) (642) t'32 11 -_________ , ' 'tjm. *l -*" s, wn?-f Vrl. (575) * (126) (135) ; (710) ' '(188) 62- 12- v i 41 r- 22 * ,, 53 ' ..'.-4-Cash (used for) investment activities' .Cash dividends paid . j .: . Increase (decrease) in cash Balance at beginning of year ...... '.M---. --:v : ..- Mv, '. .Viz'.-V:';' V.-v-i'. 4.* y (599) (626) , -(123) ' , - / (94) - (86) ' '?*'f76) ' ' 26 ''' (7? ::' 36 43 - 36 Balance at end of year ' ` M 1 ". $ 62 $'36 $ 43 The accompanying notes are an integral part ofthesefinancial statements. i SGP 0030574 -Balance Sheets -- '7'v`'" (Millions, except shares and per share amounts) Assets Current assets . Cash Receivables, less allowances of $19 and $15 Inventories Prepaid expenses Timber and timberlands, net --,-w -- 7 ' - 77.77;.. - - >77:777 - 1 ' t fVv.L-,< .*, XM'-X'1'!: -V^1 r ' ,1 - ^ * 4 * t*c< u"* l , T, .. - < -December 3] . ; . r - * 1985 " ; 1984 .7; . f 62 - . 569 634 , -\ 26 ' , 1,291 804 ; > $ 36 , 655 ` . .7 698 17 7 ;-7 1.406 ;7 840 7 / Property, plant and equipment Land, buildings, machinery and equipment, at cost Accumulated depreciation Net assets of disci ntinued operations 4,741 ' 4,272' "` " -- . ________ (2,135) 2,606 . (2.002) 2,270 ; r-V * * ' hJJ 158 % Other assets . .. .if': :'Ve. .. 1, ' .., ` \'l , V.-.'V:- 154 14,866 111 $4,785 Liabilities and Shareholders' Equity ' Current liabilities ` ,t '.-* ,- '* >7 < V- f< * Commercial paper and other short-term notes Current portion of long-term debt - - ' Accounts payable Accrued compensation ;. . ... - -%-y-*t *,-'................. v ; s" - / .vr,:./. ** 1 . 'ii1 Hx $ i04" '* 7, 4l-" 276 82 Accrued interest 38 Other current liabilities . - - , *' V \ t i'-J 1 159 .y,:! . .i > US -V-l'- * '-700 ' $ no 38 259. . -- 83 42 ' 142 674 Long-term debt, excluding current portion ' '4,25*7 1,383 Deferred income taxes Redeemable prefe red stock ~ Adjustable rate convertible preferred stock, without par value, authorized 10,000,000 shares (involuntary bquidating value $39.00 per share) - , " 'v,"v ' 606, ' , 7 '/!> v 503 -f'-v 156 iviv::,: 19Q - Common shareholders' equity y , '; Common stock, par value $.80; authorized 150,000,000 shares;; 104,368,000 and 104,115,000 shares issued Additional paid-in capital - \ -: , - : ; - . 7/;.v-7'y7..-77-. 7.7 ,. 83 1,004 Retained earnings 1,114 Less--Common stock held in treasury, at cost; 1,143,000 and 1,589,000 shares . . . ' ' - (35) Accumulated translation adjustments ' " (19) 2,147 83 999 ' 1,029 .77 (49) 7 7(27) 2.035 $4,866 . $4,785 The accompanying notes are an integral part ofthesefinancial statements. SGP 0030575 ; ^Statements of Common Shareholders- EQiiiTY '' -. A^-S - ' --v'.-'i'-. -t-CrV-, :..'>-=>.?-i!-''/` ^V^|| : -(Millions, except shares ') -. Conumm Slock Shares Issued Treasury' ' . ,.-r. '-103^289.000 1,953.000 Balance at December 31, 1982 V- Total $1,989 Stock '^Additional ~e;.:T-n Capital Kaming.< $83' (37$ `98(4 -$ 9"8 Stock . Adjustments . Vi>r-SA^-Jp4S-i c'.Vi4 '-.5 ' 8(61) Cumulative effect of change in accounting for foreign r-A-v; * ' *' - \ . - -i14 *-V ft* -- . -, currency translation '..(I3l .-: - ; (i3) :- oilNet income ' - ; - : V.- - r - ` .-... 105 ; rr-i-i^fip 105 . r, j. <,r.x -- - vf-Ty-j-i&. *.4,er^. r V4 t v\ >> t, ,-. -X- *:*' . -^"_. --i.. "'-I Cash dividends declared >* - - 55,000 .,4 03.344.OOO Commor lock . . ; . . . ' (61) . .- v:.... ton Preferred stock 1124.000) Common stock issued (15) ' ' 4' ", (15) Translation adjustments `Other/ . 10 A-.V.4 `.'(6)' " ` ME-I#'.'. (6) 1,829,000 ', Balance a December 31,4983 fi?#Jt2,Qi3 ... -;83Vh','. '-98V';,.?. 1,00]'- - Net inco n >4 -*; \'$%. - '- V. `:./40 ' ";"/? . . .Ah 4 .Cash dividends declared ' . " ', . > * ' Common slock, > * ' > S^.- -,t .. - v^.'- S,` - :~? Preferred stock ~ ~ ' v -r: ' (240,000) yCotnmon stock issued -77.1,000 . .- > vJr^i^i^Employec stocCpurchMe^lan^^^ V. >^..- - ,- -': ''' i -riTranslation adjustments* fit~ , ; s; - -r. - ' --.>: `Z .; V ' ' ' Other :' .104, ] 15,000 1,589.000 Balance at December 31, 1984 ' ''"'2,'035 9wfzjAi629 ` ' '< 1in9' )i*''Vr>''.?4^'(' 2?r70r>7Cf'`-''>C*f/-' ' -'' ''('%A ;Net income. " ~3 ^J -1* 871 `5A-," '1 *vt `:.. - - ^ ,187 , >,v * -^i-*,v\l?3. i- ;*. .. * V* .v-i ; .djustments^.^h^ ^ -104.368,000 1.143,000 Balance at December 31, 1985 ' 82.147' Thu accompanying notrs are an integral part of these, financial statements. $83 f - 81,004 f~, *81,114 $(35) ^-'./$( 19)1 -lg j i! ! J ir iil i:!l SGP 0030576 * Notes,to Financial Statements * '}- V. , f* * V *;<'*,<r 71- `IV ', \ v,*<r ">i" tiJ" - ;< .'V f- ''Jo 4 \ j.1* f A? :f*. - . NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ftinciples of Consolidation. . : , at manufacturing facilities and the Corporation's manufac ; The consolidated financial statements.include the' accounts tured inventories located at its building products distribu- ; :.of Georgia-Pacific Corporation and subsidiaries (Corpora-. . , tion centers. The average cost methtidjisiised fori all other tion). The investment;in GA-MET-(Note'14)}is accounted inventories. Inventoried valued using'the'LIFO method for by the equity method. All significant intercompany balances and transactions are eliminated in consolidation. Income Per Share of Common Stock. ; Primary income per share of common stock has been computed based on the weighted average number of shares outstanding, assuming conversion of convertible preferred stock, when dilutive, and issuance of shares under dilutive stock option , . and stock purchase plans. Fully diluted income per r ; ^represented approximately >52%alnd.46%i Respectively, of ' "V, " - \*3 .v.'total inventories at December'31;*1985 and 1984..'*- . iv-.1 . 1 ' .Effective January 1,1985, the Corporation realigned `a . its LIFO inventory pools to correspond to natural business units rather than divisional product groups. Management believes this pooling change will minimize the impact of .-price level changes on inventory y^luations!:ither''by achieve :; ing a better matching of costs and^^n^*s|.The effect,of. this change on the accompanying il-statements wfia's v not material share of common stock, m ?; Property. addition, assumes conver- , - ; ^Property and equipment areiec^i sion of the convertible sub- ^ .ordinated'debentures, when'; a- nations for which the Gorporadon^^umesSubsfefitialJy a]] <, ^ithe propei rty rights and risks ipfcfivj^MjmjMieicapitavVli'zwe1d.'; idilutive.The average num-.. ber of shares used in the J income per share computa tions for 1985,1984 and Fully Diluted Income Per Common Share (amounts in dollars! Income from continuing opera(ions 1983, respectively, were . before extraordinary items and c. ? accounting change : '.: : c 1. 03.,.4..3.2..,.0..0..0.,.1..0. 2> ,293,000 -ik and 101,926,000 for primary and 106,550,000, - t ' i Replacements of majo'r uru&jofi^^^^prejcgpitalj^i1 *' ^ , - >and the replaced properbesr^^l^^yn^nmc^repairs f' Provisions for depreciation^b^^^-maclTdnery, and ^eqnuninprmviAenntt aarme OcoAmmpnuntteond^iuiasiminygYc>bnmmprotnseitirea^'rraaItaecs'h'baacsoeirltlnunpaotni j :^fimla^^fejryice`bv^TIie;Tangef|^hposite'aat^'for.l 105,336,000 and 105,562,000 for My diluted. : Inventory Valuation. Inventories are valued at the lower of cost or market. Inventory costs include costs of materials, labor and plant overhead. The major classes of inventories were as follows: ^the principal classes `are:fland/miprpvernSnSs5%lto:7%;' buildings--3% to 5%; and^macl^^^ali.|^)uiphtent-' 5% to 20% Effective Jantiary/l$1985,`(certain manufac- :: tunng facilities which previously i^ed the umts-ofiproduction ' : !> .method of depreciation were retroactively.'converted to the . . straight-line method to confonn with the Corporation's (Millions) December 31 1985 1984 other operations. The effect of this change on the accompanying financial statements was not material. Inventories at average cost Raw materials Finished goods Supplies' ` . ' .';V- Excess of average cost over LIFO Total inventories $189 ^(235 477 523 73 ' 74 739 832(105) (134) $634 $698 No gain or loss is recognized on. normal property dispositioris; property cost is credited to the property' accounts and charged to the accumulated depreciation accounts and any proceeds are credited to the accumulated depre- . :. ciation accounts. When'there are abnormal dispositions f. of property,1 the cost and related depreciation amounts are The last-in, first-out (LIFO) dollar value pool method of inventory valuation is utilized for the majority of inventories SGP 0030577 removed from the accounts and any gain or loss is - ^ . reflected in income. ,- The Corporation amortizes its timbercosts over the total; fiber that will be available during the estimated growth ; cycle. Timber carrying costs . resulting from the facilities. Interest capitalized 'and,,/4- 'V" y. expensed was as follows: , ;; ` (Millions) . r -/ '$ * 1 .VVYear^ndeii December 31 ' ^s are expensed as incurred. The Corporation capital izes interest on projects where construction takes considerable time and en tails major expenditures. . Such interest is charged ; to the property, plant and ; ;The CorpoYation defers net o^rating^cosfedn^n^%n-~tr' : 'S' ft? \ S' * `stniction.projects during the startaip ph'ase^and Amortizes '':- . . the deferral over five years. The aniouhStdeferred.-which . - `l" - \ - S': t ^ ' v- ' ^ ^ * J f ** j ' t. * :.y e-. were nof-materialin 1985,1984;and|L983:are included- r:`equipment accounts and / 'amortizec] over the approx- ' : imatelife of the related - ipitdixd Imena * .. ` i'.Certain^iounfejhave been,iwl^ifiew,)in1198| assets inkier to properly, match^i^^&^e^^^^l^^^^^! NOTE 3. EXTRAORDINARY. ITEM . .: In 1975, the Corporation filed a condemnation suit alleging Corps of Engineers acquired through the Federal govern--' ment's power of eminent domain for the R.D. Bailey Lake Project. Pursuant to a court-approved settlement entered . on December 3, 1985, the Corporation will receive approx- ;`51 - imately $14million. The Corporation expects to,receive- .- . .;the settlement amount, plus interest from November<22,', s.,, *'' * '-.,-',1.-7 'li 1. -- , 1985,,during the first quarter'ofT986.' <A` $l6,mi]lionY~, extraordinary gain from this settlement, net'of,related i-^v 'r .income taxes of $4 million, was recorded in the fourth - -r -i: r ^quarter of 1985. . s S. ''/.! i ".V i t.t' SGP 0030578 ' NOTE 4. DISCONTINUED OPERATIONS The Corporation has disposed of certain lines of business. . ' ' '' " '" '---"-,------ i - i -i i ... r> -.u"r A" v-\' - - .* * ' -f -o y discontinued operations except for an expandable polys, .V.'G; . T..Vy"' .....t..v s'tyrehe^plahtliriTainewiUe.y'Ohi.d.-..i'Vwehr'ichTw1S1l-s,'dj-l^dJj.nsTbrheey.f.'i-rJsj-tAj.. operations, and has reported these dispositions as discori-. quarter ofT986.'iThe net assets of disconiinued:dpefations tinued operations. The Corporation recorded an estimated 'are disclose^.in.'a separate caption ih.-the^accompanvungV^. - loss on disposal of discontinued operations of $160 mil lion, net of related income tax benefits of $137 million, in the fourth quarter of 1984. - In December 1984, the Coiporation sold 100% of the outstanding common stock of its commodity chemicals subsidiary. Georgia-Pacific Chemicals, Inc., to the execu tive group managing that business. Under the terms of the p'^IipfUc nnd'pnmusf nf the following:: .f f. 1'$jDecemb?r31 Y. . , . '. ...4985 1984 -Current assets . yyB. -- ;g -(., Niilural resources, net %. ^Properly/pianfancl;equipment, nci ... 'ly '?-:- $ 55 ] 53 % 78 .-... "12 - 286 agreement, the Coiporation received $192 million in cash - plus debt, preferred stock and warrants which had an esli- rCurrehf*liabilities . Deferred income taxes (benefit) ; .34 " mated value of $70 million. ' vyv-'/- .".'"'T; ' " ^Wnte-down.to n'ej realizable value - y?r .VV J'i -''<;' < T'.,*' (33) ^oiutstand.ing comm- o- n s.toc,k olr i.ts yE, xchange.Orti.li'o& SGa'is.pCor-,*,.. >* y _v:Pin,iet;asscttss.,ootf discontinued-opera>t7io6nn--s* y Stu s$l1o.5o8.! */%- -p,y .-.p, .. - "` /ifI* *'if. .poration subsidiary* (Exchange) to an "unrelated third party ,. `TheToperating resulislof the discbhtinued)chemical'b'usi-~ * * '/"* :: . ^ ,* vfor" .$145 million.'The net cash to the"Corporatipn,'after' . _ -^1iie"s^s;snet|6Drelatedy:---- ~~ ---~.A-riO;i a ~.n.xij..Mno/i /! - | I 'i l j 'fft I I yjfadiustinsTor cash received fro'm'Exeh'anaeryrio'ritoThe / 1 G - ' ae7AnijaL"n`'>dT.7-!$13.'millio'rMi;/iir'yi'Sr (, l y sale)-totaled approximately ".$136 `milHonj^ArTadditiop'aif p$3Q(minidri loss dh'the'saie'cnet^of relabel Income''taxT? -% / ."benefits of $14 million," was recorded in the third quarter -i-c'.' "Disconfimjedlciperafioris: OperatineancbmelmeVdfA'^vCT " fe ..of 1985. ' T; : v 'm . - - ' .The Corporation's primary pperatio'ns are reported ij >w*in anv yeapdiiring thate-i, ^industry seginpntsi jl) Building prqduc^|yhich in`cludds,'v' tv* *penod.*^;i^,?,`T'-5yr f'GcX. mmamtrn%& 'zTk r>-> on 11 Tnoh 1 rn onrl rl icfnKi i tirm rx C el*i lAh irnl rynrt/ile Vjplyyvoo'd, particleboard, oriented sirarid'board,yvafei- ^ .cboafd, etc.), lumber, gypsum, rodfinglTormaldehyde and thermosetting resins; and, (2) Pulp and paper, which * includes the manufacture and distribution of containers - , -The .Corppiation re- .> -corded write'-downs 'of,cei -...^.tain*assets to netlreabzable _ vallie`.of .$13 5.million'in 1983 (Noth 2) .'Tliese " .'5V: and packaging (linerboard, kraft paper, corrugated boxes. etc.), printing and fine papers.- tissue, market pulp and .amounts'^havenpTbeen in-. f:'(- ccludef in^epfepi^erating mmmammumna pulp mill by-product chemicals. ............ ' " " ' "" .prdfits'but are"'reported as"''y(billi6hs)ofdollars) U'- ,'f " Certain industry segment information for the years.V- ?" I 1983 through 1985 is presented on the following page! 7 . :" ' downi:'Had been'incliMeB The Corporation's sales to foreign markets' represented in the 0gmenT$eU^ . 3 less than 10% of total sales to unaffiliated customers in ating profits in 1983 would have been reduced by'$7.7 ; ,r. each of those years. No single customer accounted for million'inwvillirt i *-v tU o"Ki i 11 /4i r\ /y lXrn/i i i/vle crVrivmnt On/I C^vQ iv\vlli/vw 1'* t more than 10% of total sales to unaffiliated customers in the pulp and paper segment. SGP 0030579 . - A--A-A-A-A. -.- ."7- C . "..'V ...i . -. - - - . . i*. ;AA V,a,. i- V ' Vj. ,n,fu Vfc " :* \<j V ' -1'. : ' ' ' (Millions) ` ... . W-A- - - : ' ' Sales to ,; j g:UnaffHated Customers Inter Operating Depreciation segment . . 7ora/ ' , 'Pmfitsi-dg-fi "and Sales (Losses) . Depletion Year ended December 31, 1985 - Capital ^ Expenditures \ - /Ixsets ' - 9 SiAAi' - 'i .; 1 Building products Bulp and paper Other operations ` ... . .- .j A. ! ,;G . `84,470 ^ v: -'. 2-?34 /A*,. .=02 8 44 65 . 84,514 . 8391 814.5 2,199' - ' -29 A-- 149 112 ^ '35 ` 7 $164^*4^1^623" 435 ... . 2.17.5 , .</! ' ' ';;i . .' ' ` ' : -. . : . ; ` ,6.'? )6 '.109. 6,825 '.455 , -*,301 606'gCtd%869 A; - . Eliminations and adjustments Intersegment sales , r - '< . .- . ' (109) ; . At P" " . A'j . ^Timber and timberlands Unusual items (Note 2l ^ -A- ; ' "Aft'-f ' ' r l- . **.. \ ; . '19 ... - 23 803 ,f.- - . : V. - '''A'i General corporate " `-' - ' ' - - ' (33)`. 9 13^*., 183 interest expense Income taxes - * ^ c.._. ' ' - i 132j ....'- - : - (102) _ . _ 1 Continuing operation.-) Disconlinvied operations, net - V;_A' *\TAc ` 6,716 . _ &?;;V V;,u 6,716 Wr 207 . = 310 -7 ' (30! `- 642 ..;<4,855 :-9 , - v gti'.L <-1 '. 33 . Settlement of condemnation suit, net - ; -Total V`V'1; ;st ; 'C C ^Cf}Zd&idt4..f I '-f'fj':. ws-w&il Q, ^ -.fT ,, -y -- - .\.v - .V.^ J $ 86.716 'H" `'8187"' ' *" 8310 - 7., - -:J-y '`7.1 Building products > .'. . "''V '(A. 4Sn W^:f: `A . \`d'7yip. 7 f>? * `"`v * , *r-:-j, ri v" . - ^::.5,.':V ` '{?4,fj^'Year ended December^1Cl984 . ^$4,452 / ? 44 V- " ,, >-* 84,496 >379/^;$ 144 ' *Pnlp^ndpap,)r;;;;fA Other operations " '-it - VrdciZ.% Sf if2.') ^-^119 ->2063 ` s'w 6 ** A.:< 125 l.'' ' '"doW'S? 6 ;-- ~v. `. ..`-i'- .'a'^v5 ' '-r-"5 * 7 -1 ' 8642 .',Aij$V866 A. : : 1 4: v':-csse.iSs*.-sasus-sv>'.c!5 )'-'<'4.'v'-ir*.:: *-. ; ;j ' A402^AS982-Jgj V-y r A'fcQO A r-.11ftO ' V- A 70/1 A~*6Q1 A v* 1'73J:.--,: ,_;V546n \ -_-i-,sU9s, - f . LgS'S\ '.' *- A7 Art'-!; .Vi: !?i Unusual items (Note 2) '/>"> wAV ' `g-,-* j^-.. w*,,, '';/ General corporate ` '* A'A'-1''/ .interest expenseA-A ~ A -VA ^ Income taxes 5-r-k`>J.' * A *.< *. Co n I in uirig~operatio\is SA?-2. rw- a.Ve^-"rvv". v>,,* A * *> -v">, \A-7A I .4 5s* aaIAA (143) AA \ > 6'.r.682- ?2/!F-*,g"v-(138A.)w^;544^M* 275' 3* 3g#r'-;t;Jf| .av* v--v6J*&>'-Ai A-\V\ii 29Kj-i `A',190 ti-1 ;- -4v->`i'`h. V> ' -.v-Vv' . ji-.JevqtefcW T~- r? ^ i ^ rv- - ;,-A: -*... ; ,.\v- > Eliminations and adjustments Intersegment sales '! imher and timherlands Unusual items (Note 2) Genera! corporate ' Interest expense Income taxes (Antinuing o[)erations Discontinued operations, net dotal Yea^mdedDeceirdierdlflfQS ;~.yA ' `-A lT $ 60 V>'$lf467 * 1 .51.T^'i,1,572 , ^ ;'..... ..,/. .. 6.040 . '=94 t \ 6,134 ".V -i. . '438 ; i):;.> 28.3 x v. . (165) -' (165) - - A"' , -" ' - - ' . ; -- - H - -- .. -v. :\(i35) t:, *. 'W-` -- C - '.'itof; A-" 6 . ,(157)'' .;V --A. - - ` 'J'' A- ; - -(32) ? v> - ; . .:. .6.010': -: 7^(71 r, ;'?5,969'<<rV A-75 A - r;`-28` `5 > -0-.T-1 ' 116 : '.::''3,129 ; -- 62 753 _ *' ,?*AvA-' !*>--' 10 . ;.]97 _ :-7;A . A: ;i A' : "g- ' "188 'A-'A.o^ 429 71 500 : . 30 : 82 $6,469 8- 86.469 8105 `8371 83' 8271 `653 84,732 Intersegment salt's are. recorded at estimatedfair market i-allies and income on such sales Ls included in operating profits (losses). Intersegment sales and assets for timber and timberlands have, not been allocated to industry segments because the\ are managedjointly to wippls raw material* to both the. building products and pulp artd paper segments. .' . hogs and residualfibers ore included at cost in the operating profits of the various manufacturing facilities. SGP 0030580 NOTE 6: INDEBTEDNESS ` 'M Long-term debt'cqnsistsof the following At December 31,1985, the Corporation had adomestic (Millions) - - .. bank revolving credit and term loan;a^lemerftSa*foreifiTi : '".-s-. . .-VOStS:-c`- ! * December 31 1985 ' 1984 Commercial paper ami bankers ' acceptance drafts ' Banks - , * 8 Vi% term Joans Other ` -- Notes ' 714% . ]().]% due 1990, redeemable in 1986 Floating rate, currently 8.15%.due 1987 . `.13l/2% due 1994,'redeemable'after 1991" - ' -14%% duc0987,tredeemable irf 1986 ^ ^'r.j 5%'|iuV ]990, e^rhable'after 1987 Insurance companies ''"V 6Vh% Iprm lnvnr-Vn* 'nnv'nnlp in^hnniial " . i* . 153 ;^8 -.135 . .' ,, : isvWitli . V' -nine domestic money center ban!^`andjestabhshes;a .v i. -- ; ]5q ' : `s^390.'mji|on'unscufed revolvingBn^ob^pimmJjanu-.'..;'i-.'{v ' `-' . '' : . ''.'-v' V: I'Wvrt' T '. - - . .'/'*'* - . -:-]5 * .. aiy 20,-1987,-aJ^vhich time.the''outstaridiiig'balari'ce inay ' ' be converted to aTerin loan repayable in eighVequal semi- 150 ] 50 . 32 32 ; annual installments beginning on June;30,71987. Commit ment feesduring the revoh'ing loan period are 14 'of 1% of 4tS4 76 64 \ '^^j^ m .ietirat^w-n'Tmr-^viv:'a^Ntoi?i-;o-f'd.e. 1posir-nra.A*^i.^>6lirffisKoi^atel;vb::' 76 * An`ctension^of4he-existing foreign.bank credit atnee- , .. .......................................... -,''inent,'ibrieiriallyjscheduled to^expirejn>Jariuandil986,'was y. sicrnpr] ,rliinn>rlQftf^ri!t'Bp. n ptppm>h C i4'witki 9 pri^fnrrd trri r'-. : ; * *' -.^'installments througb l996^;.;>7` . * i02/3% term!oans, payable'in'semia n riual 7v- V* installments' through 1996 :: - ' *' 13.6% senior^notes due ;1987 'Revenue bonds, Averagefci^tpfet rate 7.36% -> ' - 4 tt 4 4 v __ ____ ______________________________ ______ ______w 35 . ^36' !'Coi^oradqhV43p_fiOTf-based oiTthe'pnrne^rafe/llw;Fedcral funds`ratefor'the;uroboIJar interbank 'offered ^rate.` ; ' z -f 'Zero coupon 'debenttmes; effective interest - ' rates of 8.55% to 10.30%, maturing - ' annual!) 1986 through 1990 Discount term debentures effectiui intemst rate 11.30% due 2015 i . . ';-r 'vi.rtl'T: ) -._ l^iss current portion 55 " 77 - ' ' ' 1,298 - 1,421 . 41 38 $1,257 . 81.38.3 The'scheduled maturities of long-term debt are $41. million in 1986, S176 million in 1987, $93 million in 1988, $14 million in 1989 and $227 million in 1990. -> based^MtMtlf^lffaM'S^^PIflp'iu!al(7'"'- > -The Corporalio.n uses these three agreements tq support commercial paper and master note'bbrrpwings.' At December 31, 1985, $143 million of commercial paper __and $10 -million_ofjankers acceptance.drafts, With average interest rates of 8.22% and 8.09%, respectively, were .classified as long-term.debt. It is the Corporation's inten- acceptance drafts^with long-term debt. ' SGP 0030581 The Corporalion refinanced $100 million of 714% notes with commercial paper borrowings in January 1985. During the 1985 second quarter, $10 million of 15% notes were repurchased, after which $54 million of these notes remained outstanding. In July 1985. the Corporation retired $150 million of 8'/t% term loans prior to their scheduled maturity. ... ..... , ...... On June 20, 1985, the Corporation issued $195 million face amount of dual serial discount debentures, including $70 million face amount of zero coupon debentures and 3125 million face amount of discount term'debentures. The zero coupon debentures mature annually from 1986 through 1990, have effective interest rates ranging from 8.55% to 10.30% and may not be redeemed. The dis count term debentures mature in 2015, do hot bear interest prior to June 15, 1990, but bear interest thereafter at -. 11.30% payments commencing ject to certain restrictions) af, 1990 at the Corporation's sufficient debentures to meet the sinking fund require-' ments for the years 1986 and 1987. . r t,^^\ The floating rate notes are convertible bytheholder. " prior to April 1, 1987, into 8'/a% debentures'due,'2(j09, and are redeemable in whole or in part at the' Corpora-.' ; - v.V --7 i-' don's option. Prior to April 1, 1987, the Corporation may" also,convert the notes into fixed rate debentures due 2009 at a defined premium over the yield on 30-year'treasury securities, but not less than 8'/2% 7hc conversion by the Corporalion is subject to the election by the holder to have the notes mature on the specified conversion date. The - interest rate on the notes is adjus'ablc semiannually to,a. .. rate based upon the six-month It tsury`bill rate^plus'" ' .35 specified,premium. The Corporation has Interest r;. exchange agreements , -'%/ .., ' . ': , w.i..t.h c-e--r-t.-a..i.n-.--i--n-s--t-it-u- -t-io--n--s. On--e---of tl agreements provides . bonds were issued on behalf oTthe Corporation to finance the acquisition and construction of.certain pollution control . facilities and to refinance existing revenue bonds. These borrowings had an average .interest rate of 8.85%,at;iy December 31 ments through 2( , ..At Deedm"bei% 1 fT985. Annual'settlemeht'dafeTA'secorid agreement.provndesTor -at an effective fixed rate of 14.07% on the notional amount . v ;Vj?of $50 iina|on'Un^TMf^^|^l, inn /~it il/in rr_f^XT**vi .riohtjr." -c ~ for s Commission 'The 12'A % ssi.inking fund debentures mature in 2pi3c:yC/.v -require the Coiporation to ma,\kbe^ sr.,inM kIinfg,fu,nHd.J payme--nts v commencing in 1994 and are redeemable (subjeefto cer tain restrictions) at any time at the Coqxiration's option. The 514% convertible subordinated debentures mature in 1996 and are convertible into common stock at $30.87 per share. The indenture provides for a sinking fund for the redemption on April 1, in each of the years 1986 through 1995, of not less than 5% nor more than 10% of the debentures outstanding on April 1, 1981. At December 31. 1985, the Coiporation had repurchased theHproceeasvfifrmTievehue'bonds issued by goverh-Jli.c-; ..... /mental unitsyand.^a^itg^byjhe Corporation.' poArt*a.i tlii/o\*nn Ilnenacsnecs csuuncnh Jfna/cviilliiHtiaees tfnrrotmm ttlhi ne rgrnotviQemrnmmoennttnall iumniittes '' , ; and pays all costs'incidental to ownership of the properties. Certain insurance company loan agreements and the 5*/i% convertible subordinated debentures place limita-', tions on cash dividends that can be paid. The amount of retained earnings available for cash dividends under the . most restrictive covenants of these agreements is approximately $775 million. In addition, the insurance company loan agreements require the Coiporation to maintain a minimum of $250 million of consolidated working capital and impose certain limitations on additional borrowings. SGP 0030582 NOTE 7. REDEEMABLE PREFERRED STOCK (Millions) Adjustable Rate Convertible Preferred Stock Series Series Series A B c - Total Balance at December 31, 1982 Shares cancelled Amortization of the excess involuntary liquidating value over fair value at issue date $145 $32 $32 (1) $209 0) 31 3 7 Balance ai December 31. 1983 Shaies repurchased Amortization of the excess involuntary liquidating value over fair value at issue dale .. .148 (32) 33 - 34 - ' .3 "..-j 4 ' ' "'3 215 132) '7' Balance at December 31. 984 Shares repurchxsed Amortization of the excess 119 . (32) 34 ` (8) 37 190 (401 involuntary liquidating value over fair value at v - , . 1 -. , :. issue date - / * . *: . ..3 . -i . .3 . 6 Balance at December 31,1985 90 '' $26 >4 $40VS$156 - % i' r .w'' The number of shares of adjustable rate convertible v preferred stock (preferred stock) issued and outstanding were as follows: V-VvLi.' * ' -December31 Series A ... . ..jj. ; ";. 2,485,000 j'li:3J3.000 Series B '...A- " :765,000 :-',;-.957.(K)0 Series C ' 1,317,000 ':J.317.000 Total y 4,567,000 "5^587,000 The preferred stock is recorded at fair market Value on the date of issue. The excess of involuntary liquidating value over such fair market value is being amortized over a 10-year period by a charge to retained earnings and cor responding credit to preferred stock. Each share of preferred stock is entitled to receive cumulative quarterly cash dividends at the annual rate of S2.24. Such dividend rate is subject to increase up to a maximum of 84.00 per share should the Corporation fail to make the scheduled purchase offers, as described in the. following paragraphs, unless the average'of the'Iast reported sales prices for the Corporation's common stpek during a prescribed period of time is at least 108% of the conversion price of the preferred stock during such period. Subject to adjustment for common stock dividends and splits, each share of preferred stock has a conversion price of $39.00 and an involuntary liquidating value of $39.00, and is convertible into one share of common stock'and entitled to one vote. In addition, whenever six quarterly dividends on Series A preferred stock are unpaid, the holders'of such Series A stock are entitled to elect two directors of the Corporation until all past di\ idends have been'paid. , rig-Subjertjto^the price of the Corporation's common slock 'and the appropriate"action by the Board of Directors, the -Corporation is scheduled to make offers to purchase, at a price of $39.00 .per share plus accumulated dividends, a .^specified number(of shares annuafly.'In 1985,'the Corpo ration accepted tender offers, as scheduled,-for (thejpur;chase of828;333;shares of Series 'Aland 191,946 shares ;pfSeries B preferred stock at $39.00 per sharel:Sched- *" -fuled preferred stock redemptions'for the next five years are 1,289,0(10 shires!n 1986, 1987 .and 1988. 458.000 .'.shares in J9j89.andj242.000 sharesjin 1990.. . . .........Tbe.preferred stock will I ibe^ubjectitp;redemptioh |':'A(Series'A-4;'through |^8^%nps^l986 ;4>--'y; I lfbroUgK;19 apd.'Seriel '? - * I -!c4l986.through^l990) Tat $3^;00-perjshifie plus otT .accumulat^ dividends pro .Capitalisation (billions of dollars) Common Equity Total Debt B Deferred Taxes Redeemable Preferred Stock vided that .the average of the last reported shies prices for the Coiporations com mon stock is at least 125% of the then conversion price of the preferred stock. Thereafter, the preferred stock may be redeemed, without limitation, at $39.00 per share plus accumulated dividends. SGP 0030583 NOTE 8. COMMON STOCK At December 31. 1985, the following authorized shares of the Corporations common stock were reserved for issue:' -fa: -4v^ ` v- 0C TflkpiU.. < It#* '<aW*/V* *% ,<.* -rf- ^ r f .-'t. iriv 'S'. ' Effective January 27, 1986, the 84 Plan .was amended . to permit the granting of nghts to surrender options for '; ' . ,7,-.' t , Employee Slock Purchase Plan Stock option plans -. G>n\ersion of the 5lA% corvrertible . subordinated debentures Conversion of tin: redeemable preferred stock - . 883,000 .5,212,000 ' 2^830,000 : 4,567,000 13,492.000 Tlie 1984 Employee Stock Purchase Plan (Plan) reserved for issue 883,000 shares at a subscription price of $17.00 per share, As of December 31,198 5,592 subscribers.^ .,,. remained in the Plan. Subscribers h; ve the_option (0^7 receive their payments plus interest . the rate of 10% per' annum in lieu of stock. Shares can no longer be sub- ' scribed under the Plain) which expires .on October 31.' J -- ... . V, The Corporation issued 7.71,00.0 shares during 1984,, \\ iy,w.v:vetre a-wafrde d-. such rights to surrenderitheir options for shares, f,7* 1? '4' ~V.fi-.J. v '. , ,i Compensation~resulting "from stock options arid cash A - -V awards is initially measured at the grant date'based on the ` ' market value of the common stock, with adjustmentsjTiade^ . > y , in subsequent periods for market value fluctuations. In ... 1985,1984 and 1983, the compensation.expense^result ing from the Corporations stock option plans was.n6t'| $ ~ , ..m`at?n^.^ ^ Additional information relating to the stock option pla ,s .sV.-'w c .' y os as follows j ''y''%x Tr-.''\Vr , C-Yr-'1 -Vg * - A\ -v-,>>*' _______________ u^-m. , r ~ rYear erihed'December)31 ~ :^yms , tW^tL JK ft fSA-V-? i A . - Ic l 7innnn 1 -factonop,>-o :'V 7 The 1974 Employee Stock Option Plan (74 Plan) reserved for issue 236,000 shares. Options for shares can no longer be granted under the 74 Plan. The 1984 Employee Stock Qption Plan (84 Plan) reserved_ for Cancelled ~ Options outstanding at December 31 . - Options' excreisable'at December.31 ;(3l,000}_-?^(1 i9,000j\.;. l,226,OOp^a,710.;oplp 1,226,000 ,:t^358'0pQJs#'''I -V li. of stock optionslo pertain dffidet^ and employ'ees.^HoldeVs of stock ontions mav be granted cash awards, navable uoon exercise of an qptioh,'vbf aivamount nr" to_(exceey! i0().% of . the'amount by which the'nfarket value of the common 'i stock, as defined, exceeds the'option price. Prior to 1986, officers were granted, in addition to similar cash awards, rights to' surrender all or part of the related stock option in exchange for common stock with a fair market value equal to tile amount by which the market value of the common stock, as defined, exceeded the option price. . Can,piled ,, ............. ... , - . _$2_1_-$_22_K_<>821-322 ' ' >>;) ' ) The khafes'ana'prices'relatingldthe Plan,the77.4iPlan7-ithe.7,-7<* ; r; , t ^ v- ' ' .....""|7:84 Plan, the''<nvettiblei,-3:5:'--V':''" .subordinate^ debentures->7 ';' - and the redeemable pre- " ferred stock are subject to adjustment for certain - Li.changes in the capital fY- structure, including com-.... mon stock splits and Common Stock Price Range t (amounts in dollars) - ' " stock dividends. " V-;''1 SGP 0030584 NOTE 9. RETIREMENT PLANS Most of the Corporation's employees participate in non contributory defined benefit pension plans. Contributions to the plans for hourly employees are based upon either the hourly rates set forth in various labor contracts or the actuarially determined cost. The Corporation has a single plan for all of its salaried employees to which contributions are also based upon the actuarially determined cost. Presented below is a comparison, for the defined benefit pension plans administered solely or jointly by the Coqtoration. of the accumulated plan benefits and plan assets available for the payment of these benefits. The assumed annual rate of investment return used in deter mining the actuarial present values of accumulated plan y benefits was 7.5% in 1985 and 1984. (Miliums) ': ' - ^ ^December31 : . / Y-r-ZV.1 1985 '-1984-' Actuarial present value of accumulated plan benefit: ticipant's annual compensation, as defm'dd.:<Th'eiy.'i|;:'. 1 - Corporation also matches 50% jof voluntary ttefore-tax- - contributions up to a maximum nfatctnng'contribution of ' . - -) ' 3% of a participant's compensation.yAl December 31, 1985, the Sayings Plan had net assets(of appro'tdmately ; 'V-. i $224jmillidn and approximately 11,000 eligible employees. fey j Approximately $185 million of these!nef:asset|'afbse1from ' ' employer contributions to the former Stock BonusiPlan, - which was amended and restated as the Savings Plan effective January i, 1985. The cost of the Savings! Plan " was $13 million in 1985. Contributions to the former .'; .:Stc)ck;BpnusJPlari1 which were limited based,on thti ay: tl-.p ; ' "* *1 * V- . C iU/\ <-> i H t~\ rtV Kvwvfilc iom Ai a 7 .V' 1984 and 1983 r::`Jr,:ef.vCy^rA&yK0,>s.- . .. vides ceiiain.Health'cafetand; Tv. .. V ' -u .O1;* ;'tL'iite cXy.K'te.'Vv..*V.vy-*- r; ' * hfedhsurimcmbehefitsto ehgible'retirediemployeMiiEffec-lyrl^^ " jivejjanuary^l^l.985, the Cp^nffion4j|jamg^4i^i^tHqd.ic.^I.";4V4 - Asscls available for plan bcnefus 2*283jsJ277 ` - r~7v : $386 ' 8295 ' amortize'the actuarially determined cost of'activeempldyees'vSS?:A^ - - ; - r1 v-*.'. -r- service''Ti'-7rris.t-'ant kfnAnlc''Avtcir Inniv octlm nto/1 .V^irei n triin rr*V rv*i"n a" '''"V" .'"T-SslA t ' A penod. The Corporation previously expensed thesefbehefits ;C < ; : \ : c.-jpg/a. : `''y-'r.-.-'- - "..'Oc natrt hlvi onerrrirrx^n 1 ri^nrixinc true r>ri5rtrrcs -vVnll tvsci ill'ivi 'T- it unfunded vested benefits. . . . ' / The Corporation's total expense for defined benefit pen sion plans, including contributions made to multi-employer pension plans and amortization of unfunded prior service costs over periods ranging from ten to thirty years, was $35 million in 1985, $26 million in 1984 and $19 million in 1983. The Corporation also 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 par- ~ sionsM,or>U/oAplans/cornpames are required -to 'adopt the ef? /c . ' and, iri certain circumstances, to reflect a'tfiiKimum pension liability- rib later than 1989. For plans'roufside`.the'U.S.,'the effective date for all standards is 1989. These ne\v standards will be adopted prospectively, and thus, the ac.companving .financial statements will not be , The Coiporation has not decided when it yvtlljmpkment the new standards. Based on a preliminary review, the Cor poration does not expect the new standards','urider existing' . conditions,rto have a material adveree iriipact on either.ji ;.' - ' financial position or results of operations'when adopted. ' ' SGP 0030585 NOTE 10. INCOME TAXES The provision for income taxes is based on pretax financial, accounting income which differs fronijtaMble income.' v . Differences generally arise because certain items, such as depreciation and capitalized interest, arefreflebted in differ ent time periods for financial accounting and tax purposes. The Corporation uses the flow-through method of accountingfor investment tax credits. Under the flow- through'method, investment tax credits are recognized as a reduction of income tax expense in the year the qualified investment is made. - ' " i; %. 3~;- The provision for income taxes for continuing operations consisted of the following: > ,v .;: . Wear ended December 31 1985 1984 1983 Federal income tax rate -Increase (decrease) as a result of Investment tax credit Value of timber'appreciation taxed at capital gains rate Stale income taxes, net of i Federal benefit >.. Other . 46% 46% 46% . (10) (4) - (7);; (10) (6) " (13) 33 3 - - 4 . .(3):i 33% : 36,g 30% The following is a summary of the components of the ; deferred tax provision for continuing operations: / Year ended December 31 (Millions) - o . . - Federal income taxes, net ..ofmvestmenltaxcredit . r- Current -Deferred . State income taxes i,' -X't 1985 19bt 1983' (Millions) v ' a,^ ^e ^ ^ Excess of tax depreciation over $`l3 84 ' < '$102 $'40 90 13 -*$143 ' $ 26 3 `" 3 X.X' $ 32 '-y^financialdepreciatton<*-c;.>:.-.. '.Reinstatement from recognition ;r-vTofinvestmenUm(:credits in 1982 , '.Capitalized interested.' 'i Deferred start-uf) costs^nd - The difference between the ordinary Federal income tax -rate and the Corporations effective income tax rate for . continuing operations is summarized as follows: v- Sale oftax benefits Wnte down of certain assets Other -` ~ . .iris , * '1 Year ended December 31 '.,1985 '1984` 1983 * ' , W V,1 Av (13) '(13) ' (12) 'v f(6) r`"1f0* (45) 1 (4)\'AV*- - ->$84'JV^9oI4t$ 3 r1 r *1 NOTE 11 LITIGATION ,y The Corporation is a party Jo various legal proceedings minations in;any:or:allofsuch_prqc|equig^mll?Haye''ai'i` ' < generally incidental to its business. Although idle iulrimatec tpili-iftn-t-material adverse^fect upon the 1... disposition of these proceedings is not presently deter- Corporation * 1 '1 c ^ minable, management does not believe that adverse deter- <` NOTE 12. CHANGE IN ACCOUNTING POLICY : " - . - As of January 1, 1983, the Corporation adopted the ; ,$ requirements of Statement of Financial Accounting Stan- . . dards No. 52. As a result, the financial statements of the Corporation's foreign operations are translated into U.S, / ] dollars at current exchange rates. Resulting translation adjustments are accumulated as a component pf sharey :holders' equity and excluded from net income. Foreign cur- in 1985, 1984 and 1983, are included in net income. SGP 0030586 NOTE 13. ACQUISITIONS ,. On July 16,1984, the Corporation acquired certain assets from St. Regis Corporation in a transaction accounted for as a purchase. The purchased assets included a linerboard and kraft paper mill, related timberlands and cutting contracts in Mississippi, 16 corrugated container plants, and certain current assets - related to those operations. The purchase price consisted of approximately 8221 million in cash and a 8110 million noninterest-bearing five year note repayable by surrender .* 'S ^ 5 . ' -'.Ji i.-*, . .of St. Regis stock previously acquired bylhe.Corporation . for $138 million. In August 1984?'jhe^^^9rati6nsur-'' ... .rendered the St. 'Regis stock as payanentTorjiHe note.**. y-; ilf f . ' accompanying Statements of IncomcTroriifthefdatc.of. -. ' - '-..i--..'- .c,' i - facquisition. Had the operations been acquired,as'of the ' ,"beginning of 1984, the Corporation's'operating results ^ j .-s < 'c-V ,! cl" - - " A" r` i -~ 'for that year would not have beenmaiterially' affected. ' . NOTE 14. OTHER ASSETS In 1980, the Corporation formed a joint venture (GA-MET) with Metropolitan Life Insurance Company. Each partner has a 50% interest in the venture. GA-MET owns and ,.. / ... J.CMET^oE$12IrnTUidn in .j 1985 arid $15 million in 1984''isi^ciud^'m'`^)t'^f 'E r5V.'<' . Atlanta, Georgia. The Corporation leases from GA-MET, at . complex-iri Portland, Oregon, whichlwas.theTJofpdfations - market rates, office space in the AdanS budding. tA-lWET ,^;dffice'headquahers prior to thel^ocatiohlfoJiWanta'irivo.v- *. has loan agreements with various banls''mTsing'fromlth'e}|3 *.<.! - 1982: The 'Portland building was sold in.'SeptemberJ1984, construction of the Atlanta building. ^December 31, ' vj.l' .." 1985, the loans outstanding total $116'miBiori'arid mature'^ 1 at various dates through January 1988. -Thejdorporation , . _ accounts for this investment using the equity method. The ^accounted for as an unusual item (Note2). v-se*%.-*/ *... * sf-n > v - ,c:%` NOTE 15.!UNAUDITED SELECTED QUARTERLY FINANCIAL DATA iS-'n'ytjliKSf ' > ` vy (Millions,'except per share amounts) - . T'-.t - ' .................... V?'' if /#C r- v ;, . ... , ^ 5.. ' - _vtj& * 2nd Qua**re*'e-1 V . /-frasg5 A. , .. , J" 3nf QiGhA'-j ^ 4* Quarterly . '-e. t Net sales.*v:V-V--''<E 'r/' - ' r c - v ^ * ' $1,580 1 |Gro*As profit * . 1 f ^ 'J Income from continuing operations before ' " extraordinan- item ' * ' . "c/j 'c. Income (loss) before extraortlinan-item : Net income (loss) . t * ` " - 269 ; V- ;? A"y49 4^ 49 i jv*;7^ff-i -Sir -v-j.-? -A--v - . ; :43 r A 1 XliX " t^7 51 ' 51 ; 67 G `-67 -'V. oT. ' - -r * 8t - ' '84 ' ^ SZ *-, '"-t * < f27v * ? 7 7<j ^ -^8 : 1X0, 7-33 _ :63 -i? `/Si " r__ 28 `- . .83 .. 33 ' (99) 28 ;' -'.:83 ' ' "'f"''43 ' (99) Per common share income from continuing operations before extraordinan' item Primary Full) diluted Per common share income (loss) before extraordinan, item Primary - Full) diluted ' - ,43 -.37 - - -;.6i . .60 . .52 . ; ' - . .<.774. <27 -ofAs-c :.r.;%-<7 r^'-vvr .57 .42 .36 .60 . .59 .51 V '773 ; 1 . 27 :57 -V- J .4 v : / 1 s-; - - v-r*:V *--... c`"\ ' V ^ - J'" " .43 .45 :61 . . :78 ; .. ..23 - :76:. :-n ~ -27 ...` (1.01) ... .' C,- ..> . i.r .42 .44 .60 \ - '.76' -.23 '<75 V;.27 ' fi.01) Per common share net income (loss) Priman .43 .45 .61 .78 .23 .76 ` .37 (1.01) Full) diluted .42 .44 .60 .76 .23 .75 .36 (1.01) Dividends declared per common share .20 .15 .20 .15 .20 .20 .20 .20 Price range of common slock Ibgh 27.38 25.75 25.13 25.00 25.63 .23.50 26.88 25.25 h)i%21.00_______________________________________________________________2__0_._6_3_________2_0_.5_0________1_8_._1_3_________2_1_._1_3_______1__8_._0_0________2__0_._6_3_______2_0_.63 Int-nmv.jrum continuing operations before (.'.v/rnord/nory item includes a SI9 million pre-tax gain from the tale of timberlmuh in the 1985first ipiarter and a S!9 million pre-tax gain on the sale of the Portland office building in the. 1984 third quarter. SGP 0030587 NOTE 16. UNAUDITED SUPPLEMENTARY INFORMATION ON THE EFFECTS OF INFLATION .The supplementary information in this footnote sets forth 7* selected financial data relating to the effects of specific ,-f price changes on the individual resources ofthe Corporation, in accordance with the current cost disclosure require- .' . been'developed in a reasonable manner in compliance" ' :< with the requirements of the FASB, it should be recognized that they may be of only limited value because of the numerous assumptions and subjective judgments inher ent in the estimation process. Therefore, the informaUon - presented ^herein should not be viewed as a precise indica- tor bf the effects of inflation/'4*$* '' > , <? l.., Current cost estimates for property, plant and equipment . . . 7--,. . , -.7-;:'/. ;7 , 'a' " 1'., *." ..- . : c '- / ; 1 ; . , 1 - 1 (Million^) ' : ' :C'r^ -. ....: \ T/-'7rtT . Year ended December-31,1985 As YMr'r^Si^JCurrent Retried Dollars Net sales .. . - - $0.716 V7i7/7s'.'io /Cosfof sales ` 7. -7,553; t i * Depreciation and depletion ' *r. ,i--^.0thefvcdsts find expenses ; * * ^ `Provision for income taxes v ' - ' .' .. ;- 3s-ivo-"''SpijMfiV '544; 544 , .102'I. 102 f - VVt Income 'from''"continuingoperation ^ 6.509 ; -'' 0.0 i4 - ''/"`I V[,/- 11 A*.'7- r $ `207- . Gain from 'decline'in purchasing ,L ` ^ ^i 1 6 -v^ power of net amounts o\vecl-:.\r. ,-s -V _ >- Effects of increase'm'general #5.1.7' vtpnce levelyn myentones,'# 7 -v v'67,, ,- Ca ff, 'vLV' 7, j,-\vas___ - ' f *',`>..q.'.4.fS...*.t.'..f..V........ , ^-Timberin9,tir r ______ ,*** j '.^Excessii(increase in general price iliave'bedn inclu3eH-in ^current*"?*v sagas---jfx-J&pf y Ri^^v/lcv-el overjncrease1in;Curren l cost >5 $ >*>dtoftWv *V> - t-a T 5 "ftri.i''# i iM^iDecImAer 3i?fJ9S5, The current cost of inventories'at manufactunn'g'plants .- y: ^^27^IIUo^^j^iSiifre.idurces. nY^$letwrgjum^h4iyyt ;,v. ^^was'Tdetei-mined bv reference to average p'roductioh costs'r *.< *~,~3l,344 million f T//;? L " changes was'measured by'ihp'aVerage T985 Consumer, _ Price Index for All Urban'Consumers. In accordance with the FASB, the provision for income taxes lias not been \i adjusted for increasing current costs because such increases are not deductible for income tax purposes. vih dollars .which `Have ia ilower'.purchasing'pbvreritnanShe'ATvT' --This favorable gain'from decline in purchasing power of '. .. net amounts owecTof^$67 million would reduce adverse effects of the inflation adjustments to income.''-. - :.~^K r ' ? * > \t3Q. 1 -- ->>. >.vt *r'-vv ` j>i/.'..'7` ..- , iy.va^r^!. ^vc^* r' l JtS-**}-s C'^'V-v*' V^ ki SGP 0030588  4 *4 "A ' I f ' .cY K'Zh - /1 vy/-'**'1 yfjfv' * /' 1 A MS# It should also be pointed out that the adjustments required by the FASB represent an attempt to estimate what it would cost in terms of today's dollars to build cur rently existing facilities. Thus, the calculations do hot . reflect the economic benefit of new technology which would be realized by replacing the Corporation's existing plants with new facilities. Such replacement of the Corpo- ' radon's plants would result in increased productivity and certain other cost savings. The cost savings would be real ized primarily in the form of reduced.maripower.requirc-ments, lower maintenance costs and reduced costs for energy. Such savings would also reduce thej adverse effects ,of inflation, FIVE-YEAR COMPARISON OF SELECTED SUPPLEMENTARY FINANCIAL DATA ADJUSTED FOR EFFECTS OF CHANCING PRICES (Afilhoiv,, except per share Nt:t sales1 `'^Income 0?ss) frbmAontinuing operations'before extraoi^ina^ . As reported V ' - -V " ^ - .. Current dollars - 1 yX.: ^- Per common share income-(loss) fromVontiriuing operations before'^.- X . exlraordinandtems --primary2 c. .1 `jt As reported V^' -}fyf'icff-~+ - . '* ' Current dollars i 1985 ~i$6,716 iiffi/- ended December 31 1984 1983 1982 1981 $6,920 .86r52r'J'::$5,;576" ^ $5.812 $ 2337 -^ 88 -V>s>;^82125 / .v;^(82;f)\f;u.V8;2jl3l 2:)-..?;<I32) ...-v. ..((53) 'V ............ XXoXiX'X'' -<t 1.83, $ 2.28 Oj*&:53?5$.a(.01) <$ , ."> vv .-4s '- ' * i1 <sj ; **,.,.: , ,, v.; f:62 - . 1.03 nfec(Tp4);T3;?(ll55)jiW_i (.78) s reported Current dollars *. Net assets at end of year / ` - [vx^vrA-' - ` 'As reported V' r v.: ;CtitTe'nrdollars'X X Xd* Q-.'- ` >I2,147. 82.035 ..-f;82,013fjlv$i;989SI.926 is \.S3,404 - -3.492g#|3,624Y%;,i3,802:--->;.: 3.861 -i,, --<w-c4- - a#7 .; v -" <^vExcess.oIincreasefingeneral pnee level.ol inventory, property, plant and^ecjuipment 1 ir -& r >' '"'"-s' - arid natural resources pver'jricrcase in currerit cost .4.' 'r - >* * T-$ s`.-'v1w6;5* *y;i:3 .''iTnk0*"4''^476^fC.8^075:.f^$ ";.--6a6/; r A i'-cX'.- V/: *" "I `"'"Cain'from decline jn purchasing po\ver of net'amounts'owed ,! 7K?-Tz.-s^y r* ' i-SK<67r- $H74"^Vm:i/*>^89'Tif8191 CCash dividends declaiAd per.common'share1 ^ ... .. . ____ - $./,.72 1.4-2 -.Market price'per coni/non `share1 ' " S25.89^:$26.72^$29:26 ^'$23.81 : 'Average consumer price index ' l` t>v . .' .T 322.2 ' :311.1 ";-V298.4 ,*?ffr289.1 1 . -1 Historical cost information adjustedfor changes that hate occurred in the general purchasingpotter ofthe dollar tit nteasuretl by the average f: - - r ` Consumer Price Indexfor All Urban Consumers. -' 272.4 2 Before, cunndatu.e effect ofaccounting change in 1982. SGP 0030589 The financial statements on the preceding pages, which To the Shareholdefs^and Board of Directors of , consolidate the accounts of Georgia-Pacific Corporation and . 'Georgia-Pacific Corporation: its subsidiaries, have been prepared in conformity with ...........................*' ,. ,, generally accepted accounting principles applied on a consistent basis. ; *. . ;,,We have examined the balance sheets qf.Geqfgia-'Pacdfic . T- T^orpbration^apemga corporation) and^ubsidiaries'fis'-j ,, .. i , Management ofGeorgia-Pacific Corporadon is responsible ", ' *' ?df'December3i,:T985 and 1984. and therelaTedsTatemen'ts : ',-\'rv ' .... .. /_ v.'.i f,,r il.o onJ it,,, f A,.% .incqme^ppni niorf sliareholdei's'eq ujtyyahd phanges "in ' ' V; dated financial statements. Accordingly, "the Corporation i ..'..-financial jip'siUphJforeach of the three yearsvin'tHe period .-/.". maintains a system of policies, procedure's and controls ' ended December 31,''1985. G...r examinations were'made' ' which is designed to provide reasonable assurance that iiii accordance .yvitl^generally accepted auditing standards . assets are safeguarded and that accounting records are and, accordingly, included such tests of the,accounting reliable. Management believes that the proper internal controls are in place and that the ^stem is adequafe and records and such other audit lg procedures^we consi- -. ' .sdereci necessary mine ctrcut. stances.'^`S<a?1. , 43 'effective in safeguarding assets and providin'g'reliable1^S i? accountin': records. ... ; . t'work of theCorporation's intents] auditors 'yV . ... ", ,.f.,, . .r,%' , 'rt. ,-U f jritlpublic accountants'and'ai^TOveviees^ . ". `T-.-V " "" paid for audit and non-audit servicel!'"^i^^^^>,^.V: . 'The independent public accountants'and internal auditr staff have full and free access to the Audit Committee.' - ' --rwwuJ James C. Van Meter Executive Vice President and Chief Financial Officer r -W' T. Marshall Hahn, Jr. Chairman and .-. .-. . Chief Executive Officer February 14. 1986. 4.A ^ ( ** V>| . - ift?. Vi *>>/?# ' j- `.f SGp 0030590 Five-Year Selected Financial Data * IV. r. 1' (Millions, except per share amounts) ; T, Operations Net sales ''7 1985 V* ' J P' ^ v- >- . Year ended December 31 *. 1984 1983 ,1982 : 1981 `:.r - -\ > ; ' .. $6,716 $6,682 $6,040 $5,003 $4,914 Costs and expenses . T; . Costofsales , . Selling, general and administrative 7; Depreciation and depletion ' Interest ' ' -< ' ' ' ....... 5,553 431 310 132 5,441 . 4,978 ^ 4,206 426 7 374 359 282 '289; >. 275 156 157. . ,.'186 4.i3i 304 228 125 , 6,426 6,305 v 5,798 5,026 . 4,788 Income (loss) from continuing operations before unusual items, income taxes . ' and extraordinary items1 * Unusual items . .. - . . t, . Provision for incon. taxes -r:.. -.290 19 102 377 19 143 Income from conti: ling operations before extraordinary items1 ? f ;i,. > - 1 ` "$ `207 $ 253 v/ 242 (23) , 126 (135) 49 -32 7 6 38 $ 75wf<$. 20 $'88 . Financial position, end of year Current assets ; Timber and limberlands, net Property, plant and equipment, net Net assets of discontinued operations 'Other assets * ^ ,, $1,291 804 > *2,606 11 ^^ $1,406 840 2,270 158 111 $1,268";, $1,176 $1,175 '753' ('748 752 1,989^^VS2?*', ,,14 2,200 653;jr;;65r. 626 /^,69iM>C30' < 93, ,. Total assets . Current liabilities s <* j' : : r -. ! ; r4,866 700 4,785 674 4,732,4,919 * "H T- 638 738 4,846 846 I.ong-torm debt . . t- 1,257 1,383 1,453. 1,618 .1.487 . 7 Deferred income taxes .. 606 503 413' 365 384 Redeemable preferred stock ' 156 190 ,215; 209 - 203 Total net assets 0.,; ,r._ - Working capital , - *' Other statistical data tt , ^ *" ,,.c . , . vi, ***?-! ,\x..;,$2,T47 $2,035.,*- $2,013^,'$1,989 . $1,926 Vi '-3 4 ,T-$v%9r $ '732 $ >630' $'438 $ 329 * ic `i dffpAMi'Si t; } v> Capital expenditures"v-Per common share W , ' $ 642 $ 710 , $188,$ 207 $ 609 is. x1 ' A( Income (loss) from continuing operations before extraordinary items--primary 1 1.83 2.28 .53. (01) 69 Income from continuing operations before extraordinary items-tTully dilutedlf - .e 1.80 2 24 ' " .'54''' , .02 .69 Dividends declared - ^"1 '' .80 7 .70 ~ .'60 . L05 1.20 . Market price: High ' - - 27.38 25.75 31,88 27.25 32.38 ' - Low 20.50 18.00 22.38 13.25 : .. i7.75.- Year end 26.50 25.00 24.75 26.25 .; 20.13 Book value - ' v - : - "y: ` - -'' 20.59 19.58 19.48 19.22 18.99 ' ' Shares of common stock outstanding at year end -. 103 103 ' 102 101 99 Number of common shareholders of record (thousands) - i ' . ; . 74 79 ' 80 88 89 Number of employees (thousands) ; <'-> -- ^ . V C' f.' : . 40 - 39 ' 44 '44' Selected ratios ;77V :-v.' ' Return on capital employed2 < 8.1% 9.7% ' 5.2% T.6% . 5.8% Return oil common equity2 .10.2% 12.6% 3.8% ' 1.0% ' . 4^6% Total debt/capital 33% 36% ' 38% 42% ' 43% 1 Before cumulatite effect ofaccounting change in 1982. ~ The methods oj calculating these amounts are described in the Financial Review section beginning on page-19. SGP 0030591 '^.SALK^A^b'OPEI^TfNS'^i^FriSW^lNbUCTRV^'SEGMEI^ Building products Structural panels Lumber ' Gypsum ...... 'Roofing --;' ` '' Thermosetting resins Other Pulp and paper Containers and packaging . Printing and fine papers Tissue ' A Market pulp , '... . > Other ` Other operations 4,470 67 4,452 67 26% 4,143 ` * 69 $1,217 1,003 ,183 ' 197 136 450 :. '^wmeiSm#*5 24% ?f$lv230 ? -f 25% 9:';r^ft38 1 3 9 3,186 r^? tV. 1,037 15 .. 909 356.. , 5 ^ 445 13 v7 ' 647 X ii r- > 450 *i.hZu& 605 - l? 514 8 " "507 - 8 449 - '.'7> " -1 429 ..`8 .157 . 2 225 -, r3 70 *1 1 ` ;?-?i '25: ' 191 z K sste.'^sVs r>v-:33 ^87 '4 lfeE4CK>^J^a^ -4?##w5 , ,* SI;', -4... - ...... .... il , 'ffiiitjgSi 2,134. , 31 -* 2,111. ^31>/^<d?68..;-av^29j:;oA:r,687 \3% * &&& 2^^130 V.V/A . Building product Pulp and paper ^ Olher operations :~ Continuing operations - . 7 ~ 7 ' . ..`7" * ......' V .w.v. ' ... , $ 455 100% '$ "601 100%%^$c438^yi00%5Hr.$.C212,^00^I.S?>%92^a00>%^. t c.,? . ... +>vr'* **----- - -- ------------ ... 5a/eJ, bui income on.such salesiis included inopenUingpmji&iUfenuingpTojitsviretbejQTetincomr *,**'" * , ** u vC*^3'v> .Vi1 , [extraordinary.items ana cumulativeeffect ofaccounting chcmgeinJ982MaduiOrudmJormalidn ------- ............................. ...... .,i ff'.PJ fi', / to Financial statements..** ' .v\.! \ * fcv4 si f-r tu ~<'5 .......^ Ji ismbSBt .? 'v;v" ' . -**$7* -> A, ,'v e ; - t i. s.-.-^.*. , -i "o- SAjJfiv. A .C- '-'f- Gross Margin/Net Sales. V, .Current Asscts/Currenl Liabilities \ iJ'&UV^ o' r tWa. J-r` C-v~ v3-V-vv^L1,- * ' V SGP 0030592 Operating Statistic.* ` - : . "c:p^ t , cwlw, . 3 'fit'! ^ .. ' ' ' * ' 'elw.> 4>- ' . ' v s7-;'Tv-no-. 1 ^ JS\5Lti i-rlfHV-.`tTv, _ OaK ^GG syitv-: h - Building Products Soltwood plywood (%") (m.sq.ft.) Hardwood plywood (sin) (in.sq.ft.) ' Particleboard (%") (rn.sq.fi.) -y Softboard ('A") (m.sq.ft.) Hardboard ('/s") (m.sq.ft.) Fiberboard fVi") (in.sq.ft.I ' Panelboard ( Vh") (m.sq.ft.) Waferboard (W) (m.sq.ft.) Oriented strand board (3/e") (in.sq.ft.) Lumber (m.hd.ft.) . V' - Gypsum board (m.sq.ft.) .1 . .a Roofing--shingles and rolls ((.squares) Formaldehyde.(in. lbs.) -- 'Thermosetting resin (in.lbs.) ' O'' 7v. .Distribution centers ' ' i-l * *1 As ofDecember 31, 1985 -, ir-yf\5f }?%'-. . No. af ,v = Rated Annual A-i^ductioh - K.*,'dui>.< - Ci/wcif-. ' -;q.7 1984 983 .'- V. ' > 'J- tt 982,1 ; 1981,. '. , 4.625 ,373 "389'' - 250,"- 'Sts- . 75 460 ' ' 155 " /..;73-'. L'j-ifk. 'f >X-. . - y 4.114 311 ' 410' '239 ` 368 ' 76 ' 290 *128 4,.444433:;;^,430;v;3.83l '3,653 .-,. -343';:, ;1405 ^381 i^40p,%H303/'^"`423 /vr`- 1 :-T M :?36Y|5:;l|6^f!'22oV: .'360 ; . ffi-iZiffli#:;* ><'? - ' 55 112 7 *64' - " '22 443 38 Pulp and Paper V ''Pulp ((.tons) ? rPaper (t.tons) Corrugated packaging (in.sq.ft.) Tissue products (t.tons) Miscellaneous Facilities Building products. ' 18 065 flip<-13,703 11 880^8,427ri;T7;68p._'; (6,291 1 Sj- 4, 78 " ,v^ *- vi, < 4O3n2 - * '---a4ov2co27-*;.;LVt'-'',4t 0202 - .- , JS. <y - \ 2-1='-r--. ''6. -4 -" Y* -*j 4 ^ 7r\ X,393 O' --,' 3; 68 VT' 'Resourcesjas of December 31) 'yf "North AmericaW1imberfan<lsjLacres) ^ .. 'Owned in fee Controlled ' Totalfor pulp/paper *?.$ r.- w ' V It -4,760 - 4,9'ioV, 43532'|E-630 4,6fs 1 '*f***fi*#^^ ,?5)5 s'm = surface, measure ba.ns . I = thousand* m = millions SGP 0030593 Executive Management Committee 47 T. Marshall Halm, Jr. Chairman and Chief Executive Officer Robert A. Schumacher President and Chief Operating Officer James C. Van Meter Executive Vice President and Chief Financial Officer Harold L. Airington Executive Vice President Building Products Conrad Schweitzer Executive Vice President Pulp and Paper J. Kerinit Birchfield. Jr. Senior Vice President Legal and Governmental Affairs SGP 0030594 Directors & Officers directors T. Marshall Hahn, Jr.1 Chairman and Chief Executive Officer Atlanta, Georgia Willard S. Boothhy, Jr.' 5 Managing Director Paine Webber Incorporated Investment Bankers New York. New York Robert L. Clare, Jr.3 ' Partner. Shearman & Sterling Attorneys New York, New York Robert B. Claytor1 3 4 Chairman and Cliief Executive Officer Norfolk Southern Corporation Norfolk, Virginia Harvey C. Fruehauf, Jr.1 4 President HCF Enterprises, Inc. Private Investment Company Detroit, Michigan Richard V. Giordano3 4 Chairman and Chief Executive Officer The BOC Group London, England Francis Jungers1 2 Private Business Consultant Sunriver, Oregon F. James McDonald3 5 President and Cliief Operating Officer General Motors Corporation Detroit. Michigan Robert E. McNair2 3 Partner, McNair Glenn Konduros Corley Singletary Porter & Dibble Attorneys Columbia, South Carolina Chauncey J. Medberry2 4 Director Bank of .America NT. & S.A. and Bankamerica Corporation Los Angeles, California Harold E. Sand4 5 President Sand Investment Co. Portland, Oregon Robert A. Schumacher President and Cliief Operating Officer Darien, Connecticut 1 Executive Committee 2 Audit Committee 3Stock Option Plan and Management Compensation Committee 4Finance Committee ^Nominating Committee OFFICERS T. Marshall Hahn, Jr. Chairman and Chief Executive Officer Robert A. Schumacher President and Chief Operating Officer Harold L. Airington Executive Vice President Building Products Conrad Schweitzer Executive Vice President Pulp and Paper James C. Van Meter Executive Vice President and Chief Financial Officer J. Kermit Birchfield, Jr. Senior Vice President Legal and Governmental Affairs John H. Dunkak Senior Vice President Western Pulp and Paper Ronald P. Hogan Senior Vice President Distribution Division Davis K. Mortensen Senior Vice President Wood Products Manufacturing Glenn E. Wilson Senior Vice President Gypsum and Roofing Division Maurice W. Kring Group Vice President Tissue, Pulp and Paperboard Joseph J. Armetta Vice President Distribution Division Midwest Region Howard S. Bergen Vice President Chemical Division SGP 0030595 Investor Information \)a\ id A Dimlin^ V ic<` I V<*.W< lent Drintin" tint I lD(o*r j h\ i-ion W illie !.. Duke \ ire Dr*'-ident hn.-trrn Wood IV'iflurt.-' Mimufartunmi Di\ imoii i)iane Duririn \ ire President ! ,av\ and NcrHarv Donald k. * /lar-^ \ ire Dj-e-idenl i^oohnii Di\ imoii Stephen K. Jackson \ ire i-h'e.^ident DDlributiiMi Di\ ision Marketing and Vil\rrti>m: Joseph I I. joiner \ iee Pronirnl (.onlrolirr and Inlormation Ik'siiiim:" Wired \\ Lee V ire President t ,nii.Miii]i`r Paper iVoiluri- (/enriie \ . M ac< .onuell \ iee PruMfhmt DuMnLution Division \ortheaM He<ii<>m Daniel A. Martinez. V ice President Southern Pulp and Paper Division .John K M e(,o\ern \ ire President I" inanre Dennis D. Melstrom Vice President Pulp and Paper Inlormation |{r.-c>urr*`< Thomas F. Mitchell \ ire Presiileilt Dou'rnment Allans i )ewe\ ].. Moli|e\ \ ire j-^roiilent Western Wooi 1 Pn>< lurlManulaeturinii Di\ ision All an . ]. Nad ran \ ire Oia-'ir 1 <;i11 Northern I'll Ip and Paper Div ision Ixrlh Powell. Jr. V ire I'l l-i<l<-11( Distribution Div ision Western Region J<>11ii I'. l\a~or \ in1 e-a-ldcnt \lid-( liintiiirnl Wcmd Product-. Mai in lari ill'll i" On i.-ion I )a\ id \\. Rev Holds \ icr- President Human Resources R.ilirrl -V. Starling \ in: President Distribution Di\ ision .'southeast Region Marion I.. lalmudgc \ ire President Executive VHaii's Douglas A. Thom \ ire President Packaging Div ision Carroll I', liilar \ iee President Engineering I .an renee 13. Trainmel \ ice President Distribution Division Southwest Region' Michael \. \ idati \ ire President Wood Prodncl- Sales Division Mirhael 13. W ilson \ iee President Sales and VIarketing < 01n.-11111er and i .oniinereial Paper Pnidnrls Wav ne I. Tainhlv n Treasurer Corporate Headquarters (ii`ni';i.i-1 'arilie Center 1.3.'! I Vurhtree Street. YE. Vtiania. 1 rroreia 30303 Stock Exchange and Symbols t/cor^ia-Pacific Corporation Coninion Stork (CPl and Prrl'rrr>'i: Nock iCP Pr A.). iCP Pr Hi and iCP Pr O are listed on ;lir New Vork Stork Iwehanite Transfer Agent and Registrar Bank oi Muerica NT. A' S. A. Corporate Vgenev Service (..enter P.(). Bn\ 37002 Sail I' ranrisro. California 01137 Shareholder Information Registered (i-P shareholders are oIioi11le lo participate in tile G-P Dividend and Cash Investment Plan, l or inlormation on the plan, or for shareholder inlormalion. write to: Corporate Secrelarv I lepurl ineiit t eor^ia-Paeilie Corporation P.l). Box 10560.) Atlanta. Georgia 303 IB 14041 521-5210 Financial Information A ropv ol the Georgia-Pacific 19B5 Annual Report to the Secu rities and Kxchange Commission on Form 10-lx will lie supplied without charge at anv time after March 31. 10R6. Annual Statis tical L pdale- are also available. Requests fur luianeial inforinalioii -hould he directed to: Richard V. Good Di reel or-11 iv eslor Relal ion.s (.eoriiia- Paeilie f .orporatmn P.O. Box 105605 Atlanta. Georgia 303411 (-40-1) 521- 1721 \n equal oppnrttmitv emplover i ,il Im^r.ijilii'i J ai I lie I ill lei I S| ale- . >1 Vlllei iiei Georgia-Pacific SGP 0030597