Georgia Atlantic Company 
Case: Dividend Policy
GEORGIA ATLANTIC COMPANY
During the depression of the 1930s, Ben Jenkins, Sr., a wealthy, expansion-oriented lumberman whose family had been in the lumber business in the southeastern United States for several generations, began to acquire small, depressed sawmills and wholesale lumber companies. These businesses prospered during World War II. After the war, Jenkins anticipated that the demand for lumber would surge, so he aggressively sought new timberlands to supply his sawmills. In 1954, all of Jenkins’s companies were consolidated, along with some other independent lumber and milling companies, into a single corporation, the Georgia Atlantic Company.
By the end of 1992, Georgia Atlantic was a major force in the lumber industry, though not one of the giants. Still, it possessed more timber and timberlands in relation to its use of timber than any other lumber company. Worldwide demand for lumber was strong in spite of a soft world economy, and its timber supply should have put Georgia Atlantic in a good position. With its assured supply of pulpwood, the company could run its mills at a steady rate and, thus, at a low per-unit production cost. However, the company does not have sufficient manufacturing capacity to fully utilize its timber supplies; so it has been forced to sell raw timber to other lumber companies to generate cash flow, losing potential profits in the process.
Georgia Atlantic has enjoyed rapid growth in both sales and assets. This rapid growth has, however, caused some financial problems as indicated in Table 1. The condensed balance sheets shown in the table reveal that Georgia Atlantic’s financial leverage has increased substantially in the last 10 years, while the firm’s liquidity position markedly deteriorated over the same period. Remember, though, that the balance sheet figures reflect historical costs, and that the market values of the assets could be much higher than the values shown on the balance
GEORGIA ATLANTIC COMPANY
During the depression of the 1930s, Ben Jenkins, Sr., a wealthy, expansion-oriented lumberman whose family had been in the lumber business in the southeastern United States for several generations, began to acquire small, depressed sawmills and wholesale lumber companies. These businesses prospered during World War II. After the war, Jenkins anticipated that the demand for lumber would surge, so he aggressively sought new timberlands to supply his sawmills. In 1954, all of Jenkins’s companies were consolidated, along with some other independent lumber and milling companies, into a single corporation, the Georgia Atlantic Company.
By the end of 1992, Georgia Atlantic was a major force in the lumber industry, though not one of the giants. Still, it possessed more timber and timberlands in relation to its use of timber than any other lumber company. Worldwide demand for lumber was strong in spite of a soft world economy, and its timber supply should have put Georgia Atlantic in a good position. With its assured supply of pulpwood, the company could run its mills at a steady rate and, thus, at a low per-unit production cost. However, the company does not have sufficient manufacturing capacity to fully utilize its timber supplies; so it has been forced to sell raw timber to other lumber companies to generate cash flow, losing potential profits in the process.
Georgia Atlantic has enjoyed rapid growth in both sales and assets. This rapid growth has, however, caused some financial problems as indicated in Table 1. The condensed balance sheets shown in the table reveal that Georgia Atlantic’s financial leverage has increased substantially in the last 10 years, while the firm’s liquidity position markedly deteriorated over the same period. Remember, though, that the balance sheet figures reflect historical costs, and that the market values of the assets could be much higher than the values shown on the balance