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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-3506
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GEORGIA-PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
Georgia 93-0432081
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
133 Peachtree Street, N.E.,
Atlanta, Georgia 30303
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (404) 652-4000
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange
Title of Each Class on which Registered
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Georgia-Pacific Corporation--Georgia-Pacific Group
Common Stock ($.80 par value)...................... New York Stock Exchange
Georgia-Pacific Corporation--Timber Group Common
Stock ($.80 par value)............................. New York Stock Exchange
Premium Equity Participating Security Units--PEPS
Units.............................................. New York Stock Exchange
Georgia-Pacific Group Rights to Purchase Series B
Junior Preferred Stock (no par value).............. New York Stock Exchange
Timber Group Rights to Purchase Series C Junior
Preferred Stock (no par value)..................... New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
As of the close of business on February 12, 2001, the registrant had
225,743,844 shares of Georgia-Pacific Group Common Stock outstanding and
80,469,329 shares of Timber Group Common Stock outstanding.
The aggregate market value of the voting stock held by non-affiliates of the
registrant on February 12, 2001 (assuming, for the sole purpose of this
calculation that all executive officers and directors of the registrant are
"affiliates") was $6,778,506,705 for Georgia-Pacific Group Common Stock and
$2,535,103,107 for Timber Group Common Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
Listed hereunder are the documents any portions of which are incorporated by
reference and the Parts of this Form 10-K into which such portions are
incorporated:
1. The Corporation's definitive Proxy Statement which the Corporation
intends to file on or prior to March 31, 2001, for use in connection
with the Annual Meeting of Shareholders to be held on May 1, 2001,
portions of which are incorporated by reference into Part III of this
Form 10-K.
GEORGIA-PACIFIC CORPORATION
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 30, 2000
TABLE OF CONTENTS
PART I
Page
----
Item 1. Business...................................................... 1
Item 2. Properties.................................................... 9
Item 3. Legal Proceedings............................................. 9
Item 4. Submission of Matters to a Vote of Security Holders........... 9
PART II
Market for Registrant's Common Equity and Related Stockholder
Item 5. Matters....................................................... 10
Item 6. Selected Financial Data....................................... 10
Management's Discussion and Analysis of Financial Condition
Item 7. and Results of Operations..................................... 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 24
Item 8. Financial Statements and Supplementary Data................... 24
Changes in and Disagreements With Accountants on Accounting
Item 9. and Financial Disclosure...................................... 96
PART III
Item 10. Directors and Executive Officers of the Registrant............ 96
Item 11. Executive Compensation........................................ 98
Security Ownership of Certain Beneficial Owners and
Item 12. Management.................................................... 98
Item 13. Certain Relationships and Related Transactions................ 98
PART IV
Exhibits, Financial Statement Schedules, and Reports on Form
Item 14. 8-K........................................................... 98
Index to Exhibits............................................. 102
PART I
ITEM 1. BUSINESS
Georgia-Pacific Corporation was organized in 1927 under the laws of the
State of Georgia.
On December 16, 1997, shareholders of Georgia-Pacific Corporation approved
the creation of two classes of common stock, Georgia-Pacific Group stock and
Timber Group stock, intended to reflect separately the performance of the
Corporation's two operating groups, Georgia-Pacific Group and The Timber
Company.
In this document, the following terms and definitions are used:
"Corporation" refers to Georgia-Pacific Corporation and its subsidiaries,
which includes the businesses of both the Georgia-Pacific Group and The
Timber Company.
"Georgia-Pacific Group" refers to the Corporation's manufacturing and
distribution businesses.
"The Timber Company" refers to the Corporation's timber and timberlands
business.
"Georgia-Pacific Group stock" refers to the Corporation's Georgia-Pacific
Group common stock, par value $.80.
"Timber Group stock" or "The Timber Company Stock" refers to the
Corporation's Timber Group common stock, par value $.80.
Georgia-Pacific Corporation consists of two separate operating groups, the
Georgia-Pacific Group and The Timber Company. The performance of these
distinct businesses is reflected separately by two classes of common stock.
The Georgia-Pacific Group consists of all of the Corporation's manufacturing
mills and plants, its building products distribution business and its paper
distribution business. The facilities manufacture and sell a wide variety of
pulp, paper and consumer products (including pulp, paper, containerboard,
packaging, tissue, and disposable tableware) and manufactured building
products (including plywood, oriented strand board and industrial panels,
lumber, gypsum products, chemicals and other products). The Timber Company
consists of approximately 4.7 million acres of timberlands owned or leased by
the Corporation, together with related facilities and equipment. In 2000,
these timberlands supplied approximately 14% of the overall timber
requirements of the Corporation's manufacturing facilities which was 61% of
The Timber Company's net sales.
Additional information pertaining to the Corporation's businesses, including
operating segments, is set forth under the captions "Georgia-Pacific
Corporation and Subsidiaries--Management's Discussion and Analysis" and
"Georgia-Pacific Corporation and Subsidiaries--Sales and Operating Profits by
Operating Segment presented on page 94, and in Notes 1 and 2 of the
Corporation's Consolidated Financial Statements, presented on pages 32 through
44 in each case under Item 8 of this Form 10-K.
Georgia-Pacific Group
The Georgia-Pacific Group has grown through expansion and acquisitions to
become one of the world's leading manufacturers and distributors of building
products, pulp and papers, and tissue products. Among North American
producers, the Georgia-Pacific Group (the "Group") ranks first in the
production of tissue paper products, disposable tableware, industrial panels,
wood bonding resins and industrial thermosetting resins; second in the
production of structural wood panels, paper (uncoated free-sheet) and gypsum
wallboard; third in lumber products and market pulp; fourth in linerboard and
medium; and fifth in corrugated packaging. The Group's building products
distribution business leads in supplying wholesale building products in the
United States. The Group's paper distribution business, Unisource, is one of
the largest distributors of paper and supplies in North America. The Group's
chemicals business also supplies paper chemicals and tall oil based chemicals.
Most products of the Georgia-Pacific Group are made of solid wood, virgin
and recycled wood fiber, or wood by products. Georgia-Pacific Group sources
the majority of these readily-available raw materials from private timber
owners, independent log merchants and brokers, and recycled fiber brokers.
Approximately 14% of the Georgia-Pacific Group's timber needs are supplied by
The Timber Company under a long-term contract.
1
Georgia-Pacific Group operates its production facilities in four operating
business segments: Building Products, Containerboard and Packaging, Bleached
Pulp and Paper, and Consumer Products. Operating segment descriptions follow.
Building Products Segment
The Georgia-Pacific Group is a leading manufacturer and distributor of
building products in the United States. The building products segment
manufactures wood panels (including plywood, oriented strand board ("OSB") and
industrial panels), lumber, gypsum products, chemicals and other products.
These products are manufactured at 127 facilities in the U.S., 7 plants in
Canada, two plants in South America, and through a joint venture in South
Africa. These products are sold directly to industrial customers, independent
dealers and wholesalers, and large building product retailers or through our
building products distribution business. The segment is the largest
distributor of building products in North America.
The building products business is affected by the level of housing starts;
the level of home repairs, remodeling and additions; commercial building
activity; the availability and cost of financing; and changes in industry
capacity. The demand for building products business tends to be stronger
during the second and third quarters when weather conditions favor
construction. Exports for the building products segment in 2000 were $220
million (approximately 3% of segment sales), primarily to the Caribbean and
Europe.
Wood Panels. A leading producer of structural wood panels in the United
States, the Georgia-Pacific Group accounts for about 24% of domestic capacity.
The segment's 16 softwood plywood plants and seven OSB plants can produce in
excess of 7.8 billion square feet of panels annually. With most of these
plants located in the Southeast, the business benefits from an ample supply of
timber, favorable weather conditions, regional population growth, national
economic growth and other factors. OSB is a structural panel made from wood
strands arranged in layers and bonded with resin. OSB serves many of the same
uses as unsanded plywood including roof decking, sidewall sheathing and floor
underlayment. Late in 2000, the Georgia-Pacific Group completed construction
of a new OSB plant in Calhoun County Arkansas which will produce approximately
410 million square feet (3/8") of OSB annually. This plant will ultimately
replace older, less efficient structural panel capacity.
Industrial Panel Products. The building products segment leads in production
of manufactured board products for industrial and construction applications.
Twenty mills manufacture hardboard, particleboard, panelboard, softboard,
hardwood plywood, decorative panels and medium-density fiberboard.
Applications include furniture, cabinets, housing, retail fixtures, and other
industrial products. In 2000, the segment closed its Little Rock, Arkansas
hardboard plant and sold its Lebanon, Oregon hardboard plant. The combined
capacity of these facilities was 266 million square feet (1/8" basis) or
approximately 21% of annual hardboard capacity as of January 1, 2000.
Lumber. The third-largest lumber producer in North America, the Georgia-
Pacific Group annually manufactures about 2.7 billion board feet or
approximately 5% of domestic lumber production. Most of the Group's 36 lumber
mills are located in the U.S. South. Lumber products are manufactured from
Southern pine, a variety of Appalachian and Southern hardwoods, redwood,
cedar, spruce, hemlock and Douglas fir.
In addition, the segment ranks as one of the top producers of pressure-
treated lumber in the nation. Operating from 12 facilities, the segment has
the capacity to pressure-treat more than one billion board feet of lumber
annually. Pressure treated lumber is used primarily in construction of outdoor
structures such as decks, fences, bridges and playground equipment.
Demand for the building products segment's engineered lumber products has
increased in recent years as wood I-joists (made from veneer, OSB and sawn
lumber) appear to have increasingly become the product of
2
choice for floor joist applications. Laminated veneer lumber ("LVL") and wood
I-joists are designed to meet the precise structural performance requirements
of roofing and flooring systems. The segment produces both LVL and I-joists to
precise structural specifications in two facilities.
Gypsum Products. The Georgia-Pacific Group operates 19 gypsum board plants
throughout the U.S. and Canada and is one of the three largest producers of
gypsum wallboard in North America, with an annual capacity of 6.7 billion
square feet. Gypsum products include wallboard, Dens specialty panels, fire-
door cores, industrial plaster and joint compound. In addition, the business
is vertically integrated in both paper and gypsum rock operating four recycled
gypsum paperboard mills and nine gypsum quarries/mines. Gypsum reserves are
approximately 302 million recoverable tons, an estimated 49-year supply at
current production rates.
In 2000, the business' older technology, higher-cost gypsum wallboard
facility in Grand Rapids, Michigan was closed. This facility had annual
capacity of 380 million square feet representing over 5% of the Group's
January 1, 2000 gypsum production capacity.
Chemicals. The chemical business is the forest products industry's leading
supplier of wood bonding resins, industrial thermosetting resins, paper
chemicals, and tall oil based chemicals. The business ships more than 6
billion pounds of thermosetting resins, formaldehyde, pulp chemicals, and
paper chemicals annually from 19 plants to most of the major buyers of these
products. In January 2001, the business acquired the balance of its Chilean
and Argentinean joint ventures from Masisa S.A. It also operates through a
joint venture in South Africa. The segment also produces chemicals and resins
for use in a variety of specialty applications in other industries, including
roofing, thermal insulation, metalworking, coatings, fertilizer, and
transportation. In 2000, the chemicals business was identified as a non-
strategic asset of the Corporation and the Corporation announced the potential
sale of this business.
Building Products Distribution. The building products distribution business
is the leading domestic wholesaler of building products. It sells building
products to independent dealers, industrial customers and large home
improvement centers from 64 locations throughout the U.S. and one in Canada.
The building products distribution business provides a nationwide outlet for a
significant portion of the Georgia-Pacific Group's building products. It also
sells building products purchased from third parties, which make up
approximately 64% of the business' sales. Building products distribution's
geographic coverage and product breadth are unmatched in North America.
Containerboard and Packaging Segment
The containerboard and packaging segment focuses on providing packaging
solutions for a wide variety of industrial customers. Its primary products
include containerboard, corrugated containers and packaging. Annual capacity
at the Group's four containerboard mills of 3.7 million tons represents about
10% of total U.S. capacity. The segment's 50 corrugated packaging plants
consume approximately 70% of the segment's containerboard production; the
remainder is sold to independent box converters in the United States, Latin
America and Asia. One of the largest domestic producers of containerboard, the
containerboard and packaging segment is the second largest supplier of
containerboard to independent converters in the U.S. Markets for
containerboard and packaging products are affected primarily by changes in
industry capacity and the level of industrial activity in the U.S. and export
markets. Containerboard exports totaled 332,000 tons during 2000 compared to
1999's level of 460,000 tons.
In addition to standard corrugated containers, the segment's packaging
plants manufacture many specialty packaging products. These include display-
ready corrugated packaging that works interchangeably with our line of
returnable plastic containers, double and triple-wall boxes, bulk bins, water-
resistant packaging, and high-finish and preprinted packaging for point-of-
sale displays. The Technology and Development Center in Norcross, Georgia,
uses state-of-the-art technology to design and test packaging for customers.
3
Bleached Pulp and Paper Segment
The bleached pulp and paper segment produces market pulp, paper and other
products at 18 facilities in North America. Combined production capacity for
pulp and paper is 6.8 million tons. The bleached pulp and paper segment's
mills are among the industry's lowest cost producers. An initiative over the
past several years has motivated employees throughout the mill system to find
ways to continually reduce costs, increase quality, and reduce maintenance
spending. Markets for pulp and paper products are affected primarily by
changes in industry capacity, the level of economic growth in the U.S. and
export markets, and fluctuations in currency exchange rates. Exports from this
business segment consist chiefly of market pulp bound for Asia, Europe, and
Latin America. In 2000, exports for the bleached pulp and paper segment were
$1.5 billion, approximately 17% of segment sales.
Paper. The Georgia-Pacific Group is the nation's second-largest domestic
producer of paper. Also known as uncoated free-sheet, paper is used in office
copy machines and printers, commercial printing, business forms, stationery,
tablets, books, envelopes, labels and checks. The bleached pulp and paper
segment's eight uncoated free-sheet paper mills have a combined annual
capacity of 2.8 million tons, approximately 19% of U.S. capacity. These
products are sold through our paper distribution business, other major paper
distributors, office product distributors, printing equipment manufacturers,
retailers and converters. Products are sold under a variety of brand names
including: Microprint, Quantum, Spectrum, EUREKA, Nekoosa Solutions, Valorem,
Geocycle, HOTS, St. Croix, Re-Comm and Westminster.
In 2000, the paper business continued to focus on its strategy of reducing
costs and improving customer service levels. This business completed the
introduction of a major systems initiative that management believes will
enable the business to continue to optimize paper machine productivity,
decrease order fulfillment time, and reduce transportation and inventory
costs.
Also in 2000, the business became the exclusive manufacturer of the most
recognized brand name in office papers, Xerox(R). Xerox copy paper is
preferred by consumers and commands a premium price over manufacturers brands
and store brands.
Late in 2000, the business permanently closed its Kalamazoo, Michigan mill
and a small paper machine in the Nekoosa, Wisconsin mill. Combined, these
closures represented 155,000 tons of production or 6% of the segment's
uncoated freesheet capacity.
Market Pulp. The Georgia-Pacific Group ranks third in the production of
market pulp worldwide. The bleached pulp and paper segment includes nine pulp
mills with a combined annual capacity of nearly 3.7 million tons,
approximately 19% of U.S. capacity. These mills produce primarily Southern
softwood and Northern hardwood pulps sold to industrial users for the
manufacture of many paper grades. The segment also is a major supplier of
fluff pulp and other specialty pulps. Fluff pulp is used primarily in the
manufacture of disposable diapers and other sanitary items.
In 2000, the market pulp operations at Leaf River, Mississippi; Brunswick,
Georgia; and Woodland, Maine were identified for potential divestiture. These
facilities have the capacity to produce nearly 1.8 million tons of market pulp
and represent over 80% of Georgia-Pacific's market pulp capacity. There can be
no assurance that those operations will be sold in 2001.
Bleached Board. The bleached pulp and paper segment produces bleached
paperboard for use in frozen food containers, food service items and other
products. Our bleached paperboard products are sold primarily through our
joint venture with Gulf States Paper Company under the CartonMate paperboard
trademark.
Paper Distribution. Unisource Worldwide, Inc. ("Unisource") is a leading
distributor of printing and imaging paper, packaging systems, and sanitary
maintenance supplies in North America. Unisource operates primarily in the
United States, 23 locations in Canada, and 27 locations in Mexico, and is a
large distributor for most major paper producers in North America, including
the Georgia-Pacific Group's paper and packaging businesses. The segment
operates from 15 customer service centers, 171 warehouses, and 69 Paper Plus
retail
4
store locations in the United States. The paper distribution segment is
affected by the level of economic activity in the United States, Canada and
Mexico and the pricing environment of paper and paper products.
Unisource sells and distributes high-quality printing, writing and copying
papers to printers, publishers, business forms manufacturers and direct mail
firms, as well as to corporate and retail copy centers, in-plant print
facilities, government institutions and other paper intensive businesses.
Unisource also sells and distributes a broad range of packaging and
maintenance supplies, equipment and services (principally to manufacturers,
food processors, and retailers); maintenance supplies and equipment such as
carton erectors, baggers and filers as well as films, shrink-wrap and
cushioning materials; shipping room supplies such as corrugated boxes,
cushioning materials, tapes and labeling; and food service supplies such as
films and food wraps, food containers and disposable apparel for food service
workers. Roughly two thirds of Unisource's revenue is derived from printing
and imaging and one third from packaging and supplies.
Consumer Products Segment
On November 27, 2000 Georgia-Pacific Group completed the acquisition of Fort
James Corporation ("Fort James") for approximately $11 billion. Fort James
shareholders received $29.60 cash and 0.2644 shares of Georgia-Pacific Group
common stock for each share of Fort James. The acquisition was accounted for
using the purchase method. Nearly all the businesses acquired are now included
in the Consumer Products segment of Georgia-Pacific Group.
The assets acquired in the Fort James transaction, combined with the
existing tissue assets of Georgia-Pacific Group, form this new business
segment. It is the largest North American producer of tissue products, a
leading manufacturer of tissue products in Europe, and the largest and best
known producer of disposable tableware in North America. The segment's
products include a wide array of branded and private label consumer and
commercial tissue products. These include bath tissue, paper towels and
napkins, which are made from virgin and recycled fibers, as well as disposable
plates, cups and cutlery. Primary production of these products takes place in
29 tissue mills throughout Europe and the United States and 12 disposable
tableware plants in the United States. Worldwide tissue capacity is
approximately 6 million tons, making this segment the world's largest producer
of tissue products. In 2000, export and foreign sales accounted for
approximately $225 million, or 9% of segment sales. Because the results of the
segment include only one month of the results from the acquired Fort James
assets, management expects 2001 foreign and exports sales to be substantially
higher. Markets for tissue products are generally influenced by population
growth, changes in per capita consumption, and levels of economic activity in
a geographic market.
In connection with the acquisition, Georgia-Pacific agreed to divest 368,000
tons of tissue manufacturing capacity, associated converting facilities, and
the sales and marketing functions that support them, under a consent decree
with the U.S. Department of Justice. In January 2001, a definitive agreement
for the sale of these assets was reached with Svenska Cellulosa Aktiebolaget
("SCA") for approximately $850 million. Finalization of this sale is expected
late in the first quarter of 2001. The majority of this business is in the
"away from home" tissue business of the Corporation.
North American Tissue
The consumer products segment is the largest producer of tissue products in
North America. The business produces both branded and private label tissue
products made from virgin and recycled fibers for the at-home and away-from-
home markets. Thirteen production and converting facilities located throughout
the United States and a single converting facility in Mexico produce finished
goods to serve the North American market. In 2000, North American sales
accounted for approximately $1,757 million, or 94% of tissue sales. Because
the results of the segment include only one month of the results from the
acquired assets, management expects sales to be substantially higher going
forward while North America's portion of segment sales is expected to decline.
5
Retail Tissue. In the retail (or at-home) channel, which accounted for
approximately 55% of domestic tissue sales in 2000, Georgia-Pacific Group
produces both branded and private label products. The Company's principal
retail brands include Quilted Northern and Angel Soft bath tissue (the number
two and three bathroom tissue brands, respectively), Brawny and Sparkle paper
towels (the number two and three paper towel brands, respectively), and six of
the seven leading napkin brands including Mardi Gras napkins (the leading
paper napkin brand) and Vanity Fair premium dinner napkins (the number one
premium napkin brand). Other retail brands include Sparkle paper napkins (the
number three paper napkin brand), and Soft'N Gentle bathroom and facial
tissue, MD bath tissue, Mardi Gras towels, Coronet towels and napkins, Zee
napkins (number one on the West Coast), and Green Forest towels and napkins.
Georgia-Pacific also supplies private label or customer brand products to
some of the best known retailers in the United States. The Company believes
that it is the leading supplier to the U.S. private label towel and tissue
market, with an estimated market share between 40% and 45%. Additionally, the
Company believes it is the leading supplier of towel, tissue and napkin
products to the warehouse club channel, which includes Costco Wholesale
Corporation, Sam's Clubs and BJ's Wholesale Club.
Away-From-Home Tissue. In 2000, the other 45% of domestic tissue sales came
from commercial and industrial markets through our paper distribution business
(Unisource), independent paper distributors, food service and janitorial
distributors, and directly to national fast food accounts for use in
restaurants, offices, factories, hospitals, schools and hotels. The Company's
principal away-from-home brands include proprietary dispensing systems for the
Cormatic, Ultimatic and Guardian brands; Envison, the leading brand of
environmentally positioned 100% recycled tissue, towel and napkin products;
and Preference Ultra premium, Preference near premium, and Acclaim economy
tissue, towel and napkin products. With an estimated market share of
approximately 39%, Georgia-Pacific believes it is now the leading producer of
towel and tissue products in the U.S. away-from-home channel.
European Tissue
The European tissue business is a leading supplier of paper-based consumer
products in many European countries. Product lines in both the retail and
away-from-home markets include bathroom and facial tissue, paper towels and
napkins. Retail sales include both branded and private label products. The
Company also markets feminine hygiene products and pharmacy supplies in select
countries. These products are manufactured across Europe in 11 mills with an
annual capacity of over 810 thousand tons. Seven stand-alone converting plants
strategically located through our markets supplement converting operations
located at the primary production mills. The combined network provides cost-
effective market reach given the much higher European distribution costs and
the resulting decrease in the maximum practical distribution radius from any
one mill site.
In 2000, European sales accounted for approximately $119 million, or 6% of
tissue sales. Because the results of the segment include only one month of
results from the Fort James assets, European sales are expected to be
substantially higher going forward. Historically, annual European sales of
Fort James, as adjusted for reclassifications, have been in the $1.6 to $1.7
billion range.
During 2000, tissue-based products accounted for approximately 87% of
European annual sales with the balance comprised of feminine hygiene products,
ancillary products, such as health care and pharmacy items, and unconverted
tissue parent rolls. Georgia-Pacific sells its towel and tissue products
through both retail and away-from-home distribution channels in Europe.
Approximately 78% of European towel and tissue sales were into retail
distribution channels and 22% were into away-from-home and other channels.
Sales into retail channels are supported by both branded and private label
product offerings.
The Company's principal European brands include Lotus bathroom tissue and
handkerchiefs (both hold the number one position in France), Moltonel bathroom
tissue (the number two tissue in France), Lotus kitchen towels (the number two
kitchen towel in the Netherlands), O'Kay kitchen towels (the number one
kitchen towel
6
in France), Colhogar kitchen towels and bathroom tissue (both hold number one
positions in Spain), KittenSoft towels and bathroom tissue (both hold number
one positions in Ireland), EMBO bathroom tissue (the number one tissue in
Finland), Tenderly bathroom tissue (the number three tissue in Italy), Delica
kitchen towels and bathroom tissue (the number one towel and number two bath
tissue in Greece), Vania feminine hygiene products (the leader in France),
Selpak premium tissue products (the leader in Turkey) and Demak'Up cotton
facial pads (the leader in Europe).
Georgia-Pacific's largest European operations are in France and the United
Kingdom, which combined account for approximately 68% of its European tissue
sales. Aggregating retail branded, private label and away-from-home
production, the Company believes it is the largest producer of tissue products
in France, Spain, Finland, Ireland, and Turkey and the second largest producer
in the United Kingdom and Greece.
Dixie
The Dixie business, with one of the best known names in disposable plates,
cups and cutlery, provides a full range of products for both retail and
foodservice distribution channels. Through a twelve-plant network of focused
production facilities, Dixie manufactures products for its retail and
foodservice customers. The Company's principal retail tabletop brand is Dixie,
which has the largest U.S. retail market share for disposable cups and plates.
The Company believes that it is also the leading supplier of tabletop products
to the warehouse club channel. Foodservice customers include distributors,
restaurants, hotels, office buildings, and institutions. The Company believes
that it is one of the largest producers of disposable cups, plates and related
products for the foodservice industry. Approximately 54% of sales are into
retail distribution channels and the remaining 46% are into foodservice
distribution channels. Historically, Dixie's annual sales, as adjusted for
reclassifications, are approximately $700 million.
The Timber Company
In July 2000, Plum Creek Timber Company ("Plum Creek") and Georgia-Pacific
Corporation signed a definitive agreement to merge Plum Creek and The Timber
Company. Completion of the merger is subject to approval by the shareholders
of Plum Creek and The Timber Company, and receipt of a ruling from the
Internal Revenue Service that the transaction is tax-free to Georgia-Pacific
Corporation and the shareholders of The Timber Company and receipt of an
opinion of counsel that the merger will qualify as a tax-free reorganization.
Following the transaction, Plum Creek will become the second largest private
timberland owner in the United States.
As of February 16, 2001, the Internal Revenue Service had not ruled on the
taxable nature of the transaction. Assuming a positive IRS ruling and
subsequent shareholder votes, the transaction is expected to close during the
second quarter of 2001.
The Timber Company is engaged in the business of growing and marketing
timber. The Company is one of the largest timberland owners in the United
States, owning or controlling approximately 4.7 million acres. These
timberlands are located in three regions: 3.9 million acres of primarily pine
forests in the South; 287,000 acres of primarily Douglas fir forests in
Oregon; and 484,000 acres of mixed hardwood forests in the Appalachian and
north central regions of the United States. These timberlands are within
economic reach of over 1,000 customers and grow various commercial species of
trees for industrial wood users. Principal products include softwood
sawtimber, softwood pulpwood, hardwood sawtimber and hardwood pulpwood.
The Timber Company also operates five world-class nurseries, and plants more
than 125 million conifer seedlings each year. It does not own or operate
logging equipment or converting facilities. Logging operations are performed
by independent contractors working for purchasers of the standing timber or,
in certain circumstances, for The Timber Company.
The Timber Company also engages in certain businesses related to ownership
and management of its timberlands, including but not limited to the management
of hunting leases and mineral rights and the continuous
7
evaluation and sale of selected properties that have greater value as
conservation, commercial or recreational sites.
The Timber Company attempts to maximize shareholder value through the
implementation of strategies that constantly focus on merchandising timber for
maximum return, maximizing timberland productivity, controlling costs,
enhancing the quality of its timberlands portfolio and ensuring
environmentally sustainable operations.
During 2000, The Timber Company negotiated a new timber supply agreement
which became effective January 1, 2001 and is subject to an automatic ten year
renewal period, unless either party delivers a timely termination notice. This
arms-length agreement provides The Timber Company with a stable, long-term
customer for approximately one-third of its planned harvest while increasing
the amount of its harvest which it can market and merchandise to other
customers.
Maximize Timberland Productivity
Harvest plans and inventory projections reflect The Timber Company's
objective of increasing harvest volumes while maintaining its standing timber
inventory. Increased harvests will be effected through the use of intensive
silvicultural treatments in order to improve growth, and through the
replanting of harvested acres with faster-growing, higher-quality trees.
Forest productivity initiatives are based on proprietary forest growth systems
and processes applied on a site-by-site basis. The Integrated Forest
Management System electronically connects stand-level data collected in the
field with sophisticated forest growth models and discounted cash flow
analysis to "electronically grow and manage" the forests. This system allows
forest management on a site-by-site basis to maximize the present value of
productive lands. Growth rates are expected to continue to increase into the
future through the development and use of genetically enhanced seedlings,
improvements in responses to fertilization, vegetation control, thinning, and
selective harvesting.
Focus on Cost Control
The Timber Company has one of the leanest, most productive workforces in the
industry generating revenue of approximately $1 million per salaried employee.
During 2000, The Timber Company continued to manage general and administrative
("G&A") costs. Since The Timber Company was created in 1997, G&A expenditures
have decreased approximately 11%. While the potential for improvements in
administrative expenses are unlikely to be a significant value driver going
forward, a continuing focus on cost control is a core operating value embraced
throughout The Timber Company as part of its focus on maximizing long-term
cash flow and value for its shareholders.
Environmental Stewardship
The Timber Company is dedicated to environmental stewardship. The Timber
Company's 11-point environmental strategy adopts the provisions of the
American Forest and Paper Association's Sustainable Forestry InitiativeSM and
incorporates its own specific environmental goals. The Timber Company
continues to work closely with federal, state, and local authorities on issues
concerning endangered species, clean water, wildlife, flora and fauna
diversity, and conservation set asides.
Timber Resources
The principal raw material used by the Corporation is timber. During 2000,
The Timber Company supplied 14% of the overall timber requirements of Georgia-
Pacific Group's facilities. The prices and terms of the transactions between
The Timber Company and Georgia-Pacific Group were determined on an arms length
basis pursuant to supply contracts put in place in 1997 at the time of the
Corporation's recapitalization which created two separate classes of common
stock; The Timber Group and Georgia-Pacific Group. The Corporation purchases
its remaining timber requirements from third-party land owners in the open
market. No single supplier, other than The Timber Company, supplies more than
10% of the Corporation's timber requirements.
8
Additional information pertaining to the Corporation's timber resources is
set forth under the caption "The Timber Company" in this item.
Mineral Resources
Information pertaining to the Corporation's gypsum resources is set forth
under the captions "Georgia-Pacific Group--Building Products--Gypsum Products"
in this item.
Environment
Information pertaining to environmental issues and the Corporation's
expenditures for pollution control facilities and equipment is set forth under
the captions "Georgia-Pacific Corporation and Subsidiaries--Management's
Discussion and Analysis--Liquidity and Capital Resources--Investing
Activities" and Note 12 of the Corporation's Consolidated Financial
Statements, and is presented beginning on pages 14 and 70 under Items 7 and 8
of this Form 10-K.
Employees
Information pertaining to persons employed by the Corporation is set forth
under the captions "Georgia-Pacific Corporation and Subsidiaries--Management's
Discussion and Analysis--Liquidity and Capital Resources--Other", and is
presented on page 21 under Item 7 of this Form 10-K.
Trademarks
Dixie, Microprint, Quantum, Spectrum, Eureka, Nekoosa Solutions, Valorem,
Geocycle, St. Croix, Re-Comm, Westminster, Quilted Northern, Angel Soft,
Brawny, Sparkle, Mardi Gras, Vanity Fair, Soft 'N Gentle, MD, Coronet, Zee,
Green Forest, Cormatic, Ultimatic, Guardian, Envision, Preference Ultra,
Acclaim, Lotus, Moltonel, O'Kay, Colhogar, KittenSoft, EMBO, Tenderly, Delica,
Vania, DeMak'Up, and Dens-Glass are registered trademarks of Georgia-Pacific
Corporation and its subsidiaries.
ITEM 2.PROPERTIES
The geographic location and capacity of the manufacturing facilities by
segment is set forth on Exhibit 99.1 hereto which is hereby incorporated
herein by this reference.
The Corporation's manufacturing and support facilities are designed
according to the requirements of the products to be manufactured. Therefore,
the type of construction varies from facility to facility. Management believes
that its manufacturing facilities, taken as a whole, are well maintained and
generally adequate for current operations.
Utilization of a particular facility varies based upon demand for the
product. While it is not possible to measure with any degree of certainty the
productive capacity of a facility, we have estimated capacity in Exhibit 99.1
which is incorporated herein by reference thereto.
The Corporation generally owns its manufacturing and other facilities,
although warehouse and office facilities are often leased. The Corporation
examines alternatives for its higher cost facilities, including modernizing,
replacing or closing such facilities. The Corporation continually reviews many
business opportunities and alternatives, including possible acquisitions or
sales of properties.
Information concerning the Corporation's timber and mineral resources is
presented on pages 8 and 9 under Item 1 of this Form 10-K.
ITEM 3.LEGAL PROCEEDINGS
Information pertaining to the Corporation's Legal Proceedings is set forth
in Note 12 of the Corporation's Consolidated Financial Statements which are
presented on pages 70 through 73 under Item 8 of this Form 10-K and are
incorporated herein by reference thereto.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Georgia-Pacific Group and Timber Group common stock is listed on the New
York Stock Exchange and trade under the symbols GP and TGP, respectively. As
of the close of business on February 12, 2001, the Georgia-Pacific Group
closing stock price was $30.51 and the Timber Group stock price was $31.99,
and there were approximately 34,509 record holders of Georgia-Pacific Group
stock and 28,712 record holders of the Timber Group stock.
Information with respect to the Market for the Corporation's Common Equity
and Related Stockholder Matters is set forth in a table under the captions
"Selected Financial Data--Financial Position, End of Year" on pages 90 through
93 and in Note 14 of the Corporation's Consolidated Financial Statements on
page 75 under Item 8 of this Form 10-K which are incorporated herein by
reference thereto.
The Corporation expects to continue to pay quarterly dividends in the
amounts set forth in Note 14 of the Corporation's Consolidated Financial
Statements on page 75 under Item 8 of this Form 10-K which dividend
information is incorporated herein by reference thereto.
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to Selected Financial Data for the Corporation is
set forth under the captions "Selected Financial Data--Operations--Georgia-
Pacific Corporation and Subsidiaries" and "Selected Financial Data--Financial
Position, End of Year," which are presented on pages 87 through 93 under Item
8 of this Form 10-K, and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion summarizes the significant factors affecting the results of
operations and financial condition of the Corporation during the three fiscal
years ended December 30, 2000. This discussion should be read in conjunction
with the Consolidated Financial Statements, Notes to Consolidated Financial
Statements and Supplemental Information set forth in Item 8 of this report.
Financial information specifically concerning the Georgia-Pacific Group and
The Timber Company can be found in Note 14 and Note 15 beginning on pages 75
and 76, respectively, of the Corporation's Consolidated Financial Statements
and in Supplemental Information on pages 87 through 94.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
Georgia-Pacific Corporation consists of two separate operating groups, the
Georgia-Pacific Group and The Timber Company. The performance of these
distinct businesses is reflected separately by two classes of common stock:
Georgia-Pacific Group stock and The Timber Company stock. The Georgia-Pacific
Group consists of all the Corporation's manufacturing mills and plants, and
its distribution businesses. The facilities manufacture and sell a wide
variety of pulp and paper products (including pulp, paper, containerboard,
packaging, commercial and consumer tissue products (including bath tissue,
paper towels and napkins) and disposable tabletop products (including
disposable cups, plates and cutlery) and manufactured building products
(including plywood, oriented strand board and industrial panels, lumber,
gypsum products, chemicals and other products). The Timber Company consists of
approximately 4.7 million acres of timberlands owned or leased by the
Corporation, together with related facilities and equipment. In 2000, these
timberlands supplied approximately 14% of the overall timber requirements of
the Corporation's manufacturing facilities which was 61% of The Timber
Company's net sales.
2000 Compared with 1999
The Corporation reported consolidated net sales of $22.2 billion and net
income of $505 million for 2000, compared with net sales of $18.6 billion and
net income of $1,116 million in 1999. Included in 2000 were $528 million of
net sales from the recently acquired Fort James operations. The 1999 results
included pretax gains of $355 million ($215 million after taxes) from the
sales of the Corporation's timberlands located in California, Maine and New
Brunswick, Canada. The factors contributing to the decrease in 2000 net income
are described below.
Interest expense was $639 million in 2000, compared with $495 million in
1999. The increase is the result of higher debt levels, primarily related to
the acquisition of Fort James, and higher average interest rates.
The Corporation reported pretax income of $812 million and an income tax
provision of $307 million for the year ended December 30, 2000, compared with
pretax income of $1,821 million and an income tax provision of $705 million
for the year ended January 1, 2000. The effective tax rate used to calculate
the provision for income taxes was 37.8% in 2000 and 38.7% in 1999. The
effective tax rate for both years was below the combined statutory federal and
state income tax rates due to utilization of state tax credits and foreign
sales corporation tax benefits that more than offset nondeductible goodwill
amortization expense associated with business combinations. The Corporation
expects the effective tax rate for 2001 to be greater than the 2000 effective
tax rate because of the increase in nondeductible goodwill amortization
expense associated with the Fort James acquisition.
11
The remaining discussion refers to the "Selected Operating Segment Data"
table below which should be read in conjunction with the more detailed segment
information set forth in Note 2 of the Corporation's Consolidated Financial
Statements beginning on page 40 and Sales and Operating Profits by Operating
Segment on page 94.
SELECTED OPERATING SEGMENT DATA
Georgia-Pacific Corporation and Subsidiaries
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions
Net sales:
Building products......................... $ 8,703 $ 9,672 $ 8,834
Timber.................................... 394 526 534
Containerboard and packaging.............. 2,734 2,511 2,221
Bleached pulp and paper................... 9,085 5,540 2,476
Consumer products......................... 2,496 1,590 1,442
Other*.................................... (1,194) (1,240) (1,517)
------- ------- -------
Total net sales............................ $22,218 $18,599 $13,990
======= ======= =======
Operating profits:
Building products......................... $ 377 $ 1,202 $ 604
Timber.................................... 303 726 364
Containerboard and packaging.............. 512 324 89
Bleached pulp and paper................... 468 145 (59)
Consumer products......................... 29 170 160
Other*.................................... (238) (251) (224)
------- ------- -------
Operating profits.......................... 1,451 2,316 934
Interest expense........................... 639 495 443
Provision for income taxes................. 307 705 202
------- ------- -------
Income before extraordinary item........... 505 1,116 289
Extraordinary item, net of taxes........... - - (15)
------- ------- -------
Net income................................. $ 505 $ 1,116 $ 274
======= ======= =======
--------
* Includes the elimination of intersegment sales.
Building Products
The Corporation's building products segment reported net sales of $8.7
billion and operating profits of $377 million for the year ended December 30,
2000, compared with net sales of $9.7 billion and operating profits of $1,202
million in 1999. Return on sales was 4% in 2000 and 12% in 1999. The primary
components of the decrease in 2000 sales and operating profits were 16% lower
average plywood prices, 17% lower average softwood lumber prices, 18% lower
average OSB prices and a 12% decrease in average gypsum prices coupled with a
23% decrease in gypsum sales volume. Because of weak market conditions in this
segment, the Corporation temporarily suspended production at three structural
panels and 12 lumber mills during the latter part of 2000. In addition, the
Corporation permanently closed the Grand Rapids East, Mich., gypsum plant in
September 2000, and recorded a restructuring charge of approximately $8
million for asset write-off, employee termination and facility closure costs.
The Corporation expects continued weakness in both demand and pricing in
building products markets and lower levels of housing starts to adversely
affect operating results for its building products segment in 2001.
Timber
The timber segment represents the operations of The Timber Company. For
financial information relating to The Timber Company, including statements of
income, statements of cash flows, balance sheets, statements of parent's
equity and comprehensive income, see Note 15 of the Corporation's Consolidated
Financial Statements
12
on page 76. Net sales for the timber segment were $394 million in 2000 and
$526 million in 1999. Results for 1999 include $66 million of timber sales
from the California, Maine and New Brunswick operations. Operating profits
were $303 million in 2000 and $726 million in 1999. Excluding $355 million of
pre-tax gains from the sales of the California, Maine and New Brunswick
timberlands and $38 million of operating profits generated by those
operations, operating profits in 1999 were $333 million. Results for 2000
included $78 million of gains from tactical land sales, compared with gains of
$51 million in 1999.
Compared with larger price declines in lumber and wood panel products,
sawtimber prices decreased only 6% year-over-year. Harvest volumes totaled
11.8 million tons in 2000, compared with 14.9 million tons in 1999. While part
of the volume decline resulted from the 1999 strategic divestitures, the
decline was also attributable to market-related downtime across the forest
products industry in 2000, particularly at Georgia-Pacific Group, which
elected to defer harvest of approximately 490,000 tons from planned levels
until 2001. The timber segment also elected to defer some of its open market
timber sales, in an effort to keep local supply in balance with demand and
preserve the long-term values of its timberlands.
Containerboard and Packaging
The Corporation's containerboard and packaging segment reported net sales of
$2.7 billion and operating profits of $512 million for the year ended December
30, 2000, compared with net sales of $2.5 billion and operating profits of
$324 million in 1999. During 2000, the Corporation sold certain containerboard
and packaging assets resulting in a pre-tax gain of $25 million. Excluding
this gain on asset sales, return on sales increased to 18% from 13% in 1999.
Average selling prices increased in 2000 and ended the year above 1999 levels
despite softening demand in the fourth quarter. Average selling prices for
linerboard and medium increased 21% and 31%, respectively, while average
selling prices for packaging increased 12%. The Corporation expects continued
softness in demand for containerboard and packaging in 2001, but expects
selling prices to remain relatively constant through the year.
During 2000 and 1999, the Corporation took market-related paper machine
slowback or downtime at its containerboard mills to avoid excess inventories,
resulting in a reduction in containerboard production of approximately 271,000
tons and 30,000 tons, respectively.
Bleached Pulp and Paper
The Corporation's bleached pulp and paper segment reported net sales of $9.1
billion and operating profits of $468 million for the year ended December 30,
2000. In 1999, the segment reported net sales of $5.5 billion and operating
profits of $145 million. Return on sales increased to 5% compared with 3% for
the same period a year ago. The increase in net sales and operating profits
was due primarily to an increase in average prices for all of the
Corporation's bleached pulp and paper, offset somewhat by higher wood fiber
and production costs. Average selling prices for pulp and paper during 2000
were approximately 35% and 10%, respectively, above 1999 prices.
During 2000, the Corporation incurred market-related downtime at its
bleached pulp and paper mills, resulting in a reduction in pulp production of
17,000 tons and in paper production of 60,000 tons. In December 2000, the
Corporation announced the permanent closure of its Kalamazoo, Mich., paper
mill and a permanent closure of a paper machine at its Nekoosa, Wis.,
operations. In connection with the Kalamazoo paper mill closure, the
Corporation recorded a fourth quarter 2000 charge of $57 million for employee
termination, asset write-down, mill closure and other costs. In 1999, the
Corporation incurred market-related downtime at its pulp and paper mills
resulting in a reduction in pulp and paper production of 311,000 tons and
17,000 tons, respectively.
Selling prices for the Corporation's pulp products increased during 2000 and
ended the year at levels higher than 1999. Prices for paper fluctuated during
the year and ended the year at levels higher than 1999. The Corporation
expects the improving selling price trend to continue through 2001 for paper
products. Selling prices for pulp products are expected to decline in 2001.
Historically, selling prices for all of the Corporation's pulp and paper
products have been volatile and difficult to predict.
13
The segment's paper distribution business, which represents the operating
results of Unisource, reported net sales of $6.9 billion and operating profits
of $158 million in 2000, compared to net sales and operating profits of $3.3
billion and $78 million, respectively, in 1999. The Corporation acquired
Unisource and began consolidating its results of operations at the end of the
second quarter of 1999.
Consumer Products
The Corporation's consumer products segment reported net sales of $2.5
billion and operating profits of $29 million for the year ended December 30,
2000, which included net sales and operating profits of $528 million and $34
million, respectively, from the operations of Fort James that were acquired at
the end of November 2000. Fort James' results of operations were consolidated
with those of the Corporation beginning in the fiscal month of December 2000.
1999 net sales and operating profits were $1.6 billion and $170 million,
respectively. Included in 2000 results was a one-time unusual charge of $204
million for the write-down of assets of the Georgia-Pacific Tissue away-from-
home tissue business that will be sold during the first quarter of 2001.
Excluding this one-time charge, 2000 operating profits were $233 million and
return on sales decreased to 9% compared with 11% in 1999. The increase in
2000 operating profits was due principally to 7% higher average selling prices
and to a full year of the Wisconsin Tissue operations, which were combined
with those of the Corporation's commercial tissue business beginning on
October 3, 1999, when the Georgia-Pacific Tissue joint venture was formed.
These increases were offset somewhat by higher energy and wood fiber costs.
The Corporation expects pricing for its consumer tissue products to remain
strong through 2001.
Other
The operating loss for the "Other" nonreportable segment, which includes
some miscellaneous businesses, unallocated corporate operating expenses and
the elimination of profit on intersegment sales, decreased by $13 million to a
loss of $238 million in 2000 from a loss of $251 million in 1999. This
decrease was primarily the result of last-in, first-out ("LIFO") inventory
valuation adjustments.
Liquidity and Capital Resources
Operating Activities
The Corporation generated cash from operations of $1,737 million during 2000
and $1,422 million in 1999. The increase in cash provided by operations in
2000 was primarily a result of a significant reduction in working capital
levels.
Investing Activities
During 2000, capital expenditures for property, plant and equipment,
excluding acquisitions, were $909 million compared with $723 million in 1999.
Expenditures in 2000 included $266 million in the building products segment,
$3 million in the timber segment, $112 million in the containerboard and
packaging segment, $170 million in the bleached pulp and paper segment, $302
million in the consumer products segment, and $56 million of other and general
corporate. In 2001, the Corporation expects to make capital expenditures for
property, plant and equipment of $1.1 billion.
During 2000, the Corporation invested $262 million for pollution control and
abatement. The Corporation's 2001 capital expenditure budget currently
includes approximately $145 million for environment-related projects. Certain
other capital projects that are being undertaken for the primary reason of
improving financial returns or safety will also include expenditures for
pollution control.
On April 15, 1998, the U.S. Environmental Protection Agency promulgated a
set of regulations known as the "Cluster Rule" that establishes new
requirements for air emissions and wastewater discharges from pulp and paper
mills. The Corporation estimates that it will make capital expenditures up to
approximately $665 million through April 2006 in order to comply with the
Cluster Rule's requirements. Of that total, approximately $480 million was
spent through 2000 and an additional $50 million is expected to be spent in
2001. The Cluster Rule requires that pulp and paper mills become elemental
chlorine free in the pulp bleaching process. The work performed in 2001 will
essentially complete the projects required during the first three years of the
Cluster Rule. Remaining expenditures are for air emissions controls under MACT
II regulations (to be completed by January
14
2004) and the eight-year requirements of the MACT I regulations (to be
completed by April 2006). The MACT regulations represent the air rules of the
Cluster Rule. MACT I affects pulping and bleaching and MACT II affects
combustion sources.
Cash paid to purchase timber and timberlands was $240 million in 2000
compared with $228 million in 1999.
At the end of November 2000, the Corporation completed a tender offer
pursuant to which it purchased outstanding share of common stock of Fort James
for $29.60 per share in cash and 0.2644 shares of Georgia-Pacific Group common
stock. The Corporation is paying cash and issuing Georgia-Pacific Group shares
as the untendered Fort James shares are delivered to the Corporation's
exchange agent for cancellation. Through December 30, 2000, the Corporation
paid approximately $6,140 million in cash and issued approximately 53.7
million shares of Georgia-Pacific Group common stock valued at $1,480 million
for such shares. The fair value of the Georgia-Pacific Group common shares was
determined based on the average trading prices of Georgia-Pacific Group common
stock for the two trading days before and after July 16, 2000 (the
announcement of the Fort James acquisition). The Corporation expects to pay an
additional $29 million in cash and issue approximately 253,000 shares valued
at $7 million for Fort James common stock that had not been tendered as of
December 30, 2000. In addition, the Corporation assumed $3.3 billion of Fort
James debt in the acquisition. Fort James' results of operations were
consolidated with those of the Corporation beginning in the fiscal month of
December 2000.
In connection with the acquisition of Fort James and pursuant to a consent
decree with the U. S. Department of Justice, the Corporation committed to sell
a portion of its away-from-home tissue manufacturing operations. In January
2001, the Corporation reached a definitive agreement to sell these assets
(Georgia-Pacific Tissue) to Svenska Cellulosa Aktiebolaget SCA for
approximately $850 million. The sale is expected to be completed during the
first quarter of 2001, with estimated after-tax proceeds of approximately $660
million used to repay debt. Based on these sales proceeds, the Corporation
determined that the carrying value of the related commercial tissue assets was
higher than the net realizable value at December 30, 2000. Accordingly, the
Corporation recorded a pre tax loss of $204 million in the fourth quarter of
2000 for the write-down of these assets to their net realizable value of $850
million.
During 2000, the Corporation sold certain containerboard and packaging
assets resulting in a pre-tax gain of $25 million.
In December 1999, the Corporation sold approximately 194,000 acres of
redwood and Douglas fir timberlands in Northern California for approximately
$397 million and recognized a pretax gain of $271 million ($165 million after
taxes). This gain is reflected in "Other loss (income)" on the accompanying
statements of income. In conjunction with the sale of its California
timberlands, the Corporation received notes from the purchaser in the amount
of $397 million. These notes are fully secured by a standby letter of credit
with an unaffiliated third-party financial institution. In October 2000, the
Corporation monetized these notes through the issuance of commercial paper
secured by the notes. The net proceeds of $342 million from this monetization
were used to reduce debt allocated to The Timber Company.
On July 18, 2000, the Corporation signed a definitive agreement to merge The
Timber Company with and into Plum Creek. Under the agreement, The Timber
Company shareholders will receive 1.37 shares of Plum Creek stock for each
share of The Timber Company stock. This transaction, which includes the
assumption of approximately $640 million of debt allocated to The Timber
Company, is valued at approximately $3.6 billion. Plum Creek will assume a 10-
year wood supply agreement between Georgia-Pacific Group and The Timber
Company. The transaction is subject to approval by the shareholders of both
Plum Creek and The Timber Company, receipt of a ruling from the Internal
Revenue Service that the transaction will be tax-free to the Corporation and
to the shareholders of The Timber Company, and receipt of an opinion from
counsel that the merger will qualify as a tax-free reorganization. The
transaction is also subject to the satisfaction of customary closing
conditions. The Corporation will treat The Timber Company as a discontinued
operation once the significant contingencies surrounding the transaction are
resolved. Closing is expected by the end of the second quarter of 2001.
15
At the end of the second quarter of 1999, the Corporation, through its
wholly owned subsidiary Atlanta Acquisition Corp., completed a tender offer
for all the outstanding shares of common stock of Unisource, the largest
independent marketer and distributor of printing and imaging paper and
supplies in North America, and acquired 90.7% of the then-outstanding shares
of Unisource. On July 6, 1999, Atlanta Acquisition Corp. was merged with and
into Unisource and, by virtue of such merger, shares of Unisource that were
not tendered to the Corporation (other than shares held by Unisource and the
Corporation and its subsidiaries) were converted into the right to receive
$12.00 per Unisource share in cash, subject to dissenters' rights. The
Corporation is paying for such untendered shares as they are delivered to the
exchange agent for cancellation. Through December 30, 2000, the Corporation
has paid approximately $831 million for all Unisource shares, $2 million of
which was paid during 2000. In addition, the Corporation assumed $785 million
of Unisource debt in the acquisition.
In addition, during 1999, the Corporation completed the acquisition of a
packaging plant, four treated lumber facilities, a chemical business and
lumber transportation assets for a total consideration of approximately $74
million in cash. The results of operations of the packaging plant and treated
lumber facilities were consolidated with those of the Corporation beginning in
the second quarter of 1999. The operating results of the chemical business and
lumber transportation assets were consolidated with those of the Corporation
beginning in the third and fourth quarters, respectively, of 1999. The
Corporation has accounted for these business combinations using the purchase
method to record a new cost basis for assets acquired and liabilities assumed.
Effective October 3, 1999, the Corporation and Chesapeake Corp.
("Chesapeake") completed a previously announced agreement to create Georgia-
Pacific Tissue, a joint venture in which the two companies have combined
certain parts of their tissue businesses. The Corporation contributed
substantially all the assets of its away-from-home tissue business to the
joint venture. The Corporation controls and manages the joint venture and owns
95% of its equity. Chesapeake contributed the assets of its Wisconsin Tissue
business to the joint venture, in which it has a 5% equity interest after
receipt of an initial cash distribution of approximately $755 million. The
results of the Wisconsin Tissue operations were combined with the
Corporation's commercial tissue business beginning on October 3, 1999, when
the Georgia-Pacific Tissue joint venture was formed.
During the second quarter of 1999, the Corporation sold approximately
390,000 acres of timberlands in New Brunswick, Canada and approximately
440,000 acres of timberlands in Maine for approximately $92 million and
recognized a pretax gain of $84 million ($50 million after taxes). This gain
is reflected in "Other loss (income)" on the accompanying statements of
income. In conjunction with the sale of its Maine timberlands, the Corporation
received notes from the purchaser in the amount of $51 million. In November
1999, the Corporation monetized these notes through the issuance of notes
payable in a private placement. The Corporation will use proceeds from the
notes received from the purchaser to fund payments required for the notes
payable.
Financing Activities
The Corporation's total debt, excluding senior deferrable notes, increased
by $8,823 million to $15,847 million at December 30, 2000 from $7,024 million
at January 1, 2000, primarily due to an increase in borrowings under the
Corporation's credit facilities and the assumption of debt in connection with
the acquisition of Fort James. At December 30, 2000 and January 1, 2000,
$15,207 million and $6,054 million, respectively, of such total debt was
allocated to the Georgia-Pacific Group and $640 million and $970 million,
respectively, was allocated to The Timber Company. The debt of each of the
groups bears interest at a rate equal to the weighted average interest rate of
the Corporation's total debt, calculated on a quarterly basis. At December 30,
2000, the weighted average interest rate on the Corporation's total debt,
excluding senior deferrable notes, was 7.6% including outstanding interest
rate exchange agreements. Each group's debt increases or decreases by the
amount of any cash provided by or used for that group's operating activities,
investing activities, dividend payments, share repurchases or issuances and
other non-debt-related financing activities. See Note 1 of the Corporation's
Consolidated Financial Statements for further discussion of financial
activities.
In October 2000, the Corporation negotiated several new unsecured financing
facilities totaling $5,400 million with terms ranging from 6 to 18 months and
a permanent unsecured revolving credit facility totaling
16
$3,750 million with a term of 5 years. The proceeds under these unsecured
facilities were used to partially finance the Fort James acquisition and for
the ongoing working capital and other general corporate requirements of the
Corporation. As of December 30, 2000, $1,448 million of committed credit was
available in excess of all borrowings outstanding under or supported by these
facilities. The revolving credit agreements contain certain restrictive
covenants, including a maximum leverage ratio (funded indebtedness, including
senior deferrable notes, to earnings before interest, taxes, depreciation and
amortization ("EBITDA")) of 4.5 to 1.0 and a minimum net worth of $4,650
million. The maximum leverage ratio will be reduced to 4.0 to 1.0 on June 30,
2001 and the minimum net worth required will change on a quarterly basis. The
Corporation was in compliance with both of these covenants as of December 30,
2000.
In connection with the acquisition of Fort James, the Corporation assumed
debt totaling $3.3 billion including $909 million of revolving commercial
paper and bank overdrafts, $141 million of leases, $197 million of industrial
revenue bonds, $1,642 million of notes, $218 million of Euro-denominated bonds
and $156 million of European debt. Shortly after the acquisition, all of the
commercial paper was replaced by borrowings issued under the Corporation's new
revolving credit facilities. The Corporation subsequently fully and
unconditionally guaranteed all of Fort James' publicly held debt issued
pursuant to an Indenture with the Bank of New York, as trustee, dated as of
November 1, 1991, as amended by a first supplemental Indenture dated as of
September 19, 1997 and second supplemental Indenture dated as of February 19,
2001.
Also, in connection with the acquisition of Unisource in 1999, the
Corporation assumed former Unisource industrial revenue bonds in the amount of
$9 million and capital leases in the amount of $12 million. Additionally, the
Corporation assumed other long-term debt in the amount of $447 million and
bank overdrafts in the amount of $120 million, and retained accounts
receivable secured borrowing programs in the amount of $197 million. These
instruments are included in the Corporation's total debt.
In November 1999, in connection with the formation of Georgia-Pacific
Tissue, the Corporation issued $500 million of 7.75% Debentures Due November
15, 2029.
In June 1999, the Corporation renegotiated its accounts receivable secured
borrowing program and increased the amount outstanding under the program from
$280 million to $750 million. The program expires in October 2001. In
connection with the acquisition of Unisource, the Corporation assumed former
Unisource programs to pledge up to $150 million of certain qualifying U.S.
accounts receivable and up to CN$70 million of certain eligible Canadian
accounts receivable. The U.S. program expires in October 2001 and the Canadian
program expires in May 2004. At December 30, 2000, approximately $893 million
was outstanding under the Corporation's and Unisource's programs in the
aggregate. The receivables outstanding under these programs and the
corresponding debt are included as "Receivables" and "Commercial paper and
other short-term notes," respectively, on the Corporation's consolidated
balance sheets. All programs are accounted for as secured borrowings. As
collections reduce previously pledged interests, new receivables may be
pledged.
On July 7, 1999, the Corporation issued 17,250,000 of 7.5% Premium Equity
Participating Security Units ("PEPS Units") for $862.5 million. Each PEPS Unit
had an issue price of $50 and consists of a contract to purchase shares of
Georgia-Pacific Group common stock on or prior to August 16, 2002 and a senior
deferrable note of the Georgia-Pacific Group due August 16, 2004. Each
purchase contract yields interest of 0.35% per year, paid quarterly, on the
$50 stated amount of the PEPS Unit. Each senior deferrable note yields
interest of 7.15% per year, paid quarterly, until August 16, 2002. On August
16, 2002, following a remarketing of the senior deferrable notes, the interest
rate will be reset at a rate that will be equal to or greater than 7.15%. The
liability related to the PEPS Units is classified as "Senior deferrable notes"
on the Corporation's consolidated balance sheets and is not included in the
debt amount for purposes of determining the corporate and Georgia-Pacific
Group debt targets. The senior deferrable notes and related interest expense
are allocated specifically to the Georgia-Pacific Group.
In October 1999, the Corporation entered into a financing arrangement to
enhance the return on a deposit made in connection with a 1995 sale-leaseback
transaction by issuing $379 million of 5.74% Debentures Due
17
April 5, 2005 that were legally defeased with deposits of an equal amount.
Accordingly, the debentures and related deposits are not reflected on the
Corporation's consolidated balance sheets.
The Corporation's senior management establishes the parameters of the
Corporation's financial risk, which have been approved by the Board of
Directors (the "Board"). Hedging interest rate exposure through the use of
swaps and options and hedging foreign exchange exposure through the use of
forward contracts are specifically contemplated to manage risk in keeping with
management policy. Derivative instruments, such as swaps, forwards, options or
futures, which are based directly or indirectly upon interest rates,
currencies, equities and commodities, may be used by the Corporation to manage
and reduce the risk inherent in price, currency and interest rate
fluctuations.
The Corporation does not utilize derivatives for speculative purposes.
Derivatives are transaction-specific so that a specific debt instrument,
contract or invoice determines the amount, maturity and other specifics of the
hedge. Counterparty risk is limited to institutions with long-term debt
ratings of A or better.
The following tables present principal (or notional) amounts and related
weighted average interest rates by year of expected maturity for the
Corporation's debt obligations and interest rate exchange agreements as of
December 30, 2000 and January 1, 2000. For obligations with variable interest
rates, the tables set forth payout amounts based on current rates and do not
attempt to project future interest rates.
As of December 30, 2000
Fair Value
December 30,
2001 2002 2003 2004 2005 Thereafter Total 2000
------ ------ ---- ---- ------ ---------- ------ ------------
In millions
Commercial paper and
other short-term
notes................. - - - - - $1,295 $1,295 $1,295
Average interest
rates................ - - - - - 7.0% 7.0% 7.0%
Credit facilities...... $1,400 $4,000 - - $1,900 - $7,300 $7,300
Average interest
rates................ 8.0% 7.9% - - 7.8% - 7.9% 7.9%
Notes and debentures... $ 193 $ 459 $581 $337 - $4,106 $5,676 $5,105
Average interest
rates................ 8.6% 8.9% 6.7% 6.7% - 8.1% 8.0% 9.4%
Euro-denominated
Bonds................. - - - $283 - - $ 283 $ 252
Average interest
rates................ - - - 4.8% - - 4.8% 8.6%
Revenue bonds.......... $ 7 $ 73 - $ 33 $ 63 $ 656 $ 832 $ 778
Average interest
rates................ 4.3% 4.3% - 4.8% 7.1% 5.7% 5.7% 7.3%
Capital leases......... $ 5 $ 4 $ 3 $ 5 $ 6 $ 115 $ 138 $ 140
Average interest
rates................ 9.5% 9.6% 9.5% 9.9% 10.0% 10.3% 10.2% 9.6%
European Debt.......... $ 20 $ 22 $ 24 $ 22 $ 10 $ 43 $ 141 $ 141
Average interest
rates................ 7.7% 7.4% 7.4% 7.3% 7.0% 6.8% 7.2% 7.9%
Other loans............ $ 7 - - - - - $ 7 $ 7
Average interest
rates................ 7.1% - - - - - 7.1% 7.3%
Senior deferrable
notes................. - - $863 - - - $ 863 $ 871
Average interest
rates................ - - 7.2% - - - 7.2% 7.3%
Notional amount of
interest rate exchange
agreements (variable
to fixed)............. - $ 158 $300 - - - $ 458 $ -
Average interest rate
paid (fixed)......... - 6.1% 5.9% - - - 6.0% 6.0%
Average interest rate
received (variable).. - 6.6% 6.8% - - - 6.8% 6.8%
Notional amount of
interest rate exchange
agreements (fixed to
variable)............. $ 300 - - - - - $ 300 $ (1)
Average interest rate
paid (fixed)......... 7.1% - - - - - 7.1% 7.1%
Average interest rate
received (variable).. 6.2% - - - - - 6.2% 6.2%
Notional amount of
interest rate exchange
agreements (rate
collar)............... - - - - $ 47 - $ 47 $ -
Average interest rate
cap.................. - - - - 7.5% - 7.5% 7.5%
Average interest rate
floor................ - - - - 5.5% - 5.5% 5.5%
The Corporation has the intent and ability to refinance commercial paper and
other short-term notes as they mature. Therefore, maturities of these
obligations are reflected as cash flows expected to be made after 2005.
18
As of January 1, 2000
Fair Value
January 1,
2000 2001 2002 2003 2004 Thereafter Total 2000
---- ---- ---- ---- ---- ---------- ------ ----------
In millions
Commercial paper and
other short-term
notes................. - - - - - $2,067 $2,067 $2,067
Average interest
rates................. - - - - - 6.5% 6.5% 6.5%
Notes and debentures... - - $300 $314 - $3,389 $4,003 $3,966
Average interest
rates................. - - 10.0% 5.7% - 8.4% 8.3% 8.3%
Revenue bonds.......... $ 24 $ 6 $ 73 - $ 33 $ 517 $ 653 $ 564
Average interest
rates................. 4.5% 5.5% 4.7% - 5.4% 5.7% 5.5% 5.5%
Capital leases......... $ 2 $ 3 $ 3 $ 2 $ 2 $ 2 $ 14 $ 14
Average interest
rates................. 9.8% 9.9% 10.2% 10.4% 10.5% 10.5% 10.1% 7.9%
Other loans............ $ 14 - - - - - $ 14 $ 14
Average interest
rates................. 8.0% - - - - - 8.0% 6.2%
Senior deferrable
notes................. - - $863 - - - $ 863 $ 866
Average interest
rates................. - - 7.2% - 7.2% 7.4%
Notional amount of
interest rate
agreements (variable
to fixed)............. $177 - $131 $300 - - $ 608 $ (1)
Average interest rate
paid (fixed).......... 7.7% - 6.0% 5.9% - - 6.4% 6.4%
Average interest rate
received (variable)... 5.9% - 6.0% 5.9% - - 5.9% 5.9%
The Corporation has the intent and ability to refinance commercial paper and
other short-term notes as they mature. Therefore, maturities of these
obligations are reflected as cash flows expected to be made after 2004.
At December 30, 2000, the Corporation had interest rate exchange agreements
that effectively converted $458 million of floating rate obligations with a
weighted average interest rate of 6.8% to fixed rate obligations with an
average effective interest rate of approximately 6.0%. These agreements
decreased interest expense by $1 million for the year ended December 30, 2000,
and increased interest expense by $7 million and $11 million for the years
ended January 1, 2000 and December 31, 1998, respectively. In July 2000, $100
million of these interest rate exchange agreements terminated. As of December
30, 2000, these agreements have a weighted-average maturity of approximately
2.4 years.
At December 30, 2000, the Corporation had interest rate exchange agreements
that effectively capped $47 million of floating rate obligations to a maximum
weighted average interest rate of 7.5% and a minimum weighted average interest
rate of 5.5%. The Corporation's interest expense is unaffected by this
agreement when the market interest rate falls within this range. There was no
effect on the Corporation's interest expense for 2000 related to this
agreement.
In connection with the acquisition of Fort James, $600 million of swaps were
assumed that effectively converted fixed rate obligations with a weighted
average interest rate of 6.55% to floating rate obligations with an average
effective interest rate of 7.32%. In December 2000, $300 million of these
interest rate exchange agreements were terminated. The remaining $300 million
will terminate in March 2001. At December 30, 2000, the remaining interest
rate exchange agreements effectively converted $300 million of floating rate
obligations with a weighted average interest rate of 6.2% to fixed rate
obligations with an average effective interest rate of 7.1%. These agreements
increased interest expense by $0.4 million for the year ended December 30,
2000. As of December 30, 2000, these agreements have a weighted-average
maturity of less than one year. As of December 30, 2000, the Corporation's
total floating rate debt exceeded all related interest rate exchange
agreements by $8,936 million.
In January 2001, the Corporation entered into several interest rate exchange
agreements that effectively converted $1,500 million of floating rate
obligations with a weighted average interest rate of 5.6% to fixed rate
obligations with an average effective interest rate of approximately 5.9%.
These agreements have a weighted-average maturity of approximately 1.3 years.
19
The Corporation's debt portfolio is sensitive to changes in interest rates.
Interest rate changes would result in gains or losses in the market value of
the Company's debt portfolio due to differences in market interest rates and
the rates at inception of the debt agreements. Based on the Corporation's
indebtedness at December 30, 2000, a 100 basis point interest rate change
would impact the fair value of the debt portfolio by $403 million.
The Corporation's international operations create exposure to foreign
currency exchange rate risks. To manage these risks, the Corporation utilizes
foreign exchange contracts. As of December 30, 2000, the Corporation had
outstanding foreign exchange contracts with notional amounts of $22 million to
hedge firm and anticipated purchase commitments and firm sales commitments
denominated in foreign currencies. At December 30, 2000, the Corporation had
outstanding approximately $242 million (net of discount) of Euro-denominated
bonds which were designated as a hedge against its net investment in Europe.
The use of these derivative financial instruments allows the Corporation to
reduce its overall exposure to exchange rate movements, since the gains and
losses on these contracts substantially offset losses and gains on the assets,
liabilities and transactions being hedged. As of December 30, 2000 and January
1, 2000, the Corporation had unrealized gains on foreign currency contracts of
$1 million and $0, respectively. A 10% change from the prevailing market rates
of these foreign currencies would not have a material effect on the results of
operations.
The Corporation has entered into commodity futures and swaps, the amounts of
which were not material to the consolidated financial position of the
Corporation at December 30, 2000.
During 2000, the Corporation registered an additional $2.25 billion of debt
and equity securities under a shelf registration statement filed with the
Securities and Exchange Commission. This registration statement makes $3.0
billion of debt and equity securities available to be issued as of December
30, 2000.
The Board has adopted a policy that earnings and cash flows generated from
the businesses of the Georgia-Pacific Group or The Timber Company will be used
only for reinvestment in the business of the group generating such earnings
and related cash flows, for repayment of its debt, or for payment of dividends
on, or the repurchase of shares of, the class of common stock reflecting such
group's performance. Funds of one group will not be loaned to or otherwise
invested in the business of the other group.
During 2000, the Corporation purchased on the open market approximately 1.7
million shares of Georgia-Pacific Group stock at an aggregate price of $62
million ($36.47 average per share). The Corporation also purchased on the open
market approximately 3.3 million shares of The Timber Company stock at an
aggregate price of $78 million ($23.67 average per share), all of which were
held as treasury stock at December 30, 2000.
During 1999, the Corporation purchased on the open market approximately 6.2
million shares of Georgia-Pacific Group stock at an aggregate price of $257
million ($41.45 average per share), all of which were held as treasury stock
at January 1, 2000. The Corporation also purchased on the open market
approximately 5.3 million shares of The Timber Company stock at an aggregate
price of $131 million ($24.72 average per share). Of these purchased shares,
approximately 5,343,000 shares of The Timber Company stock were held as
treasury stock.
At the end of November 2000, the Corporation acquired Fort James as
described above and issued 21.5 million shares of Georgia-Pacific Group
treasury stock and 32.2 million newly issued shares of Georgia-Pacific Group
Stock as part of that transaction. The Corporation does not hold any Georgia-
Pacific Group stock as treasury stock as of December 30, 2000.
In the second half of 2000, the Board increased the corporate target debt
level under which the Corporation can purchase shares of Georgia-Pacific Group
common stock on the open market from $5.8 billion to $9.5 billion. The Timber
Company's target debt level remains at $1.0 billion. Depending on operating
and financial considerations, debt levels of the Corporation, the Georgia-
Pacific Group and The Timber Company may from time to time be above or below
these thresholds. Pursuant to the Plum Creek merger agreement, the Corporation
is prohibited from purchasing shares of The Timber Company common stock.
20
During 2000, the Corporation paid dividends totaling $85 million and $81
million, for Georgia-Pacific Group and The Timber Company, respectively.
During 1999, the Corporation paid dividends totaling $86 million and $84
million for Georgia-Pacific Group and The Timber Company, respectively.
In 2001, the Corporation expects its cash flow from operations, together
with proceeds from any sales of assets and available financing sources, to be
sufficient to fund planned capital investments, pay dividends and make
scheduled debt repayments.
Other
The Corporation employs approximately 80,000 people, approximately 33,000 of
whom are members of unions. The Corporation considers its relationship with
its employees to be good. Seventy-four union contracts are subject to
negotiation and renewal in 2001, including 14 at large facilities.
On January 1, 1999, eleven of the fifteen members of the European Union (the
"Participating Countries") established fixed conversion rates between their
existing sovereign currencies (the "Legacy Currencies") and a single new
currency (the "Euro"). For a three-year transition period, transactions can be
conducted in both the Euro and the Legacy Currencies but all corporate
transactions and records must legally be maintained in Euros effective January
1, 2002. The adoption of the Euro will affect a multitude of financial systems
and business applications. The Corporation has operations in seven of the
Participating Countries, including Greece, which adopted the Euro effective
January 2001, and has product sales in ten of the Participating Countries. The
Corporation's European businesses affected by the Euro conversion have
established plans to address the information system issues and the potential
business implications of converting to a common currency. As of December 30,
2000, the Corporation's financial information technology systems were capable
of processing Euro-denominated transactions but the Euro is not yet the
reporting or functional currency for any part of our business. The Corporation
believes it will be able to modify the remaining financial systems and
business activities to complete the process of conversion and transition to
the Euro as our functional business currency prior to year-end 2001 for the
countries concerned. The Corporation is unable to determine the financial
effect of the conversion on its operations, if any, since such effect depends
on the competitive conditions which exist in the various regional markets in
which the Corporation operates and potential actions which may or may not be
taken by the Corporation's competitors, customers and suppliers.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"), as amended, issued by the Financial Accounting Standards
Board ("FASB") establishes accounting and reporting standards for derivative
instrument and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities on its balance sheet and
measure those instruments at fair value. The accounting for changes in the
fair value of a derivative depends on the intended use of the derivative and
the resulting designation. The Corporation will be required to adopt SFAS No.
133 in 2001. Management has evaluated the effect of this statement on the
Corporation's derivative instruments, which are primarily interest rate swaps,
foreign currency forward contracts, and commodity futures. The cumulative
effect of such change in accounting for derivative instruments to fair value
is expected to result in a gain, net of taxes of approximately $9 million in
the first quarter of 2001.
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101") which provides the SEC's views on applying generally
accepted accounting principles to selected revenue recognition issues. The
Corporation implemented SAB 101 during 2000. The effect of implementing SAB
101 was not material to the Corporation's results of operations for any
period.
In September 2000, the Emerging Issues Task Force ("EITF") reached a final
consensus on Issue No. 00-10, "Accounting for Shipping and Handling Fees and
Costs" ("EITF 00-10"). EITF 00-10 is also effective in the fourth quarter of
2000 and addresses the income statement classification of amounts charged to
customers for shipping and handling, as well as costs incurred related to
shipping and handling. The EITF concluded that amounts billed to a customer in
a sale transaction related to shipping and handling should be classified as
21
revenue. The EITF also concluded that if costs incurred related to shipping
and handling are significant and not included in cost of sales, an entity
should disclose both the amount of such costs and the line item on the income
statement that includes them. Costs incurred related to shipping and handling
included in revenues were required to be reclassified to cost of sales. The
Corporation implemented EITF 00-10 in the fourth quarter of 2000 and prior
period information was reclassified to conform to the provisions of EITF 00-10
(see Note 1 of the Corporation's Consolidated Financial Statements beginning
on page 32).
In November 2000, the EITF deferred implementation of Issue No. 00-14,
"Accounting for Certain Sales Incentives" ("EITF 00-14") until the second
quarter of 2001. EITF 00-14 addresses the recognition, measurement and income
statement classification for sales incentives offered to customers. It
requires that an entity recognize the cost of the sales incentive at the
latter of the date at which the related revenue is recorded or the date at
which the sales incentive is offered. EITF 00-14 also requires that the
reduction in or refund of the selling price of the product resulting from any
sales incentive be classified as a reduction of revenue. Certain disclosures
are required in the 2000 fourth quarter (see Note 1 of the Corporation's
Consolidated Financial Statements beginning on page 32).
Also in September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities--a Replacement of FASB Statement No. 125" ("SFAS No. 140"). SFAS
No. 140 revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain disclosures.
This statement is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after March 31, 2001. SFAS No.
140 is effective for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. This statement affects disclosures
related to the Corporation's accounts receivable secured borrowing program
(see Note 4 of the Corporation's Consolidated Financial Statements on
page 50).
For a discussion of commitments and contingencies, see Note 12 of the
Corporation's Consolidated Financial Statements beginning on page 70.
1999 Compared with 1998
The Corporation reported consolidated net sales of $18.6 billion and net
income of $1,116 million for 1999, compared with net sales of $14.0 billion
and net income of $274 million in 1998. Included in 1999 are $3.4 billion and
$104 million of net sales, respectively, from the Unisource and Wisconsin
Tissue operations acquired during 1999. In addition, the 1999 results included
pretax gains of $355 million ($215 million after taxes) from the sales of the
Corporation's timberlands located in California, Maine and New Brunswick,
Canada. The 1998 results included an extraordinary, after-tax loss of $15
million for the early retirement of debt.
Interest expense was $495 million in 1999, compared with $443 million in
1998. The increase is the result of higher debt levels and the issuance of
senior deferrable notes, more fully described in Note 6 of the Notes to
Consolidated Financial Statements, slightly offset by a decrease in average
interest rates.
The Corporation reported pretax income of $1,821 million and an income tax
provision of $705 million for the year ended January 1, 2000, compared with
pretax income of $491 million and an income tax provision of $202 million for
the year ended December 31, 1998. The effective tax rate used to calculate the
provision for income taxes was 38.7% in 1999 and 41.1% in 1998. The reduction
in the 1999 effective tax rate resulted principally from higher pretax income
and an increased utilization of foreign sales corporation tax benefits, which
more than offset nondeductible goodwill amortization expense associated with
business acquisitions.
Building Products
The Corporation's building products segment reported net sales of $9.7
billion and operating profits of $1,202 million for the year ended January 1,
2000, compared with net sales of $8.8 billion and operating profits of $604
million in 1998. Return on sales was 12% in 1999 and 7% in 1998. The 1998
results included one-time gains, principally on sales of assets, of
approximately $20 million. The primary components of the increase in
22
1999 sales and operating profits were 26% higher average oriented strand board
prices; 22% higher average gypsum prices; 16% higher average plywood prices;
and higher average selling prices for lumber and particleboard. These
increases were offset slightly by lower chemical prices and slightly lower
volume for plywood and lumber.
Timber
Net sales and operating profits for the timber segment were $526 million and
$726 million, respectively, in 1999 and $534 million and $364 million,
respectively, in 1998. Excluding the 1999 pretax gains of $355 million from
the sales of timberlands located in California, Maine and New Brunswick,
Canada, and the 1998 pretax gain of $24 million from the sale of certain
timberlands located in West Virginia, the timber segment's operating profits
increased by $31 million to $371 million in 1999 compared with $340 million in
1998. This increase resulted primarily from a $34 million increase in gains on
miscellaneous land sales. Overall, 2% higher total harvest volumes partially
offset the year over year 3% decline in average sales price.
Containerboard and Packaging
The Corporation's containerboard and packaging segment reported net sales of
$2.5 billion and operating profits of $324 million for the year ended January
1, 2000, compared with net sales of $2.2 billion and operating profits of $89
million in 1998. Return on sales increased to 13% from 4% in 1998. Average
selling prices increased steadily throughout 1999 and ended the year above
1998 levels. Average selling prices for containerboard products increased 8%
while average selling prices for packaging increased 2%. Cost decreases for
wood fiber and energy as well as higher sales volume also contributed to the
increased profit margins.
Bleached Pulp and Paper
The Corporation's bleached pulp and paper segment reported net sales of $5.5
billion and operating profits of $145 million for the year ended January 1,
2000, compared with net sales of $2.5 billion and an operating loss of $59
million in 1998. Operating profits in 1998 included a one-time, $12 million
charge primarily for the closure of a hardwood market pulp operation. The
increase in profitability in 1999 was due primarily to a 5% improvement in
average pulp selling prices and lower overall wood fiber costs. Average
selling prices in 1999 for paper were approximately 2% below average selling
prices in 1998.
Consumer Products
Net sales and operating profits for the consumer products segment were $1.6
billion and $170 million, respectively, in 1999 and $1.4 billion and $160
million, respectively, in 1998. Included in the 1999 results were net sales of
$104 million and operation profits of $15 million from the Wisconsin Tissue
operations. The Wisconsin Tissue operations were combined with the
Corporation's away-from-home tissue business beginning on October 3, 1999,
when the Georgia-Pacific Tissue joint venture was formed. Excluding the
results of the Wisconsin Tissue operations in 1999, operating profits
decreased by $5 million related primarily to 5% lower average selling prices,
despite a 7% increase in sales volumes.
Other
The operating loss for the "Other" nonreportable segment, which includes
some miscellaneous businesses, certain goodwill amortization, unallocated
corporate operating expenses and the elimination of profit on intersegment
sales, increased by $27 million to a loss of $251 million in 1999 from a loss
of $224 million in 1998. This increase was primarily a result of higher
employee benefit and incentive costs.
23
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements under "Management's Discussion and Analysis" and other
statements contained herein that are not historical facts are forward-looking
statements (as such term is defined under the Private Securities Litigation
Reform Act of 1995) based on current expectations. The accuracy of such
statements is subject to a number of risks, uncertainties and assumptions. In
addition to the risks, uncertainties and assumptions discussed elsewhere
herein, factors that could cause or contribute to actual results differing
materially from such forward-looking statements include the following: the
industry's production capacity continuing to exceed demand for its pulp and
paper products, necessitating continued market-related downtime; changes in
the productive capacity and production levels of other building products and
pulp and paper producers; the effect on the Corporation of changes in
environmental and pollution control laws and regulations; the general level of
economic activity in U.S. and export markets; further decreases in the level
of housing starts or lessened home remodeling in the U.S.; fluctuations in
interest rates and currency exchange rates; the effect of general global
economic conditions on the demand for forest products; the effect of any
material changes in the available supply and cost of timber and wood fiber,
including the levels of harvests from public lands, and the effect of
government, legislative and environmental restrictions on the harvesting of
private timberlands; the ability of the Corporation to successfully integrate
its newly acquired consumer product businesses and to complete planned asset
divestitures; general economic conditions and competition in foreign markets
for the Corporation's newly acquired consumer products businesses, especially
in Western Europe, and foreign currency fluctuations and risks associated with
conducting manufacturing and sales operations in foreign markets; the ability
to complete the merger of The Timber Company with Plum Creek; and other risks,
uncertainties and assumptions discussed in the Corporation's filings with the
Securities and Exchange Commission, including the Corporation's Form 8-K dated
October 17, 1996, which is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Quantitative and Qualitative Disclosure about Market Risk information
for the Corporation required by this Item set forth under the caption
"Georgia-Pacific Corporation and Subsidiaries--Management's Discussion and
Analysis--Liquidity and Capital Resources--Financing Activities" on pages 17
through 20 under Item 7 of this Form 10-K is incorporated herein by reference
thereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Page
----
Financial Statements
Report on Management's Responsibilities.................................. 25
Report of Independent Public Accountants................................. 26
Consolidated Statements of Income........................................ 27
Consolidated Statements of Cash Flows.................................... 28
Consolidated Balance Sheets.............................................. 29
Consolidated Statements of Shareholders' Equity.......................... 30
Consolidated Statements of Comprehensive Income.......................... 31
Notes to Consolidated Financial Statements............................... 32
Supplemental Information:
Selected Financial Data-Operations, Georgia-Pacific Corporation and
Subsidiaries........................................................... 87
Selected Financial Data-Operations, Georgia-Pacific Group............... 88
Selected Financial Data Operations, The Timber Company.................. 89
Selected Financial Data-Financial Position, End of Year, Georgia-Pacific
Corporation and Subsidiaries........................................... 90
Selected Financial Data-Financial Position, End of Year, Georgia-Pacific
Group.................................................................. 91
Selected Financial Data-Financial Position, End of Year, The Timber
Company................................................................ 92
Sales and Operating Profits by Operating Segment, Georgia-Pacific
Corporation and Subsidiaries........................................... 94
Schedule II - Valuation and Qualifying Accounts........................... 95
24
REPORT ON MANAGEMENT'S RESPONSIBILITIES
Georgia-Pacific Corporation and Subsidiaries
Management of Georgia-Pacific Corporation is responsible for the
preparation, integrity and fair presentation of the consolidated financial
statements and the estimates and judgments upon which certain amounts in the
financial statements are based. Management is also responsible for preparing
the other financial information included in the annual report on Form 10-K. In
our opinion, the accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, and the other
financial information in the annual report on Form 10-K is consistent with the
financial statements.
Management is also responsible for establishing and maintaining a system of
internal control over financial reporting, which encompasses policies,
procedures and controls directly related to, and designed to provide
reasonable assurance as to, the reliability of the published financial
statements. An independent assessment of the system is performed by the
Corporation's internal audit staff in order to confirm that the system is
adequate and operating effectively. The Corporation's independent public
accountants also consider certain elements of the internal control system in
order to determine their auditing procedures for the purpose of expressing an
opinion on the financial statements. Management has considered any significant
recommendations regarding the internal control system that have been brought
to its attention by the internal audit staff or independent public accountants
and has taken steps it deems appropriate to maintain a cost-effective internal
control system. The Audit Committee of the Board of Directors, consisting of
independent directors, provides oversight to the financial reporting process.
The Corporation's internal auditors and independent public accountants meet
regularly with the Audit Committee to discuss financial reporting and internal
control issues and have full and free access to the Audit Committee.
There are inherent limitations in the effectiveness of any system of
internal control, including the possibility of human error and the
circumvention or overriding of controls. Accordingly, even an effective
internal control system can provide only reasonable assurance with respect to
financial statement preparation. Furthermore, the effectiveness of an internal
control system can vary over time due to changes in conditions.
Management believes that as of December 30, 2000, the internal control
system over financial reporting is adequate and effective in all material
respects.
James E. Terrell
Vice President and Controller
Danny W. Huff
Executive Vice President--Finance
and Chief Financial Officer
A.D. Correll
Chairman, Chief Executive Officer
and President
January 26, 2001
25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Georgia-Pacific Corporation:
We have audited the accompanying consolidated balance sheets of Georgia-
Pacific Corporation (a Georgia corporation) and subsidiaries as of December
30, 2000 and January 1, 2000 and the related consolidated statements of
income, shareholders' equity, comprehensive income, and cash flows for each of
the three years in the period ended December 30, 2000. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Georgia-
Pacific Corporation and subsidiaries as of December 30, 2000 and January 1,
2000 and the results of their operations and their cash flows for each of the
three years in the period ended December 30, 2000 in conformity with
accounting principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of the
financial statements is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
_____________________________________
Arthur Andersen LLP
Atlanta, Georgia
January 26, 2001
26
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions, except per share amounts
Net sales................................. $22,218 $18,599 $13,990
------- ------- -------
Costs and expenses:
Cost of sales, excluding depreciation,
depletion, amortization and cost of
timber harvested shown below............ 16,896 13,959 10,879
Selling and distribution................. 1,574 782 556
Depreciation, depletion, amortization and
cost of timber harvested................ 1,104 1,013 997
General and administrative............... 989 884 648
Interest................................. 639 495 443
Other loss (income)...................... 204 (355) (24)
------- ------- -------
Total costs and expenses.................. 21,406 16,778 13,499
------- ------- -------
Income before income taxes and
extraordinary item....................... 812 1,821 491
Provision for income taxes................ 307 705 202
------- ------- -------
Income before extraordinary item.......... 505 1,116 289
Extraordinary item--loss from early
retirement of debt, net of taxes......... - - (15)
------- ------- -------
Net income................................ $ 505 $ 1,116 $ 274
======= ======= =======
Georgia-Pacific Group
Income before extraordinary item.......... $ 343 $ 716 $ 111
Extraordinary item, net of taxes.......... - - (13)
------- ------- -------
Net income................................ $ 343 $ 716 $ 98
======= ======= =======
Basic per share:
Income before extraordinary item......... $ 1.95 $ 4.17 $ 0.62
Extraordinary item, net of taxes......... - - (0.07)
------- ------- -------
Net income................................ $ 1.95 $ 4.17 $ 0.55
======= ======= =======
Diluted per share:
Income before extraordinary item......... $ 1.94 $ 4.07 $ 0.61
Extraordinary item, net of taxes......... - - (0.07)
------- ------- -------
Net income................................ $ 1.94 $ 4.07 $ 0.54
======= ======= =======
Average number of shares outstanding:
Basic.................................... 175.8 171.8 179.8
Diluted.................................. 176.9 175.9 181.1
The Timber Company
Income before extraordinary item......... $ 162 $ 400 $ 178
Extraordinary item, net of taxes......... - - (2)
------- ------- -------
Net income................................ $ 162 $ 400 $ 176
======= ======= =======
Basic per share:
Income before extraordinary item......... $ 2.01 $ 4.75 $ 1.97
Extraordinary item, net of taxes......... - - (0.02)
------- ------- -------
Net income................................ $ 2.01 $ 4.75 $ 1.95
======= ======= =======
Diluted per share:
Income before extraordinary item......... $ 2.00 $ 4.73 $ 1.96
Extraordinary item, net of taxes......... - - (0.02)
------- ------- -------
Net income................................ $ 2.00 $ 4.73 $ 1.94
======= ======= =======
Average number of shares outstanding:
Basic.................................... 80.7 84.1 90.3
Diluted.................................. 81.1 84.6 90.8
The accompanying notes are an integral part of these consolidated financial
statements.
27
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions
Cash flows from operating activities:
Net income............................... $ 505 $ 1,116 $ 274
Adjustments to reconcile net income to
cash provided by operations, excluding
the effects of acquisitions:
Depreciation and depletion.............. 841 788 788
Cost of timber harvested................ 167 156 147
Deferred income taxes................... 82 73 38
Amortization of goodwill................ 96 69 62
Other loss (income)..................... 204 (355) (24)
Gain on disposal of assets, net......... (88) (48) (36)
Decrease (increase) in receivables...... 183 (206) 140
(Increase) decrease in inventories...... (20) (244) 93
Increase (decrease) in accounts payable
and accrued liabilities................ 38 (40) (146)
Change in other working capital......... (13) (95) 11
(Decrease) increase in taxes payable.... (178) (2) 135
Change in other assets and other long-
term liabilities....................... (80) 210 66
------- ------- ------
Cash provided by operations............... 1,737 1,422 1,548
------- ------- ------
Cash flows from investing activities:
Property, plant and equipment
investments............................. (909) (723) (638)
Timber and timberland purchases.......... (240) (228) (201)
Acquisitions............................. (6,142) (1,658) (112)
Proceeds from sales of assets............ 422 104 131
Other.................................... (63) 29 20
------- ------- ------
Cash used for investing activities........ (6,932) (2,476) (800)
------- ------- ------
Cash flows from financing activities:
Repayments of long-term debt............. (123) (579) (874)
Additions to long-term debt.............. 5,937 624 582
Fees paid to issue debt.................. (38) (35) (5)
Increase (decrease) in bank overdrafts... 14 (18) (33)
(Decrease) increase in commercial paper
and other short-term notes.............. (300) 661 308
Senior deferrable notes.................. - 863 -
Common stock repurchased................. (140) (388) (557)
Proceeds from option plan exercises...... 26 116 9
Cash dividends paid...................... (166) (170) (181)
------- ------- ------
Cash provided by (used for) financing
activities............................... 5,210 1,074 (751)
------- ------- ------
Increase (decrease) in cash............... 15 20 (3)
Balance at beginning of year.............. 25 5 8
------- ------- ------
Balance at end of year.................... $ 40 $ 25 $ 5
======= ======= ======
The accompanying notes are an integral part of these consolidated financial
statements.
28
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 30, January 1,
2000 2000
------------ ----------
In millions, except shares and per share amounts
ASSETS
Current assets:
Cash.................................................... $ 40 $ 25
------- -------
Receivables, less allowances of $34 and $25,
respectively........................................... 2,705 2,158
------- -------
Inventories
Raw materials.......................................... 655 453
Finished goods......................................... 1,868 1,367
Supplies............................................... 550 344
LIFO reserve........................................... (178) (154)
------- -------
Total inventories...................................... 2,895 2,010
------- -------
Deferred income tax assets.............................. 176 139
Other current assets.................................... 472 227
------- -------
Total current assets................................... 6,288 4,559
------- -------
Timber and timberlands................................... 1,293 1,189
------- -------
Property, plant and equipment
Land and improvements................................... 675 498
Buildings............................................... 2,537 1,634
Machinery and equipment................................. 17,387 13,343
Construction in progress................................ 624 403
------- -------
Property, plant and equipment, at cost.................. 21,223 15,878
Accumulated depreciation................................ (9,421) (8,799)
------- -------
Total property, plant and equipment, net............... 11,802 7,079
------- -------
Goodwill, net............................................ 8,985 2,697
------- -------
Other assets............................................. 2,514 1,373
------- -------
Total assets........................................... $30,882 $16,897
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdrafts, net.................................... $ 293 $ 297
Commercial paper and other short-term notes............. 2,695 2,067
Current portion of long-term debt....................... 232 39
Accounts payable........................................ 1,520 891
Accrued compensation.................................... 436 334
Other current liabilities............................... 906 563
------- -------
Total current liabilities.............................. 6,082 4,191
------- -------
Long-term debt, excluding current portion................ 12,627 4,621
------- -------
Senior deferrable notes.................................. 863 863
------- -------
Other long-term liabilities.............................. 3,027 1,811
------- -------
Deferred income tax liabilities.......................... 2,561 1,536
------- -------
Commitments and contingencies
Shareholders' equity:
Common stock............................................ 182 155
Georgia-Pacific Group, par value $0.80; 400,000,000
shares authorized; 224,844,000 and 191,983,000 shares
issued at December 30, 2000 and January 1, 2000,
respectively
The Timber Company, par value $0.80; 250,000,000 shares
authorized; 94,571,000 and 93,904,000 shares issued at
December 30, 2000 and January 1, 2000, respectively
Treasury stock, at cost................................. (330) (880)
19,776,000 shares of Georgia-Pacific Group common stock
at January 1, 2000 and 14,387,000 and 11,053,000 shares
of The Timber Company common stock at December 30, 2000
and January 1, 2000, respectively
Additional paid-in capital.............................. 2,427 1,510
Retained earnings....................................... 3,463 3,124
Long-term incentive plan deferred compensation.......... (4) (2)
Accumulated other comprehensive loss.................... (16) (32)
------- -------
Total shareholders' equity............................. 5,722 3,875
------- -------
Total liabilities and shareholders' equity............ $30,882 $16,897
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
29
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions, except shares in thousands and
per share amounts
Common stock:
Beginning balance.......................... $ 155 $ 150 $ 148
Common stock issued:
Stock option plans and directors plan...... 1 3 -
Employee stock purchase plans.............. - 2 -
Common stock issued for acquisitions....... 26 - 2
------- ------- -------
Ending balance............................ 182 155 150
------- ------- -------
Treasury stock:
Beginning balance.......................... (880) (492) -
Common stock repurchased................... (140) (388) (492)
Treasury stock issued for acquisition...... 690 - -
------- ------- -------
Ending balance............................ (330) (880) (492)
------- ------- -------
Additional paid-in capital:
Beginning balance.......................... 1,510 1,331 1,275
Common stock issued:
Stock option plans and directors plan...... 153 155 20
Employee stock purchase plans.............. - 53 -
Long-term incentive plan................... - - (1)
Common stock repurchased................... - - (56)
Common stock issued for acquisitions....... 764 - 93
Stock issuance costs....................... - (29) -
------- ------- -------
Ending balance............................ 2,427 1,510 1,331
------- ------- -------
Retained earnings:
Beginning balance.......................... 3,124 2,178 2,085
Net income................................. 505 1,116 274
Cash dividends declared (Georgia-Pacific
Group, $0.50, per common share for each of
the three years presented; The Timber
Company, $1.00 per common share for each
of the three years presented)............. (166) (170) (181)
------- ------- -------
Ending balance............................ 3,463 3,124 2,178
------- ------- -------
Long-term incentive plan deferred
compensation:
Beginning balance.......................... (2) - (5)
Common stock issued under long-term
incentive plan, net....................... (2) (2) 5
------- ------- -------
Ending balance............................ (4) (2) -
------- ------- -------
Accumulated other comprehensive loss:
Beginning balance.......................... (32) (43) (33)
Activity, net of taxes..................... 16 11 (10)
------- ------- -------
Ending balance............................ (16) (32) (43)
------- ------- -------
Total shareholders' equity................ $ 5,722 $ 3,875 $ 3,124
======= ======= =======
Georgia-Pacific Group common stock shares
issued and outstanding:
Beginning balance, common stock issued..... 191,983 186,564 184,498
Common stock issued:
Stock option plans and directors plan...... 570 3,982 278
Employee stock purchase plans.............. - 1,397 18
Long-term incentive plan................... 92 40 338
Common stock issued for acquisitions....... 32,199 - 3,280
Common stock repurchased and retired........ - - (1,848)
------- ------- -------
Balance, common stock issued................ 224,844 191,983 186,564
Common stock repurchased and held in
treasury................................... (21,501) (19,776) (13,524)
Treasury stock issued for acquisition....... 21,501 - -
------- ------- -------
Balance, common stock outstanding......... 224,844 172,207 173,040
======= ======= =======
The Timber Company common stock shares
issued and outstanding:
Beginning balance, common stock issued..... 93,904 92,785 92,607
Common stock issued:
Stock option plans and directors plan...... 667 421 174
Employee stock purchase plans.............. - 698 8
Long-term incentive plan................... - - (4)
------- ------- -------
Balance, common stock issued................ 94,571 93,904 92,785
Common stock repurchased and held in
treasury................................... (14,387) (11,053) (5,704)
------- ------- -------
Balance, common stock outstanding......... 80,184 82,851 87,081
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
30
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions
Net income............................... $505 $1,116 $274
Other comprehensive income (loss), before
taxes...................................
Foreign currency translation
adjustments............................ 24 11 (14)
Minimum pension liability adjustment.... 2 7 (3)
Income tax (expense) benefit related to
items of other comprehensive income..... (10) (7) 7
---- ------ ----
Comprehensive income..................... $521 $1,127 $264
==== ====== ====
The accompanying notes are an integral part of these consolidated financial
statements.
31
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Georgia-
Pacific Corporation and subsidiaries. All significant intercompany balances
and transactions are eliminated in consolidation.
Basis of Presentation
The Corporation, a Georgia corporation, is broadly engaged in five business
operations: the manufacture and distribution of building products (including
plywood, oriented strand board, various industrial wood products, and softwood
and hardwood lumber as well as certain nonwood products including gypsum
board, chemicals and other products); the manufacture of containerboard and
packaging (including linerboard, medium, kraft and corrugated packaging); the
manufacture of bleached pulp and paper (including paper, market pulp, and
bleached board) and the distribution of paper products and supplies
manufactured by the Corporation or purchased from others; the manufacture of
tissue products (including bath tissue, paper towels, and napkins) and
disposable tabletop products (including disposable cups, plates and cutlery);
and the growing of timber on the approximately 4.7 million acres of
timberlands that the Corporation owns or leases. In 2000, these timberlands
supplied approximately 14% of the overall timber requirements of the
Corporation's manufacturing facilities.
On December 16, 1997, shareholders of the Corporation approved the creation
of two classes of common stock intended to reflect separately the performance
of the Corporation's manufacturing and timber businesses (the "Letter Stock
Recapitalization"). The Corporation's Articles of Incorporation were amended
and restated to (i) create a new class of stock designated as Georgia-Pacific
Corporation--Timber Group common stock, $0.80 par value per share ("The Timber
Company stock"), consisting of 250 million authorized shares; (ii) redesignate
each authorized share of the Corporation's common stock, $0.80 par value per
share (the Existing Common Stock) as, and convert each share into, one share
of Georgia-Pacific Corporation--Georgia-Pacific Group common stock (now two
shares of Georgia-Pacific Group common stock after giving effect to the May
14, 1999 two-for-one stock split), $0.80 par value per share ("Georgia-Pacific
Group stock"); (iii) increase the number of shares of Georgia-Pacific Group
stock authorized for issuance from 150 million shares to 400 million shares;
and (iv) authorize the distribution of one share of The Timber Company stock
for each outstanding share of Georgia-Pacific Group stock.
The Corporation's manufacturing and timber businesses are referred to
hereinafter as the "Georgia-Pacific Group" and "The Timber Company,"
respectively, or collectively as the "groups."
The Georgia-Pacific Group is a manufacturer and distributor of building
products and pulp and paper products. The Georgia-Pacific Group includes a
procurement function that is responsible for purchasing timber and wood fiber
for all the Georgia-Pacific Group's manufacturing facilities. The Timber
Company is engaged primarily in the growing and selling of timber.
The Corporation has presented financial information of the groups at
substantially the same level of detail as that of the Corporation to allow
investors to properly evaluate the financial condition and results of
operations of each business (see Note 15 of the Notes to the Consolidated
Financial Statements). It is the Corporation's expectation that investors will
use the groups' combined financial information in conjunction with the
Corporation's consolidated financial statements to assist them in making
informed financial decisions relative to the acquisition or disposition of
shares of each class of stock.
The financial information of the groups comprise all of the accounts
included in the corresponding consolidated financial statements of the
Corporation. The financial information of the Georgia-Pacific Group and The
Timber Company has been prepared on a basis that management believes to be
reasonable and appropriate
32
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and include (i) the historical balance sheets, results of operations and cash
flows for each of the groups, with all significant intragroup transactions and
balances eliminated; (ii) in the case of The Timber Company's financial
information, assets and liabilities of the Corporation and related
transactions identified with The Timber Company, including allocated portions
of the Corporation's debt and G&A; and (iii) in the case of the Georgia-
Pacific Group's financial information, all other assets and liabilities and
related transactions of the Corporation, including allocated portions of the
Corporation's debt and G&A. Intergroup timber sales between the Georgia-
Pacific Group and The Timber Company have not been eliminated in either
group's financial information.
Notwithstanding the allocation of assets and liabilities (including
contingent liabilities) and parent's equity between the Georgia-Pacific Group
and The Timber Company for the purpose of preparing the respective financial
information of each group, holders of Georgia-Pacific Group stock and The
Timber Company stock are shareholders of the Corporation and will continue to
be subject to all the risks associated with an investment in the Corporation
and all of its businesses, assets and liabilities. The allocation of assets
and liabilities and change in the equity structure of the Corporation
resulting from the Letter Stock Recapitalization did not result in a transfer
or spin-off of any assets or liabilities of the Corporation, or otherwise
affect ownership of any assets or responsibility for the liabilities of the
Corporation or any of its subsidiaries. As a result, the Letter Stock
Recapitalization does not affect the rights of holders of the Corporation's or
any of its subsidiaries' debt.
Holders of Georgia-Pacific Group stock and The Timber Company stock have
only the rights customarily held by common shareholders of the Corporation and
do not have any rights related to their corresponding group except as set
forth in provisions relating to dividend and liquidation rights and
requirements for a mandatory dividend, redemption or conversion upon the
disposition of assets of their corresponding group, or have any right to vote
on matters as a separate voting group other than in limited circumstances as
provided under Georgia law or by stock exchange rules. The relative voting
power of Georgia-Pacific Group stock and The Timber Company stock will
fluctuate from time to time, with each share of Georgia-Pacific Group stock
having one vote and each share of The Timber Company stock having a number of
votes based upon the ratio, over a specified period prior to any shareholder
vote, of the time-weighted average market values of one share of The Timber
Company stock and of one share of Georgia-Pacific Group stock. This formula is
intended to give each class of common stock a number of votes proportionate to
its aggregate market capitalization at the time of any vote. Accordingly,
changes in the market value of Georgia-Pacific Group stock and The Timber
Company stock will affect their relative voting rights. As of December 30,
2000, the holders of Georgia-Pacific Group stock had a substantial majority of
the voting power of the Corporation.
Financial effects arising from either group that affect the Corporation's
results of operations or financial condition could, if significant, affect the
results of operations or financial condition of the other group and the market
price of the common stock relating to the other group. Any net losses of the
Georgia-Pacific Group or The Timber Company and dividends or distributions on,
or repurchases of, Georgia-Pacific Group stock or The Timber Company stock
will reduce the assets of the Corporation legally available for payment of
dividends on both Georgia-Pacific Group stock and The Timber Company stock.
The Board may, in its sole discretion, determine to convert shares of the
class of common stock related to one group into the class of common stock
related to the other group at any time at a 15% premium, or at a 10% premium
in the case of certain dispositions of all or substantially all of the
properties or assets of the group whose stock is being converted. Any
conversion at any premium would dilute the interests in the Corporation of the
holders of the class of common stock being issued in the conversion. In
addition, any such conversion of a class of common stock into another class of
common stock would preclude holders of both classes of common stock from
retaining their investment in a security that is intended to reflect
separately the performance of the relevant group.
33
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The management and accounting policies applicable to the preparation of the
financial statements of the Georgia-Pacific Group and The Timber Company may
be modified or rescinded, or additional policies may be adopted, at the sole
discretion of the Board at any time without approval of the shareholders.
The groups' combined financial information reflects the application of the
management and allocation policies adopted by the Board to various corporate
activities, as described below.
Financial Activities
At June 30, 1997, $1.0 billion of the Corporation's total debt was allocated
to The Timber Company for financial information purposes, and the balance of
the Corporation's total debt was allocated to the Georgia-Pacific Group. The
Corporation's debt was allocated between the groups based upon a number of
factors including expected future cash flows, volatility of earnings, and the
ability to pay debt service and dividends. In addition, the Corporation
considered certain measures of creditworthiness, such as coverage ratios and
various tests of liquidity, as a means of ensuring that each group could
continue to pay debt service during a business downcycle. Management believes
that such allocation is equitable and reasonable.
At December 30, 2000, $640 million of the Corporation's debt was allocated
to The Timber Company and $15,207 million was allocated to the Georgia-Pacific
Group. The senior deferrable notes and related interest expense are allocated
specifically to the Georgia-Pacific Group (see Note 6 of the Notes to the
Consolidated Financial Statements). The Corporation has not allocated any
other debt securities or instruments to either group. The debt of each group
bears interest at a rate equal to the weighted average interest rate of all
the Corporation's debt calculated on a quarterly basis. This weighted average
interest rate excludes the interest on the senior deferrable notes. Management
believes that this method of allocation of the cost of debt is equitable and
provides a reasonable estimate of the cost attributable to the groups.
Each group's debt increases or decreases by the amount of any net cash
generated by, or required to fund, the group's operating activities, investing
activities, dividend payments, share repurchases and other financing
activities. Interest is charged to each group in proportion to the respective
amount of each group's debt. Changes in the cost of the Corporation's debt are
reflected in adjustments to the weighted average interest cost of such debt.
Dividend costs with respect to any preferred stock issued by the Corporation
are charged in a similar manner.
Allocation of Shared Services
A portion of the Corporation's shared G&A (such as executive management,
human resources, legal, accounting and auditing, tax, treasury, strategic
planning and information systems support) has been allocated to each group
based upon identification of such services specifically used by each group.
Where determinations based on specific usage alone have been impracticable,
other methods and criteria were used that management believes are equitable
and provide a reasonable estimate of the cost attributable to each group.
These methods consisted of allocating costs based on (i) number of employees
of each group, (ii) percentage of office space of each group and (iii)
estimated percentage of staff time allocable to each group. The total of these
allocations was $280 million, $251 million and $282 million in 2000, 1999 and
1998, respectively. It is not practicable to provide a detailed estimate of
the expenses that would be recognized if either group were a separate legal
entity.
Allocation of Employee Benefits
A portion of the Corporation's employee benefit costs, including pension and
postretirement health care and life insurance benefits, has been allocated to
each group. The pension cost related to their participation in the
Corporation's noncontributory defined benefit pension plan, and other employee
benefit costs related to their
34
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
participation in the Corporation's postretirement health care and life
insurance benefit plans, are actuarially determined based on the number of
their employees and an allocable share of the plan assets and are calculated
in accordance with SFAS No. 87, "Employers' Accounting for Pensions," and SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," respectively. Management believes such method of allocation is
equitable and provides a reasonable estimate of the costs attributable to each
group.
Since plan assets are not segregated into separate accounts or restricted to
providing benefits to employees of either group, assets of the Corporation's
employee benefit plans may be used to provide benefits to employees of both
the Georgia-Pacific Group and The Timber Company. Plan assets have been
allocated to the groups based on the percentage of their projected benefit
obligations to the plans' total projected benefit obligations.
Allocation of Federal and State Income Taxes
The federal income taxes of the Corporation and the subsidiaries that own
assets allocated between the groups are determined on a consolidated basis.
Consolidated federal income tax provisions and related tax payments or refunds
are allocated between the groups based principally on the taxable income and
tax credits directly attributable to each group. Such allocations reflect each
group's contribution (positive or negative) to the Corporation's consolidated
federal taxable income and the consolidated federal tax liability and tax
credit position. Tax benefits that cannot be used by the group generating
those benefits, but can be used on a consolidated basis, are credited to the
group that generated such benefits. Had the groups filed separate tax returns,
the provision for income taxes and net income for each group would not have
significantly differed from the amounts reported on the groups' statements of
income for the years ended December 30, 2000, January 1, 2000 and December 31,
1998. However, the amounts of current and deferred taxes and taxes payable or
refundable allocated to each group on the historical financial statements may
differ from those that would have been allocated had the groups filed separate
income tax returns.
Depending on the tax laws of the respective jurisdictions, state and local
income taxes are calculated on either a consolidated or combined basis or on a
separate corporation basis. State income tax provisions and related tax
payments or refunds determined on a consolidated or combined basis are
allocated between the groups based on their respective contributions to such
consolidated or combined state taxable incomes. State and local income tax
provisions and related tax payments that are determined on a separate
corporation basis are allocated between the groups in a manner designed to
reflect the respective contributions of the groups to the Corporation's
separate state or local taxable income.
Dividends
For purposes of the historical financial statements of the Georgia-Pacific
Group and The Timber Company, for periods prior to 1998, all dividends
declared and paid by the Corporation were evenly allocated between the groups.
Management believes that such method of allocation is equitable and provides a
reasonable estimate of the dividends that would have been declared and paid in
respect of each class of common stock. The amount of earnings available for
payment of dividends on Georgia-Pacific Group stock and on The Timber Company
stock (i.e., the available dividend amounts) on any date is the amount in
excess of the minimum amount necessary for the particular group to be able to
pay its debts as they become due in the usual course of business. Future
dividends will not bear a direct relationship to earnings and retained
earnings as expressed on each group's combined financial statements in
accordance with generally accepted accounting principles. Accordingly, a
mathematical calculation of the available dividend amount for either group
cannot be made.
Stock Split
On May 4, 1999, the Board declared a two-for-one split of the Georgia-
Pacific Group's stock in the form of a special dividend to shareholders of
record on May 14, 1999. The special dividend was paid as one share of
35
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Georgia-Pacific Group stock for each such share outstanding on June 3, 1999. A
total of 95,126,911 additional shares were issued in conjunction with the
stock split. The Georgia-Pacific Group's par value of $0.80 remained
unchanged. As a result, $76 million of shareholders' equity was reclassified
from "Additional paid-in capital" to "Common stock." All historical share and
per share amounts have been restated to reflect retroactively the stock split.
Revenue Recognition
The Corporation recognizes revenue when the following criteria are met:
persuasive evidence of an agreement exists, delivery has occurred or services
have been rendered, the Corporation's price to the buyer is fixed and
determinable, and collectibility is reasonably assured.
Foreign Currency Translation
The functional currency for most of the international subsidiaries is the
local currency for the country in which the subsidiaries own their primary
assets. The translation of the applicable currencies into U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. Any related translation adjustments
are recorded directly in other comprehensive income. Transactions gains
(losses) are reflected in the Consolidated Statements of Income.
Income Per Share
Basic earnings per share are computed based on net income and the weighted
average number of common shares outstanding. Diluted earnings per share
reflect the assumed issuance of common shares under long-term incentive, stock
option and stock purchase plans, and pursuant to the terms of the PEPS Units.
The computation of diluted earnings per share does not assume conversion or
exercise of securities that would have an antidilutive effect on earnings per
share. Amounts are computed for each class of common stock based on the
separate earnings attributed to each of the respective businesses.
36
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Earnings Per Share
Year Ended
---------------------------------------------------------------------------
December 30, January 1, December 31,
----------------------- ------------------------ -----------------------
2000 2000 2000 2000 1998 1998
----------- ---------- ----------- ---------- ----------- ----------
Georgia- Georgia- Georgia-
Pacific The Timber Pacific The Timber Pacific The Timber
Group Company Group Company Group Company
----------- ---------- ----------- ---------- ----------- ----------
In millions, except shares
and per share amounts
Basic and diluted income
available to
shareholders
(numerator):
Income before
extraordinary item and
accounting change...... $ 343 $ 162 $ 716 $ 400 $ 111 $ 178
Extraordinary item, net
of taxes............... - - - - (13) (2)
----------- ---------- ----------- ---------- ----------- ----------
Net income............. $ 343 $ 162 $ 716 $ 400 $ 98 $ 176
=========== ========== =========== ========== =========== ==========
Shares (denominator):
Average shares
outstanding............ 175,835,279 80,705,171 171,807,884 84,138,673 179,765,172 90,313,022
Dilutive securities:
Options................. 872,380* 408,905 3,677,295** 426,423*** 1,249,430# 492,549##
Employee stock purchase
plans.................. 191,945 1,936 438,630 40,508 71,620 7,575
----------- ---------- ----------- ---------- ----------- ----------
Total assuming
conversion............ 176,899,604 81,116,012 175,923,809 84,605,604 181,086,222 90,813,146
=========== ========== =========== ========== =========== ==========
Per share amounts:
Basic
Income before
extraordinary item and
accounting change...... $ 1.95 $ 2.01 $ 4.17 $ 4.75 $ 0.62 $ 1.97
Extraordinary item, net
of taxes............... - - - - (0.07) (0.02)
----------- ---------- ----------- ---------- ----------- ----------
Net income............. $ 1.95 $ 2.01 $ 4.17 $ 4.75 $ 0.55 $ 1.95
=========== ========== =========== ========== =========== ==========
Diluted
Income before
extraordinary item and
accounting change...... $ 1.94 $ 2.00 $ 4.07 $ 4.73 $ 0.61 $ 1.96
Extraordinary item, net
of taxes............... - - - - (0.07) (0.02)
----------- ---------- ----------- ---------- ----------- ----------
Net income............. $ 1.94 $ 2.00 $ 4.07 $ 4.73 $ 0.54 $ 1.94
=========== ========== =========== ========== =========== ==========
--------
* Options to purchase 5,474,098 shares of Georgia-Pacific Group stock at
prices ranging from $31.57 to $91.58 per share were outstanding during
2000, as were PEPS Units to purchase Georgia-Pacific Group stock. However,
these were not included in the computation of diluted earnings per share
because the options' exercise price and the PEPS Unit purchase contract
price were greater than the average market price of the common shares.
** Options to purchase 176,490 shares of Georgia-Pacific Group stock at
prices ranging from $43.58 to $91.58 per share were outstanding during
1999, as were PEPS Units to purchase Georgia-Pacific Group stock. However,
these were not included in the computation of diluted earnings per share
because the options' exercise price and the PEPS Unit purchase contract
price were greater than the average market price of the common shares.
*** Options to purchase 1,004,000 shares of The Timber Company stock at $25.13
per share were outstanding during 1999 but were not included in the
computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares.
# Options to purchase 23,856 shares of Georgia-Pacific Group stock at $30.25
per share were outstanding during 1998 but were not included in the
computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares.
## Options to purchase 1,951,130 shares of The Timber Company stock at prices
ranging from $23.21 to $25.13 per share were outstanding during 1998 but
were not included in the computation of diluted earnings per share because
the options' exercise price was greater than the average market price of
the common shares.
37
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inventory Valuation
Inventories are valued at the lower of year-to-date average cost or market
and include the costs of materials, labor and manufacturing overhead. The LIFO
dollar value pool method was used to determine the cost of approximately 64%
and 65% of inventories at December 30, 2000 and January 1, 2000, respectively.
Timber and Timberlands
The Corporation capitalizes timber and timberland purchases and
reforestation costs. The cost of timber harvested is based on the volume of
timber harvested, the capitalized cost and the total timber volume estimated
to be available over the growth cycle. Timber carrying costs are expensed as
incurred.
Gains or losses on sales of timberlands are reflected as a reduction of
"Cost of sales" on the accompanying statements of income, with the exception
of major divestitures (where gains are generally greater than $20 million for
a single transaction), which are reflected as "Other loss (income)."
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Lease obligations for
which the Corporation assumes or retains substantially all the property rights
and risks of ownership are capitalized. Replacements of major units of
property are capitalized, and the replaced properties are retired.
Replacements of minor components of property, and repair and maintenance
costs, are charged to expense as incurred. Planned shutdown maintenance costs
are charged to earnings ratably during the year. There are no reserves for
planned shutdown costs at the end of any fiscal year.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Useful lives are 25 years for land
improvements, 20 to 45 years for buildings, and 3 to 20 years for machinery
and equipment. Upon retirement or disposition of assets, cost and accumulated
depreciation are removed from the related accounts and any gain or loss is
included in income.
The Corporation capitalizes incremental costs that are directly associated
with the development of software for internal use. Amounts are amortized over
five years beginning when the assets are placed in service. Capitalized costs
were $48 million at December 30, 2000 and $66 million at January 1, 2000.
Amounts are included as property, plant and equipment on the accompanying
balance sheets.
The Corporation capitalizes interest on projects when construction takes
considerable time and entails major expenditures. Such interest is charged to
the property, plant and equipment accounts and amortized over the approximate
lives of the related assets. Interest capitalized, expensed and paid was as
follows:
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions
Total interest costs....................... $650 $501 $452
Interest capitalized....................... (11) (6) (9)
---- ---- ----
Interest expense........................... $639 $495 $443
==== ==== ====
Interest paid.............................. $628 $473 $468
==== ==== ====
38
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Landfills and Lagoons
The Corporation accrues for landfill closure costs over the periods that
benefit from the use of the landfill and accrues for lagoon clean-out costs
over the useful period between clean-outs.
Goodwill
The Corporation amortizes costs in excess of fair value of net assets of
businesses acquired using the straight-line method over a period not to exceed
40 years. The Corporation reviews the recorded value of its goodwill annually,
or sooner if events or changes in circumstances indicate that the carrying
amount may exceed fair value. Recoverability is then determined by comparing
the undiscounted net cash flows of the assets to which the goodwill applies to
the net book value, including goodwill, of those assets.
Amortization expense was $96 million, $69 million and $62 million in 2000,
1999, and 1998, respectively. Accumulated amortization at December 30, 2000
and January 1, 2000 was $915 million and $615 million, respectively.
Environmental Matters
The Corporation recognizes a liability for environmental remediation costs
when it believes it is probable a liability has been incurred and the amount
can be reasonably estimated. The liabilities are developed based on currently
available information and reflect the participation of other potentially
responsible parties, depending on the parties' financial condition and
probable contribution. The accruals are recorded at undiscounted amounts and
are reflected as other liabilities on the accompanying balance sheets.
Environmental costs are generally capitalized when the costs improve the
condition of the property or the costs prevent or mitigate future
contamination. All other costs are expensed.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements as well as reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
these estimates.
Accounting Standards Change
SFAS No. 133, as amended, issued by the FASB establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities on its balance sheet and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. The Corporation
will be required to adopt SFAS No. 133 in 2001. Management has evaluated the
effect of this statement on the Corporation's derivative instruments, which
are primarily interest rate swaps, foreign currency forward contracts, and
commodity futures. The cumulative effect of such change in accounting for
derivative instruments to fair value is expected to result in a gain, net of
taxes of approximately $9 million in the first quarter of 2001.
In September 2000, the EITF reached a final consensus on Issue No. 00-10,
"Accounting for Shipping and Handling Fees and Costs". EITF 00-10 is effective
in the fourth quarter of 2000 and addresses the income statement
classification of amounts charged to customers for shipping and handling, as
well as costs incurred
39
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
related to shipping and handling. The EITF concluded that amounts billed to a
customer in a sale transaction related to shipping and handling should be
classified as revenue. The EITF also concluded that if costs incurred related
to shipping and handling are significant and not included in cost of sales, an
entity should disclose both the amount of such costs and the line item on the
income statement that includes them. Costs incurred related to shipping and
handling included in revenues were required to be reclassified to cost of
sales. The Corporation implemented EITF 00-10 in the fourth quarter of 2000.
Prior to implementing EITF 00-10, the Corporation classified shipping and
handling amounts billed to a customer as revenue. However, costs incurred
related to shipping and handling were classified as a reduction of revenue or
as a selling and distribution expense. Shipping and handling costs that were
reclassified from revenue to cost of sales totaled $632 million, $622 million,
and $648 million in 2000, 1999, and 1998, respectively. Shipping and handling
costs included in selling and distribution expenses were $481 million, $357
million, and $233 million in 2000, 1999, and 1998, respectively.
In November 2000, the EITF deferred implementation of Issue No. 00-14,
"Accounting for Certain Sales Incentives" until the second quarter of 2001.
EITF 00-14 addresses the recognition, measurement and income statement
classification for sales incentives offered to customers. It requires that an
entity recognize the cost of the sales incentive at the latter of the date at
which the related revenue is recorded or the date at which the sales incentive
is offered. EITF 00-14 also requires that the reduction in or refund of the
selling price of the product resulting from any sales incentive be classified
as a reduction of revenue. The Corporation participates in various sales
incentives programs, the majority of which are classified as a reduction of
revenue. Sales incentives that are currently classified as selling and
distribution expenses are coupons, off-invoice pricing, rebates and free
products. These sales incentives are offered by the Corporation's retail
tissue business within the consumer products segment and paper business within
the bleached pulp and paper segment. All other businesses record sales
incentives as a reduction of revenue. Sales incentives classified as selling
and distribution expenses were $8 million, $5 million, and $6 million in 2000,
1999, and 1998, respectively. The implementation of EITF 00-14 will result in
a reduction in revenue of these amounts and a corresponding reduction of
selling and distribution expenses. There will be no impact on results of
operations.
Change in Fiscal Year
In April 1999, the Corporation determined to change its fiscal year from
December 31 to end on the Saturday closest to December 31. Additionally, the
Corporation reports its quarterly periods on a 13-week basis ending on a
Saturday. The impact of one additional day on the year ended January 1, 2000
was not material. There was no transition period on which to report.
Reclassifications
Certain 1999 and 1998 amounts have been reclassified to conform with the
2000 presentation. In connection with the acquisition of Fort James, the
Corporation revised its segment reporting to include the following reportable
business segments: building products, timber, containerboard and packaging,
bleached pulp and paper, and consumer products.
NOTE 2. OPERATING SEGMENT INFORMATION
The Corporation has five reportable operating segments: building products,
timber, containerboard and packaging, bleached pulp and paper, and consumer
products.
. Manufactured products in the building products segment consist primarily
of wood panels (plywood, oriented strand board, hardboard and
particleboard), lumber, gypsum products and chemicals. The distribution
business of the building products segment sells a wide range of building
products
40
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
manufactured by the Corporation or purchased from others. This segment
of the business is primarily affected by the level of housing starts;
the level of repairs, remodeling and additions; industrial markets;
commercial building activity; the availability and cost of financing;
and changes in industry capacity.
. The timber segment consists of The Timber Company and is engaged
primarily in the growing and selling of timber. In addition, the timber
segment is engaged in certain businesses related to ownership and
management of timberlands, including managing the sale of hunting
leases, the sale of minerals and mineral rights, and the sale of
easements. The operations of the timber segment are affected by a number
of factors, including prices for timber generally, selling prices for
manufactured wood products, supplies of timber from other wood sources
in the United States and competition for these raw materials, as well as
seasonal factors such as weather.
. The containerboard and packaging segment produces and sells linerboard,
medium, kraft and corrugated packaging.
. The bleached pulp and paper segment produces paper, market pulp, and
bleached board. The distribution division of the bleached pulp and paper
segment sells and distributes high-quality printing, writing and copying
papers and a broad range of packaging and maintenance supplies,
equipment and services.
. The consumer products segment produces and sells retail and away-from-
home tissue and the Dixie line.
Markets for these segments are affected primarily by changes in industry
capacity, the level of economic growth in U.S. and export markets, and
fluctuations in currency exchange rates.
The accounting policies of the segments are primarily the same as those
described in the summary of significant accounting policies. The Corporation
evaluates performance based on profit or loss from operations before interest
and income taxes (i.e., operating profit or loss).
The Corporation accounts for intersegment sales and transfers as if the
sales or transfers were to third parties, that is, at current market prices.
The Corporation's reportable segments are strategic business units that
offer different products and services. They are managed separately because
each business has different customers and requires different production
processes.
The "Other" nonreportable segment includes some miscellaneous businesses,
unallocated corporate operating expenses, and the elimination of intersegment
sales and related profits.
41
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Corporation has a large and diverse customer base, which includes some
customers located in foreign countries. No single unaffiliated customer
accounted for more than 10% of total sales in any year during the three years
ended December 30, 2000. Sales to foreign markets in 2000, 1999 and 1998 were
10%, 7% and 8%, respectively. These sales were primarily to customers in
Canada, Europe, Asia and Latin America. Information on operations in U.S. and
foreign markets is as follows:
Revenues*
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions
United States.............................. $20,105 $17,242 $12,931
Foreign countries.......................... 2,113 1,357 1,059
------- ------- -------
Total Net Sales.......................... $22,218 $18,599 $13,990
======= ======= =======
--------
* Revenues are attributed to countries based on location of customer.
Long lived assets located in the United States and abroad were valued at
$10.4 billion and $1.4 billion, respectively as of December 30, 2000. Prior to
the acquisition of Fort James, a substantial portion of the Corporation's
foreign revenues was derived from the sale of U.S. - produced products abroad.
Therefore, assets located outside the United States as of January 1, 2000 and
December 31, 1998 were not material.
42
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following summarizes certain financial information by segment:
Containerboard Bleached
Building and Pulp and Consumer All
Products Timber Packaging Paper Products Other Consolidated
-------- ------ -------------- -------- -------- ------- ------------
In millions
2000
Net sales to
unaffiliated
customers.............. $7,959 $ 155 $2,645 $9,035 $ 2,435 $ (11)* $22,218
Intersegment sales...... 744 239 89 50 61 (1,183)** -
------ ------ ------ ------ ------- ------- -------
Total net sales........ $8,703 $ 394 $2,734 $9,085 $ 2,496 $(1,194) $22,218
====== ====== ====== ====== ======= ======= =======
Operating profit
(loss)................. $ 377 $ 303 $ 512 $ 468 $ 29 $ (238)*** $ 1,451
Depreciation, depletion,
amortization, and cost
of timber harvested.... 370 27 172 339 179 17 1,104
Property, plant and
equipment investments.. 266 3 112 170 302 56 909
Timber and timberland
purchases.............. 181 59 - - - - 240
Acquisitions............ - - - 2 6,140 - 6,142
Assets.................. 3,477 1,619 2,421 6,319 15,727 1,319 30,882
1999
Net sales to
unaffiliated
customers.............. $8,919 $ 199 $2,446 $5,501 $ 1,550 $ (16)* $18,599
Intersegment sales...... 753 327 65 39 40 (1,224)** -
------ ------ ------ ------ ------- ------- -------
Total net sales........ $9,672 $ 526 $2,511 $5,540 $ 1,590 $(1,240) $18,599
====== ====== ====== ====== ======= ======= =======
Operating profit
(loss)................. $1,202 $ 726 $ 324 $ 145 $ 170 $ (251)*** $ 2,316
Depreciation, depletion,
amortization, and cost
of timber harvested.... 363 42 157 288 89 74 1,013
Property, plant and
equipment investments.. 281 2 92 169 138 41 723
Timber and timberland
purchases.............. 150 78 - - - - 228
Acquisitions............ 51 - 23 829 755 - 1,658
Assets.................. 3,599 1,521 1,955 5,233 1,858 2,731 16,897
1998
Net sales to
unaffiliated
customers.............. $7,852 $ 125 $2,161 $2,448 $ 1,414 $ (10)* $13,990
Intersegment sales...... 982 409 60 28 28 (1,507)** -
------ ------ ------ ------ ------- ------- -------
Total net sales........ $8,834 $ 534 $2,221 $2,476 $ 1,442 $(1,517) $13,990
====== ====== ====== ====== ======= ======= =======
Operating profit
(loss)................. $ 604 $ 364 $ 89 $ (59) $ 160 $ (224)*** $ 934
Depreciation, depletion,
amortization, and cost
of timber harvested.... 366 44 148 285 69 85 997
Property, plant and
equipment investments.. 198 6 84 140 165 45 638
Timber and timberland
purchases.............. 142 59 - - - - 201
Acquisitions............ 19 - 93 - - - 112
Assets.................. 3,495 1,174 1,871 3,078 730 2,352 12,700
--------
* Represents the elimination of hunting lease income reflected in net sales
for the timber segment and reflected as a reduction to cost of sales on a
consolidated basis. In addition, these amounts include net sales from
miscellaneous businesses.
** Elimination of intersegment sales.
*** Includes some miscellaneous businesses, unallocated corporate operating
expenses and the elimination of profit on intersegment sales.
43
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reconciliation of Segment Operating Profits to Consolidated Net Income
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions
Total operating profits.................... $1,451 $2,316 $934
Interest expense........................... 639 495 443
Provision for income taxes................. 307 705 202
------ ------ ----
Income before extraordinary item........... 505 1,116 289
Extraordinary item, net of taxes........... - - (15)
------ ------ ----
Net income............................... $ 505 $1,116 $274
====== ====== ====
NOTE 3. ACQUISITIONS, DIVESTITURES AND UNUSUAL ITEMS
. At the end of November 2000, the Corporation completed a tender offer
pursuant to which it purchased each outstanding share of common stock of
Fort James for $29.60 per share in cash and 0.2644 shares of Georgia-Pacific
Group common stock. The Corporation is paying cash and issuing Georgia-
Pacific Group shares as the untendered Fort James shares are delivered to
the Corporation's exchange agent for cancellation. Through December 30,
2000, the Corporation paid approximately $6,140 million in cash and issued
approximately 53.7 million shares of Georgia-Pacific Group common stock
valued at $1,480 million for such shares. The fair value of the Georgia-
Pacific Group common shares was determined based on the average trading
prices of Georgia-Pacific Group common stock for the two trading days before
and after July 16, 2000 (the announcement of the Fort James acquisition).
The Corporation expects to pay an additional $29 million in cash and issue
approximately 253,000 shares valued at $7 million for Fort James common
stock that had not been tendered as of December 30, 2000. In addition, the
Corporation assumed $3.3 billion of Fort James debt in the acquisition.
Fort James' results of operations were consolidated with those of the
Corporation beginning in the fiscal month of December 2000. The Corporation
has accounted for this business combination using the purchase method to
record a new cost basis for assets acquired and liabilities assumed. The
allocation of the purchase price and acquisition costs to the assets
acquired and liabilities assumed is preliminary as of December 30, 2000, and
is subject to change pending finalization of studies of fair value and the
finalization of management's plans to restructure certain operations. The
difference between the purchase price and the fair value of the assets
acquired and liabilities assumed was recorded as goodwill and is being
amortized over 40 years. The preliminary allocation of net cash paid for the
Fort James acquisition as of December 30, 2000 is summarized as follows:
In millions
Current assets...................................................... $ 1,746
Property, plant and equipment....................................... 4,630
Other noncurrent assets............................................. 899
Goodwill............................................................ 6,609
Liabilities......................................................... (6,144)
Common stock issued and value of stock options converted............ (1,600)
-------
Net cash paid for Fort James........................................ $ 6,140
=======
44
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the acquisition of Fort James, the Corporation recorded
liabilities totaling approximately $30 million for employee termination
costs relating to approximately 429 hourly and salaried employees. During
2000, no employees were terminated and none of this reserve was used. The
Corporation has not finalized its plans for manufacturing and distribution
activities. Finalization of these plans may result in additional
liabilities recorded as part of the purchase price or charges to earnings.
The following unaudited pro forma financial data has been prepared assuming
that the acquisition of Fort James and related financings were consummated
on January 1, 1999. This pro forma financial data is presented for
informational purposes and is not indicative of the operating results that
would have occurred had the acquisition been consummated on January 1,1999,
nor does it include adjustments for expected synergies, cost savings or
consistent application of accounting methods. Accordingly, this pro forma
data is not necessarily indicative of future operations.
Year Ended
-----------------------
December 30, January 1,
2000 2000
------------ ----------
In millions, except per share amounts
Georgia-Pacific Corporation:
Net sales......................................... $28,430 $25,270
Income from continuing operations................ 310 1,010
Net income....................................... 310 1,178
Georgia-Pacific Group data:
Net sales......................................... $28,288 $25,089
Income from continuing operations................ 148 310
Net income....................................... 148 778
Basic income per share from continuing
operations...................................... 0.65 2.71
Diluted income per share from continuing
operations...................................... 0.64 2.66
Basic earnings per share......................... 0.65 3.45
Diluted earnings per share....................... 0.64 3.39
The Timber Company's results of operations are not impacted by the Fort
James transaction.
The 2000 pro forma financial data includes nonrecurring restructuring and
acquisition-related charges of $225 million incurred by Fort James. The
1999 pro forma financial data includes a $40 million after-tax
extraordinary loss on early extinguishment of debt, a $235 million after-
tax extraordinary gain on sale of discontinued operations and a $22 million
after-tax loss for the cumulative effect of a change in accounting
principle.
. Effective October 3, 1999, the Corporation and Chesapeake completed a
previously announced agreement to create Georgia-Pacific Tissue, a joint
venture in which the two companies have combined certain parts of their
tissue businesses. The Corporation contributed substantially all the assets
of its away-from-home tissue business to the joint venture. The Corporation
controls and manages the joint venture and owns 95% of its equity.
Chesapeake contributed the assets of its Wisconsin Tissue business to the
joint venture, in which it has a 5% equity interest after receipt of an
initial cash distribution of approximately $755 million.
The results of the Wisconsin Tissue operations were combined with the
Corporation's commercial tissue business beginning on October 3, 1999, when
the Georgia-Pacific Tissue joint venture was formed. The Corporation
accounted for this transaction using the purchase method to record a new
cost basis for assets acquired by the joint venture and liabilities assumed
by the joint venture. The difference between the
45
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
allocated values and the fair market value of the assets acquired and
liabilities assumed by the joint venture was recorded as goodwill and is
being amortized over 40 years. The allocation of the values of the
Wisconsin Tissue assets acquired by the joint venture is as follows:
In millions
Current assets........................................................ $ 102
Property, plant and equipment......................................... 638
Goodwill.............................................................. 284
Liabilities and value of stock options converted...................... (269)
-----
Net cash distribution to Wisconsin Tissue............................. $ 755
=====
The Corporation completed an organizational restructuring of the sales,
marketing, administrative and manufacturing support activities for its
tissue business, which resulted in the elimination of approximately 300
salaried and hourly positions. The Corporation reserved approximately $5
million for termination and relocation costs of Wisconsin Tissue employees.
This $5 million liability was included as part of the purchase price of the
Wisconsin Tissue assets. In addition, the Corporation recorded provisions
totaling approximately $2 million for the termination and relocation of
employees of the Corporation, which were charged to earnings in 1999. As a
result of these programs, approximately 80 employees were terminated and
approximately $2 million of the termination and relocation reserve was used
in 1999. During 2000, the remaining employees were terminated or relocated
and all the related reserve was used.
In connection with the acquisition of Fort James and pursuant to a consent
decree with the U. S. Department of Justice, the Corporation committed to
sell a portion of its away-from-home tissue manufacturing operations. In
January 2001, the Corporation reached a definitive agreement to sell these
assets (Georgia-Pacific Tissue) to Svenska Cellulosa Aktiebolaget SCA for
approximately $850 million. The sale is expected to be completed during the
first quarter of 2001, with after-tax proceeds of approximately $660
million used to repay debt. Based on these sales proceeds, the Corporation
determined that the carrying value of the related commercial tissue assets
was higher than the net realizable value at December 30, 2000. Accordingly,
the Corporation recorded a pre tax loss of $204 million in the fourth
quarter of 2000 for the write-down of these assets to their net realizable
value of $850 million. This loss is included in other loss in the consumer
products segment. During 2000, 1999 and 1998, these assets generated income
(loss) from operations of approximately $31 million, $7 million and $(2)
million, respectively.
. During the third quarter of 2000, the Corporation also announced the
potential sale of certain commodity and non-strategic businesses, including
the market pulp operations at Brunswick, Ga., New Augusta, Miss., and
Woodland, Maine, as well as the chemical business.
46
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
. During 2000, the Corporation announced the closure of the Grand Rapids
East, Mich., gypsum plant and the Kalamazoo, Mich., paper mill. In
connection with these closures, the Corporation recorded a charge to
earnings totaling $7 million for the termination of approximately 325
salaried and hourly positions, $25 million for the write-off of assets and
$12 million for facility closing costs. During 2000, approximately 284
employees were terminated. The following table provides information related
to these charges:
Liability Liability
Additions Balance at
During December 30,
2000 Usage 2000
Type of Cost --------- ----- ------------
In millions
Write-off of assets................................ $25 $(23) $ 2
Employee separation................................ 7 - 7
Facility closing costs............................. 12 (2) 10
--- ---- ---
Total............................................ $44 $(25) $19
=== ==== ===
. During 2000, the Corporation sold certain containerboard and packaging
assets resulting in a pre-tax gain of $25 million.
. On July 18, 2000, the Corporation signed a definitive agreement to merge
The Timber Company with and into Plum Creek. Under the agreement, The
Timber Company shareholders will receive 1.37 shares of Plum Creek stock
for each share of The Timber Company stock. This transaction, which
includes the assumption of approximately $640 million of debt allocated to
The Timber Company, is valued at approximately $3.6 billion. Plum Creek
will assume a 10-year wood supply agreement between Georgia-Pacific Group
and The Timber Company. The transaction is subject to approval by the
shareholders of both Plum Creek and The Timber Company, receipt of a ruling
from the Internal Revenue Service that the transaction will be tax-free to
the Corporation and to the shareholders of The Timber Company, and receipt
of an opinion from counsel that the merger will qualify as a tax-free
reorganization. The transaction is also subject to the satisfaction of
customary closing conditions. The Corporation will treat The Timber Company
as a discontinued operation once the significant contingencies surrounding
the transaction are resolved. Closing is expected by the end of the second
quarter of 2001.
. At the end of the second quarter of 1999, the Corporation, through its
wholly owned subsidiary Atlanta Acquisition Corp., completed a tender offer
for all the outstanding shares of common stock of Unisource, the largest
independent marketer and distributor of printing and imaging paper and
supplies in North America, and acquired 90.7% of the then outstanding
shares of Unisource. On July 6, 1999, Atlanta Acquisition Corp. was merged
with and into Unisource and, by virtue of such merger, shares of Unisource
that were not tendered to the Corporation (other than shares held by
Unisource and the Corporation and its subsidiaries) were converted into the
right to receive $12.00 per Unisource share in cash, subject to dissenters'
rights. The Corporation is paying for such untendered shares as they are
delivered to the exchange agent for cancellation. Through December 30,
2000, the Corporation has paid approximately $831 million for all Unisource
shares, $2 million of which was paid during 2000. In addition, the
Corporation assumed $785 million of Unisource debt in the acquisition.
Unisource's results of operations were consolidated with those of the
Corporation beginning July 4, 1999. The Corporation has accounted for this
transaction using the purchase method to record a new cost basis for assets
acquired and liabilities assumed. The difference between the purchase price
and the fair market
47
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
value of the assets acquired and liabilities assumed was recorded as
goodwill and is being amortized over 40 years. The allocation of the
purchase price of the acquisition is summarized as follows:
In millions
Current assets...................................................... $ 1,207
Property, plant and equipment....................................... 219
Other noncurrent assets............................................. 27
Goodwill............................................................ 753
Liabilities and value of stock options converted.................... (1,375)
-------
Net cash paid for Unisource......................................... $ 831
=======
The following unaudited pro forma financial data has been prepared assuming
that the acquisition of Unisource and related financings were consummated on
January 1, 1999. This pro forma financial data is presented for
informational purposes and is not necessarily indicative of the operating
results that would have occurred had the acquisition been consummated on
January 1, 1999, nor does it include adjustments for expected synergies or
cost savings. Accordingly, this pro forma data is not necessarily indicative
of future operations.
Year Ended
January 1, 2000
---------------
In millions, except per share amounts
Georgia-Pacific Corporation:
Net sales.................................................. $21,615
Income before extraordinary item........................... 1,109
Net income................................................. 1,109
Georgia-Pacific Group data:
Net sales.................................................. $21,434
Income before extraordinary item........................... 709
Net income................................................. 709
Basic income before extraordinary item per share........... 4.12
Diluted income before extraordinary item per share......... 4.03
Basic earnings per share................................... 4.12
Diluted earnings per share................................. 4.03
The Timber Company's results of operations are not impacted by the
Unisource transaction.
48
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the acquisition of Unisource, the Corporation recorded
liabilities totaling approximately $50 million for employee termination
(relating to approximately 1,170 hourly and salaried employees) and
relocation costs, and $22 million for closing costs of 48 facilities. The
balance of these restructuring reserves at December 30, 2000 was $8
million. During 2000, approximately 386 employees were terminated and nine
facilities were closed as part of this program. In conjunction with the
finalization of management's plans to consolidate or close distribution
centers, $28 million of reserves established in 1999 as part of the
preliminary allocation of Unisource purchase price were reversed in the
second quarter of 2000, with a corresponding reduction made to goodwill.
The following table provides a rollforward of the reserve for restructuring
from January 1, 2000 through December 30, 2000:
Balance Reversal Balance
January 1, of December 30,
2000 Additions Usage Reserves 2000
Type of Cost ---------- --------- ----- -------- ------------
In millions
Employee separation............ $43 $ 1 $(14) $(27) $ 3
Facility closing costs......... 14 5 (13) (1) 5
--- --- ---- ---- ---
Total........................ $57 $ 6 $(27) $(28) $ 8
=== === ==== ==== ===
. In addition, during 1999, the Corporation completed the acquisition of a
packaging plant, four treated lumber facilities, a chemical business and
lumber transportation assets for a total consideration of approximately $74
million in cash. The results of operations of the packaging plant and
treated lumber facilities were consolidated with those of the Corporation
beginning in the second quarter of 1999. The operating results of the
chemical business and lumber transportation assets were consolidated with
those of the Corporation beginning in the third and fourth quarters,
respectively, of 1999. The Corporation has accounted for these business
combinations using the purchase method to record a new cost basis for
assets acquired and liabilities assumed.
. On June 30, 1998, the Corporation completed its acquisition of CeCorr, a
leading independent producer of corrugated sheets in the United States. On
June 30, 1998, the Corporation paid approximately $93 million in cash (net
of $2 million of cash acquired) and issued approximately 3.2 million shares
of Georgia-Pacific Group stock valued at approximately $28.94 per share for
all the outstanding shares of CeCorr. In addition, the Corporation assumed
approximately $92 million of CeCorr's debt, of which $34 million was owed
to the Corporation ($58 million net debt assumed). On July 2, 1998, a
former owner of CeCorr exercised his right to resell to the Corporation
approximately 2.2 million shares of Georgia-Pacific Group stock issued in
the transaction. CeCorr's results of operations were consolidated with
those of the Corporation beginning July 1, 1998. The Corporation accounted
for the CeCorr acquisition using the purchase method to record a new cost
basis for assets acquired and liabilities assumed.
. During the second quarter of 1999, the Corporation sold approximately
390,000 acres of timberlands in New Brunswick, Canada and approximately
440,000 acres of timberlands in Maine for approximately $92 million and
recognized a pretax gain of $84 million ($50 million after taxes). This
gain is reflected in "Other loss (income)" on the accompanying statements
of income. In conjunction with the sale of its Maine timberlands, the
Corporation received notes from the purchaser in the amount of $51 million.
In November 1999, the Corporation monetized these notes through the
issuance of notes payable in a private placement. The Corporation will use
proceeds from the notes received from the purchaser to fund payments
required for the notes payable. The notes receivable are classified as
"Other assets" and the notes payable are classified as "Other long-term
liabilities" on the accompanying balance sheets.
49
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
. In December 1999, the Corporation sold approximately 194,000 acres of
redwood and Douglas fir timberlands in Northern California for
approximately $397 million and recognized a pretax gain of $271 million
($165 million after taxes). This gain is reflected in "Other loss (income)"
on the accompanying statements of income. In conjunction with the sale of
its California timberlands, the Corporation received notes from the
purchaser $397 million. These notes are fully secured by a standby letter
of credit with an unaffiliated third-party financial institution. In
October 2000, the Corporation monetized these notes through the issuance of
commercial paper secured by the notes. The net proceeds of $342 million
from this monetization were used to reduce debt allocated to The Timber
Company. The notes receivable are classified as "Other assets" and the
commercial paper is classified as "Other long-term liabilities" on the
accompanying balance sheets.
. In March 1998, the Corporation sold its real estate development properties
located in South Carolina and Florida for $18 million in cash, resulting in
a pretax gain of approximately $1 million.
. In December 1998, the Corporation completed the sale of approximately
61,000 acres of timberlands located in West Virginia. This sale resulted in
a pretax gain of $24 million ($14 million after taxes). These amounts are
reflected in "Other loss (income)" on the accompanying statements of
income.
NOTE 4. RECEIVABLES
The Corporation has a large, diversified customer base, which includes some
customers located in foreign countries. The Corporation closely monitors
extensions of credit and has not experienced significant losses related to its
receivables. In addition, a portion of the receivables from foreign sales is
covered by confirmed letters of credit to help ensure collectibility.
In June 1999, the Corporation renegotiated its accounts receivable secured
borrowing program and increased the amount outstanding under the program from
$280 million to $750 million. The Corporation has extended the program through
October 2001. In connection with the acquisition of Unisource, the Corporation
assumed former Unisource programs to pledge up to $150 million of certain
qualifying U.S. accounts receivable and up to CN$70 million of certain
eligible Canadian accounts receivable. The U.S. program expires in October
2001 and the Canadian program expires in May 2004. At December 30, 2000,
approximately $893 million was outstanding under the Corporation's and
Unisource's programs in the aggregate. The receivables outstanding under these
programs and the corresponding debt are included as "Receivables" and
"Commercial paper and other short-term notes," respectively, on the
Corporation's consolidated balance sheets. All programs are accounted for as
secured borrowings. As collections reduce previously pledged interests, new
receivables may be pledged.
The $893 million and $948 million of receivables outstanding under these
programs at December 30, 2000 and January 1, 2000, respectively, and the
corresponding debt are included as both "Receivables" and "Commercial paper
and other short-term notes" on the accompanying balance sheets. A portion of
the cost of the accounts receivable secured borrowing programs is based on the
creditors' level of investment and borrowing costs. The Corporation pays fees
based on its senior debt ratings. The total cost of the programs, which was
$63 million in 2000, $36 million in 1999 and $17 million in 1998, is included
in interest expense on the accompanying statements of income.
Under the accounts receivable secured borrowing programs, the maximum amount
of the creditors' investment is subject to change based on the level of
eligible receivables and restrictions on concentrations of receivables.
50
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 5. INDEBTEDNESS
The Corporation's indebtedness includes the following:
December 30, January 1,
2000 2000
------------ ----------
In millions
Debentures, 8.6% average rate, payable through 2029... $ 3,582 $3,589
Notes, 7.0% average rate, payable through 2023........ 2,094 414
Credit facilities, 7.9% average rate, payable through
2005................................................. 5,900 -
Euro-denominated bonds, 4.8% average rate, payable
through 2004......................................... 283 -
Revenue bonds, 5.7% average rate, payable through
2029................................................. 832 653
Other loans, 7.1% average rate, payable through 2001.. 7 14
European Debt, 7.2% average rate, payable through
2029................................................. 141 -
Capital leases, 10.2% average rate, payable through
2016................................................. 138 14
Less: unamortized net discount........................ (118) (24)
------- ------
12,859 4,660
Less: long-term portion of debt....................... 12,627 4,621
------- ------
Current portion of long-term debt..................... 232 39
Commercial paper and other short-term notes, 7.0%
average rate......................................... 1,295 2,067
Credit facilities, 8.0% average rate.................. 1,400 -
Bank overdrafts, net.................................. 293 297
------- ------
Total short-term debt................................. 3,220 2,403
------- ------
Total debt............................................ $15,847 $7,024
======= ======
Georgia-Pacific Group's portion of Corporation debt:
Short-term debt...................................... $ 2,852 $2,071
Long-term debt, excluding current portion............ 12,355 3,983
------- ------
Georgia-Pacific Group's total debt.................... $15,207 $6,054
======= ======
The Timber Company's portion of Corporation debt:
Short-term debt...................................... $ 368 $ 332
Long-term debt, excluding current portion............ 272 638
------- ------
The Timber Company's total debt....................... $ 640 $ 970
======= ======
Weighted average interest rate on Corporation debt at
year end............................................. 7.6% 7.2%
For additional information regarding financial instruments, see Notes 6 and 7
of the Notes to Consolidated Financial Statements.
The scheduled maturities of the Corporation's long-term debt for the next
five years are as follows: $232 million in 2001, $4,558 million in 2002, $608
million in 2003, $680 million in 2004 and $1,979 million in 2005.
Notes and Debentures
In connection with the acquisition of Fort James in November 2000, the
Corporation assumed $1,642 million of notes, $26 million of which matured in
December 2000. The Corporation subsequently fully and unconditionally
guaranteed all of Fort James' publicly held debt issued pursuant to an
Indenture with the Bank of New York, as trustee, dated as of November 1, 1991,
as amended by a first supplemental Indenture dated as of September 19, 1997
and second supplemental Indenture dated as of February 19, 2001. During 1999,
in connection with the formation of Georgia-Pacific Tissue, the Corporation
issued $500 million of 7.75% Debentures Due November 15, 2029.
51
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Euro-Denominated Bonds and European Debt
During 2000, in connection with the acquisition of Fort James, the
Corporation assumed $218 million (net of discount) of Euro-denominated bonds
and $156 million of European debt.
Revenue Bonds
During 2000, in connection with the acquisition of Fort James, the
Corporation assumed $197 million in revenue bonds. At December 30, 2000, the
Corporation had outstanding borrowings of approximately $832 million under
certain industrial revenue bonds, including revenue bonds assumed in the
acquisition. During 2000, approximately $10 million of floating rate bonds
were replaced by fixed rate instruments and $12 million of fixed rate revenue
bonds matured. During 1999, in connection with the acquisition of Unisource,
the Corporation assumed former Unisource industrial revenue bonds in the
amount of $9 million.
Capital Leases and Other Loans
During 2000, in connection with the acquisition of Fort James, the
Corporation assumed $141 million (including premium) of capital leases. During
1999, in connection with the acquisition of Unisource, the Corporation assumed
capital leases in the amount of $12 million.
Revolving Credit Facilities
In October 2000, the Corporation negotiated, with Bank of America National
Trust and Savings and 20 other domestic and international banks, several new
unsecured financing facilities totaling $5,400 million with terms ranging from
6 to 18 months and a permanent unsecured revolving credit facility totaling
$3,750 million with a term of 5 years. The proceeds under these unsecured
facilities were used to partially finance the Fort James acquisition and for
the ongoing working capital and other general corporate requirements of the
Corporation. As of December 30, 2000, $1,448 million of committed credit was
available in excess of all borrowings outstanding under or supported by these
facilities.
Borrowings under the agreements bear interest at competitive market rates.
These interest rates may be adjusted according to a rate grid based on the
Corporation's long-term debt ratings. Fees associated with these revolving
credit facilities include a facility fee of 0.20% per annum on the aggregate
commitments of the lenders as well as upfront fees totaling $34 million, which
are being amortized over the term of the agreements. Fees and margins may also
be adjusted according to a pricing grid based on the Corporation's long-term
debt ratings. At December 30, 2000, $7,700 million was borrowed under the
credit agreements at a weighted-average interest rate of 7.9%. Amounts
outstanding under the revolving credit facilities are included in "Commercial
paper and other short-term notes" and "Long-term debt, excluding current
portion" on the accompanying balance sheets.
The revolving credit agreements contain certain restrictive covenants,
including a maximum leverage ratio (funded indebtedness, including senior
deferrable notes, to earnings before interest, taxes, depreciation and
amortization ("EBITDA")) of 4.5 to 1.0 and a minimum net worth of $4,650
million. The maximum leverage ratio will be reduced to 4.0 to 1.0 on June 30,
2001 and the minimum net worth required will change on a quarterly basis. As
of December 30, 2000, the Corporation was in compliance with these covenants.
Commercial Paper and Other Short-Term Notes
These borrowings are classified as current liabilities, although all or a
portion of them may be refinanced on a long-term basis in 2001. In connection
with the acquisition of Fort James, the Corporation assumed $927 million of
revolving commercial paper, all of which was refinanced by commercial paper
issued by the Corporation in the fourth quarter 2000.
52
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other
At December 30, 2000, the amount of long-term debt secured by property,
plant and equipment and by timber and timberlands was not material.
During 1999, in connection with the acquisition of Unisource, the
Corporation assumed other long-term debt in the amount of $447 million and
bank overdrafts in the amount of $120 million, and retained accounts
receivable secured borrowing programs in the amount of $197 million. These
instruments are included in the Corporation's total debt.
Prior to 1996, the Corporation sold certain assets for $354 million and has
agreed to lease the assets back from the purchaser over a period of 30 years.
Under the agreement with the purchaser, the Corporation agreed to maintain a
deposit (initially in the amount of $322 million) that, together with interest
earned thereon, was expected to be sufficient to fund the Corporation's lease
obligation, including the repurchase of assets at the end of the term. This
transaction was accounted for as a financing arrangement. At the inception of
the agreement, the Corporation recorded on its balance sheet an asset for the
deposit from the sale of $305 million and a liability for the lease obligation
of $302 million.
At December 30, 2000, the deposit and lease obligation balances were both
$339 million. Of these amounts, approximately $15 million was recorded as a
current asset and $19 million was recorded as a current liability. The long-
term portions of these amounts are recorded in "Other assets" and "Other long-
term liabilities" on the accompanying balance sheets.
In October 1999, the Corporation entered into a financing arrangement to
enhance the return on a deposit made in connection with a 1995 sale-leaseback
transaction by issuing $379 million of 5.74% Debentures Due April 5, 2005 that
were legally defeased with deposits of an equal amount. Accordingly, the
debentures and related deposits are not reflected on the Corporation's
consolidated balance sheets.
In conjunction with the sale of 194,000 acres of the Corporation's
California timberlands in December 1999, the Corporation received notes from
the purchaser of $397 million. These notes were monetized on October 25, 2000,
through the issuance of commercial paper secured by the notes. Net proceeds of
$342 million from this monetization were used to reduce debt allocated to The
Timber Company. Proceeds from the notes received from the purchaser will be
used to fund payments required for the notes payable. In conjunction with the
sale of 440,000 acres of the Corporation's Maine timberlands in June 1999, the
Corporation received notes from the purchaser in the amount of $51 million. In
November 1999, the Corporation monetized these notes through the issuance of
notes payable in a private placement. Proceeds from the notes received from
the purchaser will be used to fund payments required for the notes payable.
The notes receivable and notes payable are reflected in "Other assets" and
"Other long-term liabilities," respectively, on the accompanying balance
sheets.
In the second half of 2000, the Board increased the corporate target debt
level under which the Corporation can purchase shares of Georgia-Pacific Group
common stock on the open market from $5.8 billion to $9.5 billion. The Timber
Company's target debt level remains at $1.0 billion. Depending on operating
and financial considerations, debt levels of the Corporation, the Georgia-
Pacific Group and The Timber Company may from time to time be above or below
these thresholds. Pursuant to the Plum Creek merger agreement, the Corporation
is prohibited from purchasing shares of The Timber Company common stock.
During 2000, the Corporation registered an additional $2.25 billion of debt
and equity securities under a shelf registration statement filed with the
Securities and Exchange Commission. This registration statement makes $3.0
billion of debt and equity securities available to be issued as of December
30, 2000.
53
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 6. SENIOR DEFERRABLE NOTES
On July 7, 1999, the Corporation issued 17,250,000 of 7.5% PEPS Units for
$862.5 million. Each PEPS Unit had an issue price of $50 and consists of a
contract to purchase shares of Georgia-Pacific Group stock on or prior to
August 16, 2002 and a senior deferrable note of the Georgia-Pacific Group due
August 16, 2004. Each purchase contract yields interest of 0.35% per year,
paid quarterly, on the $50 stated amount of the PEPS Unit. Each senior
deferrable note yields interest of 7.15% per year, paid quarterly, until
August 16, 2002. On August 16, 2002, following a remarketing of the senior
deferrable notes, the interest rate will be reset at a rate that will be equal
to or greater than 7.15%. The liability related to the PEPS Units is
classified as "Senior deferrable notes" on the accompanying balance sheets and
is not included in the debt amount for purposes of determining the corporate
and Georgia-Pacific Group debt targets. The senior deferrable notes and
related interest expense are allocated specifically to the Georgia-Pacific
Group.
NOTE 7. FINANCIAL INSTRUMENTS
The carrying amount (net of discounts and premiums) and estimated fair value
of the Corporation's financial instruments are as follows:
December 30,
2000 January 1, 2000
--------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- ------
In millions
Commercial paper, credit facilities and
short-term notes (Note 3 and 5)............ $8,595 $8,595 $2,067 $2,067
Notes and debentures (Note 5)............... 5,593 5,105 4,003 3,966
Euro denominated bonds (Note 5)............. 242 252 - -
Revenue bonds (Note 5)...................... 824 778 653 564
Capital leases (Note 5)..................... 152 140 14 14
European debt (Note 5)...................... 141 141 - -
Other loans (Note 5)........................ 7 7 14 14
Senior deferrable notes (Note 6)............ 863 871 863 866
Investments in marketable securities........ 44 43 - -
Interest rate exchange agreements (floating
to fixed).................................. * - * (1)
Interest rate exchange agreements (fixed to
floating).................................. * (1) - -
Interest rate exchange agreements (rate
collar).................................... - - - -
Notes receivable from sale of timberlands... 673 651 671 649
Notes payable from monetizations............ 659 645 310 296
--------
* The Corporation's balance sheets at December 30, 2000 and January 1, 2000
included accrued interest of $0.3 million and $1 million, respectively,
related to these interest rate exchange agreements.
Commercial Paper, Credit Facilities and Short-Term Notes
The carrying amounts approximate fair value because of the short maturity of
these instruments.
Notes and Debentures
The fair value of notes and debentures was estimated primarily by
calculating the present value of anticipated cash flows. The discount rate
used was an estimated borrowing rate for similar debt instruments with like
maturities.
54
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Euro-Denominated Bonds and European Debt
The fair value of Euro-denominated bonds and European debt was estimated
primarily by obtaining quotes from brokers for these and similar issues. For
Euro-denominated bonds and European debt for which there are no quoted market
prices, the fair value was estimated by calculating the present value of
anticipated cash flows. The discount rate used was an estimated borrowing rate
for similar debt instruments with like maturities.
Revenue Bonds, Capital Leases, Senior Deferrable Notes and Other Loans
The fair value of revenue bonds, capital leases, senior deferrable notes and
other loans was estimated by calculating the present value of anticipated cash
flows. The discount rate used was an estimated borrowing rate for similar debt
instruments with like maturities.
Investments in Marketable Securities
The fair value of investments in marketable securities was based on quoted
market prices.
Notes Receivable and Notes Payable
The fair value of notes receivable and notes payable was estimated by
calculating the present value of anticipated cash flows. The discount rate
used was an estimated borrowing rate for similar debt instruments with like
maturities.
Interest Rate and Foreign Currency Exchange Agreements
The Corporation has used interest rate swap and foreign currency exchange
agreements in the normal course of business to manage and reduce the risk
inherent in interest rate and foreign currency fluctuations.
The Corporation uses interest rate swap arrangements to manage its exposure
to interest rate changes. Such arrangements are considered hedges of specific
borrowings, and differences paid and received under the swap arrangements are
recognized as adjustments to interest expense. Under these agreements, the
Corporation makes payments to counterparties at fixed interest rates and in
turn receives payments at variable rates. The Corporation entered into
interest rate exchange agreements in prior years to protect against the
increased cost associated with a rise in interest rates.
At December 30, 2000, the Corporation had interest rate exchange agreements
that effectively converted $458 million of floating rate obligations with a
weighted average interest rate of 6.8% to fixed rate obligations with an
average effective interest rate of approximately 6.0%. These agreements
decreased interest expense by $1 million for the year ended December 30, 2000,
and increased interest expense by $7 million and $11 million for the years
ended January 1, 2000 and December 31, 1998, respectively. As of December 30,
2000, these agreements have a weighted-average maturity of approximately 2.4
years.
At December 30, 2000, the Corporation had interest rate exchange agreements
that effectively capped $47 million of floating rate obligations to a maximum
weighted average interest rate of 7.5% and a minimum weighted average interest
rate of 5.5%. The Corporation's interest expense is unaffected by this
agreement when the market interest rate falls within this range. There was no
effect on the Corporation's interest expense for 2000 related to this
agreement.
In connection with the acquisition of Fort James, $600 million of swaps were
assumed that effectively converted fixed rate obligations with a weighted
average interest rate of 6.55% to floating rate obligations with an average
effective interest rate of 7.32%. In December 2000, $300 million of these
interest rate exchange agreements terminated. The remaining $300 million will
terminate in March 2001. At December 30, 2000, the
55
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
remaining interest rate exchange agreements effectively converted $300 million
of floating rate obligations with a weighted average interest rate of 6.2% to
fixed rate obligations with an average effective interest rate of 7.1%. These
agreements increased interest expense by $0.4 million for the year ended
December 30, 2000. As of December 30, 2000, these agreements have a weighted
average maturity of less than one year. As of December 30, 2000, the
Corporation's total floating rate debt exceeded all related interest rate
exchange agreements by $8,936 million.
In January 2001, the Corporation entered into several interest rate exchange
agreements that effectively converted $1,500 million of floating rate
obligations with a weighted average interest rate of 5.6% to fixed rate
obligations with an average effective interest rate of approximately 5.9%.
These agreements have a weighted-average maturity of approximately 1.3 years.
The estimated fair value of the Corporation's asset under interest rate
exchange agreements at both December 30, 2000 and January 1, 2000 was $1
million and represented the estimated amount the Corporation could have
received upon termination of the agreements. The fair value at December 30,
2000 and January 1, 2000 was estimated by calculating the present value of
anticipated cash flows. The discount rate used was an estimated borrowing rate
for similar debt instruments with like maturities.
The Corporation's international operations create exposure to foreign
currency exchange rate risks. To manage these risks, the Corporation utilizes
foreign exchange contracts. As of December 30, 2000, the Corporation had
outstanding foreign exchange contracts with notional amounts of $22 million to
hedge firm and anticipated purchase commitments and firm sales commitments
denominated in foreign currencies. At December 30, 2000, the Corporation had
outstanding approximately $242 million (net of discount) of Euro-denominated
bonds which were designated as a hedge against its net investment in Europe.
The use of these derivative financial instruments allows the Corporation to
reduce its overall exposure to exchange rate movements, since the gains and
losses on these contracts substantially offset losses and gains on the assets,
liabilities and transactions being hedged. As of December 30, 2000 and January
1, 2000, the Corporation had unrealized gains on foreign currency contracts of
$1 million and $0, respectively. A 10% change from the prevailing market rates
of these foreign currencies would not have a material effect on the results of
operations.
The Corporation also enters into commodity futures and swaps, the amounts of
which were not material to the consolidated financial position of the
Corporation at December 30, 2000 and January 1, 2000.
The Corporation may be exposed to losses in the event of nonperformance of
counterparties but does not anticipate such nonperformance.
56
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 8. INCOME TAXES
The provision for income taxes includes income taxes currently payable and
those deferred because of temporary differences between the financial
statement and tax bases of assets and liabilities. The provision (benefit) for
income taxes consists of the following:
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions
Current income taxes:
Federal................................... $216 $515 $127
State..................................... - 96 25
Foreign................................... 24 21 12
Deferred income taxes:
Federal................................... 66 62 37
State..................................... - 11 1
Foreign................................... 1 - -
---- ---- ----
Provision for income taxes................. $307 $705 $202
==== ==== ====
Income taxes paid, net of refunds.......... $425 $620 $ 21
==== ==== ====
Income taxes paid during 2000 are net of approximately $8 million in state
income tax refunds. Income taxes paid during 1999 are net of approximately $8
million in state income tax refunds and $8 million in federal income tax
refunds. No provision for income taxes has been made for $492 million of
undistributed earnings of certain of the Corporation's foreign subsidiaries
and affiliates which have been indefinitely reinvested. It is not practicable
to determine the amount of U.S. income tax which would be payable if such
undistributed foreign earnings were repatriated because any U.S. taxes payable
on such repatriation would be offset, in part, by foreign tax credits.
The Internal Revenue Service is currently conducting audits of various
federal income tax returns for the years 1995 through 1998. All related
payments for completed audits have been made.
The federal statutory income tax rate was 35%. The provision for income
taxes is reconciled to the federal statutory amounts as follows:
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions
Provision for income taxes computed at
the federal statutory tax rate.......... $284 $637 $172
State income taxes, net of federal
benefit................................. 16 73 16
Goodwill amortization.................... 33 25 24
Foreign sales corporation................ (19) (25) (6)
Other.................................... (7) (5) (4)
---- ---- ----
Provision for income taxes............... $307 $705 $202
==== ==== ====
57
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of the net deferred income tax liabilities are as follows:
Year Ended
-----------------------
December 30, January 1,
2000 2000
------------ ----------
In millions
Deferred income tax assets:
Compensation related accruals.......................... $ 413 $ 342
Other accruals and reserves............................ 98 121
Other.................................................. 50 -
------- -------
561 463
Valuation allowance..................................... - -
------- -------
561 463
------- -------
Deferred income tax liabilities:
Property, plant and equipment.......................... (2,441) (1,413)
Timber and timberlands................................. (404) (372)
Other.................................................. (101) (75)
------- -------
(2,946) (1,860)
------- -------
Deferred income tax liabilities, net.................... $(2,385) $(1,397)
======= =======
Included on the balance sheets:
Deferred income tax assets*............................ $ 176 $ 139
Deferred income tax liabilities**...................... (2,561) (1,536)
------- -------
Deferred income tax liabilities, net................... $(2,385) $(1,397)
======= =======
--------
* Net of current liabilities of $30 million at December 30, 2000 and $9
million at January 1, 2000.
** Net of long-term assets of $371 million at December 30, 2000 and $317
million at January 1, 2000.
NOTE 9. RETIREMENT PLANS
Defined Benefit Pension Plans
Most of the Corporation's employees participate in noncontributory defined
benefit pension plans. These include plans that are administered solely by the
Corporation and union-administered multiemployer plans. The Corporation's
funding policy for solely administered plans is based on actuarial
calculations and the applicable requirements of federal law. Contributions to
multiemployer plans are generally based on negotiated labor contracts.
Benefits under the majority of plans for hourly employees (including
multiemployer plans) are primarily related to years of service. The
Corporation has separate plans for salaried employees and officers under which
benefits are primarily related to compensation and years of service. The
officers' plan and certain salaried employee plans are not funded and are
nonqualified for federal income tax purposes.
Plan assets consist principally of common stocks, bonds, mortgage
securities, interests in limited partnerships, cash equivalents and real
estate. At December 30, 2000 and January 1, 2000, $531 million and
$114 million, respectively, of non-current prepaid pension cost was included
in "Other assets" on the accompanying balance sheets. Accrued pension
liability of $157 million and $136 million at December 30, 2000 and January 1,
2000, respectively, was included in "Other long-term liabilities" on the
accompanying balance sheets.
58
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pursuant to the provisions of SFAS No. 87, intangible assets of $2 million
and $3 million were recorded as of December 30, 2000 and January 1, 2000,
respectively, in order to recognize the required minimum liability.
December 30, January 1,
2000 2000
------------ ----------
In millions
Change in projected benefit obligation:
Projected benefit obligation at beginning of year...... $2,014 $1,799
Service cost........................................... 122 97
Interest cost.......................................... 160 126
Acquisitions........................................... 1,535 264
Participant contributions.............................. 1 -
Plan amendments........................................ 4 13
Actuarial gains (losses)............................... 3 (171)
Foreign currency exchange rate changes................. 7 2
Benefits paid.......................................... (120) (116)
------ ------
Projected benefit obligation at end of year............. $3,726 $2,014
====== ======
Change in plan assets:
Fair value of assets at beginning of year.............. $2,613 $2,082
Actual return on plan assets........................... 102 422
Acquisitions........................................... 1,914 216
Participant contributions.............................. 1 -
Employer contributions................................. 10 7
Foreign currency exchange rate changes................. 8 2
Benefits paid.......................................... (120) (116)
------ ------
Fair value of assets at end of year..................... $4,528 $2,613
====== ======
The funded status and the amounts recognized on the accompanying balance
sheets for the solely administered plans are set forth in the following table:
December 30, January 1,
2000 2000
------------ ----------
In millions
Funded status.......................................... $ 802 $ 599
Employer contributions................................. 1 -
Unrecognized actuarial gain............................ (494) (691)
Unrecognized prior service cost........................ 67 73
Unrecognized net (asset) obligation.................... - -
----- -----
Net prepaid (accrued) benefit cost..................... $ 376 $ (19)
===== =====
Amounts recognized on the balance sheets consist of:
Prepaid pension cost.................................. $ 531 $ 114
Accrued pension liability............................. (157) (136)
Intangible asset...................................... 2 3
Deferred tax liability................................ (2) (3)
Accumulated other comprehensive income................ 2 3
----- -----
Net amount recognized.................................. $ 376 $ (19)
===== =====
59
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for plans with accumulated benefit obligations in excess
of plan assets were $348 million, $263 million and $189 million, respectively,
as of December 30, 2000 and $291 million, $230 million and $186 million,
respectively, as of January 1, 2000.
Net periodic pension cost for solely administered and union-administered
pension plans included the following:
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions
Service cost of benefits earned.......... $ 122 $ 97 $ 83
Interest cost on projected benefit
obligation.............................. 160 126 114
Expected return on plan assets........... (262) (208) (184)
Amortization of gains.................... (34) (11) (13)
Amortization of prior service cost....... 9 9 8
Contributions to multiemployer pension
plans................................... 4 4 4
----- ----- -----
Net periodic pension (benefit) cost...... $ (1) $ 17 $ 12
===== ===== =====
The following assumptions were used for United States and Canadian pension
plans:
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
Discount rate used to determine the
projected benefit obligation............. 7.5% 7.5% 6.5%
Rate of increase in future compensation
levels used to determine the projected
benefit obligation....................... 5.6% 5.7% 5.6%
Expected long-term rate of return on plan
assets used to determine net periodic
pension cost............................. 9.5% 9.5% 9.5%
The following assumptions were used for the former Fort James Corporation
European pension plans:
Year Ended
December 30,
2000
------------
Discount rate used to determine the projected benefit
obligation...................................................... 6.0%
Rate of increase in future compensation levels used to determine
the projected benefit obligation................................ 4.2%
Expected long-term rate of return on plan assets used to
determine net periodic pension cost............................. 7.3%
Defined Contribution Plans
The Corporation sponsors several defined contribution plans to provide
eligible employees with additional income upon retirement. The Corporation's
contributions to the plans are based on employee contributions and
compensation. The Corporation's contributions totaled $65 million in 2000, $62
million in 1999 and $52 million in 1998.
Health Care and Life Insurance Benefits
The Corporation provides certain health care and life insurance benefits to
certain eligible retired employees. Benefits, eligibility and cost-sharing
provisions for hourly employees vary by location and/or bargaining unit.
Generally, the medical plans pay a stated percentage of most medical expenses,
reduced for any deductible and payments made by government programs and other
group coverage. The plans are funded through trusts
60
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
established for the payment of active and retiree benefits. The Corporation
contributes to the trust in the amounts necessary to fund current obligations
of the plans.
In 1991, the Corporation began transferring its share of the cost of post-
age 65 health care benefits to future salaried retirees. The Corporation
reduced the percentage of the cost of post-age 65 benefits that it pays on
behalf of salaried employees who retire in each of the years 1995 through 1999
and no longer pays any of the post-age 65 cost for salaried employees who
retire after 1999. The Corporation has continued to share the pre-age 65 cost
with future retirees.
Salaried and non-bargaining hourly employees of the former Fort James
Corporation leaving after 1999 are generally eligible for retiree health care
benefits if they terminate after age 55 with 10 years of service. These
retirees pay the full cost of the pre-Medicare and Medicare Supplemental
plans.
The following tables set forth the change in projected benefit obligation
and the amounts recognized on the accompanying balance sheets:
December 30, January 1,
2000 2000
------------ ----------
In millions
Change in projected benefit obligation:
Projected benefit obligation at beginning of year..... $ 437 $ 432
Service cost.......................................... 9 8
Series C Interest cost................................ 32 26
Acquisitions.......................................... 412 15
Plan changes.......................................... 1 -
Actuarial losses...................................... (4) (16)
Change in assumptions................................. 16 -
Benefits paid......................................... (35) (28)
----- -----
Projected benefit obligation at end of year............ $ 868 $ 437
===== =====
Funded status.......................................... $(868) $(437)
Unrecognized actuarial gain............................ (67) (82)
Unrecognized prior service cost........................ 11 11
Unrecognized net (asset) obligation.................... - -
----- -----
Net accrued benefit cost............................... $(924) $(508)
===== =====
Amounts recognized on the balance sheets consist of:
Prepaid benefit cost.................................. $ - $ -
Accrued benefit liability............................. (924) (508)
----- -----
Net amount recognized.................................. $(924) $(508)
===== =====
61
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net periodic postretirement benefit cost included the following components:
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions
Service cost of benefits earned.......... $ 9 $ 8 $ 7
Interest cost on accumulated
postretirement benefit obligation....... 32 26 26
Amortization of prior service cost....... - 1 1
Amortization of gains.................... (1) (2) (2)
--- --- ---
Net periodic postretirement benefit
cost.................................... $40 $33 $32
=== === ===
For measuring the expected postretirement benefit obligation for 2000, the
Corporation assumed separate annual rates of increase in the per capita claims
cost for its pre-age 65 and age 65 and older claims of 7.5% and 10.0%,
respectively. An annual rate of increase in per capita claims cost of 7% and
8% was assumed for 1999 and 1998, respectively, for measuring the expected
postretirement benefit obligation. The rates were assumed to decrease
gradually to 5.5% in 2006 and remain at that level thereafter.
For measuring the expected postretirement benefit obligation for the former
Fort James Corporation, a 7.5%, 10.0% and 12.0% annual rate of increase in the
per capita claims cost was assumed for pre-age 65, age 65 and older medical
coverage and age 65 and old prescription drug coverage, respectively. Due to a
managed care component, these rates were assumed to decrease gradually to 5.0%
in 2006 and remain at that level thereafter.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% at December 30, 2000, 7.0% at
January 1, 2000 and 6.0% at December 31, 1998.
If the annual health care cost trend rate were increased by 1%, the
accumulated postretirement benefit obligation would have increased by 10% as
of December 30, 2000, 10% as of January 1, 2000 and 10% as of December 31,
1998. The effect of this change on the aggregate of service and interest costs
would be an increase of 12% for 2000, 12% for 1999 and 11% for 1998.
If the annual health care cost trend rate were decreased by 1%, the
accumulated postretirement benefit obligation would have decreased by 8% as of
December 30, 2000, 9% as of January 1, 2000 and 9% as of December 31, 1998.
The effect of this change on the aggregate of service and interest costs would
be a decrease of 10% for 2000, 11% for 1999 and 10% for 1998.
NOTE 10. COMMON AND PREFERRED STOCK
The Corporation's authorized capital stock consists of (i) 10 million shares
of Preferred Stock and 25 million shares of Junior Preferred Stock, of which
no shares were issued at December 30, 2000, and (ii) 400 million shares of
Georgia-Pacific Group common stock and 250 million shares of The Timber
Company common stock. The Georgia-Pacific Group stock has a par value of $0.80
per share, and 224,844,000 and 191,983,000 shares were issued as of December
30, 2000 and January 1, 2000, respectively. The Timber Company stock has a par
value of $0.80 per share, and 94,571,000 and 93,904,000 shares were issued as
of December 30, 2000 and January 1, 2000, respectively.
62
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 30, 2000, the following authorized shares of common stock were
reserved for issue:
Georgia-Pacific Group
2000 Fort James conversions.......................................... 9,946,223
2000 Employee Stock Purchase Plan.................................... 8,550,000
1999 Unisource conversions........................................... 461,675
1999 Wisconsin Tissue conversions.................................... 92,282
1997 Long-Term Incentive Plan........................................ 14,921,980
1995 Outside Directors Stock Plan.................................... 324,104
1995 Shareholder Value Incentive Plan................................ 4,945,770
----------
Common stock reserved................................................ 39,242,034
==========
The Timber Company
2000 Employee Stock Purchase Plan.................................... 1,500,000
1997 Long-Term Incentive Plan........................................ 3,788,650
1995 Outside Directors Stock Plan.................................... 158,008
1995 Shareholder Value Incentive Plan................................ 3,285,249
----------
Common stock reserved................................................ 8,731,907
==========
1997 Long-Term Incentive Plans
The Corporation reserved 16,000,000 shares of Georgia-Pacific Group stock
(the "Georgia-Pacific Group Plan") and 3,800,000 shares of The Timber Company
stock ("The Timber Company Plan") for issuance under the 1997 Long-Term
Incentive Plan. The Georgia-Pacific Group Plan and The Timber Company Plan
authorizes grants of stock options, restricted stock and performance awards
with respect to each stock, respectively. The Corporation does not currently
intend to grant awards under the Georgia-Pacific Group Plan to employees of
The Timber Company. However, certain officers and employees of the Corporation
with responsibilities involving both the Georgia-Pacific Group and The Timber
Company may be granted options, restricted stock or performance awards under
both the Georgia-Pacific Group Plan and The Timber Company Plan in a manner
that reflects their responsibilities.
Under the Georgia-Pacific Group Plan, options covering 2,938,500 shares;
34,000 shares; 27,600 shares; 2,848,060 shares; and 2,412,955 shares were
granted on January 29, March 2 and July 29, 1998, January 28, 1999 and January
21, 2000, respectively. These grants have a 10-year term and vest ratably over
a three-year period. In addition, performance share awards covering 96,000
shares were granted on January 28, 1999 and awarded on January 21, 2000. At
the time performance shares were awarded, the average of the high and low
market value of the stock was added to common stock and additional paid-in
capital and was deducted from shareholders' equity (long-term incentive plan
deferred compensation) in the accompanying financial statements. The long-term
incentive plan deferred compensation of $3.5 million is being amortized over
the vesting (restriction) period, which is five years.
Under The Timber Company Plan, options covering 1,010,600 shares; 950
shares; and 624,250 shares were granted on December 17, 1997, January 28, 1999
and January 21, 2000, respectively. These grants have a 10-year term and vest
ratably over four and three-year periods.
Employee Stock Purchase Plan
The Corporation reserved 8,550,000 shares of Georgia-Pacific Group stock and
1,500,000 shares of The Timber Company stock for issuance under the 2000
Employee Stock Purchase Plan (the "2000 Purchase Plan"),
63
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
which offer employees the right to subscribe for shares of the Georgia-Pacific
Group and The Timber Company stock at a subscription price equal to 90% of the
lower of the price per share on the first day or the last day of the purchase
period. The purchase period for the initial one-year period begins on July 1,
2000 and ends on June 30, 2001. If the 2000 Purchase Plan is extended, the
Plan Administrator will set the next purchase period for the plan years of
2001 and 2002. An employee may terminate his or her subscription at any time
before he or she pays the full price of the shares subscribed and will receive
in cash the full amount withheld, without interest.
1995 Outside Directors Stock Plan
The Corporation reserved 400,000 shares of Georgia-Pacific Group stock and
200,000 shares of The Timber Company stock for issuance under the 1995 Outside
Directors Stock Plan (the "Directors Plan"), which provides for the issuance
of shares of common stock to nonemployee directors of the Corporation on a
restricted basis. Each nonemployee director was issued 647 and 692 restricted
shares of Georgia-Pacific Group stock in 2000 and 1999, respectively, and 647
and 346 restricted shares of The Timber Company stock in 2000 and 1999,
respectively.
As a result of the Letter Stock Recapitalization, each share of restricted
stock held in the Directors Plan was redesignated as Georgia-Pacific Group
stock, and an equal number of shares of The Timber Company stock (subject to
the same restrictions as the original restricted shares) were distributed.
Each director's annual grant consists of a number of shares of Georgia-Pacific
Group stock and of The Timber Company stock determined so that (i) a
substantially equal number of shares of Georgia-Pacific Group stock and The
Timber Company stock will be granted in each year and (ii) the total market
value of the shares granted in each year (based on the mean of the high and
low prices of each stock on the date of grant) is $40,000 (subject to
immaterial rounding differentials). The restrictions on the shares lapse at
the time of death, retirement from the Board or disability.
Effective May 6, 1997, accrual of additional retirement benefits under the
Corporation's retirement program for directors ceased, and the accrued
benefits of each of the current nonemployee directors (the present value of
which totaled $1,303,889 as of May 6, 1997) were converted into a grant of an
equivalent number of shares of restricted stock under the Directors Plan. The
total number of shares issued related to this conversion was 15,702.
Employee Stock Option Plans
The 1995 Shareholder Value Incentive Plan (the "SVIP") provides for the
granting of stock options having a term of either 5 1/2 or 10 years to
officers and key employees. Under the amended and restated SVIP, no further
grants may be made under the plan. Options having a term of 10 years become
exercisable in 9 1/2 years unless certain performance targets tied to the
Corporation's common stock performance are met, in which case the holder could
exercise such options after 3, 4 or 5 years from the grant date. Options
having a term of 5 1/2 years may be exercised only if such performance targets
are met in the third, fourth or fifth year after such grant date. At the time
options are exercised, the exercise price is payable in cash or by surrender
of shares of common stock already owned by the optionee. All shares were
vested as of February 2000.
Unisource Conversions
In connection with the acquisition of Unisource as described in Note 3 of
the Notes to Consolidated Financial Statements, the Corporation converted
certain stock options awarded under a former Unisource stock option plan
("Unisource stock options") into Georgia-Pacific Group stock options. The
conversion was intended to ensure that the aggregate intrinsic value of the
Unisource stock options was preserved and the ratio of the exercise price per
Unisource stock option to the market value per share of Georgia-Pacific Group
stock was not reduced. Unisource stock options to purchase 2,633,459 shares
had original grant dates ranging from November 10, 1994 through May 19, 1999
with a 10-year term, and vest ratably over three-year and five-year
64
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
periods. These Unisource stock options were converted into options to purchase
629,648 shares of Georgia-Pacific Group stock at prices ranging from $31.88 to
$91.58 per share. The vesting provisions and option periods of the original
grants remained the same following such conversion. The value of these options
at the acquisition date was $9.4 million and was included as part of the
purchase price paid for Unisource. No options to purchase The Timber Company
stock were issued as part of the conversion.
The Corporation also issued 40,152 restricted shares of Georgia-Pacific
Group stock under the 1997 Long-Term Incentive Plan to two former Unisource
officers who became officers of the Corporation. Each officer was issued
20,076 restricted shares of Georgia-Pacific Group stock. At the time
restricted shares were awarded, the average of the high and low market value
of the stock was added to common stock and additional paid-in capital and was
deducted from shareholders' equity (long-term incentive plan deferred
compensation) on the accompanying financial statements. The long-term
incentive plan deferred compensation of $2 million is being amortized over the
vesting (restriction) periods of one, two and three years.
Wisconsin Tissue Conversions
In connection with the formation of Georgia-Pacific Tissue as described in
Note 3 of the Notes to Consolidated Financial Statements, the Corporation
converted certain outstanding stock options awarded under a Chesapeake stock
option plan ("Chesapeake stock options") into Georgia-Pacific Group stock
options. The conversion was intended to ensure that the aggregate intrinsic
value of the Chesapeake stock options was preserved and the ratio of the
exercise price per Chesapeake stock option to the market value per share of
Georgia-Pacific Group stock was not reduced. Chesapeake stock options to
purchase 172,250 shares had original grant dates ranging from August 11, 1997
through April 16, 1999, with a vesting period of three years and a 10-year
term.
These Chesapeake stock options were converted into options to purchase
92,960 shares of Georgia-Pacific Group stock at prices ranging from $36.20 to
$50.36 per share. The vesting provisions and option periods of the original
grants remained the same following such conversion. The stock options' total
value of $1.3 million was included in the asset purchase price on the date the
Corporation formed Georgia-Pacific Tissue. No options to purchase The Timber
Company stock were issued as part of the conversion.
Fort James Conversions
In connection with the acquisition of Fort James as described in Note 3 of
the Notes to Consolidated Financial Statements, the Corporation converted
certain stock options awarded under a former Fort James stock option plan
("Fort James stock options") into Georgia-Pacific Group stock options. The
conversion was intended to ensure that the aggregate intrinsic value of the
Fort James stock options was preserved and the ratio of the exercise price per
Fort James stock option to the market value per share of Georgia-Pacific Group
stock was not reduced. Fort James stock options to purchase 7,399,316 shares
had original grant dates ranging from February 11, 1991 through August 15,
2000 with a 10-year term. These Fort James stock options were converted into
options to purchase 10,348,501 shares of Georgia-Pacific Group stock at prices
ranging from $9.59 to $36.76 per share. The options became fully vested as of
the acquisition date with the same option period of the original grants. The
value of these options at the acquisition date was $120 million and was
included as part of the purchase price paid for Fort James. No options to
purchase The Timber Company stock were issued as part of the conversion.
The Corporation also converted 15,000 Fort James stock appreciation rights
to receive cash into 20,981 Georgia-Pacific Rights with prices of $17.61 and
$28.06. The rights became fully vested as of the acquisition date and
maintained their original option dates of February 11, 2000 and January 6,
1999 with a 10 year term. The related compensation expense is being recorded
based on changes in the quoted market price of the underlying stock until the
rights are exercised or expire.
65
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Additional information relating to the Corporation's existing employee stock
options is as follows:
Year Ended December 30,
--------------------------------------------------------
2000 2000
---------------------------- ---------------------------
Georgia-Pacific Group The Timber Company
---------------------------- ---------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
---------- ---------------- --------- ----------------
Options outstanding at
January 1, 2000......... 10,788,269 $29.97 4,967,650 $22.33
Options
granted/converted....... 12,740,475 27.39 624,250 22.50
Options
exercised/surrendered... (561,407) 22.15 (659,601) 21.56
Options cancelled........ (444,992) 39.70 (22,600) 22.17
---------- ------ --------- ------
Options outstanding at
December 30, 2000....... 22,522,345+ $28.53 4,909,699+ $22.46
Options available for
grant at December 30,
2000.................... 7,738,885 2,164,200
---------- ---------
Total reserved shares.. 30,261,230 7,073,899
========== =========
Options exercisable at
December 30, 2000....... 17,650,283 $26.35 4,052,772 $22.30
Option prices per share:
Granted/converted...... $9-$42 $23
Exercised/surrendered.. $9-$50 $21-$25
Cancelled.............. $26-$92 $21-$25
--------
+Options outstanding by exercise price:
The Timber Company
$20.95-$25.13.......... 4,909,699 $22.46
Average remaining
life................. 6.4 years
Georgia-Pacific Group
$9.59-$12.62........... 335,675 $10.17
Average remaining
life................. 2.7 years
$12.71-$14.89.......... 479,514 $14.39
Average remaining
life................. 2.7 years
$14.91-$16.23.......... 44,943 $15.55
Average remaining
life................. 3.8 years
$16.58-$18.29.......... 1,473,295 $17.62
Average remaining
life................. 5.0 years
$18.52-$18.96.......... 287,120 $18.89
Average remaining
life................. 4.8 years
$19.35-$20.11.......... 27,913 $19.83
Average remaining
life................. 4.5 years
$22.03-$24.63.......... 788,293 $23.73
Average remaining
life................. 5.8 years
$24.76-$27.10.......... 7,455,457 $26.41
Average remaining
life................. 6.4 years
$27.23-$30.78.......... 6,018,094 $28.36
Average remaining
life................. 6.8 years
$31.57-$41.59.......... 5,309,498 $36.46
Average remaining
life................. 7.8 years
$43.58-$61.63.......... 68,398 $50.32
Average remaining
life................. 5.8 years
$63.73-$91.58.......... 234,145 $69.43
Average remaining
life................. 5.9 years
66
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Year Ended January 1,
---------------------------------------------------------
2000 2000
----------------------------- ---------------------------
Georgia-Pacific Group The Timber Company
----------------------------- ---------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
---------- ---------------- --------- ----------------
Options outstanding at
January 1, 1999......... 11,696,183 $27.03 5,553,850 $22.26
Options
granted/converted....... 3,570,668 36.09 950 22.56
Options
exercised/surrendered... (3,974,803) 26.89 (417,150) 21.58
Options cancelled........ (503,779) 28.70 (170,000) 21.70
---------- ------ --------- ------
Options outstanding at
January 1, 2000......... 10,788,269++ $29.97 4,967,650+ $22.33
Options available for
grant at January 1,
2000.................... 3,111,688 1,288,450
---------- ---------
Total reserved shares.. 13,899,957 6,256,100
========== =========
Options exercisable at
January 1, 2000......... 2,952,766 $30.20 2,972,400 $22.32
Option prices per share:
Granted/converted...... $32-$92 $23
Exercised/surrendered.. $26-$37 $21-$23
Cancelled.............. $26-$32 $21-$23
--------
++ Options outstanding by exercise price:
$20.95-$25.13............ 4,967,650 $22.33
Average remaining
life.................. 7.0 years
$25.84-$31.88............ 7,427,085 $27.15
Average remaining
life.................. 7.3 years
$32.17-$44.07............ 3,014,436 $32.66
Average remaining
life.................. 8.1 years
$45.77-$61.63............ 55,997 $52.78
Average remaining
life.................. 7.0 years
$63.73-$91.58............ 290,751 $69.52
Average remaining
life.................. 6.9 years
Year Ended December 31,
--------------------------------------------------------
1998 1998
---------------------------- ---------------------------
Georgia-Pacific Group The Timber Company
---------------------------- ---------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
---------- ---------------- --------- ----------------
Options outstanding at
January 1, 1998........ 10,051,883 $26.66 6,029,600 $22.20
Options granted......... 3,000,100 28.23 - -
Options
exercised/surrendered.. (637,200) 27.22 (180,400) 21.52
Options canceled........ (718,600) 26.71 (295,350) 21.50
---------- ------ --------- ------
Options outstanding at
December 31, 1998...... 11,696,183 $27.03 5,553,850 $22.26
Options available for
grant at December 31,
1998................... 5,999,900 1,289,400
---------- ---------
Total reserved
shares............... 17,696,083 6,843,250
========== =========
Options exercisable at
December 31, 1998...... 2,222,116 $28.42 1,503,588 $23.21
Average remaining life
of options
outstanding............ 7.1 years 6.3 years
Option prices per share:
Granted................ $28-$30 $-
Exercised/surrendered.. $21-$29 $17-$23
Cancelled.............. $21-$29 $17-$25
Outstanding............ $26-$31 $21-$25
67
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Shareholder Rights Plan
On December 16, 1997, shareholders approved an amended and restated
Shareholder Rights Plan (the "Rights Agreement") pursuant to which preferred
stock purchase rights (the "Rights") are issued on each outstanding share of
Georgia-Pacific Group stock (a "Georgia-Pacific Group Right"), which will
entitle the holders thereof to purchase shares of Series B Junior Preferred
Stock under the conditions specified in the Rights Agreement, and on each
outstanding share of The Timber Company stock (a "Timber Company Right"),
which will entitle the holders thereof to purchase shares of Series C Junior
Preferred Stock under the conditions specified in the Rights Agreement.
The Rights will expire on December 31, 2007, unless earlier redeemed by the
Corporation or extended. The Rights would be exercisable only if a person or
group acquires 15% or more of the total voting rights of all then outstanding
shares of common stock of the Corporation or commences a tender offer that
would result in such person or group beneficially owning 15% or more of the
total voting rights of all then outstanding shares of common stock of the
Corporation. In such event, each Right would entitle the holder to purchase
from the Corporation (i) in the case of a Georgia-Pacific Group Right, one
one-hundredth of a share of Series B Junior Preferred Stock (a "Series B
Unit") at a purchase price of $175 (the "Series B Unit Purchase Price"),
subject to adjustment, and (ii) in the case of a Timber Company Right, one
one-hundredth of a share of Series C Junior Preferred Stock (a "Series C
Unit") at a purchase price of $100 (the "Series C Unit Purchase Price"),
subject to adjustment.
Thereafter, in the event one of several specified events (generally
involving transactions by an acquirer in the Corporation's common stock or a
business combination involving the Corporation) occurs, each Georgia-Pacific
Group Right and each Timber Company Right will entitle its holder to purchase,
for the Series B Unit Purchase Price and the Series C Unit Purchase Price,
respectively, a number of shares of common stock of such entity or purchaser
with a market value equal to twice the applicable purchase price. Because of
the nature of the dividend, liquidation and voting rights of each class of
Junior Preferred Stock related to the Rights, the economic value of one Series
B Unit and one Series C Unit should approximate the economic value of one
share of Georgia-Pacific Group stock and one share of The Timber Company
stock, respectively.
Capital Stock
During 2000, the Corporation acquired Fort James as described in Note 3 of
the Notes to Consolidated Financial Statements and issued 21.5 million shares
of Georgia-Pacific Group treasury stock and 32.2 million newly issued shares
of Georgia-Pacific Group stock in exchange for outstanding common stock of
Fort James. Of the Treasury Stock issued, approximately 1.7 million shares at
an aggregate price of $62 million ($36.47 average per share) were purchased
during 2000. The Corporation does not hold any Georgia-Pacific Group stock in
Treasury as of December 30, 2000. During 1999, the Corporation purchased on
the open market approximately 6.2 million shares of Georgia-Pacific Group
stock at an aggregate price of $257 million ($41.45 average per share), all of
which were held as treasury stock at January 1, 2000.
During 2000, the Corporation purchased on the open market approximately 3.3
million shares of The Timber Company stock at an aggregate price of $78
million ($23.64 average per share), all of which were held as treasury stock
at December 30, 2000. During 1999, the Corporation purchased on the open
market approximately 5.3 million shares of The Timber Company stock at an
aggregate price of $131 million ($24.72 average per share). Of these purchased
shares, approximately 5,343,000 shares of The Timber Company stock were held
as treasury stock.
Other
The Corporation has elected to continue to account for its stock-based
compensation plans under APB Opinion No. 25 and disclose pro forma effects of
the plans on net income and earnings per share as provided by
68
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SFAS No. 123. Accordingly, no compensation cost has been recognized for the
Fort James stock options, Unisource stock options, Chesapeake stock options,
the SVIP, the Georgia-Pacific Group Plan, The Timber Company Plan or the 2000
Purchase Plan. Had compensation cost for these plans been determined based on
the fair value at the grant dates in 2000, 1999 or 1998 under the plan
consistent with the method of SFAS No. 123, the pro forma net income and
earnings per share would have been as follows:
Year Ended
-----------------------------------------------------
December 30, January 1, December 31,
2000 2000 1998
----------------- ----------------- -----------------
Net Income Net Income Net Income
Income Per Share* Income Per Share* Income Per Share*
------ ---------- ------ ---------- ------ ----------
In millions, except per
share amounts
Georgia-Pacific
Corporation
As reported........... $505 $1,116 $274
Pro forma............. 467 1,079 243
Georgia-Pacific Group
As reported........... 343 $1.95 716 $4.17 98 $0.55
Pro forma............. 308 1.75 685 3.99 74 0.41
The Timber Company
As reported........... 162 2.01 400 4.75 176 1.95
Pro forma............. 159 1.97 394 4.68 169 1.87
--------
* Represents basic earnings per share. Pro forma diluted income per share was
$1.74 and $1.96 in 2000, $3.89 and $4.66 in 1999 and $0.41 and $1.86 in
1998 for the Georgia-Pacific Group and The Timber Company, respectively.
The fair-value-based method of accounting for stock-based compensation plans
under SFAS No. 123 recognizes the value of options granted as compensation
cost over the option's vesting period and has not been applied to options
granted prior to January 1, 1995. Accordingly, the resulting pro forma
compensation cost is not representative of what compensation cost will be in
future years.
Following are the weighted average assumptions used in connection with the
Black-Scholes option pricing model to estimate the fair value of options
granted in 2000, 1999 and 1998:
Year Ended
-----------------------------------------
December 30, January 1, December 31,
2000 2000 1998
---------------- ---------- ------------
Options ESPP* Options Options
-------- ------ ---------- ------------
Georgia-Pacific Group
Risk-free interest rate............. 6.7% 6.1% 4.9% 5.8%
Expected dividend yield............. 1.2% 1.9% 1.1% 1.8%
Expected life....................... 10 years 1 year 7 years 10 years
Expected volatility................. 0.42 0.42 0.46 0.39
Option forfeiture rate.............. 3% 7.3% 3% 3%
The Timber Company
Risk-free interest rate............. 6.7% 6.1% 4.9% 5.9%
Expected dividend yield............. 4.4% 4.5% 4.4% 3.9%
Expected life....................... 10 years 1 year 9 years 10 years
Expected volatility................. 0.38 0.38 0.32 0.37
Option forfeiture rate.............. 3% 8.6% 3% 3%
--------
* Employee Stock Purchase Plan
69
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The weighted average grant date fair value per share of Georgia-Pacific
Group options granted during the year using the Black-Scholes option pricing
model was $23.26, $16.97 and $13.45 for 2000, 1999 and 1998, respectively. The
weighted average grant date fair value per share of The Timber Company options
granted during the year using the Black-Scholes option pricing model was $7.35
and $7.89 for 2000 and 1999. No options were granted to The Timber Company
during 1998. The weighted average grant date fair value per share of shares
subscribed under the 2000 Purchase Plan was $6.13 for Georgia-Pacific Group
and $4.34 for The Timber Company.
NOTE 11. OTHER COMPREHENSIVE LOSS
The Corporation's accumulated other comprehensive loss includes the following:
Minimum Accumulated
Foreign Pension Other
Currency Liability Comprehensive
Items Adjustment Income (Loss)
-------- ---------- -------------
In millions
December 31, 1998............................. $(36) $(7) $(43)
Activity, net of taxes...................... 7 4 11
---- --- ----
January 1, 2000............................... (29) (3) (32)
Activity, net of taxes...................... 15 1 16
---- --- ----
December 30, 2000............................. $(14) $(2) $(16)
==== === ====
NOTE 12. COMMITMENTS AND CONTINGENCIES
Total rental expense was approximately $167.2 million, $117.4 million and
$75.8 million in 2000, 1999 and 1998, respectively.
At December 30, 2000, total commitments of the Corporation under long-term,
noncancelable contracts, including operating leases, were as follows:
In millions
2001.................................................................. $ 197
2002.................................................................. 181
2003.................................................................. 149
2004.................................................................. 129
2005.................................................................. 115
After 2005............................................................ 379
------
$1,150
======
The Corporation is a party to various legal proceedings incidental to its
business and is subject to a variety of environmental and pollution control
laws and regulations in all jurisdictions in which it operates. As is the case
with other companies in similar industries, the Corporation faces exposure
from actual or potential claims and legal proceedings involving environmental
matters. Liability insurance in effect during the last several years provides
only very limited coverage for environmental matters.
The Corporation is involved in environmental remediation activities at
approximately 194 sites, both owned by the Corporation and owned by others,
where it has been notified that it is or may be a potentially responsible
party under the Comprehensive Environmental Response, Compensation and
Liability Act or similar state "superfund" laws. Of the known sites in which
it is involved, the Corporation estimates that approximately 47%
70
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
are being investigated, approximately 28% are being remediated and
approximately 25% are being monitored (an activity that occurs after either
site investigation or remediation has been completed). The ultimate costs to
the Corporation for the investigation, remediation and monitoring of many of
these sites cannot be predicted with certainty, due to the often unknown
magnitude of the pollution or the necessary cleanup, the varying costs of
alternative cleanup methods, the amount of time necessary to accomplish such
cleanups, the evolving nature of cleanup technologies and governmental
regulations, and the inability to determine the Corporation's share of
multiparty cleanups or the extent to which contribution will be available from
other parties. The Corporation has established reserves for environmental
remediation costs for these sites in amounts that it believes are probable and
reasonably estimable. Based on analysis of currently available information and
previous experience with respect to the cleanup of hazardous substances, the
Corporation believes it is reasonably possible that costs associated with
these sites may exceed current reserves by amounts that may prove
insignificant or that could range, in the aggregate, up to approximately
$157.8 million. This estimate of the range of reasonably possible additional
costs is less certain than the estimates upon which reserves are based, and in
order to establish the upper limit of such range, assumptions least favorable
to the Corporation among the range of reasonably possible outcomes were used.
In estimating both its current reserve for environmental remediation and the
possible range of additional costs, the Corporation has not assumed it will
bear the entire cost of remediation of every site to the exclusion of other
known potentially responsible parties who may be jointly and severally liable.
The ability of other potentially responsible parties to participate has been
taken into account, based generally on the parties' financial condition and
probable contribution on a per site basis.
The Corporation is implementing an Administrative Order on Consent entered
into with the Michigan Department of Natural Resources and the Environmental
Protection Agency regarding an investigation of the Kalamazoo River and two
disposal areas which are contaminated with polychlorinated biphenyls. Data
regarding the extent of contamination at the two disposal areas has been
evaluated. The cost to remediate one of the disposal areas was estimated at $8
million and this site has been essentially closed. It is anticipated that the
cost of remediation of the second disposal area will be at least equal to that
amount, however, the Corporation is still negotiating a final closing
agreement with the State of Michigan. Fort James is not a signatory to the
Administrative Order on Consent.
A draft Remedial Investigation/ Feasibility Study ("RI/FS") for the
Kalamazoo River was submitted to the state of Michigan on October 30, 2000 by
the Corporation and other potentially responsible parties ("PRPs"), including
Fort James Corporation. The PRPs' draft RI/FS evaluated five remedial options
ranging from no action to total dredging of the river and off - site disposal
of the dredged materials. The cost for these remedial options ranges from $0
to $2.5 billion. The PRPs' draft RI/FS recommends a remedy involving
stabilization of over twenty miles of river bank and long term monitoring of
the river bed. However, the State of Michigan has asked for additional
possible remedies. The total cost for the PRPs' recommended remedy is
approximately $73 million.
Fort James has been identified as a PRP for contamination of the Lower Fox
River and Green Bay system in Wisconsin by hazardous substances. Various state
and federal agencies and tribal entities are seeking both sediment restoration
and natural resources damages. In February 1999, the Wisconsin Department of
Natural Resources ("WDNR") released for public comment a draft remedial
investigation/feasibility study of the Fox River. While the draft study did
not advocate any specific restoration alternatives, it included estimated
total costs ranging from zero for "no action" to approximately $720 million,
depending on the alternative or combination of alternatives selected.
In June 2000, Fort James voluntarily entered into an agreement with the WDNR
and the EPA for the restoration of one sediment area on the Fox River. The
project began in August 2000 and was completed on December 15, 2000 at a cost
of approximately $8 million.
71
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In October 2000, the U.S. Fish and Wildlife Service ("FWS") released for
public comment its Restoration and Compensation Determination Plan (the
"Plan") for natural resources damages in connection with its Lower Fox
River/Green Bay Natural Resource Damage Assessment. According to the Plan,
claims for past damages and present and future losses allegedly resulting from
contamination of the Fox River by hazardous substances range from $176 million
to $333 million, depending on the sediment restoration alternative or
combinations of alternatives selected. The actual costs of projects to settle
natural resource damage claims could be significantly lower.
In November 2000, Fort James entered into a settlement with WDNR that
resolves the State's natural resource damages claims against Fort James under
CERCLA, the Federal Water Pollution Control Act, and state law. Under the
agreement, Fort James has agreed to spend approximately $7 million. The
agreement will be effective when entered by the federal court.
The final cleanup alternatives and the Corporation's share of the related
costs, for both the Fox River and Kalamazoo River matters, are unknown at this
time.
The Corporation and many other companies are defendants in suits brought in
various courts around the nation by plaintiffs who allege that they have
suffered personal injury as a result of exposure to asbestos-containing
products. These suits allege a variety of lung and other diseases based on
alleged exposure to products previously manufactured by the Corporation. In
many cases, the plaintiffs are unable to demonstrate that they have suffered
any compensable loss as a result of such exposure, or that any injuries they
have incurred in fact resulted from exposure to the Corporation's products.
The Corporation is currently defending the claims of approximately 53,000
such plaintiffs as of December 30, 2000, and anticipates that additional
claims will be filed against it over the next several years. The number of
claims filed against the Corporation, and the average cost of resolving such
claims, has increased somewhat over the last three years. The Corporation
generally settles asbestos cases for amounts it considers reasonable given the
facts and circumstances of each case. Substantially all of the amounts it has
paid to date to defend and resolve these cases have been covered by product
liability insurance. The Corporation has agreements with its insurers to
utilize insurance in amounts which it believes are adequate to cover
substantially all of the defense costs and liabilities for currently pending
cases, as well as the reasonably foreseeable defense costs and liabilities
attributable to claims which may be filed against it over the next several
years. The Corporation has additional insurance coverage which it believes
will cover a substantial part of the defense costs and liabilities
attributable to additional future claims for some period of years, depending
on the number of claims filed each year in the future and the average cost of
resolving each such claim. However, there can be no assurance that such
coverage will be adequate to cover the costs of all future claims, or that the
part of such defense costs and liabilities not covered by such insurance will
not be material to the Corporation. The Corporation has established reserves
with respect to pending cases for the liabilities and defense costs it
believes are probable and reasonably estimable, and has also established a
receivable for insurance to the extent that the realization of the claim is
deemed probable.
On May 6, 1998, a lawsuit was filed in state court in Columbus, Ohio,
against the Corporation and Georgia-Pacific Resins, Inc. ("GPR"), a wholly
owned subsidiary of the Corporation. The lawsuit was filed by eight plaintiffs
who seek to represent a class of individuals who at any time from 1985 to the
present lived, worked, resided, owned, frequented or otherwise occupied
property located within a three-mile radius of the GPR's resins manufacturing
operations in Columbus, Ohio. The lawsuit alleges that the individual
plaintiffs and putative class members have suffered personal injuries and/or
property damage because of (i) alleged "continuing and long-term releases and
threats of releases of noxious fumes, odors and harmful chemicals, including
hazardous substances" from GPR's operations and/or (ii) a September 10, 1997
explosion at the Columbus facility and
72
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
alleged release of hazardous material resulting from that explosion. Virtually
all activity in this case has been stayed pending a decision on a motion by
plaintiffs for reconsideration of a case management order issued by the court.
The Corporation has denied the material allegations of this lawsuit. While it
is premature to evaluate the claims asserted in this lawsuit, the Corporation
believes it has meritorious defenses. Prior to the filing of the lawsuit, the
Corporation had received a number of explosion-related claims from nearby
residents and businesses. These claims were for property damage, personal
injury and business interruption and were being reviewed and resolved on a
case-by-case basis. On January 12, 2000, five plaintiffs, including one of the
class representatives in the state class action, filed a lawsuit against the
Corporation and GPR pursuant to the citizen suit provisions of the federal
Clean Air Act and the Community Right-to-Know law. This suit alleges
violations of these federal laws and certain state laws regarding the form and
substance of the defendants reporting of emissions and alleged violations of
permitting requirements under certain regulations issued under the Clean Air
Act. This suit seeks civil penalties of $25,000 per day, per violation, an
injunction to force the defendants to comply with these laws and regulations
and other relief. The defendants have denied the material allegations of the
complaint. While it is premature to completely evaluate these claims, the
Corporation believes it has meritorious defenses.
In May 1997, the Corporation and nine other companies, including Wisconsin
Tissue Mills, Inc. and Fort James Corporation, were named as defendants in a
lawsuit brought by the Attorney General of the State of Florida alleging that
the defendants engaged in a conspiracy to fix the prices of sanitary
commercial paper products, such as towels and napkins, in violation of various
federal and state laws. Shortly after the filing of this suit, approximately
55 similar suits were filed by private plaintiffs in various federal courts,
and in various state courts by private plaintiffs and State Attorney Generals.
All of these cases have been settled except a case in state court in Tennessee
and two cases brought by State Attorney Generals. As part of the formation of
the joint venture with Chesapeake described in Note 3 of the Notes to
Consolidated Financial Statements, the Corporation and Wisconsin Tissue
assigned, and Georgia-Pacific Tissue agreed to assume, the liabilities of both
companies in connection with these antitrust cases. In connection with the
proposed divestiture of certain assets to SCA described in Note 3 of the Notes
to Consolidated Financial Statements, the Corporation has agreed to assume
this liability from Georgia-Pacific Tissue. In addition, as a result of its
acquisition of Fort James, Fort James' liability in these cases is reflected
on the Corporation's consolidated financial statements. The Corporation,
Wisconsin Tissue and Fort James have denied that they have engaged in any of
the illegal conduct alleged in these cases. None of the amounts paid to settle
these cases is material to the Corporation, and the Corporation does not
believe that the remaining cases will result in payment of amounts that would
be material.
Although the ultimate outcome of these environmental matters and legal
proceedings cannot be determined with certainty, based on presently available
information, management believes that adequate reserves have been established
for probable losses with respect thereto. Management further believes that the
ultimate outcome of such environmental matters and legal proceedings could be
material to operating results in any given quarter or year but will not have a
material adverse effect on the long-term results of operations, liquidity or
consolidated financial position of the Corporation.
NOTE 13. RELATED-PARTY TRANSACTIONS
For all periods in which the separate accompanying combined statements of
income of the groups are presented, timber has been transferred from the
Corporation's timberlands at prices intended to reflect fair market prices
based on prices paid by independent purchasers and sellers for similar kinds
of timber.
During the second quarter of 1998, Georgia-Pacific Group and The Timber
Company revised the operating policy, which they had agreed to in 1997, with
respect to sales of timber by The Timber Company to the Georgia-Pacific Group.
This revised policy was implemented on July 1, 1999 and remained in effect
through 2000. Under the policy, The Timber Company was required to offer 70%
of its projected annual harvest in Southeast Arkansas
73
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and Mississippi and 80% of its projected annual harvest in most of its
Southern forests to the Georgia-Pacific Group, and the Georgia-Pacific Group
was required to purchase not less than 50% nor more than 70% of the projected
annual harvests in Southeast Arkansas and Mississippi, and not less than 60%
nor more than 80% of the projected annual harvest in other Southern forest
basins. The provisions in the policy were intended to cause prices paid by the
Georgia-Pacific Group for timber sold by The Timber Company to reflect market
prices in particular forests, to allow the Georgia-Pacific Group more
flexibility in purchasing wood from third parties, and to allow The Timber
Company flexibility in the timing of sales of its annual harvest on the open
market.
In 2000, Georgia-Pacific Group and The Timber Company negotiated a new
timber supply agreement which became effective January 1, 2001 and is subject
to an automatic ten year renewal period, unless either party delivers a timely
termination notice. This agreement covers four key southern timber basins:
Southeast Arkansas, Mississippi, Florida, and Southeast Georgia. Under the
agreement, The Timber Company must offer to Georgia-Pacific Group specified
percentages of its annual harvest, subject to absolute minimum and maximum
limitations in each basin. Georgia-Pacific Group can elect between 36% and 51%
of The Timber Company's annual harvest each year in Mississippi, Florida and
Southeast Georgia, and between 52% and 65% in Southeast Arkansas. The total
annual volume will range from a minimum of 3.3 million tons to a maximum of
4.2 million tons. The prices for such timber will be negotiated at arm's
length between The Timber Company and Georgia-Pacific Group every six months,
and will be set by third party arbitration if the parties cannot agree.
The Timber Company has also entered into a ten year supply contract to
deliver 50 million board feet annually of Douglas-fir and Western Hemlock
sawtimber to Georgia-Pacific Group's sawmills at Coos Bay and Philomath,
Oregon as well as 68 thousand green tons of pulpwood to the Georgia-Pacific
Group Toledo pulp mill and Coos Bay sawmill. Prices will be based on
prevailing market prices with recourse to arbitration if the parties do not
agree that the pricing formula reflects market prices. If The Timber Company's
merger with Plum Creek is completed, the timber supply agreement and the
supply contract will be replaced with new agreements on substantially the same
terms and entered into with certain subsidiaries of Plum Creek.
The Corporation is a 50% partner in a joint venture ("GA-MET") with
Metropolitan Life Insurance Company ("Metropolitan"). GA-MET owns and operates
the Corporation's main office building in Atlanta, Georgia. The Corporation
accounts for its investment in GA-MET under the equity method.
At December 30, 2000, GA-MET had an outstanding mortgage loan payable to
Metropolitan in the amount of $140 million. The note bears interest at 9 1/2%,
requires monthly payments of principal and interest through 2011, and is
secured by the land and building owned by the joint venture. In the event of
foreclosure, each partner has severally guaranteed payment of one-half of any
shortfall of collateral value to the outstanding secured indebtedness. Based
on the present market conditions and building occupancy, the likelihood of any
obligation to the Corporation with respect to this guarantee is considered
remote.
74
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 14. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
Second
First Quarter Quarter Third Quarter Fourth Qurter
------------- ------------- ------------- --------------
2000 1999 2000 1999 2000 1999 2000 1999
------ ------ ------ ------ ------ ------ ------ ------
In millions, except per
share amounts
Net sales............... $5,564 $3,567 $5,635 $4,010 $5,470 $5,675 $5,549 $5,347
Gross profit (net sales
minus cost of sales)... 1,394 900 1,397 1,095 1,280 1,327 1,251 1,318
Net income (loss)....... 234 146 240 311 162 279 (131) 380
Georgia-Pacific Group
Dividends declared per
share................. $0.125 $0.125 $0.125 $0.125 $0.125 $0.125 $0.125 $0.125
Basic per share:
Net income (loss).... 1.13 0.57 1.21 1.23 0.76 1.34 (0.98) 1.02
Diluted per share:
Net income (loss).... 1.11 0.56 1.20 1.20 0.76 1.31 (0.98) 1.00
The Timber Company......
Dividends declared per
share................. 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25
Basic per share:
Net income........... 0.49 0.54 0.42 1.17 0.40 0.59 0.70 2.48
Diluted per share:
Net income........... 0.49 0.54 0.42 1.16 0.40 0.59 0.69 2.47
Price range of common
stock
Georgia-Pacific Group
High................... $51.94 $41.00 $44.50 $54.13 $30.13 $52.88 $32.00 $50.88
Low.................... 31.69 29.34 25.69 38.75 21.88 37.50 19.31 35.75
The Timber Company
High................... 25.63 24.06 25.75 27.13 32.00 27.19 31.19 25.81
Low.................... 20.75 19.88 21.63 22.00 21.56 22.00 25.94 22.38
75
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 15. GROUP FINANCIAL INFORMATION
The following combined financial information includes the accounts of
Georgia-Pacific Group. All significant intragroup balances and transactions
are eliminated in combination. Transactions with The Timber Company are not
eliminated.
Combined Statements of Income
Georgia-Pacific Corporation--Georgia-Pacific Group
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions, except per share amounts
Net sales................................. $22,076 $18,418 $13,877
------- ------- -------
Costs and expenses
Cost of sales, excluding depreciation,
amortization and cost of timber
harvested shown below
The Timber Company...................... 62 95 89
Third parties........................... 16,883 13,907 10,777
------- ------- -------
Total cost of sales....................... 16,945 14,002 10,866
------- ------- -------
Selling and distribution.................. 1,574 782 556
Depreciation, amortization and cost of
timber harvested
The Timber Company....................... 177 232 320
Third parties............................ 1,077 971 953
------- ------- -------
Total depreciation, amortization and cost
of timber harvested...................... 1,254 1,203 1,273
------- ------- -------
General and administrative................ 951 841 612
Interest.................................. 595 426 372
Other loss................................ 204 - -
------- ------- -------
Total costs and expenses.................. 21,523 17,254 13,679
------- ------- -------
Income before income taxes and
extraordinary item....................... 553 1,164 198
Provision for income taxes................ 210 448 87
------- ------- -------
Income before extraordinary item.......... 343 716 111
Extraordinary item-loss from early
retirement of debt, net of taxes......... - - (13)
------- ------- -------
Net income................................ $ 343 $ 716 $ 98
======= ======= =======
Basic per share:
Income before extraordinary item......... $ 1.95 $ 4.17 $ 0.62
Extraordinary item, net of taxes......... - - (0.07)
------- ------- -------
Net income................................ $ 1.95 $ 4.17 $ 0.55
======= ======= =======
Diluted per share:
Income before extraordinary item......... $ 1.94 $ 4.07 $ 0.61
Extraordinary item, net of taxes......... - - (0.07)
------- ------- -------
Net income loss........................... $ 1.94 $ 4.07 $ 0.54
======= ======= =======
Average number of shares outstanding:
Basic.................................... 175.8 171.8 179.8
Diluted.................................. 176.9 175.9 181.1
76
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Combined Statements of Cash Flows
Georgia-Pacific Corporation--Georgia-Pacific Group
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions
Cash flows from operating activities:
Net income............................... $ 343 $ 716 $ 98
Adjustments to reconcile net income to
cash provided by operations, excluding
the effects of acquisitions:
Depreciation............................. 814 746 744
Cost of timber harvested-third parties... 167 156 147
Cost of timber harvested-The Timber
Company................................. 177 232 320
Deferred income taxes.................... 52 (59) 34
Amortization of goodwill................. 96 69 62
Other loss............................... 204 - -
(Gain) loss on disposal of assets, net... (10) 3 (19)
Decrease (increase) in receivables....... 182 (206) 140
(Increase) decrease in inventories....... (21) (243) 93
Change in other working capital.......... 22 (136) (140)
(Decrease) increase in taxes payable..... (178) (2) 135
Change in other assets and other long-
term liabilities........................ (101) 158 66
------- ------- -------
Cash provided by operations............... 1,747 1,434 1,680
------- ------- -------
Cash flows from investing activities:
Property, plant and equipment
investments............................. (906) (721) (632)
Timber contract purchases from third
parties................................. (181) (150) (142)
Timber purchases from The Timber
Company................................. (183) (222) (333)
Acquisitions............................. (6,142) (1,658) (112)
Proceeds from sales of assets............ 58 31 67
Other.................................... (63) 29 20
------- ------- -------
Cash used for investing activities........ (7,417) (2,691) (1,132)
------- ------- -------
Cash flows from financing activities:
Share repurchases........................ (62) (257) (436)
Net additions to (repayments of) debt.... 5,820 666 (34)
Issuance of senior deferrable notes...... - 863 -
Cash dividends paid...................... (85) (86) (90)
Proceeds from stock option plan
exercises............................... 12 107 9
Other.................................... - (16) -
------- ------- -------
Cash provided by (used for) financing
activities............................... 5,685 1,277 (551)
------- ------- -------
Increase (decrease) in cash............... 15 20 (3)
Balance at beginning of year.............. 25 5 8
------- ------- -------
Balance at end of year.................... $ 40 $ 25 $ 5
======= ======= =======
77
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Combined Balance Sheets
Georgia-Pacific Corporation--Georgia-Pacific Group
December 30, January 1,
2000 2000
------------ ----------
In millions
ASSETS
Current assets:
Cash.................................................. $ 40 $ 25
------- -------
Receivables, less allowances of $34 and $25,
respectively......................................... 2,704 2,158
------- -------
Inventories
Raw materials........................................ 739 453
Finished goods....................................... 1,977 1,367
Supplies............................................. 550 341
LIFO reserve......................................... (373) (154)
------- -------
Total inventories................................... 2,893 2,007
------- -------
Deferred income tax assets............................ 176 139
------- -------
Other current assets.................................. 449 207
------- -------
Total current assets................................ 6,262 4,536
------- -------
Property, plant and equipment
Land and improvements................................ 653 476
Buildings............................................ 2,532 1,629
Machinery and equipment.............................. 17,353 13,307
Construction in progress............................. 624 404
------- -------
Property, plant and equipment, at cost............... 21,162 15,816
Accumulated depreciation............................. (9,378) (8,756)
------- -------
Total property, plant and equipment, net............ 11,784 7,060
------- -------
Goodwill, net.......................................... 8,985 2,697
------- -------
Other assets........................................... 2,242 1,087
------- -------
Total assets........................................ $29,273 $15,380
======= =======
LIABILITIES AND PARENT'S EQUITY
Current liabilities:
Short-term debt....................................... $ 2,852 $ 2,071
Accounts payable...................................... 1,515 886
Accrued compensation.................................. 430 327
Other current liabilities............................. 879 537
------- -------
Total current liabilities........................... 5,676 3,821
------- -------
Long-term debt, excluding current portion.............. 12,355 3,983
------- -------
Senior deferrable notes................................ 863 863
------- -------
Other long-term liabilities............................ 2,647 1,803
------- -------
Deferred income tax liabilities........................ 2,155 1,160
------- -------
Commitments and contingencies
Parent's equity........................................ 5,577 3,750
------- -------
Total liabilities and parent's equity............... $29,273 $15,380
======= =======
78
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Combined Statements of Parent's Equity
Georgia-Pacific Corporation--Georgia-Pacific Group
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions
Parent's equity balance, beginning of
year.................................... $3,750 $3,209 $3,519
Net income............................... 343 716 98
Cash dividends paid...................... (85) (86) (90)
Common stock repurchases................. (62) (257) (427)
Common stock issued for acquisition...... 1,480 - -
Other comprehensive income (loss), net of
taxes................................... 16 11 (10)
Other common stock activity.............. 135 157 119
------ ------ ------
Parent's equity balance, end of year..... $5,577 $3,750 $3,209
====== ====== ======
Combined Statements of Comprehensive Income
Georgia-Pacific Corporation--Georgia-Pacific Group
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions
Net income............................... $343 $716 $98
Other comprehensive income (loss), before
taxes:
Foreign currency translation
adjustments............................ 24 11 (14)
Minimum pension liability adjustment.... 2 7 (3)
Income tax (expense) benefit related to
other items of comprehensive income..... (10) (7) 7
---- ---- ---
Comprehensive income..................... $359 $727 $88
==== ==== ===
79
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following combined financial information includes the accounts of The
Timber Company. All significant intracompany balances and transactions are
eliminated in combination. Transactions with Georgia-Pacific Group are not
eliminated.
Combined Statements of Income
Georgia-Pacific Corporation--The Timber Company
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions, except per share amounts
Net sales
Timber--Georgia-Pacific Group................ $ 239 $ 327 $ 409
Timber--third parties........................
Delivered................................... 38 43 53
Stumpage.................................... 96 131 52
Other........................................ 21 25 20
----- ----- ------
Total net sales......................... 394 526 534
----- ----- ------
Costs and expenses
Cost of sales, excluding depreciation and
depletion................................... 26 70 114
Depreciation and depletion................... 27 42 44
General and administrative................... 38 43 36
Interest..................................... 44 69 71
Other income................................. - (355) (24)
----- ----- ------
Total costs and expenses................ 135 (131) 241
----- ----- ------
Income before income taxes and extraordinary
item......................................... 259 657 293
Provision for income taxes.................... 97 257 115
----- ----- ------
Income before extraordinary item.............. 162 400 178
Extraordinary item--loss from early retirement
of debt, net of taxes........................ - - (2)
----- ----- ------
Net income.................................... $ 162 $ 400 $ 176
===== ===== ======
Basic per share:
Income before extraordinary item............. $2.01 $4.75 $ 1.97
Extraordinary item, net of taxes............. - - (0.02)
----- ----- ------
Net income.................................... $2.01 $4.75 $ 1.95
----- ----- ------
Diluted per share:
Income before extraordinary item............. $2.00 $4.73 $ 1.96
Extraordinary item, net of taxes............. - - (0.02)
----- ----- ------
Net income.................................... $2.00 $4.73 $ 1.94
===== ===== ======
Average number of shares outstanding:
Basic........................................ 80.7 84.1 90.3
Diluted...................................... 81.1 84.6 90.8
80
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Combined Statements of Cash Flows
Georgia-Pacific Corporation--The Timber Company
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions
Cash flows from operating activities:
Net income............................... $ 162 $ 400 $ 176
Adjustments to reconcile net income to
cash provided by operations:
Depreciation............................. 5 6 5
Depletion................................ 22 36 39
Other income............................. - (355) (24)
Deferred income taxes.................... 30 132 4
Gain on disposal of assets, net.......... (78) (51) (17)
Other.................................... 32 (9) 18
----- ----- -----
Cash provided by operations............... 173 159 201
----- ----- -----
Cash flows from investing activities:
Property, plant and equipment
investments.............................. (3) (2) (6)
Timber and timberland investments........ (59) (78) (59)
Proceeds from sales of assets............ 364 124 64
----- ----- -----
Cash provided by (used for) investing
activities............................... 302 44 (1)
----- ----- -----
Cash flows from financing activities:
Share repurchases........................ (78) (131) (121)
Proceeds from employee stock purchase
plan..................................... - 16 -
Proceeds from stock option plan
exercises................................ 14 9 -
(Repayments of) additions to debt........ (330) (13) 12
Cash dividends paid...................... (81) (84) (91)
----- ----- -----
Cash used for financing activities........ (475) (203) (200)
----- ----- -----
Increase (decrease) in cash............... - - -
Balance at beginning of year.............. - - -
----- ----- -----
Balance at end of year.................... $ - $ - $ -
===== ===== =====
81
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Combined Balance Sheets
Georgia-Pacific Corporation--The Timber Company
December 30, January 1,
2000 2000
------------ ----------
In millions
ASSETS
Timber and timberlands
Timberlands............................................ $ 324 $ 318
Fee timber............................................. 531 523
Reforestation.......................................... 301 259
Other.................................................. 64 27
------ ------
Total timber and timberlands........................ 1,220 1,127
------ ------
Property, plant and equipment
Land and improvements.................................. 22 22
Buildings.............................................. 5 5
Machinery and equipment................................ 34 36
------ ------
Property, plant and equipment, at cost................. 61 63
Accumulated depreciation............................... (43) (44)
------ ------
Total property, plant and equipment, net............ 18 19
Note receivable......................................... 352 350
Other assets............................................ 29 25
------ ------
Total assets........................................ $1,619 $1,521
====== ======
LIABILITIES AND PARENT'S EQUITY
Debt.................................................... $ 640 $ 970
Other liabilities....................................... 428 50
Deferred income tax liabilities......................... 406 376
------ ------
Total liabilities................................... 1,474 1,396
------ ------
Commitments and contingencies
Parent's equity......................................... 145 125
------ ------
Total liabilities and parent's equity............... $1,619 $1,521
====== ======
82
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Combined Statements of Parent's Equity
Georgia-Pacific Corporation--The Timber Company
Year Ended
------------------------------------
December 30, January 1, December 31,
2000 2000 1998
------------ ---------- ------------
In millions
Parent's equity balance, beginning of
year.................................... $125 $ (85) $ (49)
Net income............................... 162 400 176
Common stock repurchases................. (78) (131) (121)
Cash dividends paid...................... (81) (84) (91)
Stock option plans and directors plan.... 17 9 -
Employee stock purchase plan............. - 16 -
---- ----- -----
Parent's equity balance, end of year..... $145 $ 125 $ (85)
==== ===== =====
Comprehensive Income
The Timber Company's total comprehensive income was $162 million, $400
million, and $176 million for the years ended December 30, 2000, January 1,
2000 and December 31, 1998, respectively. Other comprehensive income was
insignificant for The Timber Company during 2000, 1999 and 1998.
83
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 16. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Fort James is an issuer of certain securities registered under the
Securities Act of 1933, thus subjecting it to reporting requirements under
Section 15(d) of the Securities Exchange Act of 1934. The following condensed
consolidating financial information is presented in lieu of consolidated
financial statements for Fort James because the securities are fully and
unconditionally guaranteed by the Corporation and certain subsidiaries:
Consolidating Statement of Income
For the Year Ended December 30, 2000
Georgia-Pacific
Corp. other than
Fort James and
The Timber Fort James The Timber Consolidating Consolidated
Company Corp. Company Adjustments Amounts
---------------- ---------- ---------- ------------- ------------
In millions
Net sales............... $21,557 $528 $394 $(261) $22,218
------- ---- ---- ----- -------
Costs and expenses
Cost of sales,
excluding
depreciation,
depletion,
amortization and cost
of timber harvested
shown below........... 16,633 321 26 (84) 16,896
Selling and
distribution........... 1,484 90 - - 1,574
Depreciation,
amortization and cost
of timber harvested.... 1,199 55 27 (177) 1,104
General and
administrative......... 923 28 38 - 989
Interest................ 571 24 44 - 639
Other loss.............. 204 - - - 204
------- ---- ---- ----- -------
Total costs and
expenses........... 21,014 518 135 (261) 21,406
------- ---- ---- ----- -------
Income before income
taxes.................. 543 10 259 - 812
Provision for income
taxes.................. 201 9 97 - 307
------- ---- ---- ----- -------
Net income.............. $ 342 $ 1 $162 $ - $ 505
======= ==== ==== ===== =======
84
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidating Statement of Cash Flows
For the Year Ended December 30, 2000
Georgia-Pacific
Corp. other than
Fort James and
The Timber Fort James The Timber Consolidating Consolidated
Company Corp. Company Adjustments Amounts
---------------- ---------- ---------- ------------- ------------
In millions
Cash provided by (used
for) operations........ $ 1,764 $ (17) $ 173 $(183) $ 1,737
------- ------- ----- ----- -------
Cash flows from
investing activities:
Property, plant and
equipment
investments........... (867) (39) (3) - (909)
Timber and timberlands
purchases............. (364) - (59) 183 (240)
Acquisitions........... (2) (6,140) - - (6,142)
Proceeds from sales of
assets................ 58 - 364 - 422
Other.................. (40) (23) - - (63)
------- ------- ----- ----- -------
Cash (used for) provided
by investing
activities............. (1,215) (6,202) 302 183 (6,932)
------- ------- ----- ----- -------
Cash flows from
financing activities:
Net increase (decrease)
in debt............... 6,762 (942) (330) - 5,490
Net change in
intercompany payable.. (7,169) 7,169 - - -
Common stock
repurchased........... (62) - (78) - (140)
Proceeds from option
plan exercises........ 12 - 14 - 26
Cash dividends paid.... (85) - (81) - (166)
------- ------- ----- ----- -------
Cash (used for) provided
by financing
activities............. (542) 6,227 (475) - 5,210
------- ------- ----- ----- -------
Increase in cash........ 7 8 - - 15
Balance at beginning of
year................... 25 - - - 25
------- ------- ----- ----- -------
Balance at end of year.. $ 32 $ 8 $ - $ - $ 40
======= ======= ===== ===== =======
85
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidating Balance Sheet
As of December 30, 2000
Georgia-Pacific
Corp. other than
Fort James and
The Timber Fort James The Timber Consolidating Consolidated
Company Corp. Company Adjustments Amounts
---------------- ---------- ---------- ------------- ------------
In millions
ASSETS
Current assets:
Cash................... $ 32 $ 8 $ - $ - $ 40
Receivables, less
allowances............ 2,033 671 1 - 2,705
Inventories............ 2,003 890 2 - 2,895
Deferred income tax
assets................ 88 88 - - 176
Other current assets... 52 397 23 - 472
------- ------- ------ ----- -------
Total current assets.. 4,208 2,054 26 - 6,288
------- ------- ------ ----- -------
Timber and timberlands.. 83 - 1,220 (10) 1,293
------- ------- ------ ----- -------
Total property, plant
and equipment, net..... 7,095 4,689 18 - 11,802
------- ------- ------ ----- -------
Goodwill, net........... 2,401 6,584 - - 8,985
------- ------- ------ ----- -------
Other assets............ 1,465 694 355 - 2,514
------- ------- ------ ----- -------
Total assets.......... $15,252 $14,021 $1,619 $ (10) $30,882
======= ======= ====== ===== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt........ $ 2,620 $ 232 $ - $ 368 $ 3,220
Accounts payable....... 928 587 5 - 1,520
Other current
liabilities........... 791 518 43 (10) 1,342
------- ------- ------ ----- -------
Total current
liabilities.......... 4,339 1,337 48 358 6,082
------- ------- ------ ----- -------
Long-term debt,
excluding current
portion................ 10,234 2,121 640 (368) 12,627
------- ------- ------ ----- -------
Senior deferrable
notes.................. 863 - - - 863
------- ------- ------ ----- -------
Other long-term
liabilities............ 1,880 767 380 - 3,027
------- ------- ------ ----- -------
Deferred income tax
liabilities............ 1,131 1,024 406 - 2,561
------- ------- ------ ----- -------
Intercompany............ (9,450) 8,747 703 - -
------- ------- ------ ----- -------
Shareholders' equity.... 6,255 25 (558) - 5,722
------- ------- ------ ----- -------
Total liabilities and
shareholders'
equity............... $15,252 $14,021 $1,619 $ (10) $30,882
======= ======= ====== ===== =======
86
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
Selected Financial Data--Operations
Georgia-Pacific Corporation and Subsidiaries
Year Ended
-------------------------------------------------
December 31,
December 30, January 1, -------------------------
2000 2000 1998 1997 1996
------------ ---------- ------- ------- -------
In millions, except per
share amounts and ratios
Operations:
Net sales................. $22,218 $18,599 $13,990 $13,707 $13,622
------- ------- ------- ------- -------
Costs and expenses:
Cost of sales............. 16,896 13,959 10,879 10,822 10,396
Selling and distribution.. 1,574 782 556 607 642
Depreciation, depletion,
amortization and cost of
timber harvested......... 1,104 1,013 997 1,017 996
General and
administrative........... 989 884 648 689 833
Interest.................. 639 495 443 465 459
Other loss (income)....... 204 (355) (24) (128) --
------- ------- ------- ------- -------
Total costs and
expenses................ 21,406 16,778 13,499 13,472 13,326
------- ------- ------- ------- -------
Income before income taxes,
extraordinary items and
accounting change......... 812 1,821 491 235 296
Provision for income
taxes..................... 307 705 202 106 135
------- ------- ------- ------- -------
Income before extraordinary
items and accounting
change.................... 505 1,116 289 129 161
Extraordinary items and
accounting change, net of
taxes..................... - - (15) (60) (5)
------- ------- ------- ------- -------
Net income................. $ 505 $ 1,116 $ 274 $ 69 $ 156
======= ======= ======= ======= =======
Other statistical data:
Georgia-Pacific
Corporation:
Basic per share:
Income before
extraordinary items and
accounting change........ $ 1.78
Extraordinary items and
accounting change, net of
taxes.................... (0.06)
-------
Net income................ $ 1.72
=======
Diluted per share:
Income before
extraordinary items and
accounting change........ $ 1.77
Extraordinary items and
accounting change, net of
taxes.................... (0.06)
-------
Net income................ $ 1.71
=======
Average number shares
outstanding
Georgia-Pacific
Corporation, basic....... 90.6
Georgia-Pacific
Corporation, diluted..... 91.2
Earnings to fixed charges.. 2.2 4.4 2.1 1.5 1.7
Effective income tax rate.. 37.8% 38.7% 41.1% 45.1% 45.6%
87
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
Selected Financial Data--Operations
Georgia-Pacific Corporation--Georgia-Pacific Group
Year Ended
-------------------------------------------------
December 31,
December 30, January 1, -------------------------
2000 2000 1998 1997 1996
------------ ---------- ------- ------- -------
In millions, except per
share amounts and ratios
Operations:
Net sales.................. $22,076 $18,418 $13,877 $13,592 $13,508
------- ------- ------- ------- -------
Costs and expenses:
Cost of sales..............
The Timber Company......... 62 95 89 75 109
Third parties.............. 16,883 13,907 10,777 10,696 10,273
------- ------- ------- ------- -------
Total cost of sales....... 16,945 14,002 10,866 10,771 10,382
Selling and distribution.... 1,574 782 556 607 642
Depreciation, amortization
and cost of timber
harvested:
The Timber Company......... 177 232 320 350 315
Third parties.............. 1,077 971 953 969 939
------- ------- ------- ------- -------
Total depreciation,
amortization and cost of
timber harvested......... 1,254 1,203 1,273 1,319 1,254
General and administrative.. 951 841 612 646 788
Interest.................... 595 426 372 381 354
Other loss (income)......... 204 - - (14) -
------- ------- ------- ------- -------
Total costs and expenses.. 21,523 17,254 13,679 13,710 13,420
------- ------- ------- ------- -------
Income (loss) before income
taxes, extraordinary items
and accounting change...... 553 1,164 198 (118) 88
Provision (benefit) for
income taxes............... 210 448 87 (32) 54
------- ------- ------- ------- -------
Income (loss) before
extraordinary items and
accounting change.......... 343 716 111 (86) 34
Extraordinary items and
accounting change, net of
taxes...................... - - (13) (60) (5)
------- ------- ------- ------- -------
Net income (loss)........... $ 343 $ 716 $ 98 $ (146) $ 29
======= ======= ======= ======= =======
Basic per share:
Income (loss) before
extraordinary items and
accounting change......... $ 1.95 $ 4.17 $ 0.62 $ (0.47)
Extraordinary items and
accounting change, net of
taxes..................... - - (0.07) (0.33)
------- ------- ------- -------
Net income (loss)........... $ 1.95 $ 4.17 $ 0.55 $ (0.80)
======= ======= ======= =======
Diluted per share:
Income (loss) before
extraordinary items and
accounting change......... $ 1.94 $ 4.07 $ 0.61 $ (0.47)
Extraordinary items and
accounting change, net of
taxes..................... - - (0.07) (0.33)
------- ------- ------- -------
Net income (loss)........... $ 1.94 $ 4.07 $ 0.54 $ (0.80)
======= ======= ======= =======
Average number shares
outstanding
Basic...................... 175.8 171.8 179.8 182.9
Diluted.................... 176.9 175.9 181.1 182.9
Earnings to fixed charges... 1.8 3.5 1.5 0.7 1.3
Effective income tax rate... 38.0% 38.5% 43.9% 27.1% 61.4%
88
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
Selected Financial Data--Operations
Georgia-Pacific Corporation--The Timber Company
Year Ended
-------------------------------------------
December 31,
December 30, January 1, -------------------
2000 2000 1998 1997 1996
------------ ---------- ------ ----- ----
In millions, except per share
amounts and ratios
Operations:
Net sales....................... $ 394 $ 526 $ 534 $ 551 $547
----- ----- ------ ----- ----
Costs and expenses:
Cost of sales................... 26 70 114 137 132
General and administrative...... 38 43 36 43 45
Depreciation and depletion...... 27 42 44 48 57
Interest........................ 44 69 71 84 105
Other income.................... - (355) (24) (114) -
----- ----- ------ ----- ----
Total costs and expenses..... 135 (131) 241 198 339
----- ----- ------ ----- ----
Income before income taxes, and
extraordinary item.............. 259 657 293 353 208
Provision for income taxes....... 97 257 115 138 81
----- ----- ------ ----- ----
Income before extraordinary
item............................ 162 400 178 215 127
Extraordinary item, net of
taxes........................... - - (2) - -
----- ----- ------ ----- ----
Net income................... $ 162 $ 400 $ 176 $ 215 $127
===== ===== ====== ===== ====
Basic per share:
Income before extraordinary
item........................... $2.01 $4.75 $ 1.97 $2.35
Extraordinary item, net of
taxes.......................... - - (0.02) -
----- ----- ------ -----
Net income................... $2.01 $4.75 $ 1.95 $2.35
===== ===== ====== =====
Diluted per share:
Income before extraordinary
item........................... $2.00 $4.73 $ 1.96 $2.33
Extraordinary item, net of
taxes.......................... - - (0.02) -
----- ----- ------ -----
Net income................... $2.00 $4.73 $ 1.94 $2.33
===== ===== ====== =====
Average number shares
outstanding:
Basic........................... 80.7 84.1 90.3 91.4
Diluted......................... 81.1 84.6 90.8 92.1
Earnings to fixed charges........ 6.6 10.3 5.1 5.2 3.0
Effective income tax rate........ 37.5% 39.1% 39.2% 39.1% 38.9%
Earnings to Fixed Charges
Income before income taxes, extraordinary items and accounting change plus
total interest cost (interest expense plus capitalized interest) and one-third
of rent expense, divided by total interest cost plus one one-third of rent
expense.
Effective Income Tax Rate
Provision (benefit) for income taxes divided by income (loss) before income
taxes, extraordinary items and accounting change.
89
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
Selected Financial Data--Financial Position, End of Year
Georgia-Pacific Corporation and Subsidiaries
Year Ended
-------------------------------------------------
December 31,
December 30, January 1, -------------------------
2000 2000 1998 1997 1996
------------ ---------- ------- ------- -------
In millions, except per
share amounts, ratios, and
percentages
Financial position, end of
year:
Current assets............ $ 6,288 $ 4,559 $ 2,645 $ 2,916 $ 2,615
Timber and timberlands.... 1,293 1,189 1,210 1,201 1,342
Property, plant and
equipment, net........... 11,802 7,079 6,249 6,297 6,560
Goodwill, net............. 8,985 2,697 1,677 1,599 1,658
Other assets.............. 2,514 1,373 919 937 643
------- ------- ------- ------- -------
Total assets............... $30,882 $16,897 $12,700 $12,950 $12,818
------- ------- ------- ------- -------
Current liabilities........ $ 6,082 $ 4,191 $ 2,648 $ 3,020 $ 2,490
Long-term debt............. 12,627 4,621 4,125 3,713 4,371
Senior deferrable notes.... 863 863 - - -
Other long-term
liabilities............... 3,027 1,811 1,572 1,548 1,285
Deferred income taxes...... 2,561 1,536 1,231 1,199 1,161
------- ------- ------- ------- -------
Total liabilities.......... $25,160 $13,022 $ 9,576 $ 9,480 $ 9,307
------- ------- ------- ------- -------
Shareholders' equity....... $ 5,722 $ 3,875 $ 3,124 $ 3,470 $ 3,511
======= ======= ======= ======= =======
Other statistical data:
Property, plant and
equipment investments.... $ 909 $ 723 $ 638 $ 717 $ 1,059
Timber and timberland
purchases................ 240 228 201 175 142
Cash paid for
acquisitions............. 6,142 1,658 112 - 363
Total debt to capital, book
basis..................... 56.9% 46.9% 48.6% 47.2% 50.4%
Total debt to capital,
market basis.............. - - - - 47.4%
Current ratio.............. 1.0 1.1 1.0 1.0 1.1
Per share (through December
16, 1997):
Market price:
High...................... $108.56 $ 81.00
Low....................... $ 70.50 $ 63.00
Period-end................ $ 85.13 $ 72.00
Book value................. $ 38.52
Shares of stock outstanding
at year-end............... 91.4
Dividends declared per
share..................... $ 2.00 $ 2.00
90
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
Selected Financial Data--Financial Position, End of Year
Georgia-Pacific Corporation--Georgia-Pacific Group
Year Ended
-------------------------------------------------
December 31,
December 30, January 1, -------------------------
2000 2000 1998 1997 1996
------------ ---------- ------- ------- -------
In millions, except per share
amounts, ratios, and
percentages
Financial position, end of
year:
Current assets.............. $ 6,262 $ 4,536 $ 2,640 $ 2,911 $ 2,611
Timber contracts............ 83 66 78 71 58
Property, plant and
equipment, net............. 11,784 7,060 6,225 6,277 6,535
Goodwill, net............... 8,985 2,697 1,677 1,599 1,658
Other assets................ 2,159 1,021 918 921 630
------- ------- ------- ------- -------
Total assets............... $29,273 $15,380 $11,538 $11,779 $11,492
------- ------- ------- ------- -------
Current liabilities.......... $ 5,676 $ 3,821 $ 2,381 $ 2,698 $ 2,200
Long-term debt............... 12,355 3,983 3,395 3,057 3,340
Senior deferrable notes...... 863 863 - - -
Other long-term liabilities.. 2,647 1,803 1,566 1,546 1,282
Deferred income taxes........ 2,155 1,160 987 959 987
------- ------- ------- ------- -------
Total liabilities.......... $23,696 $11,630 $ 8,329 $ 8,260 $ 7,809
------- ------- ------- ------- -------
Parent's equity.............. $ 5,577 $ 3,750 $ 3,209 $ 3,519 $ 3,683
======= ======= ======= ======= =======
Other statistical data:
Property, plant and
equipment investments...... $ 906 $ 721 $ 632 $ 715 $ 1,055
Timber contract purchases
from third parties......... 181 150 142 131 94
Timber purchases from The
Timber Company............. 183 222 333 350 315
Cash paid for acquisitions.. 6,142 1,658 112 - 363
Total debt to capital, book
basis....................... 57.9% 44.9% 44.5% 43.1% 44.2%
Total debt to capital, market
basis....................... 68.5% 40.9% 47.4% 44.7% -
Current ratio................ 1.1 1.2 1.1 1.1 1.2
Per share*:
Market price:
High........................ $ 51.94 $ 54.13 $ 40.50 $ 32.00
Low......................... $ 19.31 $ 29.34 $ 18.69 $ 29.50
Year-end.................... $ 31.13 $ 50.75 $ 29.28 $ 30.38
Book value................... $ 24.81 $ 21.78 $ 18.55 $ 19.10
Shares of stock outstanding
at year-end................. 224.8 172.2 173.0 184.5
Dividends declared per
share....................... $ 0.50 $ 0.50 $ 0.50
--------
* 1997 amounts are for the period from December 17, 1997 through December 31,
1997.
91
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
Selected Financial Data--Financial Position, End of Year
Georgia-Pacific Corporation--The Timber Company
Year Ended
----------------------------------------------
December 31,
December 30, January 1, ----------------------
2000 2000 1998 1997 1996
------------ ---------- ------ ------ ------
In millions, except per share
amounts,
ratios, and percentages
Financial position, end of
year:
Timber and timberlands........ $1,220 $1,127 $1,144 $1,130 $1,284
Property, plant and equipment,
net.......................... 18 19 24 20 25
Investment in real estate held
for development use.......... - - - 14 13
Note receivable............... 352 350 - - -
Other assets.................. 29 25 6 7 4
------ ------ ------ ------ ------
Total assets................. $1,619 $1,521 $1,174 $1,171 $1,326
------ ------ ------ ------ ------
Debt........................... $ 640 $ 970 $ 983 $ 971 $1,316
Other liabilities.............. 428 50 32 9 8
Deferred income taxes.......... 406 376 244 240 174
------ ------ ------ ------ ------
Total liabilities............ $1,474 $1,396 $1,259 $1,220 $1,498
------ ------ ------ ------ ------
Parent's equity................ $ 145 $ 125 $ (85) $ (49) $ (172)
====== ====== ====== ====== ======
Other statistical data:
Property, plant and equipment
investments.................. $ 3 $ 2 $ 6 $ 2 $ 4
Timber and timberland
investments.................. 59 78 59 44 48
Total debt to capital, book
basis......................... 40.7% 65.6% 85.6% 83.4% 99.6%
Total debt to capital, market
basis......................... 21.0% 32.2% 32.2% 31.6% -
Per share*:
Market price:
High.......................... $32.00 $27.19 $27.25 $25.88
Low........................... $20.75 $19.88 $17.38 $22.50
Year-end...................... $29.94 $24.63 $23.81 $22.69
Book value..................... $ 1.81 $ 1.51 $(0.98) $(0.53)
Shares of stock outstanding at
year-end...................... 80.2 82.9 87.1 92.6
Dividends declared per share... $ 1.00 $ 1.00 $ 1.00
--------
* 1997 amounts are for the period from December 17, 1997 through December 31,
1997.
Book Value Per Common Share
Shareholders'/parent's equity divided by shares of common stock outstanding
as of the end of the year.
Total Debt to Capital, Book Basis
Total debt divided by the sum of total debt, senior deferrable notes,
deferred income taxes, net, other long-term liabilities and
shareholders'/parent's equity as of the end of the year. Total debt includes
bank overdrafts, commercial paper and short-term notes, current portion of
long-term debt, (all of which are included "Current liabilities"), long-term
debt and accounts receivable pledged.
92
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
Total Debt to Capital, Market Basis
Total debt divided by the sum of total debt and the market value of
shareholders'/parent's equity as of the end of the year. Total debt includes
bank overdrafts, commercial paper and short-term notes, current portion of
long-term debt, (all of which are included in "Current liabilities"), long-
term debt and accounts receivable pledged. The market value of
shareholders'/parent's equity is the market price of common stock multiplied
by the number of common stock shares outstanding.
Current Ratio
Current assets divided by current liabilities as of the end of the year.
93
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
Sales and Operating Profits by Operating Segment
Georgia-Pacific Corporation and Subsidiaries
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
In millions, except
percentages
Net sales(a):
Building products
manufacturing
Wood panels............ $ 1,119 5% $ 1,233 7% $ 1,095 8% $ 981 7% $ 986 7%
Lumber................. 1,069 5 1,086 6 851 6 881 6 782 6
Gypsum products........ 903 4 1,189 6 992 7 885 6 729 5
Chemicals.............. 461 2 445 2 455 3 482 4 438 3
Other.................. 96 - 102 1 120 1 68 1 51 -
------- --- ------- --- ------- --- ------- --- ------- ---
Total manufacturing.... 3,648 16 4,055 22 3,513 25 3,297 24 2,986 21
------- --- ------- --- ------- --- ------- --- ------- ---
Building products
distribution:
Wood panels............ 2,115 10 2,506 13 2,127 15 1,919 14 2,008 15
Lumber................. 1,473 7 1,662 9 1,471 11 1,639 12 1,626 12
Other.................. 723 3 696 4 741 5 860 6 937 7
------- --- ------- --- ------- --- ------- --- ------- ---
Total distribution..... 4,311 20 4,864 26 4,339 31 4,418 32 4,571 34
------- --- ------- --- ------- --- ------- --- ------- ---
Total building
products............. 7,959 36 8,919 48 7,852 56 7,715 56 7,557 55
------- --- ------- --- ------- --- ------- --- ------- ---
Timber.................. 155 1 199 1 125 1 126 1 123 1
------- --- ------- --- ------- --- ------- --- ------- ---
Containerboard and
packaging;
Containerboard......... 625 3 554 3 544 4 569 4 552 4
Packaging.............. 2,020 9 1,892 10 1,617 11 1,315 10 1,479 11
------- --- ------- --- ------- --- ------- --- ------- ---
Total containerboard
and packaging......... 2,645 12 2,446 13 2,161 15 1,884 14 2,031 15
------- --- ------- --- ------- --- ------- --- ------- ---
Bleached pulp and paper:
Market pulp............ 981 4 759 4 747 5 886 6 776 6
Bleached board......... 50 - 59 - 74 1 91 - 113 1
Paper.................. 1,140 5 1,349 8 1,624 12 1,627 12 1,639 12
Other.................. 3 - 3 - 3 - 3 - 6 -
------- --- ------- --- ------- --- ------- --- ------- ---
Total manufacturing.... 2,174 9 2,170 12 2,448 18 2,607 18 2,534 19
------- --- ------- --- ------- --- ------- --- ------- ---
Paper distribution:
Fine paper............. 4,200 19 1,980 11 - - - - - -
Supply systems......... 2,661 12 1,329 7 - - - - - -
Other.................. - - 22 - - - - - - -
------- --- ------- --- ------- --- ------- --- ------- ---
Total paper
distribution.......... 6,861 31 3,331 18 - - - - - -
------- --- ------- --- ------- --- ------- --- ------- ---
Total bleached pulp and
paper................. 9,035 40 5,501 30 2,448 18 2,607 18 2,534 19
------- --- ------- --- ------- --- ------- --- ------- ---
Consumer products:
Tissue................. 1,876 9 1,194 6 1,070 8 1,018 8 1,009 7
Dixie.................. 77 - - - - - - - - -
Other.................. 482 2 356 2 344 2 366 3 375 3
------- --- ------- --- ------- --- ------- --- ------- ---
Total consumer
products.............. 2,435 11 1,550 8 1,414 10 1,384 11 1,384 10
------- --- ------- --- ------- --- ------- --- ------- ---
Corporate and
other(b).............. (11) - (16) - (10) - (9) - (7) -
------- --- ------- --- ------- --- ------- --- ------- ---
Total net sales....... $22,218 100% $18,599 100% $13,990 100% $13,707 100% $13,622 100%
======= === ======= === ======= === ======= === ======= ===
Operating profits:
Building products...... $ 377 26% $ 1,202 52% $ 604 65% $ 319 46% $ 347 46%
Timber................. 303 21 726 31 364 39 437 62 313 41
Containerboard and
packaging............. 512 35 324 14 89 9 (23) (3) 110 15
Bleached pulp and
paper................. 468 32 145 6 (59) (6) 3 - 26 3
Consumer products...... 29 2 170 7 160 17 166 24 193 26
Corporate and
other(c).............. (238) (16) (251) (10) (224) (24) (202) (29) (234) (31)
------- --- ------- --- ------- --- ------- --- ------- ---
Total operating
profits.............. $ 1,451 100% $ 2,316 100% $ 934 100% $ 700 100% $ 755 100%
======= === ======= === ======= === ======= === ======= ===
-------
(a) Represents net sales to unaffiliated customers.
(b) Represents the elimination of hunting lease income reflected in net sales
for the timber segment and reflected as a reduction to cost of sales on a
consolidated basis. In addition, includes net sales from miscellaneous
businesses.
(c) Includes some miscellaneous businesses, certain goodwill amortization,
unallocated corporate operating expenses and the elimination of profit on
intersegment sales.
94
GEORGIA-PACIFIC CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 30, 2000, January 1, 2000 and December 31, 1998
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expenses Accounts Deductions of Period
----------- ---------- ---------- ---------- ---------- ----------
In Millions
Year ended December 30,
2000
Allowance for doubtful
accounts............... $25 $28 $- $(19)** $34
=== === === ==== ===
Restructuring reserves.. 64 43 8**** (58) 57
=== === === ==== ===
Year ended January 1,
2000
Allowance for doubtful
accounts............... $25 $ 5 $- $ (5)** $25
=== === === ==== ===
Restructuring reserves.. 2 2 98*** (38) 64
=== === === ==== ===
Year ended December 31,
1998
Allowance for doubtful
accounts............... $19 $17 $ 1* $(12)** $25
=== === === ==== ===
Restructuring reserves.. 70 - - (68) 2
=== === === ==== ===
--------
* Recoveries of accounts previously written off.
** Accounts written off.
*** Reserves acquired
**** Net amounts charged to goodwill
95
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information called for by Items 10, 11, 12 and 13, if any, will be
contained in the Corporation's definitive Notice of 2001 Annual Meeting of
Shareholders and Proxy Statement which the Corporation intends to file on or
about March 31, 2001.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to directors and officers required by this Item
set forth in the Corporation's Notice of 2001 Annual Meeting of Shareholders
and Proxy Statement in the sections entitled "Nominees and Directors" and
"Other Matters" are incorporated herein by this reference thereto.
Executive Officers of the Registrant
The executive officers of the Corporation are as follows:
Date First
Elected as
Name Age an Officer Position or Office
---- --- ---------- ------------------
A. D. Correll........... 59 1988 Chairman, Chief Executive Officer, President and a
Director
Patricia A. Barnard..... 51 1998 Executive Vice President--Human Resources
James E. Bostic, Jr..... 53 1991 Executive Vice President--Environmental, Government
Affairs and Communications
Donald L. Glass......... 52 1982 Executive Vice President--Timber, President and
Chief Executive Officer, The Timber Company
Danny W. Huff........... 50 1993 Executive Vice President--Finance and Chief
Financial Officer
James F. Kelley......... 59 1993 Executive Vice President and General Counsel
Stephen E. Macadam...... 40 1998 Executive Vice President--Pulp and Paperboard
Ronald L. Paul.......... 57 1997 Executive Vice President--Wood Products and
Distribution
John F. Rasor........... 57 1983 Executive Vice President--Wood Procurement, Gypsum
and Industrial Wood Products
Lee M. Thomas........... 56 1993 Executive Vice President--Consumer Products
David J. Paterson....... 46 1994 President--Paper
Charles C. Tufano....... 56 1998 President--Unisource
James E. Terrell........ 51 1989 Vice President and Controller
Alston D. Correll has been Chief Executive Officer of Georgia-Pacific since
May 1993, Chairman since December 1993 and President since May 1996. He served
as Chief Operating Officer of the Corporation from August 1991 until May 1993,
and President and Chief Executive Officer from May 1993 until December 1993.
Mr. Correll was elected as a Director of the Corporation on May 5, 1992.
Patricia A. Barnard has been Executive Vice President--Human Resources since
January 2001. Prior to that time she served as Senior Vice President--Human
Resources from March 1999 until January 2001 and Vice President--Compensation
and Benefits from February 1998 until March 1999. Prior to that time, she
served as Group Director--Human Resources, Paper & Chemicals from 1997 to 1998
and Group Director--Human Resources, Paper from 1995 until 1997.
James E. Bostic, Jr. has been Executive Vice President--Environmental,
Government Affairs and Communications since January 2001. Prior to that time,
he served as Senior Vice President--Environmental,
96
Government Affairs and Communications from February 1995 until January 2001,
Group Vice President--Paper from April 1992 until January 1995, Group Vice
President--Butler Paper and Mail-Well from January 1992 to April 1992, and
Vice President--Butler Paper and Mail-Well from January 1991 to January 1992.
Donald L. Glass has been Executive Vice President--Timber and President and
Chief Executive Officer of The Timber Company since December 16, 1997. Mr.
Glass served as Executive Vice President--Building Products from January 1997
to December 1997 and Senior Vice President--Building Products Manufacturing
and Sales from 1991 until December 1996.
Danny W. Huff has been Executive Vice President--Finance and Chief Financial
Officer since November 1, 1999. Prior to that time, he served as Vice
President and Treasurer from February, 1996 to November, 1999 and Treasurer
from October 23, 1993 to February 1, 1996.
James F. Kelley has been Executive Vice President and General Counsel since
August 2000. Prior to that time, he served as Senior Vice President--Law and
General Counsel from December 1993 until August 2000.
Stephen E. Macadam has been Executive Vice President--Pulp and Paperboard
since December 2000. Prior to that time, he served as Executive Vice
President--Containerboard and Packaging/Purchasing from August 2000 until
December 2000 and Senior Vice President--Containerboard and Packaging from
March 1998 until August 2000. Prior to that time, he worked at McKinsey & Co.,
Inc..
Ronald L. Paul has been Executive Vice President--Wood Products and
Distribution since December 30, 1997. Prior to that time, he served as
Executive Vice President--Wood Products from September 1997 until December
1997, Vice President--Structural Panels and Building Products Engineering from
May 1996 until September 1997 and Vice President--Engineering and Technology--
Building Products from May 1995 until May 1996.
John F. Rasor has been Executive Vice President--Wood Procurement, Gypsum
and Industrial Wood Products since December 16, 1997. Prior to that time, he
served as Executive Vice President--Forest Resources from January 1997 to
December 1997, Senior Vice President--Forest Resources from February 1995
until December 1996, Group Vice President--Forest Resources from May 1992
through January 1995, Group Vice President--Timber from January 1992 to May
1992 and Vice President--Forest Resources from 1991 to January 1992.
Lee M. Thomas has been Executive Vice President--Consumer Products since
November 2000. Prior to that time, he served as Executive Vice President--
Paper and Chemicals from December 1997 until November 2000, Executive Vice
President--Paper from January 1997 until December 1997, Senior Vice
President--Paper from February 1995 until December 1996, Senior Vice
President--Environmental, Government Affairs and Communications from February
1994 through January 1995, and Senior Vice President--Environmental and
Government Affairs from March 1993 through January 1994.
David J. Paterson has been President--Paper since January 2001. Prior to
that time, he served as Senior Vice President--Communication Papers from
August 2000 until January 21, 2001 and Vice President--Sales and Marketing
Pulp and Bleached Board from May 1994 until August 2000.
Charles C. Tufano has been President--Unisource since January 2001. Prior to
that time, he served as Senior Vice President--Paper Distribution from July
1999 until January 2001, Vice President--West, Distribution Division from
February 1998 until July 1999 and Director-- Printing Papers, Communication
Papers Division from 1995 until 1998.
James E. Terrell was elected Vice President of the Corporation in January
1991 and has served as Controller since 1989.
The Corporation's Board of Directors elects officers of the Corporation. The
Chief Executive Officer has the authority to appoint one or more Vice
Presidents to hold such office until the next annual organizational
97
meeting of the Board. The Chief Executive Officer also has the authority to
approve the compensation of officers at the Vice President level. The
Compensation Committee of the Board of Directors determines the compensation
of all other officers of the Corporation, including officers who are also
directors of the Corporation. There are no other arrangements or
understandings between the respective officers and any other person pursuant
to which such officers are elected.
ITEM 11. EXECUTIVE COMPENSATION
The executive compensation information required by this Item set forth in
the Corporation's Notice of 2001 Annual Meeting of Shareholders and Proxy
Statement in the sections entitled "Compensation Committee Report," "Summary
Compensation Table," "Option and Performance Rights Grants in 2000" and
"Agreements with Officers" is incorporated herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The security ownership information required by this Item set forth in the
Corporation's Notice of 2001 Annual Meeting and Proxy Statement in the section
entitled "Ownership of Common Stock of G-P" is incorporated herein by
reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information concerning certain relationships and related transactions
required by this Item set forth in the Corporation's Notice of 2001 Annual
Meeting and Proxy Statement in the section entitled "Other Matters" is
incorporated herein by reference thereto.
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)The following documents are filed as a part of this Annual Report for
the Corporation:
(1) The Consolidated Financial Statements, Notes to Consolidated
Financial Statements and the Report of Independent Public
Accountants for Georgia-Pacific Corporation and subsidiaries dated
January 26, 2001 are presented under Item 8 of this Form 10-K.
(2)Financial Statement Schedules:
Valuation and Qualifying Accounts of Georgia-Pacific Corporation and
subsidiaries and Georgia-Pacific Group for the years ended December
30, 2000, January 1, 2000 and December 31, 1998.
Schedules other than that listed above are omitted because they are
not required, are inapplicable or the information is otherwise shown
in the Corporation's Consolidated Financial Statements or notes
thereto.
(3)Exhibits
The Index to Exhibits appearing on pages 102 through 110 of this
report is hereby incorporated herein by reference.
(b)Reports on Form 8-K
During the fourth quarter of 2000, the Corporation filed a report on
Form 8-K on October 19, 2000.
Item 5. Other Events.--On October 18, 2000, the Georgia-Pacific
Corporation (the "Company") issued a press release announcing
the financial results of the Georgia--Pacific Group for the
third quarter of 2000.
98
On October 18, 2000, the Company also issued a press release
announcing the financial results of The Timber Company for the
third quarter of 2000.
Also during the fourth quarter of 2000, the Corporation filed a report
on Form 8-K on November 15, 2000.
Item 9. Regulation FD Disclosure.
Also during the fourth quarter of 2000, the Corporation filed a report
on Form 8-K on November 20, 2000.
Item 5. Other Events.--On November 17, 2000, the Georgia-Pacific
Corporation (the "Company") issued a press release confirming
that it has executed agreements with a group of banks to
finance the acquisition of Fort James Corp. (NYSE: FJ) pursuant
to the previously announced merger agreement between the two
companies. The financing agreements permitted Georgia-Pacific
to borrow up to $9.15 billion.
On November 20, 2000 the Company issued a press release
announcing that there has been no change in its present or
foreseeable future liabilities from personal-injury claims
related to exposure to asbestos-containing products it
manufactured.
Also during the fourth quarter of 2000, the Corporation filed a report
on Form 8-K on November 22, 2000.
Item 5. Other Events.--On November 21, 2000, the Georgia-Pacific
Corporation (the "Company") issued a press release announcing
that it will sell its away-from-home tissue business, including
approximately 368,000 tons of tissue manufacturing capacity,
associated converting facilities and the sales and marketing
functions that support this business.
In the same press release, the Company also announced it was
extending its exchange offer for all outstanding shares of Fort
James Corp. (NYSE: FJ).
Also during the fourth quarter of 2000, the Corporation filed a report
on Form 8-K on November 22, 2000.
Item 5. Other Events.--On November 22, 2000, the Georgia-Pacific
Corporation (the "Company") issued a press release announcing
that a federal court in the District of Columbia had signed an
order which allowed Georgia-Pacific to complete its previously
announced acquisition of Fort James Corp.
In the same press release, the Company also announced that the
exchange offer for all outstanding shares of Fort James expired
at 6 p.m. Eastern time Wednesday, Nov. 22, 2000.
Also during the fourth quarter of 2000, the Corporation filed a report
on Form 8-K on November 27, 2000.
Item 5. Other Events.--On November 24, 2000, the Georgia-Pacific
Corporation (the "Company") issued a press release announcing
that it had completed its exchange offer for all outstanding
shares of Fort James Corporation ("Fort James").
On November 27, 2000 the Company issued a press release
announcing it has completed its acquisition of Fort James.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
99
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GEORGIA-PACIFIC CORPORATION
(Registrant)
/s/ A. D. Correll
By: _________________________________
(A. D. Correll,
Chairman, Chief Executive
Officer and President)
Date: February 14, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
As Officers or Directors of GEORGIA-PACIFIC CORPORATION
/s/ A. D. Correll Director, Chairman, Chief February 14,
______________________________________ Executive Officer and 2001
(A. D. Correll) President (Principal
Executive Officer)
/s/ Danny W. Huff Executive Vice President- February 14,
______________________________________ Finance and Chief Financial 2001
(Danny W. Huff) Officer (Principal
Financial Officer)
/s/ James E. Terrell Vice President and February 14,
______________________________________ Controller (Principal 2001
(James E. Terrell) Accounting Officer)
/s/ James S. Balloun Director February 15,
______________________________________ 2001
(James S. Balloun)
/s/ Barbara L. Bowles Director February 15,
______________________________________ 2001
(Barbara L. Bowles)
/s/ Robert Carswell Director February 14,
______________________________________ 2001
(Robert Carswell)
/s/ Worley H. Clark, Jr. Director February 14,
______________________________________ 2001
(Worley H. Clark, Jr.)
/s/ Gary P. Coughlan Director February 14,
______________________________________ 2001
(Gary P. Coughlan)
100
Signature Title Date
--------- ----- ----
/s/ Jane Evans Director February 15,
______________________________________ 2001
(Jane Evans)
/s/ Donald V. Fites Director February 15,
______________________________________ 2001
(Donald V. Fites)
/s/ Harvey C. Fruehauf, Jr. Director February 14,
______________________________________ 2001
(Harvey C. Fruehauf, Jr.)
/s/ Richard V. Giordano Director February 14,
______________________________________ 2001
(Richard V. Giordano)
/s/ David R. Goode Director February 15,
______________________________________ 2001
(David R. Goode)
Director February , 2001
______________________________________
(M. Douglas Ivester)
/s/ James P. Kelly Director February 14,
______________________________________ 2001
(James P. Kelly)
/s/ Louis W. Sullivan Director February 14,
______________________________________ 2001
(Louis W. Sullivan)
/s/ James B. Williams Director February 14,
______________________________________ 2001
(James B. Williams)
101
GEORGIA-PACIFIC CORPORATION
INDEX TO EXHIBITS
FILED WITH THE ANNUAL REPORT
ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 30, 2000
Number Description
------ -----------
3.1(i) Articles of Incorporation, restated as of December 16, 1997 (Filed as
Exhibit 4.1 to the Corporation's Registration Statement on Form S-8
as filed with the Commission on December 18, 1997, and incorporated
herein by this reference thereto).
3.1(ii) Articles of Amendment to Restated Articles of Incorporation (Filed as
Exhibit 3.1 to the Corporation's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998, and incorporated herein by this
reference thereto).
3.2 Bylaws, as amended to date. (Filed as Exhibit 3.2 to the
Corporation's Registration Statement on Form S-8 as filed with the
Commission on November 30, 2000, and incorporated by this reference
thereto).
4.1(i) Restated Rights Agreement, dated as of December 16, 1997, between
Georgia-Pacific Corporation and First Chicago Trust Company of New
York, with form of Georgia-Pacific Group Rights Certificate attached
as Exhibit A-1, form of Timber Group Rights Certificate attached as
Exhibit A-2, Series B Preferred Stock Designation attached as Exhibit
B-1 and Series C Preferred Stock Designation attached as Exhibit B-2
(Filed as Exhibit 8 to the Corporation's Registration Statement on
Form 8-A as filed with the Commission on November 26, 1997, and
incorporated herein by this reference thereto).
4.1(ii) Amendment No. 1 to the Amended and Restated Rights Agreement,
effective November 8, 1999 (Filed as Exhibit 4.3(ii) to the
Corporation's Annual Report on Form 10-K for the year ended
January 1, 2000, and incorporated herein by this reference thereto).
4.1(iii) Amendment No. 2 to the Amended and Restated Rights Agreement,
effective July 18, 2000 (Filed as Exhibit 4.1 to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended July 1, 2000, and
incorporated herein by this reference thereto).
4.2(i) Indenture, dated as of March 1, 1983, between Georgia-Pacific
Corporation and The Chase Manhattan Bank (National Association),
Trustee (Filed as Exhibit 4.4(i) to the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1996, and incorporated
herein by this reference thereto).
4.2(ii) First Supplemental Indenture, dated as of July 27, 1988, among
Georgia-Pacific Corporation, The Chase Manhattan Bank (National
Association), Trustee, and Morgan Guaranty Trust Company of New York
(Filed as Exhibit 4.4(ii) to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1996, and incorporated herein by
this reference thereto).
4.2(iii) Agreement of Resignation, Appointment and Acceptance, dated as of
January 31, 1992 by and among Georgia-Pacific Corporation, Morgan
Guaranty Trust Company of New York and The Bank of New York, as
Successor Trustee (Filed as Exhibit 4.4(iii) to the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1996, and
incorporated herein by this reference thereto).
4.3 Form of Purchase Contract Agreement relating to Stock Purchase
Contracts and Stock Purchase Units (Filed as Exhibit 4(p) to the
Corporation's Registration Statement on Form S-3, as filed with the
Commission on June 30, 1999, and incorporated herein by this
reference thereto).
4.4 Form of Pledge Agreement for Stock Purchase Contracts and Stock
Purchase Units (Filed as Exhibit 4(q) to the Corporation's
Registration Statement on Form 8-A relating to File No.333-80757 as
filed with the Commission on June 25, 1999, and incorporated herein
by this reference thereto).
102
Number Description
------ -----------
4.5 Form of Remarketing Agreement between Georgia-Pacific Corporation
and Morgan Stanley & Co. Incorporated (Filed as Exhibit 4(u) to the
Corporation's Registration Statement on Form S-3, as filed with the
Commission on June 30, 1999, and incorporated herein by this
reference thereto).
4.6 Second Supplemental Indenture among Georgia-Pacific Corporation,
Fort James Corporation, and The Bank of New York, dated February 19,
2001. (1)
4.7 Form of Stock Purchase Units (included as Exhibits A and B of
Exhibit 4.3) (Filed as Exhibit 4(v) to the Corporation's
Registration Statement on Form S-3, as filed with the Commission on
June 30, 1999, and incorporated herein by this reference thereto).
4.8 In reliance upon Item 601(b)(4)(iii) of Regulation S-K, various
instruments defining the rights of holders of long-term debt of the
Corporation are not being filed herewith because the total of
securities authorized under each such instrument does not exceed 10%
of the total assets of the Corporation. The Corporation hereby
agrees to furnish a copy of any such instrument to the Commission
upon request.
10.1 Directors Group Life Insurance Program. (Filed as Exhibit 10.1 to
the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by this reference
thereto).*
10.2 Form of Officer Retirement Agreement (Officers Retirement Plan).
(1)*
10.3(i) Key Salaried Employees Group Insurance Plan--Pre-1987 Group (As
Amended and Restated Effective January 1, 1987) (Filed as Exhibit
10.3(i) to the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1996, and incorporated herein by this reference
thereto).*
10.3(ii) Amendment No. 1 (Effective January 1, 1991) to the Key Salaried
Employees Group Insurance Plan--Pre-1987 Group (As Amended and
Restated Effective January 1, 1987) (Filed as Exhibit 10.3(ii) to
the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by this reference
thereto).*
10.3(iii) Key Salaried Employees Group Insurance Plan--Post-1986 Group
(Effective January 1, 1987) (Filed as Exhibit 10.3(iii) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by this reference
thereto).*
10.3(iv) Amendment No. 1 (Effective January 1, 1991) to the Key Salaried
Employees Group Insurance Plan--Post-1986 Group (Effective January
1, 1987) (Filed as Exhibit 10.3(iv) to the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1996, and
incorporated herein by this reference thereto).*
10.3(v) Amendment No. 2 to the Key Salaried Employees Group Insurance Plan--
Post-1986 Group (effective January 1, 1987). (Filed as Exhibit
10.3(v) to the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein by this reference
thereto).*
10.3(vi) Amendment No. 3 to the Key Salaried Employees Group Insurance Plan--
Post-1986 Group (effective August 1, 1994). (Filed as Exhibit
10.3(vi) to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1998, and incorporated herein by this
reference thereto).*
10.3(vii) Amendment No. 4 to the Key Salaried Employees Group Insurance Plan--
Post-1986 Group (effective January 1, 1998). (Filed as Exhibit
10.3(vii) to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1998, and incorporated herein by this
reference thereto).*
10.4 Economic Value Incentive Plan, as Amended and Restated effective
January 21, 2001. (1)*
10.5 Amendment No. 1 to the Georgia-Pacific Corporation Economic Value
Incentive Plan, as Amended and Restated by Action of the
Compensation Committee on January 29, 2001 effective February 15,
2001. (1)*
103
Number Description
------ -----------
10.6(i) 1995 Shareholder Value Incentive Plan, as Amended and Restated
effective December 16, 1997 (Filed as Exhibit 10.8(iv) to the
Corporation's Amendment No. 2 to Registration Statement on Form S-4
as filed with the Commission on November 7, 1997, and incorporated
herein by this reference thereto).*
10.6(ii) Amendment No. 1 to the Amended and Restated 1995 Shareholder Value
Incentive Plan, effective May 5, 1998 (Filed as Exhibit 10.8(ii) to
the Corporation's Annual Report on Form 10-K for the year ended
January 1, 2000, and incorporated herein by this reference
thereto).*
10.6(iii) Amendment No. 2 to the Amended and Restated 1995 Shareholder Value
Incentive Plan, effective September 29, 1999 (Filed as Exhibit
10.8(iii) to the Corporation's Annual Report on Form 10-K for the
year ended January 1, 2000, and incorporated herein by this
reference thereto).*
10.6(iv) Amendment No. 3 to the Amended and Restated 1995 Shareholder Value
Incentive Plan, effective March 24, 2000 (Filed as Exhibit 10.8(iv)
to the Corporation's Annual Report on Form 10-K for the year ended
January 1, 2000, and incorporated herein by this reference
thereto).*
10.6(v) Amendment No. 4 to the Amended and Restated 1995 Shareholder Value
Incentive Plan, effective July 18, 2000, (Filed as Exhibit 10.4 to
the Corporation's Quarterly Report on Form 10-Q for the quarter
ended July 1, 2000, and incorporated herein by this reference
thereto).*
10.6(vi) Form of Replacement Option Under the 1995 Shareholder Value
Incentive Plan (Georgia-Pacific Group stock) (1995 Grant) (Filed as
Exhibit 99.11 to the Corporation's Registration Statement on Form
S-8 as filed with the Commission on December 18, 1997, and
incorporated herein by this reference thereto).*
10.6(vii) Form of Replacement Option Under the 1995 Shareholder Value
Incentive Plan (Timber Group stock) (1995 Grant) (Filed as Exhibit
99.12 to the Corporation's Registration Statement on Form S-8 as
filed with the Commission on December 18, 1997, and incorporated
herein by this reference thereto).*
10.6(viii) Form of Replacement Option Under the 1995 Shareholder Value
Incentive Plan (Georgia-Pacific Group stock) (1996 Grant) (Filed as
Exhibit 99.13 to the Corporation's Registration Statement on Form
S-8 as filed with the Commission on December 18, 1997, and
incorporated herein by this reference thereto).*
10.6(ix) Form of Replacement Option Under the 1995 Shareholder Value
Incentive Plan (Timber Group stock) (1996 Grant) (Filed as Exhibit
99.14 to the Corporation's Registration Statement on Form S-8 as
filed with the Commission on December 18, 1997, and incorporated
herein by this reference thereto).*
10.6(x) Form of Replacement Option Under the 1995 Shareholder Value
Incentive Plan (Georgia-Pacific Group stock) (1997 Grant) (Filed as
Exhibit 99.15 to the Corporation's Registration Statement on Form
S-8 as filed with the Commission on December 18, 1997, and
incorporated herein by this reference thereto).*
10.6(xi) Form of Replacement Option Under the 1995 Shareholder Value
Incentive Plan (Timber Group stock) (1997 Grant) (Filed as Exhibit
99.16 to the Corporation's Registration Statement on Form S-8 as
filed with the Commission on December 18, 1997, and incorporated
herein by this reference thereto).*
10.6(xii) Form of Special Replacement Option Under the 1995 Shareholder Value
Incentive Plan (Georgia-Pacific Group stock) (1997 Grant) (Filed as
Exhibit 99.17 to the Corporation's Registration Statement on Form
S-8 as filed with the Commission on December 18, 1997, and
incorporated herein by this reference thereto).*
104
Number Description
------ -----------
10.6(xiii) Form of Special Replacement Option Under the 1995 Shareholder Value
Incentive Plan (Timber Group stock) (1997 Grant) (Filed as Exhibit
99.18 to the Corporation's Registration Statement on Form S-8 as
filed with the Commission on December 18, 1997, and incorporated
herein by this reference thereto).*
10.7 Outside Directors Stock Plan (As in effect September 23, 1998,
including Amendments No. 1 and 2). (1)*
10.8(i) Directors Deferred Compensation Plan, effective September 22, 1998
(Filed as Exhibit 10.10(ii) to the Corporation's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998, and
incorporated herein by this reference thereto).*
10.8(ii) Form of Deferral Agreement. (Filed as Exhibit 10.10(i) to the
Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, and incorporated herein by this reference
thereto).*
10.9(i) Amendment No 1 to the Change of Control Agreement for Gary A. Myers
dated March 15, 1999 (Filed as Exhibit 10.1 to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended July 1, 2000,
and incorporated herein by this reference thereto).*
10.9(ii) Amendment No 1 to the Change of Control Agreement for Donald L.
Glass dated March 15, 1999 (Filed as Exhibit 10.2 to the
Corporation's Quarterly Report on Form 10-Q for the quarter ended
July 1, 2000, and incorporated herein by this reference thereto).*
10.9(iii) Form of Change of Control Agreement. (1)*
10.10(i) Amended and Restated Receivables Purchase Agreement dated as of
October 13, 1999, among G-P Receivables, Inc., as the Seller, and
Georgia-Pacific Corporation, as the Collection Agent, and Canadian
Imperial Bank of Commerce, Citibank, N.A., and Bank One, NA
(Chicago Office), as the Secondary Purchasers, and Canadian
Imperial Bank of Commerce, as the Administrative Agent (Filed as
Exhibit 10.11(i) to the Corporation's Annual Report on Form 10-K
for the year ended January 1, 2000, and incorporated herein by this
reference thereto).
10.10(ii) Amended and Restated Receivables Purchase Agreement dated as of
October 13, 1999, among G-P Receivables, Inc., as the Seller, and
Georgia-Pacific Corporation, as the Collection Agent, and Asset
Securitization Cooperative Corporation, Corporate Asset Funding
Company, Inc., and Falcon Asset Securitization Corporation, as the
Purchasers, and Canadian Imperial Bank of Commerce, as the
Administrative Agent (Filed as Exhibit 10.11(ii) to the
Corporation's Annual Report on Form 10-K for the year ended January
1, 2000, and incorporated herein by this reference thereto).
10.11(i) Georgia-Pacific Corporation/Georgia-Pacific Group 1997 Long-Term
Incentive Plan (Filed as Exhibit 10.10(i) to the Corporation's
Amendment No. 2 to Registration Statement on Form S-4 as filed with
the Commission on November 7, 1997, and incorporated herein by this
reference thereto).*
10.11(ii) Amendment No. One to the Georgia-Pacific Group 1997 Long-Term
Incentive Plan (Filed as Exhibit 10.12(ii) to the Corporation's
Annual Report on Form 10-K for the year ended January 1, 2000, and
incorporated herein by this reference thereto).*
10.11(iii) Amendment No. Two to the Georgia-Pacific Group 1997 Long-Term
Incentive Plan (Filed as Exhibit 10.12(iii) to the Corporation's
Annual Report on Form 10-K for the year ended January 1, 2000, and
incorporated herein by this reference thereto).*
10.11(iv) Amendment No. Three to the Georgia-Pacific Group 1997 Long-Term
Incentive Plan. (1)*
10.11(v) Form of Revised Georgia-Pacific Group 1997 Long-Term Incentive Plan
Option (Filed as Exhibit 10.1 to the Corporation's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998, and incorporated
herein by this reference thereto).*
105
Number Description
------ -----------
10.11(vi) Form of Revised Special Georgia-Pacific Group 1997 Long-Term
Incentive Plan Option (Filed as Exhibit 10.2 to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, and incorporated herein by this reference thereto).*
10.11(vii) Form of Georgia-Pacific Group 1997 Long-Term Incentive Plan
Performance Share Grant Agreement for the January 1, 1999 through
December 31, 1999 Performance Period (January 28, 1999 Grant).
(Filed as Exhibit 10.12(iv) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1998, and incorporated
herein by this reference thereto).*
10.11(viii) Form of Georgia-Pacific Group 1997 Long-Term Incentive Plan
Performance Share Grant Agreement for the January 1, 1999 through
December 31, 2000 Performance Period (January 28, 1999 Grant).
(Filed as Exhibit 10.12(v) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1998, and incorporated
herein by this reference thereto).*
10.11(ix) Form of Georgia-Pacific Group 1997 Long-Term Incentive Plan
Performance Share Grant Agreement for the January 1, 1999 through
December 31, 2001 Performance Period (January 28, 1999 Grant).
(Filed as Exhibit 10.12(vi) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1998, and incorporated
herein by this reference thereto).*
10.11(x) Form of Georgia-Pacific Corporation/Georgia-Pacific Group 1997
Long-Term Incentive Plan Performance Share Grant Agreement for the
January 1, 2001 through December 31, 2003 Performance Period
(January 29, 2001 Grant). (1)*
10.11(xi) Form of Georgia-Pacific Corporation/Georgia-Pacific Group 1997
Long-Term Incentive Plan Option (January 28, 1999 Grant). (Filed
as Exhibit 10.12(vii) to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1998, and incorporated herein
by this reference thereto).*
10.11(xii) Form of Georgia-Pacific Corporation/Georgia-Pacific Group 1997
Long-Term Incentive Plan Option (January 21, 2000 Grant). (Filed
as Exhibit 10.12(x) to the Corporation's Annual Report on Form 10-
K for the year ended January 1, 2000, and incorporated here by
this reference thereto).*
10.11(xiii) Form of Georgia-Pacific Corporation/Georgia-Pacific Group 1997
Long-Term Incentive Plan Performance Share Grant Agreement for the
January 1, 2000 through December 31, 2002 Performance Period
(January 21, 2000 Grant) (Filed as Exhibit 10.12(xi) to the
Corporation's Annual Report on Form 10-K for the year ended
January 1, 2000, and incorporated here by this reference
thereto).*
10.12(i) Georgia-Pacific Corporation/Timber Group 1997 Long-Term Incentive
Plan (Filed as Exhibit 10.10(ii) to the Corporation's Amendment
No. 2 to Registration Statement on Form S-4 as filed with the
Commission on November 7, 1997, and incorporated herein by this
reference thereto).*
10.12(ii) Amendment No. 1 to the Timber Group 1997 Long-Term Incentive Plan
(Filed as Exhibit 10.13.(ii) to the Corporation's Annual Report on
Form 10-K for the year ended January 1, 2000, and incorporated
herein by this reference thereto).*
10.12(iii) Amendment No. 2 to the Timber Group 1997 Long-Term Incentive Plan
(Filed as Exhibit 10.3 to the Corporation's Quarter Report on Form
10-Q for the quarter ended July 18, 2000, and incorporated herein
by this reference thereto).*
10.12(iv) Form of Revised Timber Group 1997 Long-Term Incentive Plan Option
(Filed as Exhibit 10.3 to the Corporation's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, and incorporated
herein by this reference thereto).*
10.12(v) Form of Timber Group 1997 Long-Term Incentive Plan Option (January
21, 2000 Grant) (Filed as Exhibit 10.13(iv) to the Corporation's
Annual Report on Form 10-K for the year ended January 1, 2000, and
incorporated herein by this reference thereto).*
10.13(i) Fort James Corporation MIP Bonus Deferral Plan (Filed as Exhibit
99.1 to Fort James Corporation's Registration Statement on Form S-
8, File No. 333-66715, dated November 3, 1998, and incorporated
herein by this reference thereto).
106
Number Description
------ -----------
10.13(ii) Fort James Supplemental Deferral Plan 1999, Amendment and
Restatement. (1)*
10.13(iii) Fort James Corporation Stock Option Plan For Outside Directors,
Amended and Restated as of February 18, 1999. (Filed as Exhibit
99.6 to the Corporation's Registration Statement on Form S-8
dated December 7, 2000, File No. 333-51442, and incorporated
herein by this reference.)*
10.13(iv) Fort James Corporation 1996 Stock Incentive Plan, 1997
Amendment and Restatement. (1)*
10.13(v) Fort James Corporation Split Dollar Life Insurance Plan
(Effective date of January 1, 1998. (1)*
10.13(vi) Form of Fort James Corporation Restricted Stock Unit Award
Agreement. (1)*
10.13(vii) Fort James Corporation Supplemental-Benefit Plan (Amended and
Restated Effective January 1, 1999). (1)*
10.13(viii)(a) Fort Howard Corporation Management Equity Plan. (Filed as
Exhibit 10.H with the Fort Howard Corporation's Annual Report
on Form 10-K for the year ended December 31, 1991, Commission
File No. 001-06901, and incorporated herein by this
reference).*
10.13(viii)(b) Amendment dated December 28, 1993 to the Fort Howard
Corporation Management Equity Plan (Filed as Exhibit 10.9(A)
with the Fort Howard Corporation's Annual Report on Form 10-K
for the year ended December 31, 1993, Commission File No. 001-
06901, and incorporated herein by this reference).*
10.13(viii)(c) Amendment dated March 1, 1995 to the Fort Howard Corporation
Management Equity Plan (Filed as Exhibit 10.9(B) with the Fort
Howard Corporation's Annual Report on Form 10-K for the year
ended December 31, 1994, Commission File No. 001-20473, and
incorporated herein by this reference).*
10.13(ix)(a) Fort Howard Corporation 1995 Stock Incentive Plan (Filed as
Exhibit 10.15 with the Fort Howard Corporation's No. 1 to
Registration Statement on Form S-1, File No. 33-56573, dated
February 8, 1995, and incorporated herein by this reference).*
10.13(ix)(b) Amendment No. 1 to Fort Howard Corporation 1995 Stock Incentive
Plan (Filed as Exhibit 4.4 with the Fort Howard Corporation's
Registration Statement on Form S-8, File No. 333-20959, dated
February 3, 1997, and incorporated herein by this reference).*
10.13(x) James River Corporation of Virginia 1987 Stock Option Plan 1993
Amendment and Restatement (Filed as Exhibit 10(j) to James
River Corporation's Annual Report on Form 10-K for the fiscal
year ended December 26, 1993, Commission File No. 001-06901,
and incorporated herein by this reference).*
10.14 Agreement and Plan of Merger dated as of May 25, 1999, among
Unisource Worldwide, Inc., Georgia-Pacific Corporation and
Atlanta Acquisition Corp. (Filed as Exhibit 99(c)(1) to the
Schedule 14D-1 of Atlanta Acquisition Corp. and Georgia-Pacific
Corporation, and incorporated herein by this reference
thereto).
10.15 Joint Venture Agreement among Georgia- Pacific Corporation,
Chesapeake Corporation, Wisconsin Tissue Mills Inc. and
Georgia-Pacific Tissue, LLC, dated as of October 4, 1999 (Filed
as Exhibit 10.15 to the Corporation's Annual Report on Form 10-
K for the year ended January 1, 2000, and incorporated herein
by this reference thereto).
10.16 Operating Agreement of Georgia-Pacific Tissue, LLC, dated as of
October 4, 1999, among Wisconsin Tissue Mills Inc. and Georgia-
Pacific Corporation (Filed as Exhibit 10.16 to the
Corporation's Annual Report on Form 10-K for the year ended
January 1, 2000, and incorporated herein by this reference
thereto).
107
Number Description
------ -----------
10.17 Agreement and Plan of Merger, dated as of July 16, 2000, among Georgia-
Pacific Corporation, Fenres Acquisition Corp. and Fort James
Corporation (Filed as Exhibit 2 to the Corporation's Form 8-K dated
July 17, 2000, filed July 18, 2000, Commission File No. 001-03506, and
incorporated herein by this reference thereto).
10.18 Agreement and Plan of Merger, dated as of July 18, 2000, by and among
Plum Creek Timber Company, Inc., a Delaware Corporation, Georgia-
Pacific Corporation, a Georgia corporation and North American Timber
Corp., NPI Timber, Inc., GNN Timber, Inc., LRFP Timber , Inc., and NPC
Timber, Inc., each a Delaware corporation and a wholly owned subsidiary
of Georgia-Pacific Corporation (Filed as Exhibit 2.1 to the
Corporation's Form 8-K as filed with the Commission on July 20, 2000,
and incorporated herein by this reference thereto).
10.19 Voting Agreement and Consent dated as of July 18, 2000, by and among
Plum Creek Timber Company, Inc., a Delaware corporation, Georgia-
Pacific Corporation, a Georgia corporation and each of the security
holders party thereto (Filed as Exhibit 9.1 to the Corporation's Form
8-K as filed with the Commission on July 20, 2000, and incorporated
herein by this reference thereto).
10.20 Credit Agreement (Multi-Year Revolving Credit Facility), dated as of
November 3, 2000, among Georgia-Pacific Corporation, the Lenders Named
therein, Bank of America, N.A., as Agent and Issuing Bank, and Merrill
Lynch Capital Corporation and Morgan Stanley Senior Funding Inc., as
Co-Syndication Agents, Banc of America Securities LLC, Merrill Lynch
Capital Corporation, and Morgan Stanley Senior Funding Inc., as Book
Managers and Lead Arrangers. (1)
10.21 Credit Agreement (18-Month Revolving Credit Facility), dated as of
November 3, 2000, among Georgia-Pacific Corporation, the Lenders Named
therein, Bank of America, N.A., as Agent, and Merrill Lynch Capital
Corporation and Morgan Stanley Senior Funding Inc., as Co-Syndication
Agents, Banc of America Securities LLC, Merrill Lynch Capital
Corporation, and Morgan Stanley Senior Funding Inc., as Book Managers
and Lead Arrangers. (1)
10.22 Credit Agreement (Asset Disposition Bridge Facility), dated as of
November 3, 2000, among Georgia-Pacific Corporation, the Lenders Named
therein, Bank of America, N.A., as Agent, and Merrill Lynch Capital
Corporation and Morgan Stanley Senior Funding Inc., as Co-Syndication
Agents, Banc of America Securities LLC, Merrill Lynch Capital
Corporation, and Morgan Stanley Senior Funding Inc., as Book Managers
and Lead Arrangers. (1)
10.23 Credit Agreement (Capital Markets Bridge Facility), dated as of
November 3, 2000, among Georgia-Pacific Corporation, the Lenders Named
therein, Bank of America, N.A., as Agent, and Merrill Lynch Capital
Corporation and Morgan Stanley Senior Funding Inc., as Co-Syndication
Agents, Banc of America Securities LLC, Merrill Lynch Capital
Corporation, and Morgan Stanley Senior Funding Inc., as Book Managers
and Lead Arrangers. (1)
10.24 Credit Agreement (Timber Disposition Bridge Facility), dated as of
November 3, 2000, among North American Timber Corp., the Lenders Named
therein, Bank of America, N.A., as Agent, and Merrill Lynch Capital
Corporation and Morgan Stanley Senior Funding Inc., as Co-Syndication
Agents, Banc of America Securities LLC, Merrill Lynch Capital
Corporation, and Morgan Stanley Senior Funding Inc., as Book Managers
and Lead Arrangers. (1)
10.25 Form of Subsidiary Guaranty (Georgia-Pacific Corporation) (Multi-Year
Revolving Credit Facility) (included as 7.01(c) to Exhibit 10.21).
10.26 Form of Subsidiary Guaranty (Georgia-Pacific Corporation) (18-Month
Revolving Credit Facility) (included as 6.01(c) to Exhibit 10.22).
10.27 Form of Subsidiary Guaranty (Georgia-Pacific Corporation) (Asset
Disposition Bridge Facility) (included as 6.01(c) to Exhibit 10.23).
10.28 Form of Subsidiary Guaranty (Georgia-Pacific Corporation) (Capital
Markets Bridge Facility) (included as 6.01(c) to Exhibit 10.24).
108
Number Description
------ -----------
10.29 Georgia-Pacific Group 2000 Employee Stock Purchase Plan. (Filed as
Exhibit 10.21 to the Corporation's Annual Report on Form 10-K for the
year ended January 1, 2000, and incorporated herein by this reference
thereto).
10.30 The Timber Company 2000 Employee Stock Purchase Plan. (Filed as
Exhibit 10.22 to the Corporation's Annual Report on Form 10-K for the
year ended January 1, 2000, and incorporated herein by this reference
thereto).
10.31 Georgia-Pacific Tissue, LLC 2000 Employee Stock Purchase Plan. (Filed
as Exhibit 10.23 to the Corporation's Annual Report on Form 10-K for
the year ended January 1, 2000, and incorporated herein by this
reference thereto).
10.32 Securities Purchase Agreement, dated as of January 21, 2001, among
Georgia-Pacific Corporation, as seller, Georgia-Pacific Finance, LLC,
Svenska Cellulosa Aktiebolaget SCA (publ), and SCA Tissue, Inc. (1)
10.33 Form of Master Timber Agreement between North American Timber
Corporation, LRFP Timber, Inc., NPTC Timber Inc., GNN Timber, Inc.,
and GPW Timber, Inc., and Georgia-Pacific Corporation--Georgia-
Pacific Group). (1)
10.34(a) Fort Howard Corporation Management Equity Participation Agreement
(Filed as Exhibit 10.9 to Amendment No. 2 to Fort Howard
Corporation's Registration Statement on Form S-1 dated October 25,
1988, File No. 33-23826, and incorporated herein by this reference
thereto).*
10.34(b) Letter Agreement dated June 27, 1990 modifying the Fort Howard
Corporation Amended and Restated Management Equity Participation
Agreement (Filed as Exhibit 10.V with the Fort Howard Corporation's
Annual Report on Form 10-K for the year ended December 31, 1990,
Commission File No. 001-06901, and incorporated herein by this
reference thereto).*
10.34(c) Letter Agreement dated July 31, 1990 modifying the Fort Howard
Corporation Amended and Restated Management Equity Participation
Agreement (Filed as Exhibit 10.W with the Fort Howard Corporation's
Annual Report on Form 10-K for the year ended December 31, 1990,
Commission File No. 001-06901, and incorporated herein by this
reference thereto).*
10.34(d) Letter Agreement dated February 7, 1991 modifying the Fort Howard
Corporation Amended and Restated Management Equity Participation
Agreement (Filed as Exhibit 10.GG with the Fort Howard Corporation's
Annual Report on Form 10-K for the year ended December 31, 1990,
Commission File No. 001-06901, and incorporated herein by this
reference thereto).*
10.34(e) Letter Agreement dated February 7, 1991 modifying the Fort Howard
Corporation Amended and Restated Management Equity Participation
Agreement (Filed as Exhibit 10.HH with the Fort Howard Corporation's
Annual Report on Form 10-K for the year ended December 31, 1990,
Commission File No. 001-06901, and incorporated herein by this
reference thereto).*
10.34(f) Letter Agreement dated December 28, 1993 modifying the Fort Howard
Corporation Amended and Restated Management Equity Participation
Agreement (Filed as Exhibit 4.3(f) with the Fort Howard Corporation's
Registration Statement on Form S-8 dated September 29, 1995,
Commission File No. 33-63099, and incorporated herein by this
reference thereto).*
10.34(g) Letter Agreement dated March 1, 1995 modifying the Fort Howard
Corporation Amended and Restated Management Equity Participation
Agreement (Filed as Exhibit 10.8(F) with the Fort Howard
Corporation's Annual Report on Form 10-K for the year ended December
31, 1994, Commission File No. 000-20473, and incorporated herein by
this reference thereto).*
12 Statements of Computation of Ratio of Earnings to Fixed Charges. (1)
109
Number Description
------ -----------
21 Subsidiaries. (1)
23 Consent of Independent Public Accountants. (1)
99.1 Properties. (1)
--------
* Compensatory plan or arrangement.
(1) Filed via EDGAR
110