Document LzMG8eKY8kyM6a4yVvx1n66z

Disclosure Miking Information Matter" GEORGIA PACIFIC CORP Filing Type: 10-Q Description: N/A Filing Date: 03/31/01 Ticker: GP Cusip: 373298 State: GA Country: US Primary SIC: 2435 Primary Exchange: NYS Billing Cross Reference: Date Printed: 07/13/2001 This document produced using Global Access littp://\\\\\v.disclosure.com/d(>n GEORGIA PACIFIC CORF - 10-Q Table of Contents Created by Disclosure Filing Dale: 03,31/01 Filing Sections To jump to section, dick on hypertexted page number Document............................................................................................................................................................................... _1 Base........................................................................................................................................................................................ 1_ Cover Page............................................................................................................................................................................._1 Financial Statement Item......................................................................................................................................................2 Financial Statements............................................................................................................................................................. 2 Income Statement................................................................................................................................................................. 2 Cashflow Statement.............................................................................................................................................................. 3 Balance Sheet........................................................................................................................................................................4 Financial Foomotes............................................................................................................................................................... 6 Management Discussion.................................................................................................................................................... 37 Legal Proceedings...............................................................................................................................................................47 Exhibits and Reports.......................................................................................................................................................... 47 List of Exhibits...................................................................................................................................................................47 Signatures........................................................................................................................................................................... 48 Exhibits Exhibits................................................................................................................................................................................ 48 Exhibit Index...................................................................................................................................................................... 48 Articles/By-Laws................................................................................................................................................................ 49 This document produced using Global Access http://www.disclosuie.com/dga GEORGIA PAL Ihit LORE - 10-Q 1'iling Dale: 05:02/0/ SECURITIES AMD EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q ['/.} QUARTERLY REPORT PURSUANT TO SECTION 13 OF. 1 r d OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 13`1 or .NSITION REPORT PURSUANT TO SECTION 13 S OF THE SECURITIES EXCHANGE ACT OF 1924 For the transition period from to Commission File Number 1 - 3506 GEORGIA-PACIFIC CORPORATION (Exact Name of Registrant as Specified in its Starter, GEORGIA 93-0432081 (State of Incorporation) (IRS Employer Id. Muncer, 133 PEACHTREE STREET, N.E., ATLANTA, GEORGIA 3(3:2 (Address of Principal Executive Offices; (404) 652 - 4000 (Telephone Number of Registrant) Indicate by check mark whether the Registrant (1) has filed ail required to be filed by Section 13 or 15(d) of the Securities a Act of 1934 during the preceding 12 months and (2) has been sur. filing requirements for the past 90 days. Yes X No As of the close of business on April 30, 2001, Georgia-Pacif had 225,915,912 shares of Georgia-Pacific Group Common Stock and 80,607,630 shares of The Timber Company Common Stock out orts -xchange to such Disclosure Pace I ar.oRdiA faof/c cou/j -m-u PART I - FINANCIAL INFORMATION Filing Date: 05/02/01 Disclosure Page 2 GEORGIA PACIFIC CORE - 10-Q Item 1 . Financial Statements Filing Dale: OSAU HI Disclosure Paae 3 GEORGIA PACIFIC CORE - 10-Q :l:;::l::a:el ;ta:e:ie:::t.5 cr .pefaticng .unaudited; Genre:a-ci:: : Zzrr.z rat: cr. and Sues idiaries I r. ~ Net ; -j . -r : ver mare a .'tat cl mle:, ex :1 it; r t deer e: iat: cr., cepietim ana ;ns: :: ~.-cer r bmestet rr.c^r .eelew le _ 1 _ .1: ^: '.r Lecrenatmr, ter let - cn, ancr 11 ca 11 cr. an; test cr ;meet r a : . - ? e Ceteral = :: a ;mr.: - ra:; ve eres: Tec5- crst.-c a;: c -ases Less; m.ccme teicre merme ".axes, extracrcmart item and accounting cr.ance renefi: provision. ;:r income taxes 'Less, moire be it re ex:: a ordma ry item and accounting u.tar.ge Extracr1:rar/ mss i r err. early retirement of debt, net of taxes Net mess- metre 3 2} A Georgra-Paci11c 3:oup Less 1 metre oe:ere extraordinary item and accounting change S 14* Extraordinary loss, net of taxes Cumulative effect :f accountinc chanae, net of taxes Net less interne Sasic ter sear-: Less: metre ce:';:e ixt r i :r cm ary ::e.t arc Extr atre me ry less, "e: cf taxes E .r. ,, ^ a . ve e:':'em .m'.m.tm: '-a- m taxes orange Non . rss 1 r. ::~e -1 . 1-i : : : 1-5 5 f 12: 5. Filing Date: 05/02/01 ar er Disclosure Page 4 (iLORO!A RACUAL CORF - 1Q-Q Filing Date: 05:02,01 s c _ signing: The Timcer lompa:./ Net income 1 4j Basic an dilutee -let income per common share Average n imr-er of snares outstanding: Bas: ; S S The acconcanving .notes are an ir.tearal oart of these consolidated f inanciaistatements. 4' 6 7 Disclosure Page 5 GEORGIA PACIFIC CORE - 10-Q scasenenrs. CONSOLIDATES STATEMENTS OE CASH SLOWS 'Unaudited) Georgia-Pacific Corporation ar.d Subsidiaries lie - o 2000 Cash flows from c: tracing activities Net (loss) income S 234 Adjustments to re nolle net income to cash provided by operations: Cumulative -effect of accounting change,net of taxes Depreciation, depletion and amortization 226 Deferred income taxes (4) Loss (gain) on disposal of assets, net (34 ) Change in working capital (133) Other Cash provided by operations 266 Cash flows from in esting activities Property, plant and equipment investments Filing Dale: 05/02/01 $ (1(5) (11) 362 ? 41 (133) 35 133 (152; Disclosure Pace 6 GEORGIA EAC/1IC CURE - 10-0 (182) Timber and timberland purchases (55) Acquisirior (i; Net orocee' s from sales of asse 25 Ocher l-'iling Dale: 05/02/01 (37) Cash provided by (used for) investing activities (224) Cash flows from financing activities Repayments of long-term debt (21) Additions to long-term deb* 10 Fees paid to issue debt Net (decrease; increase in short-term debt 73 Stock repurchases (71) Cash dividends paid (42) Proceeds from option plan exercises 3 Cash used for financing activities (48) Increase (decrease) in cash (6) Balance at beginning of period 25 Balance at end of period 1 19 ld; '466) 3 40 $ 42 The accompanying notes are an integral part of these consolidated financial statements. 6 Disclosure Page 7 GEORGIA PACIFIC CORE - 10-Q i'Jr.a'j' errier, 5 . 4 CONSOLI BATED BALANCE SHEETS 'Unaudited; Georgia-Pacific Corporation and Subsidiaries December 30, '.In millions, except shares and per share amounts 2000 ASSETS Current assets Cash S 40 Receivables, less alliances of S35 and $34, 2, 705 Inventories 2,995 Deferred income fax assets 176 Other current assets 472 respec Total current assets 6, 288 Timber and timberiands, net 1,253 Property, plant and equipment Land, buildings, machinery and equipment, 21,223 Accumulated depreciation (9,421) at cost Property, plant and equipment, net 11,802 Goodwill, net 3,985 Filing Dale: 05/02/01 Ma 2, 697' 2, 339 481 :, 242 1,296 20,645 ;9,572) Disclosure Page 8 GFORd/A PACIFIC CORP - W-Q Other assets Total assets a 514 CONSOLIDATED BALANCE SHEETS (Unaudited) (Continued, Georgia-Pacific Corporation and Subsidiaries December 30, (In millions, except shares and per share amounts 2000 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Bank overdrafts, net S 293 Commercial paper and other short-term 2,655 Current portion of long-term debt 232 Accounts payable ^ 1,520 Accrued compensation 436 Other current liabilities 906 notes Iota, curren ci_aties 6, 082 Long-term debt, excluding current portion 12,627 Otr.er Disclosure Page 9 Filing Dine: 05/02/01 Marsh 11, S 215 1, :'C2 251 1,522 2t2 1, (22 j 2 i CFORCIA PACIFIC CORP - 10-Q Filing Dale: 05/02/0! Deferred income tax liabilities 2, 561 Commitments ana contingencies !Note ii) or.a renc-t Comiror 182 ' Lc Group, par value $.80; 100,000,000 a Jl ^ . crized; 225,353,000 ana 221,844,000 star The Timber Ctmpany, par value $.80; 250,000,000 snares autnorized; 54 , 514,000 ar.d 54 , 5"11, COG shares Treasury stock, at cost (330) 14,387,000 shares cf The Timber Company common at Additional paid-in capital 2, 427 Retained earnings 3, 463 Long-term incentive plan deferred compensation (4) Accumulated other comprehensive loss (16) Total shareholders' equity 5, 722 Total liabilities and shareholders' equity $ 30,882 The accompanying notes are an integral part of these consolidates rinancial 3 66 . 4; 087 Disclosure Page 10 GLORGIA RAC/I-It CORP - 10-Q statements. Piling Dale: 05 02.01 CONSOLIDATED 37.-.! MELTS OF OOMPPEHENSIVE (LOSS; INCOME 'Uric Georoia-ascitic iteration and Subsidiaries (In millions) 2000 Net (loss) income S 234 Other comprehensive income (loss) before Foreign currency translation adjustments (1) * tax: Derivative instruments Minimum pension liability adjustment Income tax expense related to items of other comprehensive income (115) (26) (30) Comprehensive (loss) income $ - 233 (158, The accompanying notes are an integral part of these consol: statements. Lnancial Disclosure Page 11 GEORGIA FAC/IIC CORF - 10-Q 4 MOTES TO- CONSOLIDATED FINANCIAL STATEMENTS GEOPGIA-PA.il FI C IOPPOP.ATION March 31, 2001 Unaudited: 6 Riling Date: 05:02/01 Disclosure Page 12 GEORGIA PACIFIC CORP - 10-Q Filing Dare: 05,02:01 PRINCIPLES OF PRESENTATION AND ACCOUNTING POLICIES. Tr. financial statements include the accounts cf Georgia-! Corporation and subsiaiaries (the "Corporation"). All intercompany balances ar.d transactions are eliminate! consolidation. The interim financial information mol.: ur.auoited; however, such information reflects ail ao; o are, in the opinion of management, necessary for a fai of the Corporation's financial position, results of :c cast, flows for the interim periods. Ail such adjustmer. normal, recurring nature. Certain 2000 amounts have be to conform with the 2001 presentation. These consortia statements s' cuid be read in conjunction with the cc.ts financial statements and notes thereto included in tie annual report on Form 10-K for the fiscal year ended I 2000. nsciidated i fleant r.s w h i c h esentation ms, and re of a eclassifiea financial a ted location's ter 30, On "ecenbe: 16, 1S97, shareholders of the Corporation ere ticn oi two classes of common stock intended to re the perform nee of the Corporation's manufacturing an; bus' .esses. The Corporation's manufacturing and timber ref-, /red tc Hereinafter as the "Georgia-Pacific Group" Company", respectively. The Georgia-Pacific Group's ar Company's combined financial information is presented tcroved the lect separately t i.mbe r cosinesses are snd "The Timber The Timber i Note 12. During the fourth quarter of 2000, the Corporation implemented EITF 00-10, "Accounting for Shipping and Handling Fees and lists". EITF 00-10 requires that entities disclose costs incurred related to shipping and handling that are not included in cost of sales. The Corporation currently classifies certain shipping and Handling costs as selling and distribution expenses. Shipping and handling costs included in selling and distribution expenses were S13-' million and $116 .million for the first quarter ended March 31, 2001 and April 1, 2000, respectively. 2. PROVISION FOR INCOME TAXES. The effective tax rate used to calculate the benefit iprovision) for income taxes was 211 in 2601 and 38% in 2000. The effective tax rate in 2001 was different from statutory rates primarily because of nondeductible goodwill amortization expense associated with business acquisitions. In 2000, the effective tax rate differed from the statutory rate, primarily because cf increased state tax credits and increased utilization of foreign sales corporation tax benefits, w; ich more than offset nondeductible goodwill amortization expense associated with business acquisitions. 3 Disclosure Page 13 GEORGIA PACIFIC CORP - 10-Q Filing Dale: 05/02/01 EAPHIMGS PER SHARE. Basic earnings per share is comprised cased on net income and the weighted average number of common shares outstanding. Dilutee earnings per share reflect the assumed issuance :f common shares under long-term incentive stock option and stock purcr.ase plans and pursuant to one terms of the t.5r Premium Equity Participating Security Dr.its '"PEPS units";. The computation of diluted earnings per share does net assume conversion or exercise of securities that would have an antidilutive effect on earnings per share. Amounts are computed for each class cf common stock based on the separate earnings attributed to each of the respective businesses. The following table provides earnings and per share data for Georgia-Pacific Group and The Timber Company for 2001 an:: 2)00. Disclosure Pane 14 GEORGIA PACIFIC CORP - 10-Q Filing Date: 05/02/01 $ 1 j>- S Snares nencn: r.at or i : Average ~r.a re s ~u*: 5 t 3 r.dr r.a Cota* issjmino ::nvers 17 4.? Basic per snare: (Loss' income cefore extraordinary item ar.d accounting cnanqe Cum1 :S c mange, r.et of taxes Net (less/ income Diluted per share: (Loss) income before extraordinary change 5 1.1i Extraordinary loss, net of taxes item and accounting Cumulative effect of accounting onanae, net of taxes 4 4 3 ' 1. o31 1 3 i.CC1./5: i.i4 Disclosure Page I 5 GEORGIA PACIFIC CORF - 10-Q Filing Dale: 05/02/01 4 SUPPLEMENTAL DISCLOSURES STATEMENTS OF CASH FLOWS ash impact of interest and income taxes is reflected in the table below The effect of foreign currency exchange rate changes on cash was no: ma er ia 1 in either period. In Total interest costs 5 1! 7 Interest capitalized Interest expense s S 323 '2) INVENTORY VALUATION. Inventories include costs of materials, labsr, and plant overhead. The Corporation uses the dollar value method for 5. computing LIFO inventories. The major components of inventories were as follows: Disclosure Paae 16 GEORGIA PACIFIC CORE - 10-Q Filing Dale: 05/02/01 10 Disclosure Paae I 7 ULUKOIA FALIFIC CURP - 10-Q Filing Date. 05/02/0/ 6 . ; IVESTITUPES, ACQUISITIONS AND UNUSUAL ITEMS. On Marcs 2 3, 2001, the Dcrporaticr. announced that it will permanently close its pulp mill and associated chemical plant at Bellingham, Washington. These operations has teen temporarily closed since December 2000. The Bellingham pulp .mill produces: approximately 220,000 tens of pulp, inelu:;_r.:: 135, 000 tons si sulfite market pulp, and 2 60, IOC tons of lignin mm.mly. In connection -with this closure the Corporation recorded liabilities stealing approximately 357 million for the write-off ; f assets, approximately 313 million for the termination cf appr:urnstely 420 hourly and salaried employees and approximately 312 mill;or. for facility closure costs. Of the $32 million total liability, S'73 million was charged to ccst of sales, $3 million was charged to selling and discrloution expense and 31 million was charged to general and administrative expenses. None of the reserves were usee as if March 31, o During the first quarter of 2001, the Corporation acquired the remaining ownership of two chemical joint ventures for approximately 326 million. The results of operations of these chemical businesses were consolidated with those cf the Corporation beginning in February 2111. The Corporation nas accounted for these acquisitions using me purchase method to record a new cost basis for assets acquired and liabilities assumed. o At the end of November 2000, the Corporation completed a tender offer pursuant to which it purchased each outstanding share cf common stock of Fort James Corporation ("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 ex mange agent for cancellation. Through March 31, 2001, the Corporation paid approximately $6,185 million in cash and issued approximately 53.9 mm lion shares of Georgia-Pacific Group common stock valued at $1,484 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 $10 million in cash and issue approximately 91,000 shares valued at $3 million for Fort James common stock that had not been tendered as of March 31, 2001. In addition, the Corporation assumed $3.3 billion of Fort James debt in the acquisition. Fort James' results of operations were consolidated wit.n those of the Corporation beginning in the fiscal month of December 1I . The Corporation has accounted for this business corrbinstim m mg the purchase method to record a new ccst basis for assets acquired and liabilities assumed. The allocation of the purchase price ur.d acquisition costs tc the assets acquired and liabilities assumed is preliminary as of March 31, 2001, and is subject to cr.ar.ge pending finalization of studies of fair value and the finalization of management's plans tc restructure certain operations. me difference between the purchase price and the fair value of the assets acquired and liabilities assumed was recorded as goodwill and is being amortized over 40 years. The preliminary allocation of net cash paid for the Fort James acquisition as of March 31, 2001 is summarized as follows: Disclosure Page 18 GEORGIA PACIEIC CORE - 10-Q Piling Date: 05-02:01 li Currer.z assets Property, plane and eourcment Other r.oncurrer.t assets Goodwill Common stock issued sr.d value of stock options Converted !iet cash paid for Port James s -, -> 4,620 Hi 1.~" 1 In connection with the acquisition of Fcrt CaT.es, the 1 t oration recorded liabilities totaling approximately Sri miliirn employee termination costs relating to approximately 520 hourly ltd salaried employees. During 2000, no employees were terminated a.tc none of this reserve was used. During 2001, approximately 65 employees were terminated and approximately $16 million of the reserve was used to pay termination benefits. The Corporation has not finalised its plans for manufacturing and distribution activities. Finalization ti these plans may result in additional liabilities recorded as part of the purchase price or charges to earnings. The following table provides a roilfcrwarc of the employee separation reserve from December 30, 1."' through March p i, 2 0,01 i Disclosure Page 19 GEORGIA PACIFIC CORE - 10-Q Filing Date: 05/02/0! The following unaudited pro forma financial data has ceer. prepared assuming that the acquisition of Fort James ar.d related financings were consummated on January 2, 2000. This pro forma financial data presented for informational purposes and is not indicative of the operating results that would have occurred had the accnsition been consummates: on January 2, 2000, nor does it include ac;fitments for expected synergies, cost savings or consistent applicaticn of accounting methods. Accordingly, this pro forma data is necessarily indicative of future operations. In millions, except per share amounts Georgia-Pacific Corporation: Net sales (Loss) income before extraordinary item and accounting change Net (loss) income Georgia-Pacific Group data: Net sales (Loss) income before extraordinary item and accounting change Net (I css;.income Basic :er share from (loss) income before extraordinary item and accounting change Diluted per share from (loss) income before extraordinary item and accounting change Basic (loss) earnings per share Diluted ;Ioss) earnings per share Quarter Ended April 1, 2000 Fro forma 220 7, 154 l 0.7 9 Disclosure Paiie 20 GEORGIA PACIFIC CORP - 10-Q Filing Dale: 05/02/01 r.e limber Company's results of operations are not 'crt James transaction. by the o In connection with the acquisition of Fort James ana pursuant to a consent decree with the j. S. Department of Justice, cr.e Icrporation sold a portion of its away-from-home tissue nanufac: niterations !formerly Georgia-Padfic Tissue) to Svenska Cellulcsa Aktrebolaget 3CA for approximately $350 million . The sale was com:: _ered on March 2, 2001, with net proceeds of approximately $532 mill::r ^sed to repay debt. o Duri'g 200C the Corporation announced the closure if the Grand Rapids East, Mich., gypsum plant and the Kalamazoo, Mich., pater mill. In connection with these closures, the Corporation recalled a charge to earnings tctal-ing $7 million for the termination of approximately 325 salaried and hourly positions, $25 million for the writ--iff of assets and $12 mi lion for facility closing costs. During 21)), approximate! 23- employ es were terminated and an additional 34 em.pl trees were terminated during the first quarter of 2001. The following table prc 'ides i formation related to these charges: Wrice-of Employee Type of Cost 13 2000 Usage Disclosure Page 21 GEORGIA PACIFIC COUP - lll-Q Filing Date: 05/02/0! o Luring the first quarter of 2000, the Corporation solo terrain to.ntair.erioarci ar.d paokaci.cg assets resulting in a pre-tax gain of 324.4 T.iliicn .315.2 million after tax, cr SO. 09 diluted earn tugs per Oeora i a-racifio Grout share,. o Also during the first quarter of 2000, the Corporation ttntributed terrain ttotal.nerboard ar.d packaging assets with a net book value of 334 million to a joint venture. In exchange for these assets, me Corporation will retain a 521 interest in the joint venture. This investment in the joint venture is accounted for under the equity me t hod. o Cn July 13, 2000, the Corporation signed a definitive agreement to merge The Timber Company with and into Plum Creek Timber Ccncar.y "Plum Creek";-, rider the agreement, The Timber Company sharer.cl iers will receive i. M shares of Plum Creek stock for each share if The Timber Company stock. This transaction, which includes the assumption by Plun Creek of '^proximate'y $621 million of debt allocated to The Timber Company, - . valued a, approximately 33.6 billion. Plun Creek will ass ..me a 10-year wood supply agreement between Georgia-Pacif1t Croup 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 (the "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. While discussions with the Service continue, it is uncertain whether the Service will issue the requested ruling. In the event that such a ruling is not issued, the Corporation will continue discussions with Plum Creek to determine if an acceptable alternate structure is feasible. In the event no such alternate structure is agreed upon, The Timber Company will be spun off to its shareholders, which will result in it being an independent, publicly-traded company. In connection with the acquisition of Unisource Worldwide, Inc. ("Unisourca") at the end of the second quarter of 1555, the Corporatian recorded liabilities totaling approximately $50 million for employee termination (relating to approximately 1,170 hourly ar.d salaried employees; and relocation costs, and $22 million for closing costs of 48 facilities. The balance of these restructuring reserves st December 30, 2000 was $8 million. During 2001, approximately 151 employees were terminated as part of this program. The following table provides a roilfcrward o: tne reserve or restructuring from December 30, 2000 throuch March 31, 2001: Disclosure Page 22 (jEuruia Palii-ic curp - io-q Piling Date: 1)5/02/01 Tcc CCrT. A" March ;, 1111, tr.e "or; ration's debt was S15.40 billion, iTl! m..l::n of v;r. was allocated t: The Timoer lompany. Tr.e uect allocated t: eacr. g:cup rears interest at a rate equal to one weighted overage interest rate of toe Corporation's total debt, calculated on a quarterly oasis. .At March 31, 2001, the weignted average interest rate on the Corporation's total ceot, excluding senior deferrable notes, was 6.90^ including outstanding interest rate exchange agreements, bach group's cent increases or decreases oy one amount of any cas.o provides by or usee for that group's operating activities, investing activities, dividend payments, share repurchases or issuances and other non-dect-re*ateo financing activities. Dcrinc the first quarter of 2001, the Corporation increased its accounts receivable secured borrowing program, to $510 million ar.c extended the program through Octtoer 201. Additionally, toe 2 orpora 11 or, retained former Cn. source agreements to sell uc to $1:0 million of certain qualifying V.T. accounts receivable and ip to ChSO million of certain elidible Canadian accounts receivable. The Corporation increased the Canadian accounts receivable secured corrcwmg program to CNS35 million m the first quarter of 2001. The U.s. agreement expires m October 2001 and the tanadar, agreement expires m May 2024. .At March ?!, 200, approximately $560 million was outstanding under the Corporation's accounts reieivacie secured borrowing programs m the aggregate. The receivables outstanding under these programs and the corresponding debt are included as both ''Receivables" and "Commercial paper and other short-term notes", respectively, on the accompanying balance sheets. All programs are acoounted for as secured borrowings. A.s collections reduce previously pledged interests, new receivables may be pledged. On Maron 15, 2301, the Corporation amended the restrictive covenants ur.aer its cr.secureo revolving credit facility 'the "credit facility"). These amendments inclideo increasing the maximum ieveraoe ratio funded interest, taxes, ceorec la t icr. and amortization ."ErITIA",> to 4.5) to iii1!; 4 . ji to 1 . i C on Tune 23, 1102 and thereafter. Toe rest r_ ;t - ve Disclosure Paee 23 GEORGIA PACIFIC CORF - IO-Q Filing Dale: ()5<G2/0l 15 [Ih'T. "Accounting for Cenvacive Instruments ar accordingly, reccroea an after-tax oumulat ^ a c r c : ** - - 51 "i' ll'r. .-li vb - ivas .oalar.ee sr.ee" at t.oeir fair "a^ue. .in the t is entered into, the Corporation oesigna .-.i i t.s : ivative instrument. The Ccrpc r a 11: r. engage1 ssifiee as cast ficw recces, ana manges :: feet 1 ve oe_;vatives are recorded in accumu. si income. The Corporation amc participaP re classified as non-aesignated derivative net mves-ment of me F .ropean operations tr.e r.or.-oes . m.atec aer.v tme Inst r merits of the European. operatiorfs are recordec in acc-mo^ateo ctr.er cotnprer.er.sive loss, income. The Corporation formally documents all relations between hedging instruments arc tr.e hedged items, as well as _ts risx-manageiTier. t defectives m.a strategy for undertaking various nedge transact i or.s. T- e Corporation formally assesses, ooth at the hedge's inception ar.o or, ar ongoing basis, wnether the derivatives that are used in hedging transactions are highly effective in offsetting manges in casn flews :f o Cash Flew'Hedges: The Corporation uses interest rate swap ana fore:on currency eucnange agreements in the normal course of business rc manage and reauce the risk inherent in interest rate and foreign currency fluctuations. Interest rate swap agreements are considered hedges of scecifio borrowings and differences paid and received under the swap, arrangements are recognized as adjustments tc interest expense. Fucr. contracts naa a total notional amount of $1,551 million at March 31, 2001. The Corporation's international operations create exposure to foreign currency exchange rate risKS. To manage these risks, the Corpcratior, utilises sr.or t --term foreign euchar.ce contracts. As of March ?1, ICC I, tr.e Corporation n.aa outstanding foreign excrange contracts witt nctlcttl amounts tf $14 million to hedge firm and anticipdteo purchase :cmmitmer.ts and f:rm saies commitments denominated in foreign With eac.n type of rash ficw hedge, the settiemert of transaction will result in the reel assi f i cat i cr. into earnings of gams ar.d losses tr.at are reported m accumulated ether comprehens ive _oss Disclosure Page 24 GEORGIA PACIFIC CORE - JO-Q 16 o investment m a foreign operation: At Ma had outstanding appro.ximateiy 5225 mil ^-denominated bonds which were designate aaair.sx ir.'/estmer.t m Eurooe. T.ne use of the. :_nar.c_a_ instruments allows the lorpcration to reduce exposure to exenange rate movements, since the gains and 1: contracts substantially offset losses ar.d gams or. liabilities ana transactions being hedged. o IJon-designated/'ineffective derivative instruments: The Co: certain derivative instruments that have been assessed a: hedges or do not qualify for hedge accounting in accorda: Mo. 123. Certain commodity swap agreements have beer, ineffective due to the variance between the fixed price ct swap agreement and the fixed price offered to the custir value of these contracts at December 31, 2000 was SI.3 mill ana is included m the cumulative effect of accom :t of r.edge -erail sets, ; has stive SFAS d as f the zair -tax; The Corporation also has two foreign currency interest rata swap agreements that were assumed as a result of the acquisrt-:r :: Fort James. These agreements do not qualify for hedge accounting. muluded in the cumulative effect of accounting change is a pre-tax less of $1 million relating to the fair value of these agreements. During 2000, the Corporation entered into a derivative a greement in connection with the sale of certain containerboard and pact: aging assets whereby the Corporation has guaranteed a certain margin or, the buyer's production. This derivative agreement expires in 2005. Thi s a t reement does not qualify for hedge accounting because the buyer's pi eduction does not qualify as a hedged item in accordance with SFAS N e. 133. The Corporation also entered into certain commodity swap ac leements to offset the gain on the aforementioned derivative agreement, The net fair value of these derivative agreements was S17.3 million ere-taxi at December 31, 2000 and is included in the cumulative effect : i act cunting change. The Corporation's senior management establishes the paramet-r :f the Corporation's financial risk, which have been approved by the Soard of Directors . Hedging interest rate exposure through the use cf swaps and options and hedging foreign exchange exposure through the use c f forward contracts are specifically contemplated to manage risk in keep mg with management's 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 ar.d 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. 9. LONG-TEPiM APPRECIATION PLAN. The Corporation reserved 2,600, i C i stock appreciation rights , "SAP.". for issuance under the 20CI Dong-Tern Act. re c i 3 w i on ?23r. 'obe M LT A ? " . Tbe I.TAP oro-vicies for ohe -1 5 r. 1 r. : it. SAP. units to key employees of the Corporation. During Che first quarter of 2001, the Corporation issued 1.4 million SAP. units under the DC A? with at an exercise price of SOS.47 per unit. The SAP exercise price was based or. the underlying fair value of Georgia-Pacific Group ctur.sr. stock at the grant date. These SAP. units vest over three years. Compensation expense for the SARs is based on the difference between the current fair market value cf Georgia-Pacific Group common stock and the fair market value at the date of grant. As of March 31, 2000 no compensation expense was recorded. Filing Dale: 05-02.01 Disclosure Pago 25 GEORGIA PACIFIC CORP - 10-Q 17 p r e :. . u e: mo :':rr. :.vrte: of 21C1, i 1 5 .-1: overage C'rr snare , all o at sh. ziy'A all mr : sdi :t ions ;r. wnich it operates. As is the ease wim ether compso;es -scmrlar industries, toe Corporation races exposure :r :n The Core-oration is involved m environmental remediation activities at approximately IS9 sm.es, both owned by the Corporation and owned ny toners, mere m ms oeen 'otifiec tnat :t :s or may oe j potent, illy re socr.s ic le tarty .tee: the Comprehensive Environmental response, Ccmoensamon anc Imcmity Act or similar state "super f mo" laws. Tf the .-inowr. sites in whicn it is involved, the Corp-crat i or. estimates tr.at ape r: x :ma t e. y 4t are oemg investigated, approximately IS* me be me remediated ar.d approximately 26" are reir.c monitored 'an activity tr.at ccmrs after eitner site tnvestioat .on or rem.eoiat.tr : r vest. : a 11 or., remociat.cn, and monitoring of many of tr.ese sites oarnot te predicted with certainty, due to tr,e often cn-rnrwn mag::.code of the pollution :r the necessary oleanup, the varying costs of alternative clea.mp methods, tr.e amount of time teoessary to acccmpiisn socn cleanups, the evolving nature of cleanup technologies ano oovern.T.enta 1 regulations, and tne inability to determine the Corporation's share of multiparty cleanups or tne extent to wmcr. cor.t:: icut i or w. 11 re avai.acle from otner parties. The Corporation has establisned reserves for environmental remediation costs for these sites in amounts that it believes are probable and reasonably estimable. Eased on analysis of currently available information and previous experience with respect to the cleanup of haoarcous sub-stances, tne 2rrnoraticn believes it is reasonably possible tnat rests a ss : a tee th tn.ese sites may exceeo current reserves cy amounts tnat may prove :ns.amf-cant or that could range, m tne -agoreoate, op to aocroximately 5154 million. This estimate of tne range of reasonably possicie additional costs is less certa.n tnan the os :a t a or. Filing Dale: 05/02/01 Disclosure Page 26 GEORGIA PACIFIC CORP - 10-Q 18 we 'wwrwwn :s ~ ~ : 11 ecu lit.rg j cwa_ _ _ w. o a yree-t ...w Rv-ia .: Aw: war.. Ron lames w not a 5: ; awr t; we A :r wwi r :- ve r^r :r. Ccrsert. :r-.fv l-w.w... 1' "-85t: gat: or. "ee s at-w t y itw y "-1 ~Z" for we Ra.wa.w" T. er .1.5 a ..omit tec 1: w.e A.;1.; cf X: www-r 1`"' w we r a 1: 1 r. -mu wr.er yctew : i .. . resows :. e ;,i:i "Pfws" , win: fir: fanes C orpcr r. 1 or . The AAR s' craft Rl/R-1 evil.. wet owe wreu.al ipiwr.s rawing fr:r. .'.s wtiw w wt-l crecuw : we r.wr 3 c w : - w v e cwccs a. :: t rec ge c mate: idle. we cos: fir ":eoe rs-w.:l wiims ranges from 5` w Si.: wlwcr.. Tr.e ?F~s' draft F.l'RT rwcwews a remedy involving st -ar : 1 - ca:_;f :ver went: t.._es c: river raw wc long term too it or1 rig cf w.e river re:. however, 'ire Twie cf Michigan has asked for additional pcssic.e renecc.es. Tr.e wta. wst ;:r -re RTFs' recommenced remedy is approx. mat e - / 5 ~ u Ron fanes r.as reer. identified as a ?RP for concani r.at: on cf :he lower Rex Pwer we freer Pay system. 10 a is sons in cy hazardous suosiances. 'A:; v;s sieve -w federal agencies ana tricai entities we seewnc ctth ceuwant resv .: v: 1:: art natural iwowcos uamayes. w fsrr nr; l"'-, we acwwsi" let a rimer. 1 cf Nature- resources "WDNR" re.ease-: for owl:: wrvm.ew a craft reneaiar 1 r.vest . gat: cr. / : ess .r.-~ 1: : y si^c/ vhe .-'ox P:/er. A'^^le we orafi siuoy no r.01 advocaoe ar.y sr.eoifio resiora 1: o:: a lierrai ives, 11 induce a esiwaied ooiai ;osis ranging from :.ero for "ic aw ion" 10 aporoxma oely STIC- million, ceper.cing or. ihe a lie wav : ve ,r lomr.-.nai i or. cf a lierna t i ves selecied. 11 fine 111'., fori fames -;o luni a r i 1.. er.iereo mo a.i a : re erne no w;w w.e WL'.N'r. arc we Z?.L. for ohe resocraviwj ;f one seaimein area or. ohe Ro:< Piver. The orofeoo oeian in A.iguso f TOC ano was oonpleieo on Tecexcer 1:, 100C ao i ww of approximately S million. n Ociccer Idf, one ;J.5. Fisn arid Wildlife Service i"FWS") released for p-jo.ir :o.TLT.e:'.n .vs Rest oral icr. and Compensa z icn Ceierim nation Pisn the "Pian", for 050 oral resources damages :r. connection with its Rower Rox ?a ver/Green -ay Natural Resource lamage Assessment. According to one Pian, :.a;ms for' cast damages ana present ana future losses aiieaealy resuw.wg from ow.taminat icn of tr.e Rox River by nazaracus substances ran.ue from l_t million tc 5 333 million, depending on the sediment rest or:at. w. a Ite: rat./e or combwat ions of alternatives seieotea. Tr.e www rosos yr.-feots to settle natural resource uamaie oiaims oouio re s 10n 1:. :ant- / . :wer. In Ncvemcer i , Rirt fames entered into a settlement with WDNR that resolves we -ftave's natural resource carnages claims against Rort James under CERCLA, we federal Water Pollution Control .Act, and state law. Coder we acreement, Fort James has agreea to spend approximately St million. Che agreement will De effective wr.er. entered oy the feoeral The final cleanup alternatives and the Corporation's share of the rc-.ated costs, for both the Fox River and Kalamazoo River matters, are unknown ar. t.nis time. The Corporation and many ether companies are defendants 10 suits brought m various courts arouna we nation by plaintiffs wno allege mat wey nave suffered personal ir.yury as a result cf exposure to a sees t os-: ont a 1 r. mg procucts. These suits allege a variety of luno ana wr.er diseases cased 0:. alleged exposure to preewts prevwusly man u : a ot - r-d cy wne Tor pora 11 or.. 7r, m-ary oases, we p-lawtiffs are ur.aole to remonstrate mat they have suffered ar.y compensable loss as a result of own -wpesure, or mat any iwuries i.re-y nave incurred .r. fact re su. ten from: exposure to we Jorccra 11 on ' 3 products. T:i- 1: :p . r a t. - w wrrenly defe-.owo we claims :f ar:. r irwm.a ve . . i 1, u - 3 suw c . -. as of Ce carter 11, ill', ar. u a /:. ; 1 Co tec -.--.t wwwcna. w.ll re filed age.r.si .t :.er we next w-versl years. Tr.e r..ru:er :i u.^.m.s filed against we fwcoiwww, ;:,u we average :w if :eiw. in; s-:` :la-ms, nas increase: siriewna". over va last three years. The Corporation generally settles ascestos oases for amour is it considers reaswacle diver, we facts arc circumstances :f ear:. :ass. 1 ur st ar. t - a 11 , all 0: the amounts it has owe t: rate defend arc reswve tr.ese cases have ceer. covered oy product l.ac.lcty insurance. The Corporat - or. r as agreements with its insurers to utilize insurance : r. amounts wnicn it relieves are adequate to cover substantially al_ of we defense costs ar.u liaoilities for currently pending cases, as well as we reasons:: 1 y Filing Date: 05,OFt)l Disclosure Page 27 GEORGIA PACIFIC CORF - 10-Q f ore-reeac.e oefer.se cost: a: a liacllit.es at trie ific.e to claims wn::r -a_ . - f^ff. _ t .ver one next 3rV:: Tne T:rp.ratio ao 5 ._ \ : 5' oe :' ;e r ^ ce whir' : *. re .: ~o - ? cove r a -: _rs t a r 7..:. Zz:~ : . cistc f.:_ ; 5: . _: 7 ies at z: .r,t acle tc acoiti.na. 7,7.re: : r some pe:;;c if ,.ea:s, :erer z:. t'e 3 ur.ro er :f 5 . . : .. j o , ;n ye\i tne 5: : one f -ruir :?51 cfres:- v: : . n -.f. :%=-rr, :ne:e _-f ce no = 5.: .ranee mat s,cr ::ve:a;- -os:..75 7 : o'ver te rests s__ rl.t.ie :1a.rs, : r t.nat : t- part oererse costs 3:7 i.: ar : .it res root covered cy s,:- in s - r :. . - ' 7 r - "-ter-S. 77 777 1; rocra10:3. Tne Z z rp: 1 a 7: or. nas s-st =c . re.-ef-: >.."7 - f r. - 7 7 7" 7777I.'.g CaS-55 i'll 7.77 1 I SC - 117135 777 cefef- I 7 7 7 .7 .7 77.; 777 piOCachS anc 77 3 07'OC-777.7177,17, 370 735 3-51 5 7 j 7 . _ 57 3 3 :3:5.737.7 1 77 .'SUranCe 71 7 7 3 377777 7737 7:3 77 3 1 - I ~ 7 _ 7 7 07 777 Claim1$ OeemeC prCCSCie. wsuit was filed 1:. 57 : 7 3 7 7 17 7 17 . o*:.ec 5,73.3.577 : plaintiff? - 7 373 i07 57 7 13 : I'*5 I 3- r 3 71 : . 7 f 3:175, 17 I 773 l7 7 7C73CiC7. The . 3 >' 3 `J1 7 was fl Lea by eig.nt 7 7 7307553 7.C 5 11 5 5S :: mai viaua.s 77 070 1 >77 7 7 773 p73SS7'.r 1 77C, WC753C, 135 1133, IW733, 7730,37 77 J 7 7 " 7 7'-- _ : 3 . 0 7UC 7-0 p7Ope 7 7 locate: a17: l' 5 77733-7:1 -3 753:15 17 -: 3 : 7 , r 7C373 -I77.S ir. I: lir::i, In:. 773 13*5,.7 alleoe-. 7 7 5 7 7 ' -0 771 7 75 3 3C 3-3737 . V3 11 3 5 5 7,330335 7 j73 5 1 7 13 I-- C37S :r 5. ; 31 13 5 5 7C/: property carnage roe raise :f 1; siiegec 3:.c long-term releases ar.c meats cf releases cf noxious 73.-35, r 5.37 barr.r'il rieriirals, ir.cludir.a bazarcsus sucs753cesu .7. : 5 z--ri,zi 'ii; a Sep73.Tcer :1, 31:plosion at tae :;i..7y .533 alleaef release :: 75:5:1:11 rr,atenal 7351.717: p37 a::p-i5.i7. Virfially all activity tr.ls rase has oeer. -rti.-.- recis.ar. or. a metier. Dy plairtlrfs for recar.sideratior zf a rase a:.a tenant rrcer issued by the court. The Corporation has cer.iec the material allegations of this lawsuit. While it is premature to eve!,ate tr.e r.aims asserted m this lawsuit, the Corporation believes it res - er: 11 r. cus defenses. Prior tc tre filing of the lawsuit, tr.e Core tr at. zaz received a number of explosion-related claims from .nearny residents ana businesses. These claims were for property damage, persira! .77 ,ry ar.c ousiness .nterr-ption and were being reviewed an: resolvea a case-by-case basis. Or; January 12, 2000, five plaintiffs, mcl.:::.: ;:.o :f tre class representatives in the state class action, file: 5 .5s j: t sgairst tr.e Corporation ana T?R pursuant to the riti.ten 5-it 1 - . 75! ms :f tne federal Clean Air -.ct ar.d the Community p.i gr.t-t r-hr.tw law. This suit alleges violations of these federal !awc ar.d tertair: state laws regarding tne form and substance of the tefetoant: ragrrtln: of emissions ana allege-.: violations of permitting requirements jr.aer certain regulations issued under the Clean Air Act. This suit see-:5 rivii penalties cf $25, ICO per day, per violation, an it; on :t: or, to tone the aefencants tc comply wit.n tr.ese laws and rest.at: :rs vc otter relief. The oefendants have oenied the material allegations of the complaint. While it is premature to completely evaluate these claims, the Corporation believes it has meritorious 0e fetse5 . In Aocus" 1295, Tort James, now a whcily-cwnea subsidiary of the Tor:. :rit. transferred certain assets a:.z liaoiiities of its oemo :a . ::.s paper ar.d food packaging businesses to two newly fcrmec c om.t'sr . es, Irown Vantage, Inc., :"C7" !a wholly-owned subsidiar/ of Fort la.m-r* and CVs sibsodiary Crown Paper Co. '"CP":. C? the.n ente.-e: 1:7: a $: 0 I .million oreoit facility w.tr. certain banns and issuea $11. :ni 1__t* loos .~7t.nt of senior tuberamate-o note?. Approximately $4rl r.i.li:-. p: :ee 0 5 from tr.ese f.r.ano-r.gs were t rar.sf ei rea to FI in payee:.-, for tr.e transferred assets ana otr.er consideration. IV aisi issie: to Fort Iao.es a pay-::.--:ina note witn 5 foot amount of $111 r___' - - .: 5 .v5:5 tier, pm .ff to Form lame? orsrt:... 15:: .: 1" :e: : t - : 0: r.-e j 5 i nes see ^ a ? tar. company reg!:..n Ir y.arcr. 1111 IF ana IV fi.e: for rar.knptcy. Various oreaito-rs nave in cl rate: 7.750 one borrowings mace 0/ T? ana IV, an a ore payments to Fort lames for tne assets transferred to TV an: TF :a,sea tr.ese companies 7: ceccme _ 3 sol vexn 7, ar.c rnerefere tr.at tre transfer of s : :n assets was a fraiuu.e.nt conveyance. Ir. April 1-111, Fort James file: s,.t against T? ar.d TV : r- Federal Bankruptcy Court in Oakland, California seeking a oerlaranony guogxert that tne trarsartitr.s ::o r.ot ir.vo.ve .3/ fra:o..e:.t corve.-noe or.o fat otr.e: paro.es a:.a act. 0:0s were tre ; a 0: e :f tr.e r.ar.xr .ct :y of IV ar.d TF. Fort James cues net believe t.nat ary of its actions .n -so ar:.. shir : TV or IF involved a iraiculer.t onrveyance Filing Dale: 05/02/01 Disclosure Page 28 GEORGIA PACIFIC CORE - iO-Q Filing Dale: 05/02/01 20 Although the ultimate outcome of these environmental mutters and legal orcceedings cannot be determined with certainty, based :r. presently available information, management believes that adequate reserves have been established for probable losses with respect tr.er-tt. Management further believes that the ultimate outcome of such environmental matters and iegai proceedings could be material to operating resuits in any giver, cuarter or year but will not have a material adverse effect on the long-term results of operations, liquidity or consoluus tea financial position of the Corporation. 12. SELECTED FINANCIAL DATA. The following combined financial information includes the accounts of Georgia-Pacific Group. All significant intragroup balances and transactions are eliminated m ; srrxination. Tra: sactior with The Timber Company are not eliminates. COMBINED STATEMENTS OF INCOME (Unaudited) Georgia-Pacific Corporation--Georgia-Pacific Group 21 (In millions, except per share amounts) 2000 Net sales S 5,526 Costs ano expenses Cost of ales, exc ;dmg cepreciation, amortiration an cost of timcer ha: nested shown below The Timcer Company 1 -) T!urd parties 5 6, 323 1' First Smarter Disclosure Paee 29 GEORGIA PACIFIC CORP - iO-Q Its ment o: nebt, ae, net tr Extra .xes a Net .less) in i Diluted per snare: Less, income before account me mange S . 1' extraordinary item and taxes e Net (loss! income 5 1.11 Average number of shares outstanding Basic Diluted S : 0.6 1 cO} 14 S '0.61: 225.4 225.4 COMBINED 5T. EMENDS OF CASH FLOWS (Unaudited) Georgia-?ac ic Corporation--Georgia-Pacific Group 22 Filing Dale: 05/02/01 Disclosure Page 30 GEORGIA RACIEJC CORE - 10-Q Casr. f.'cws - . t =: : r.' c i n i v..r res Net Its." .: cm r/:' u sorter, t s to re ;et . tccne :a>.o r.: ' v. yri r.. c r: e r a . : s : ? ,,r -. a a - effect :i accnrairo crauce, lepre n a a - or. arc amcr a i ca a . c:. Test :r narvesaec - The Timber 7dsc of oncer r.arvesaed * Thiro Parties Tnar.ce :-.zrcapital Thar.ce carer assets am '"her long-term 11 ac11: ares Other 37: 7asn proveoeo r; .per >a ; cr.s Cast) flows from ir.vas:inq activities Property, plant ar.o equipment investments Timoer purchases from Tte Timrer Company :i 5 Timber contract purchases from third parties 5 i, Acquisitions N'ea proceeds : rtn; sa.es :: assets Other Cash provided by .useo for; investing activities Cash flows from financing activities (Repayments of! additions t o debt Common stock repurchases Cash oiv:aer.cs paid Fees paid tc issue tect Proceecs fret- option plan exercises Cast used 3nc:ni activities Increase ce crease : casr. Faience at tec i r.r. it c c: pence etc of per.oc Filing Dale: 05/02/01 : 1 r 5 t 2'.a::er (1?I J -li '~h. : i? Ml?i 'It .1; Disclosure Page 3 1 GEORGIA PACIFIC CORE - 10-Q COMBINED BALANCE SHEETS (Unaudited) Georgia-Pacific Corporation--Georgia-Pacific Group l i :-tr.r.e r J; r :e.v: sets ReceiviC--;, -ess -2 _ 1 trances a: .;i: ana respe-ot: ve 1 / 1 nver.t ;::-s Lefe.-rea : r. rcr-- ".2/. `jsse'.s Itter iss-ts Tatai torrent .jsse'.s 2K2 Prtr.ert/, p.ar.t -.s': e j : .prett Late, z:i-Z-:.z, ta smr.ery snc eq,,_pr.er.t, jt Acconvjlatec veered at: an '9,376. Property, plant site e xjipnent, net 11,~ 9 q ococwi11, net r y- : Other assets :, : 4 _ Total assets jj, t .1 " 11, 1-'. j, :a * S COMBINED BALANCE SHEETS (Unaudited) (Continued) Georgia-Pacific Corporation--Georgia-Pacific Group Filing Dare: OSAIJ/OI Disclosure Page 32 GEORGIA PACIFIC CORP - 10-0 Filing Dale: 05 '02 01 T ;: : -rS A:: tents ci /ir. -..-iroeo r-.'.x-r.j;".:.-. C ; r. r :urr*:.'. 1 tac _ 1. t res T : t = _ :;rre. . _ an 1 tr.-c-terrt rent, . 1, 3 5 5. .mrrert portion Senior beferranle totes Utter . o: q - tern .lie.; Deferred income fax liabilities 2, 155 Commitments and conn . r.cer,ores Parent's eqcit/ Total liabilities 'ano parent's equity S5-J COMBINED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME {Unaudicea; Georgia-Pacific Corporation--Georgia-Pacific Group first wtorter e less : .1-; ter : rnorehers .ve in tome loss; before ru'-:i;r. :, r ten ;y t r in s 1 a 11iO'ostmen Derivative ir.st r inert s I'ltmjn ;:~'ns_sr 1:an .lit/ Income ton cer.efit relates; to items of otter ocnr.retensive income lorr.prener.s_ve Disclosure Page 33 GEORGIA PACING CORP - 10-Q Piling Dale: 05/02/0/ 25 The ftllcwir.g rcnxined financial information includes she a:::of The Timber Cmcanv. All significant intracompany calar.ces ana t r ins a: lions are eliminate!: m cinematic n. Transactions with the Gee r gia - ?= c 1: i : Group are not eliminated. COMBINED STATEMENTS OF INCOME (Unaudited) Gecrcia-lacific Ctrporaticn--The Timber Company Ir. ~..... . ::.s, ::e: scare amc-nrs. .Vr7 CsA-C ,:e TSm-n..:':; 'Jr up 7 ir.c * r -1; r ; cir'.-.s i*T i verec I"r 1>7 Total n-7 sales Tcsts ar.b expenses 7os7 o: sa.es, exc. ding depreciation and Tepletion Tepre ;:27:on anc lepletion l-ere: 2 . arc rirsc 1 ve I:. 7 e r e 5 7 Total costs ere expenses 57 Income before income 7a/es Provision for income 7ax.es Net ir.core 5 a s 1 : 2 r. c 0 :ieo Aver io-i .'.--re = 32-' P~ 1: 2 r -v: .3 7 3 r 01 r. z : iin Disclosure Page 34 GEORGIA RACII-1C CORE - W-Q COMBINED STATEMENTS OF CASH FLOWS (Unaudited) Georgia-Pacific Corporation--The Timber Company t :r .- ^/ j : a 11 : r ; in ;. .0 . r. : tve to ;act prcv.cec z. .: I*;: re . : r. 2et:cr. 2 e i e r: e c _- e - a .< e s Tim tales assets tea:. ce ; '-r: is/ecs act 1: a c -1 - :: e = las.-. prcv: cy cperaticns "isr. :`L',^s fnr: .rvesc.: 2 3c*.;v.-.:es ?r ct.ert /, plant j'i equipment investments Timcer and tim/cerlancs purchases Prcceecs rrerr sales sf assets -5 C'.r.er ' ) Cash :see for invest ir.-7 activities Cast flows from activities in are reptrcnases Proceeds from option plan exercises Repayments cf . tr.q-term oeot "asn dividends paid 121i "asr. tsec tor 1-tancinc 'activities In ireas'r in case It 5 . C 2 Z 2 f CO It 0 0 rra.an.ce -3". etc :: ;'er`.':d 'll - (20) . 2 ; COMBINED BALANCE SHEETS (Unaucited, Georgia-Pacific Corporacion--The Tinner Company Z ' Disclosure Huge 35 Filing Dale: 05,02/01 GEORGIA PACIFIC CORE - 10-Q Filing Dme: 05/02/01 i _ rimer r.us , e to r e o _ ; : ZAZ and S43, respectively Note receiver le Total assess $ LIABILITIES AMD PARENT'S EQUITY Debt S 240 AZ 9 Deferred income rax -facilities Tota * i es S 412 i, * ~ COMPREHENS: /E INCOME. The Timber Company's total corr.prehg the first q jarter of 2001 and 2C00 was S22 million and 3*1 respective1 . Other comprehensive income was insignificar Company aur Lag each of the first quarters of 2001 and 20C ne rimoer Disclosure Page 36 GEORGIA PACIFIC CORP - 10-Q Filing Dale: 05/02/01 28 i s CONDENSED CONSOLIDATING INFORMATION. Fort James is ar. suer of certain securities registered unaer the Securities Act cf 193 onus subjecting it to reporting requirements under Section 15(d) cf t Securities Exchange A.ct of 1 934. The following condensed consoli mg financial information is presented in lieu of consolidated fir.a al statements for "art Ja~as because the securities are fully and n udiclonally guaranteed by the Corporation and certain subsidiarie CONSOLIDAT NG STA EMENT OF INCOME FOR THE QU, STER E. DED MARCH 31, 2001 Consci iaat mg In millions Ad)ustments lecrgia-Panfic Coro ether t.rarv Fort James arc The Consolidated .Amounts Timber Company S -1,809 Fort James Itrt. The Timoer Company Costs and expenses Cost t: sales, exeijeme seprec: at i on, timber narvesteo shown ce.ow (20) Depreciation, uepietion, amortisation and cast vi timber tarvestec genera: anc saministraaive Interest 2,9-58 2 64 224 243 M3) (Less; income refore mmne taxes, cnar.ge ge, s Disclosure Paiie 37 GEORGIA PACIFIC CORP - 10-Q 29 FOP. THE TTARCEr ENEEI MARCH 21, 2101 'Hz'. cr:v: ::.i _~ec 'r S lasr. : . vws fr:r it /es t i t c 2 ; r _ v 1 r : e s Brrperry, : . 3:.-: J - " e: " 7.oxer ;; : r .::cre'. 2: . r ;e-ea: r.cqo :s:i; Proceeos frix sa.es 2: sse~s Casn prevideo cy *used for) irv/es t ir.c a or.: v 1 : res Casr. :lov.s rror. 1; narte ir.c i: r 1 v: r 1 e s Nee oecreaso m oecr Ner irre r ccrx ^ v/ psyacle Proceecs 11 0"t. ;i;*.iir. l!=-' exercises Cas.o r.v: zeros p ai c fasr. 'usee fir previses cy financing acuvit res Ir.irease 'oecrease! ir, rasn =alan:e -1 re;.::: i:,o year Ba farce 7:: . v.'.er i.:,e= iir ; ?he oiie: lin.pany Birr f;~ei 2 2?S 5 - 6) 602 4 8) 343 (49) fl6) 19 '28) (574) 4 32 S 3 Filing Dale: 05/02/01 ah? ` 4 i: 11! 9; CONSOLIDATING BALANCE SHEET AS OE MARCH 31, 2001 J -j Disclosure Page 38 GEORGIA PACIFIC CORP - 10-Q Filing Date: 05/02/01 S3 local proper-.'/, p^art aoc equirme: oocaw Ocher assecs Tccal asse A3 14,571 CONSOLIDATING BALANCE SHEET (continued) AS OF MARCH 31, 2001 31 p Disclosure Paec 39 GEORGIA PACIFIC CORP - 10-Q Filing Dale: 05/02,01 Senior aeferraDle notes Deferred income tax liabilities Intercompany Sbarehc qo:ty Total liacil:t_es an shareholders' equity 63 4 9, P 6) 3S Disclosure Page 40 GEORGIA PACIFIC CORE - 10-Q Filing Dale. 05/02/01 14 . SUBSEQUENT EVENT. Or. April 21, rre 1:rpcration am; signed a letter of intent to sell a portion of the and paper manufacturing assets to linear Ir.o. The a this sale are the Corporation's stand-alone onccate mills at .Ashdown, Arkansas, Woodland, Maine, and lie Edwards, Wisconsin, as well as the associated pulp and Woodland. The sale, which is contingent upon t.o diligence, execution of a definitive asset purchase receipt of necessary regulatory approvals, is expec in the second quarter of 2001. The Corporation ante: proceeds cf a sale of those facilities to repay dec that it .nao z - - . 1 ^ ,- T sheet paper and Port ties at Ashdown letion of due merit and he completed use the net 15. OPERATING SEGMENT INFORMATION. The Corporation has five reportable operating segments: building products, timber, containers card and packaging, bleached pulp and paper, and consumer pr::-;tc. The following represents selected operating data for each reportable segment'for the three months ended March 31, 2001 and April 1, 2000. CONSOLIDATED SELECTED OPERATING SEGMENT DATA unaudited) Georgia-Pacific Corporation and Subsidiaries Disclosure Page 41 GEORGIA PACIFIC CORE - 10-Q Filing Dale: 05/02/0! i: "o '-r.s'-r. "r r ' z ph 2 . z a\.~ : ? . = _ :;e-. j i " t :r. i ::;:zr.'Eix f-4 C"ni-3 ir ere o = r : ir : pa = .=5 po.:. ::6p": C ons jmer ^ r . 3 j = Or.Per:1 j?4. .'.a TDZii ir.zezsr-c:z^r.z sa.irS 7CTAL PEP r\-_E.r z ,zzzz p: c; . zzs Zovr.-i::.'i:z :a: z >r.: pac Bleachec cilp ana paoer 2, 256-11 Ccns'jx.er pr'.:rj:':s Cther2 (293)(5) r.ec - lRepreserts the elimination of hunting lease for The Timoer Company (the timber segment) to cost of sales on a consolidated basis. 2lncludes elimination of intersegment sales. income reflectec ir. and reflected as a net sales reduction CONSOLIDATED SELECTED OPERATING SEGMENT DATA (unaudited) Georgia-Pacific Corporation and Subsidiaries Disclosure Page 42 GEORGIA PACIFIC CORE - 10-Q Filing Dale: 05 02/01 c-iref:: -pr'vLs; on, iir : r. cone '.axes Zs.zrotrzsir.ciy -is.s .: or. e-arly ext: ng u: sr.r.eit of rieot, net o: raxes lat: ve ;-l i ; ;r rr.tina :nsnae, ner of II 3Includes some miscellaneous businesses, unallocated corporate sperating expenses and the elimination of profit on intersegment sales. 34 Disclosure Page 43 GEORGIA PACIFIC CORP - 10-Q Filing Dale: 05/02/01 Item 2. Management's Discussion and Analysis of financial ar.d Jesuits of Operations 7E? i::: compared with first ioartfr 200c at i :r. reported consolidated net sales of apprcxirr.st-r-y 36.1 r the first quarter of 20GI and 35.6 billion fer t.-.e first 2110. Included in 2001 are Si.5 billion of net sales from the squired Fort James operations. Interest e xper.se increased S176 million to S321 million in tr.e first quarter of 2001 compared with 3145 million in the first quarter of 2000, principal! y =s a result cf higher debt levels incurred as a :---ult of the Fort James transaction. The Corner:atis.n reported a pretax loss of 3145 million and benefit of 331 million for the first quarter of 2001, compa income of .? "I million and income tax provision of $143 mil first quar-i r of 2000. The effective tax rate in 2001 was :: statutory :r tes primarily because of nondeductible goodwill expense as;a slated with business acquisitions. In 2000, the cme tax th pretax or the r.t from ization five tax Disclosure Paae 44 GEORGIA PACIFIC CORP - 10-Q rate differed from the statutory rates, primarily because of increased state tax credits and increased utilization of foreign sales corporation tax benefits, which more than offset nondeductible goodwill amortization expense associated with business acquisitions. On December 21, 2CC5, the Corporation adopted Statement of F on social Accounting Standards ho. 133, "Accounting for Derivative Ins or ..cents H0ClCir. Z Ac ~ 1 V i 1 1 "5 , " a C 11C- T 3 i HG 1 V, r 0 C T Ci 0 d 51 effect of accounting change creole of 311 million. and During t.ne first quarter of 2001, the Corporation refinanced icprcximately 3300 million of debt assumed in the Fort James acquisition a: accordingly, recorded an after-tax extraordinary loss on the extinguishment of debt of $12 million. The remaining discussion refers to the "Consolidated Selects. iterating Segment Data" fable (included in Note 15 to the Consolidated F i.tar.cial Statements,. BUILDING I ODUCTS The Corpor tion's building products segment reported net sale s of $1,762 million an . an cc rating loss of $24 million for the first qu arter of 2001. Net sales nd ope ating profits were $2,329 million and 3211 ci11_on, respectively, in "000. The decrease in quarter-over-quarter r. et sales and operating profits resulted from a significant decrease in eve roil selling prices and volumes. Average selling prices for plywood, softw oca lumber and gypsum decreased 121, 18% and 35%, respectively compared to t he prior year, Sales volumes for plywood decreased 16% and softwood lumber v domes decreased 30%. The Corporation expects improvement in most of its building products markets in the second and third quarter of 2001. TIMBER In the first quarter of 2001 and 2000, the timber segment rep orted net sales of approximately $91 million and $102 million, respects vely, and operating profits of $47 million and $75 million, respective! y. The decrease in year-over-year profits is due to a decline in bet h sales volume and selling prices. The Corporation expects improvement in sa les volume as demand for the timber segment's sawtimber increases. CONTAINERBOARD AND PACKAGING The Corpor tion ' s^co.ntainerboard and packaging segment report ed net sales of $638 mi.lion a. d operating profits of $88 million in the f irst quarter of 2001, compared with net sales of $677 million and operatic g profits of $131 million in the first quarter of 2000. During the first o carter of 2000, the Corporation sold certain containerboard and packagi r,g assets resulting in a pre-tax gain of 324 million. Excluding these 3 a ins, return on sales decreased to 14% in 2001 compared to 16% in 2000. It. e decrease in year-over-year operating profit was due primarily to a 4 % dec line in sales volumes for containerboard, 10% lower sales volumes for paexa gir.g products and higher energy costs in the first quarter of 2001 comparer t: the prior year's first quarter, offset somewhat 'ey lower secondary rite IT Z ZSZ 3 a.nci increased average selling prices. During the first quarters t f lid and 2000, the Corporation incurred Filing Dale: 05/02/01 market-related paper machine siowback or shut downs at its co ntamerboard mills, resulting in a reduction in containerboard production of 40,000 tons and 83,000 tons, respectively. The Icrocration also announces paper machine at the Toledo mill will cease production hesin.n ing May 6, Disclosure Paue 43 GEORGIA PACIFIC CORP - 10-Q 2001, until market demand returns. Prices for containerboard and packaging are expected to remain relatively constant throughout the remainder of the year. BLEACHED PULP AMD PAPER. The Corporation's bleached pulp and paper segment reported net sales of S2,22t million and operating profits of $57 million in the 1111 first quarter. For the same period in 2000, the segment reported net sales of $2,256 million and operating profits of $114 million. Return :u sales decreased to 3; in 2001 compared with 53 for the same period a year ago. The decrease in 2001 operating profits was due primarily to a In decline in pulp sales volumes and increased energy and paper chemical uses. The Corporation expects selling prices for pulp to continue to decrease in the second and third quarters of 2001 and expects selling prices f:r paper to increase slightly during the second half of the year. CONSUMER PRODUCTS Net sales and or srating profits for the consumer products segment were $1,555 million a .d $101 million, respectively, for the quarter ended March 31, 2001, which included net sales and operating profits of $1,514 million and $141 millior . respectively, from the operations of Fort Jam.es that were acquired at the -nd of Nov ,-mber 2000. Operating profits for the 2001 first quarter also include a one-time charge of $82 million related t: the closure of the Bellingham pulp and lignin operations. First quarter 2000 net sales and operating profits were $494 million and $52 million, respectively. Excluding the one-time charge, return on sales decreased to 9% compared with 111 a year ago. This decrease is primarily due to increased energy costs. In connection with the acquisition of Fort James, the Corporation sold a portion of its away-from-home tissue manufacturing operations .formerly Georgia-Pacific Tissue) on March 2, 2001. Net sales and operating (losses) profits related to these operations were $97 million and $(1: million in the first quarter of 2001, respectively, compared to $162 million and $12 million, respectively, in the first quarter of 2000. The Corporation expects pricing for its consumer products segment to decline slightly throughout 2001 ending at levels below year-end 2000. OTHER The operating lc = s. in the "Other" nonreportable segment, which includes some miscellanec s businesses, unallocated corporate operating expenses and the elimination of profit on intersegment sales, increased by $37 million to a loss of $83 million in 2001 from a loss of $56 millior. in the 2000 first quarter. This increase was primarily a result of higher legal and environmental expenses, higher expenses associated with the lore-oration's captive insurance program and higher corporate marketing expenses. Filing Dale: 05/02/0! 36 LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES. The Corporation generated cash sis: cne three mentr 51, 2001 tee rat ions or Da red >/1 uTi $2f Disclosure Page 46 (.EORGIA PACIFIC CORP - 10-Q million a year ago. The decrease in cash provided by operating activities is primarily due to lower operating results for the quarter. INVESTING ACTIVITIES. Capital expenditures for property, t `.ant and equipment for the three months ended March 31, 2001 were 1 111 million, v/hich included $25 mil lion in the ouilding products segrr.er. t, 311 million in the cor.tainerbcard ana packaging segment, 340 million ir. ; r.e cleached pulp and pacer segment, 3?? million in the consumer products se intent and Sll million in. the other nonreportable segment. The Corporaci; :. -x.pects to make capital expenditures for property, plant and equipment of approximately $300 million in 2001. Cash oaid moer and timberiands was $37 million months of 2001 compared with $59 million in 2000. rst three At the end cf November 2000, the Corporation completed a ten. ser orfer pursuant to which it purchased each outstanding share of ecu r.on stock of Fort James for $29.60 per share in cash and 0.2644 shares :f Georgia-Pacific Group common stock. The Corporation is pay;.-, ; cash and issuing Georgia-Pacific Gro-p shares as the untendered Pert 'arr.es shares are delivered to the Corporation's exchange agent for cancel .ation. Through March 31, 2001, the Corporation paid approximately $6,135 mi .lien in cash ($45 million of which was paid during the first quarter of 2 )0i) and issued approximately 33.9 miiiic . shares of Georgia-Pacific Group : mmcm. stock (0.2 million shares cf which were issued during the first qu; ,r:er of 2001) valued at $1,484 million for such shares. The fair value of he Georgia-Pacific Group common shares was determined based or. he average trading prices of Georgia-Pacific Group common stock for the two trading days before and after July 16, 2000 (the announcement of the Tort James acquisition). The Corporation expects to pay an additional $: 0 million in cash and issue approximately 91,000 shares valued at $3 mill: on for Fort James common stock that had not been tendered as of March 31, 2001. During the first quarter of 2001, the Corporation acquired rr.e remaining ownership of two chemical joint ventures for approximately 326 million. The results of operations of these chemical businesses were consolidated with those of the Corporation beginning in February 2001. The Corporation has accounted for these acquisitions using the purchase method to record a new cost basis for assets acquired and liabilities assumed. In connection with the acquisition of Fort James and pursuant to a consent decree with the U. 3. Department of Justice, the Corporation sold a portion of its away-from-home tissue manufacturing operations (formerly Georgia-Pacific Tissue) to Svenska Cellulosa Aktiebolaget 3CA for approximately $850 million. The sale was completed on March 2, 2001, with net proceeds of approximately $582 million used to repay debt. 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. 7reek stock for each share of The Timber Company stock. This transact:;:., which includes the assumption by Plum Creek of approximately 3621 million of debt allocated to The Timber Company, is valued at approximately 33.6 billion. Plum Creek will assume a 10-year weed supply agreement between Georgia-Pacific Group and The Timber Company. The transact:;: is subject to approval by the shareholders of both Plum Creek and The Timber Itmpany, 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 alst subject to the satisfaction of customary closing conditions. The Corporation will treat The Timber Company as a discontinued operation or.ee the significant contingencies the transaction resolve: Filing Date: 05/02/01 Disclosure Page 47 GEORGIA EACIHC CORP - 10-Q While discussions with the Service continue, it is uncertain whether the Service will issue the requested ruling. In the event that such a ruling is not issued, the Corporation will continue discussions with Plum Creek to determine it an acceptable alternate structure is feasible. Ir the event no such alternate structure is agreed upon, The Timber Company wall be spun off to its shareholders, which will result in it being an m.dependent, publicly-traded company. Filing Dale: 05/02/01 During the first quarter of 2000, the Corporation sold certain containerboard and packaging assets resulting in a pre-tax cam of S24.4 million fS15.3 million after tax, or $0.09 diluted earnings per Georgia-Pacific Group share). FINANCING ACTIVITIES. The Corporation's debt was $15.41 r tillon, $14.78 billion of which was allocated to the Georgia-Pacific 1iraup and $621 million of which was allocated to The Timber Company. The dmet of each of the groups bears interest at a rate equal to the weighted aestage interest rate of the Corporation's total debt, calculated on a quart erly basis. At March 31, 2001, the weighted averae interest rate on me 1: rporatic-n ' s total debt, excluding senior deferrable notes, was . m. including outstanding interest rate exchange agreements. Each group's deot increases or decreases by the amount of any cash provided by or used fc r that group's operating activities, investing activities, dividend pa yments, share repurchases or issuances and other non-debt-related financing activities. During the first quarter of 2001, the Corporation extended its $800 million accounts receivable secured borrowing program through October 2001. Additionally, the Corporation retained former Unisource agreements to sell up to $150 million of certain qualifying U.S. accounts receivable and up to CN$95 million, of certain eligible Canadian accounts receivable. The U.S. agreement expires in October 2001 and the Canadian agreement expires in May 2004. At March 31, 2001, approximately $860 million was outstanding under the Corporation's accounts receivable secured borrowing programs in the aggregate. The receivables outstanding under these programs ar.d the corresponding debt are included as both "Receivables" and "Commercial paper and other short-term notes", respectively, on the accompanying balance sheets. All programs are accounted for as secured borrowings. As collections reduce previously pledged interests, new receivables may be pledged. _ The Ccrpor ation's international operations create exposure to foreign currency e xchar.ge rate risks. To manage these risks, the Corporation utilizes fo reign exchange contracts. As of March 31, 2C01, the Corporation had outsta naing foreign exchange contracts with notional amounts of $14 million to hedge firm and anticipated purchase commitments end firm sales commitments denominated in foreign currencies. At Marsh hi, 2001, the Corporation had outstanding approximately $228 million met s: discount) of Euro-dencmi sated bonds which were designated as a hedge against its net investment ir, Europe. The use of these derivative fir.ar.tial instruments allows the Corporation to reduce its overall exposure r: exenange rate movements, since the gains and losses on these contracts substantially offset loss es and gains on the assets, liabilities and transactions being hedged. A 10% change from the prevailing market rates of these foreign currencies would not have a material effect on the results af operations. On March 15, 2001, the its unsecured revolving amendments included ir.c indebtedness, excluding orperatior. amended the restrictive credit facility )the "credit facil eas 070v 0 tes, o venants under " ; . These Disclosure Page 48 GEORGIA PACIFIC CORF - 10-Q interest, taxes, depreciation and amortization ("EBITDA")) to 4.50 to 1.00 on March 31, 2001; 4.75 to 1.00 on June 30, 2001; 4.50 to 1.00 on September 25, 2001 and December 25, 2001; 4.25 to 1.00 cn March 30, 2001; 4.00 to 1.00 on June 25, 2002 and thereafter. The restrictive covenant.? also require a minimum net worth that will change on a anarterlv casts. The Corporation was in compliance with its debt covenants as ;f harm 31, 2001. As of March 31, 2051, the temporary credit facility cotaleo 0), ) 3 million with terms ranging from to 15 months and the permanent credit facility totaled 33,75 0 million with a term of 5 years. As e: March ; 1, _ i 11, 31,404 million of committed credit was available in excess of all ,c: rrswings outstanding under or supported by these credit facilities. On March 15, 2001, the Corporation also redeemed $300 miilt : f its 6.234 % Senior Notes Due March 15, 2011. The Corporation recorded at. a iter-tax extraordinary loss of approximately 312 million related to ? ? redemption during the 2001 first quarter, which was allocated to Gecrgi Group. In addition, the Corporation had $300 million of swat s terminate on March 15, 2001 and $55 million of its 5.25: Senior Notes Cue . 15, 2001 mature. In January 2001, the Corporation entered into several interest tare exchange agreements that effectively converted $1,500 iruilirn if floating rate obligations into fixed rate obligations. At both January ;1 and March 31, 2001, the weighted average interest rates were 5.6? f:r -r.e fixed rate obligations with an average effective interest rate of approximately 5.9%. These agreements have a weighted-average maturity of approximately 1.2 years as of March 31, 2001. Filing Dale. 05.02.01 38 The table below presents principal (or notional) amounts and weighted average interest rates by year of expected maturity Corporation's debt obligations as of March 31, 2001. For obli variable interest rates, the table sets forth payout amounts current rates and does not attempt to project future interest elated :r the ations with ased on rates. Disclosure Page 49 GEORGIA PACIFIC CORE - 10-Q Filing Date: 05/02/01 !I.n millions. Debt Commercial pater ar.d other ` - .....................' --' Average interest races 'ZtczCL'~ faci_;-:es Average ir.ceresc rare Motes and debentures Average interest rates Euro-denominated tends Average interest rates Revenue ccncis Average interest rates Capital leases . A.verage interest rates European debt Average interest rates Other loans Average interest rates Senior deferrable notes Average interest rates Notional amount of interest rate exchange agreements (variable to fixed) Average interest rate paid (fixed) Average interest rate received (variable) Notional amount of interest rate exchange agreements, (rate collar) Average interest rate cap Average interest rate floor $ $ $ S $ $ 2002 '* C 2004 _ 7 50S 6.2* 138S 3.41 7$ 3.81 1$ 9.54 15$ 7.4% 4 8.5% -3 - -$ - - - _ - -6.5% 4 59 5 8.5% ' `-i ~ 3.8;f 41 5.6 s l7 S 7 . 2% I 10.5% 363 7.2s 1,657 5.9% 5.5% 3 - _ 581$ 6.7% ~ 1$ 4 . 6% 4$ 5.5 s 22$ 7.2% - 300 5.9% 5.2% - -r. 162 4.3' j. _ - 4. 9 A_ 7.1% - - - - - 39 Disclosure Paso 50 GEORGIA PACIFIC CORF - 10-Q Filing Date: 05,0- 01 - r- r c , 2005 fs v- f-1 -- -- f-'. v Deb'; shcrc-cern-! r.ctes Average interest rates Credit facilities Average interest rates Notes and debentures Average interest rates Euro-denominated bends Average interest rates Revenue bonds Average 'nrcrst rates Capital leases Average interest rates European debt Average interest rates Other loans Average interest rates Senior deferrable notes Average interest rates Notional amount of interest rate exchange agreements (variable to fixed) Average interest rate paid (fixed) Average interest rate received (variable) Notional amount of interest rate exchange agreements (rate collar) Average interest rate cap Average interest rate floor $ $ $ $ $ $ C 2,704 6.41 -$ 63 $ 7.1% 63 10.C\ 10 S 6.3% 6 8.0% - - 47 7.5% 5.5% i J2 ~ 5.31 -$ 5,3061 9.3 * -3 656 $ 5.6% 1153 10.3% 33 S 5.8% -$ -3 -5 -3 ~' Mp 'T' r, ' --- 1,152 5.35 ", 4 54 6.5 3 32i v.13 263 `1.3; 932 5.45 12 5 10.2! 122 6.3% 11 3.4% 363 ' . <L S 5 s 3 $ $ 3 $ $ 3 _, _m 5.3: ~, 4:4 5.5- 4, ? : 3." 4 ". _ :_ 3. : 10 7.4 11 T._ ' ~:5 6.: . 1,557 $ 5. 9% 5. 5% 47 $ 7.5% 5.5% 52. 5.3- 1 ' . ~ ' The Corporation iias the intent and ability to refinance corraner cial paper and other short-term notes as they mature. Therefore, maturi t. i 0 s of these obligations are reflected as cash flows expected to be mace a fter 2005. The Corporation's senior management establishes the param rs of the Corporation's financial risk, which have been approved by me Board of Directors. Hedging interest race exposure through the use f swaps and options and hedging foreign exchang e exposure through the ; ?e sf for vva rd contracts are specifically c ontempiated to manage risk in 4e epina with management polity. Derivative instruments, suer, as swaps, trrwsrts, options or futures, which are based directly or indirectly upon interest rates, currencies, equities and commodities, may be used by the Dorporation 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 aect 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. Disclosure Page 51 GEORGIA PACIFIC CORP - 10-0 In November of 2000, the Corporation acquired Fort James (see Note 6) . Through March 31, 2001, the Corporation has issued 21.5 million shares of Georgia-Pacific Group treasury stock and 32.4 million newly issued shares of Geo. r g ia - Pa c i f io Group stock ir. exchange for outstanding ::r:t;n stock of Fort lames. The Corporation does not hold arty Geo r g i a-Pa o o : i Group stock ir. Treasury as of March 31, 2001. Effective with tne agreemer.t to dispose of The Timber Ctrocar.y (see Note 5 , the Corporation is pre_- from Filing Dale: OxAC 01 During the first quarter of 2000, Georgia-Pacific Group pur :r.i- 'to or. the open market approximately 1,414,100 shares of Gecrgia-Pacif- : - r:up common stock at an aggregate price of approximately $50 million 111.4- average oer share. , ail of which were held as treasury stock at At r:. _ 1, ill;0. During the first quarter of 2000, The Timber Company purer, a s a:: :r. the open market approximately 1,07 5,000 shares of The Timber Compart.- - mm or. stock at an aggregate price of approximately $25 million ($22.77 aver" e per share). Of these repurchased shares, approximately 355,000 shares of me Timber Company common stock were held as treasury stock and approxio rely 176,000 snares were purchased during the first quarter of _1C0 and a- o led after Acril I, 2000. During the first quarter of 2001, the Corporation paid dividends totaling $28 million and $20 million, for Georgia-Pacific Group and The Timber Company, respectively. During the first quarter of 2000, the G;operation paid dividends totaling $21 million for both Georgia-Pacific Group and The Timber Company. In 2001, the Corporation expects its cash flow from operate:r.s, together with proceeds from any asset sales and available financing mures, to be sufficient to. fund planned capital investments, pay dividends and make scheduled debt payments. OTHER. The Corporation employs approximately 85,000 people, approximately 33,000 of whom are members of unions. The Corporation considers its relationship with its employees to be good. Sixty-five union rrr.tracts are subject to negotiation and renewal in 2001, including ten at major facilities. Five of these contracts were renewed during the first quarter of 2001. On April 30, the Corporation announced that it had signed a 1 -tier of intent to sell a portion of the Corporation's pulp and paper manufacturing assets to Domtar Inc. The assets involved m this sale are me Corporation's stand-alone uncoated free sheet paper mills am .Ashdown, Arkansas, Woodland, Maine, and Nekoosa and Port Edwards, Wiscmcin, as well as the associated pulp facilities ac Ashdown and Woodland. Tne sale, which is contingent upon the completion of due diligence, execute:r. :f a definitive asset ourchase agreement and receipt of necessary regulatory approvals, is expected to be completed in tne second quarter :i Z'.-'-l. The Corporation intends to use the net proceeds of a sale of th:se facilities to repay debt. On January 1, 1595, eleven of the fifteen members cf the European Union (the "Participating Countries") established fixed conversion rates between their exisTir.c severeier currencies 'The "Lececy Currencies" hue s sincie new currency fthe "Euro"). For a three-year transition peritd, transactions can be conducted in both the Euro and the Legacy Currencies cut all coroorate transactions and records must legally be maintained in Euros cf financial systems and business applications. The Corporation has Disclosure Page 52 GEORGIA PACIFIC CORP - 10-Q 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 March 21, 2001, the Corporation's financial information technology systems were capable of processing Ert: - renominated transactions but the Euro is not yet the reporting or functunil currency for any part of cur business. The Corporation believes it will re able to modify the remaining financial systems and business activities so complete the process of conversion and transition to the Euro as our fmotional business currency prior to year-end 2001 for the countries concerned. The Corporation is unable to determine the financial effect of one conversion on its operations, if any, since such effect depends on the r: repetitive conditions wr.ich exist in the various regional markets in wr.i the Corporation operates and potential actions which may or may r. _t be taken by the Corporation's competitors, customers and suppliers. Filing Dale: 05/02/01 &i CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1595. 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 1955) based on current expectations. The accuracy of such statements is subject to a number of risks, uncertainties and assumptions. Ir. addition to the risks, uncertainties and assumptions discussed elsewhere r.erein, factors that could cause or contribute to actual results differing materially from such forward-looking statements include the fallowing: 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 he '.sing starts or lessened home remodeling in the U 3.; fluctuation in interest rates and currency exchange rates; oe effect of general global economic conditions on the demand for timber; the effect of any material changes in the available supply and cost of tin.; er and wood fiber, including the levels of harvests from public lands, a: o the effect of government, legislative and environmental restrictions on t.-.e harvesting of private timberlands; the ability of the Corporation to successfully integrate its newly acquired consumer product businesses anc to complete scheduled asset divestitures; the ability to complete the merger of The Timbez ;h Plum Creek; and other risks, assumptions discussed in the Corporation's period! Securities and Exchange Commission. For a discussion of commitments and contingencies Notes to Consolidated Financial Statements. or tne Disclosure Page 53 GEORGIA PACIFIC CORF - 10-Q 42 PART :i - OTHER IN'FORMAT ION March 3 CRPOEATION 2001 Item ,egal Proceedings reference Filing Dale: 05/02/01 Exhibits Disclosure Page 54 GEORGIA PACIFIC CORE - 10-Q Filing Date: 05/02/01 Item 1. Legal Proceedings The information contained in Not 11 "Commitment of the Notes to Consolidated Financial Statemer this Quarterly Report on Form 10-Q is ins: and Contingencies" filed as part of traced herein by Disclosurc Parc 55 GEORGIA PACIFIC CORP - 10-Q Item 1. Item 6. Legal Proceedings reference. Exhibits and Reports on Form 8-E p . S X f; i C i. ^ S Filing Date: 05/02/01 Disclosure Page 56 GEORGIA PACIFIC CORP - 10-Q Filing Date: 05/02/01 Item 1. Legal (b) Proceedings reference. Exhibit 3.2 - Bylaws, as amended to date. Reports on Form 8-K During the first quarter cf 2001, the report or. Form 3-K or. January 26, 2001. :em wther Events - on Georgia-Pacific Corpcr; issued a press release c results of the Georgia- fourth quarter and ful Exhibits :rcoration filed 26, 2001, the the "Company"; rr.g the financial ; Group for the : 2000 results. On January 26, 2001, the Company also issued a press release announcing the financial results of The Timber Company for the fourth quarter and full year 2000 results. Item 7. Financial Statements and Exr.icits. Item 5. Regulation FD Disclosure, Also during the first quarter of 2001, Itrooration filed a report on Form 3-K on March 2, 2001. Item 5. Other Events - On Marts 1, 20: the Company issued a press release regarding the completion of the sale to Svenska Ceiluiosa Aktiebolaget SCA (publ) of the Company's commercial tissue manuf ;cturing operations that were part of a joint venture with Chesapeate Corp. known as Georgia-Pacific Tissue EEC. Item 7 . Financial Statements, Pro Forma Financial Information and Exhibits, Also during the first quarter of 2001, the Corporation filed a report on Form 8-K on March 15, 2001. I tern 5. Other Events - The Company's revolving credit facilities, described in Note 5 to its Notes to Consolidated Financial Statements as set forth in its Annual Report on Form 10-K, contain certain restrictive covenants, including a maximum leverage ratio. The Company's maximum leverage ratio (Funded Indebtedness to EBITDA, as defined in its credit facilities) is 4.5 to 1.0 through March 31, 2001 and was 4.0 to 1.0 thereafter Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. Disclosure Page 57 GEORGIA PACIFIC CORF - 10-Q Filing Date: 05/02/01 43 Disclosure Paue 58 GEORGIA PACIFIC CORP - tO-Q Filing Date: 05/02/01 EiGNATU? undersigned thereunto duly authorized e e s CJ 0 4, the oy tr.e Care: 2001 May 02 GEORGIA-pAC*rGOP.rC?A7 I .H ; Reg ist rang by /s/Danny W. Huff Danny W. Huff, Executive Vice President - Finance and. Chief Financial Officer by /s/James E. Terrell ^ James E. Terrell, Vice President and Controller (Chief Accounting Officer) Disclosure Page 59