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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.
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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
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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.
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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
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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.
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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
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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