<PAGE>
Filed by Georgia-Pacific Corporation
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: Fort James Corp.
Commission File No. 1-7911
Contact Name: Richard A. Good
<PAGE>
--------------------------------------------------------------------------------
Certain statements contained in this filing, including, without limitation,
the existence and achievement of synergies of the combined businesses of Georgia
-Pacific and Fort James, plans for future transformation and divestitures,
increases in earnings predictability and future financial performance 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
including, but not limited to, the effect of general global and domestic
economic conditions on the demand for tissue products; realization of cost
savings and synergies in integrating the two businesses; the existence of
financially capable buyers for businesses to be divested, changes in the
production of and demand for tissue and other products manufactured by Georgia
-Pacific, and other factors listed in Securities and Exchange Commission ("SEC")
filings of Georgia-Pacific, including Georgia-Pacific's Annual Report on Form
10-K for the year ended January 1, 2000, Georgia-Pacific's Quarterly Report on
Form 10-Q for the quarter ended April 1, 2000, Georgia-Pacific's Form 8-K dated
July 18, 2000, and Georgia-Pacific's five Forms 425 dated July 19, 2000, and
July 21, 2000, and other factors listed in SEC filings of Fort James.
--------------------------------------------------------------------------------
GA PACIFIC
July 17, 2000
10:00 a.m. CDT
Coordinator I would now like to introduce Mr. Richard Good, Director of
Investor Relations. Sir, you may begin.
R. Good Good morning. I'd like to mention at the outset that there is
more graphic information on this transaction available on our Web
site, at www.gp.com. You may be able to bring it up actually as
you participate in the call. I am joined today by our Chairman
and Chief Executive Officer, Pete Correll, who will lead the
call, and he is joined by Danny Huff, Executive Vice President
Finance and Chief Financial Officer, and Lee Thomas, Executive
Vice President Paper and Chemicals. Pete?
P. Correll Thank you, Rich. This is a big day for Georgia Pacific. As you
know, this morning we announced a major step in the ongoing
transformation of this company, from a resourced base commodity
producer to a company that's
<PAGE>
closer to the consumer market and the customer market of higher
value products.
We've recognized for quite some time that what was wrong with
this industry was vertical integration. So beginning in 1997
with the separation of our timber assets, followed by the
acquisitions of Unisource, Wisconsin Tissue, and most recently,
the Xerox brand, we've worked to shift our asset portfolio
towards the higher value added segments of the this industry.
Keeping with those earlier steps, today's $11 billion cash flow
accretive EVA positive acquisition of James River, is a
significant step in that direction.
Our portfolio transformation has two distinct dimensions:
acquiring the great brand names and the customer oriented
businesses of Fort James, and just as importantly, divesting some
commodity and non-strategic assets of Georgia Pacific. This
transformation will achieve several important goals. It will grow
our cash flow, improve our risk portfolio, our risk profile,
strengthen our market position in our core businesses for the
future, and improve the returns for our shareholders in very
meaningful and measurable ways.
<PAGE>
This strategic realignment in no way changes our core belief that
capital must leave the commodity segments of this industry.
We're not offering our long-standing financial strategy of cash
pay out when investment returns are not available. It is our
business strategy that is changing, not our financial strategy.
We've led this industry and shareholder returns since creating
The Timber Company, but those returns have been inadequate. We've
got to accelerate our pace of change in the direction of
improving returns. We've got to focus on fewer businesses, where
we can add value to the customer and where we have the
competencies and the industries have better fundamentals.
We've provided a lot of information on this transaction and our
second quarter results via e-mail, as Rich said, on our Web site
and by fax. Given the many bases we have to cover today, I'll
limit my remarks to the strategic highlights and then open to
your questions. Since our second quarter results were a little
above expectations and there are no major issues in them, I'd ask
that you direct your earnings question to our Investor Relation's
Department.
<PAGE>
Given the magnitude of today's announcement, we realize this call
is not adequate to deal with your questions, so we've scheduled a
5:00 p.m. meeting in New York tomorrow afternoon, Tuesday
afternoon, five o'clock, at the Four Seasons Hotel. We can go
through a more detailed, graphic presentation then, and then
answer any questions you've got.
Let me just deal with a couple of highlights of the deal. First
of all, the timing, clearly this is a good time in the tissue
cycle to buy assets. The momentum is up. Tissue prices are
rising. So we believe that the future cash flows of the Fort
James assets are very predictable. Secondly, we've agreed, as you
know in the press release, to divest 250,000 tons of commercial
tissues assets.
We'll be telling you which assets those are in a week or so. We
need to talk to our employees and get our internal shipping order
to make that announcement. But the facilities are identified, and
we'll make that public very shortly. We've also said we need to
divest some other of our commodity and non-strategic assets. That
is well underway. We've retained bankers. The work has been done,
and we're starting that process. So you'll see things happen
there very quickly.
<PAGE>
As I said, in 1997 we began a move to move this company. The
first step, of course, was The Timber Company transaction. We
view that as a big success. We have proven to ourselves that we
do not need to own timberlands to be a major manufacturer of pulp
and paper and building products. It was an expensive hedge, and
since the separation, we've achieved lower wood cost for Georgia
Pacific and higher selling prices for Timber Company sales. We've
unlocked a lot of value already. That's a story in progress, a
lot still to come, but we've returned $0.43 of every sales dollar
to our shareholders in that business since the separation.
In terms of this strategy, our moves, as I said, are based on
four basic premises: higher value end of the supply chain,
increased cash flows, lower risk cash flows, and improved
earnings predictability. We believe all that will lead to a
higher PE of a greater value for our shareholders.
When we looked at Fort James, we clearly saw the world's largest
tissue manufacturer, a leading producer in both North America and
Europe, and one that we saw a lot of opportunities. As for those
of you who have the financial, the slides, you will see that we
do a little more for you in outlining our tissue performance.
We've earned 16% compound return on capital and pulp ...over the
last eight years. We've grown the business
<PAGE>
significantly above the market. We've grown the EBIT DA at a
15.3% seven year compound growth rate. It's a business we're good
at. We know how to execute.
When you look at what we did with the Wisconsin Tissue
acquisition, how rapidly we have integrated that product line,
the fact that we have an SAP order system up on both sides of our
business, up and functioning, the fact that we've significantly
reduced the SKUs. Then we saw that Fort James had not done any
of that in their commercial business. We saw great opportunity.
We also saw that Fort James was having some manufacturing
problems, primarily due to Fort Howard people leaving the
company. One thing we know is we know we know how to run paper
mills and we know how to run tissue machines. So we're excited
about the opportunity there. We believe that Fort James brings
to Georgia Pacific significant marketing expertise, significant
technical expertise, and an R&D capability to support that up
that we believe will add value.
As I said, we've done a number of acquisitions successfully now,
Domitar, Unisource and Wisconsin Tissue. So we enter this very
optimistic that we
<PAGE>
can deliver at least the synergies we've talked about. We believe
there are at least $500 million of synergies in this acquisition.
The graphic material specifies those. We can talk more about them
later on one or one or in New York, but clearly, there's a lot of
value putting these two operations together. With those synergies
and this price, this is a positive EVA transaction for the
Georgia Pacific shareholder, without depending on the PE jump or
anything like that.
It also adds premium towel and tissue to our mix. Northern and
Brawny are well know products that sell for higher values.
As we said, our financial strategy remains the same. Pay out
excess cash if we can't find the opportunities to divest. Build
a capital structure based on a bedrock cash flow case. We've set
a new debt target at $9.5 billion, and we believe that we will
reach that target in early 2003.
So in summary, we believe this is a major step forward for
Georgia Pacific to a less cyclical, higher value added business.
We believe that when combined with the other divestitures, this
moves our whole portfolio dramatically closer to the customer.
We believe we did this deal at the right time at the right price.
It will improve the predictability of our
<PAGE>
earnings and cash flow. It's accretive across the whole cycle
where it will be cash flow accretive immediately. It will be
earnings accretive in the second year, and of course, that's
because the commodity side of the businesses are so strong right
now.
We believe with this financial discipline we'll maintain our
investment grade, and keep this company positioned to deliver on
the commitments that we made to all our shareholders.
I hope this has given you some sort of a feeling of the strategic
context under which we've been operating. I suspect that most of
your questions will generate around the logic and the background
of this, and I've got Danny and Lee here to help me. So we'll
just take your questions now.
Coordinator Our first question comes from Chip Dillon from Salomon Smith
Barney.
C. Dillon Yes, good morning. I had a couple of housekeeping type
questions. First of all, is there a breakup fee? The second
question was, on the new debt target, is that for the corporation
or just for the group? Does this mean you would not be buying
back stock until you get down to this $9.5 billion
<PAGE>
level? Then the third question is if you could just give us a
little bit more detail of what you plan to divest, outside of the
250,000 tons of tissue.
P. Correll There is a breakup fee of $125 million. There is also a reverse
breakup fee of $125 million. The $9.5 billion debt target is for
the group, and yes, we won't be buying back shares until we get
to it. I think all we ought to say about the divestitures, Chip,
is that we're moving to divest commodity based businesses and
non-strategic business, and things are underway to get that done
and deliver on it. I don't think it's productive for us to say
anymore right at this minute.
C. Dillon Of course, without being specific, can you give us a magnitude of
kind of range, if you feel you can, of how much in proceeds we're
talking about, and could that impact when you get to this $9.5
billion level? In other words, can you get there sooner, or do
you have a number in mind that you need to hit in order to get to
this $9.5 billion level by early '03.
P. Correll We think we've been conservative in that estimate of getting to
that target by 2003, but we're not comfortable with giving a
range of what we're estimating on these assets sales at this
point. We've tried to be conservative on it.
<PAGE>
C. Dillon Okay, thanks.
Coordinator The next question comes from Francis Lu from UBS Warberg.
F. Lu Hello, a couple of questions. The first is, can you address the
anti-trust sort of issues, and specifically perhaps if you could
provide some color on your key market shares. It looks like you
have a very strong position in the away from home market; it
looks like maybe 55/60%. So if you could perhaps talk about your
position there, as well as in the consumer segment, and sort of
address, I think your comfort level with the anti-trust
procedure.
P. Correll I think the best way to address it, Francis, is to tell you that
we've retained the best anti-trust council in this country.
Names you would recognize if I told you, represented by more than
one firm, and we're absolutely assured that we can consummate
this transaction in a way that is accretive to our shareholders
and is value added. So we believe we will complete the
transaction in a way that is pleasing to everybody.
<PAGE>
F. Lu Okay, and then the other question I had was in terms of whether
you've identified if there's any potential for rationalization of
any of the tissue capacity, in terms of the combined basis?
P. Correll Have we identified a buyer?
F. Lu No, sorry, whether there is any room for capacity
rationalization.
P. Correll Yes, sure, they have 40 some tissue machines, and we've got 20.
So there's a lot of opportunities there, Francis. We just need
to get into each mill and be sure we know what we're doing.
There are going to be some opportunities.
F. Lu Okay, and do you think that any rationalize processes would still
end up with similar volume to what you have at this point in
time, or could there actually be some down sizing of volume,
resulting in a more efficient production base overall?
P. Correll Well, I think what's going to happen is when we bring Georgia
Pacific's manufacturing skills to these assets, we're actually
going to see production start to grow, which is going to put more
pressure on us to shut down
<PAGE>
some more little capacity. Plus, with this kind of market
position and the reaction we're already getting from our big
customers, who are saying, "Great, we want to grow with you," I
think it's just too early to predict. One thing I know is we'll
make more every hour on every machine, and we'll probably end up
running these machines less hours.
F. Lu Okay, thanks very much.
Coordinator The next question comes from Rich Snyder from Paine Weber.
R. Snyder I was wondering if you could talk about the sale of assets, and
whether, especially in this rising commodity area, that these
sales will probably be dilutive?
P. Correll Will it be dilutive? Yes, absolutely. I mean, if you ever sell a
pulp business when pulp is $800 a ton, by definition it's
dilutive.
R. Snyder Okay, so then the dilution that we're looking at in the first
year could be even great because of the sale of assets.
<PAGE>
P. Correll I think that's entirely conceivable. I mean, good golly, in a
business like pulp, you've got to look at whether it's accretive
or dilutive over the long-term. When you only make money one
year out of seven, Owen Cheatem used to say, "You have to shoot
the duck when it flies by."
M Let me just add to that. A lot of what we're talking about here
in this transformation has to do with timing. As you know,
anybody who has made money in this industry has done it by buying
at the right time and selling at the right time. The major
producers haven't done a very good job of doing that. That's kind
of what our approach is going to be going forward.
R. Snyder Okay, as you would look at it, do you see a fair amount of
dilution with the sales of these assets? Can you replace some of
this with some of the cost cutting and the synergies that you...?
P. Correll The synergies should far outweigh any dilution from assets sales,
let's put it that way.
<PAGE>
R. Snyder Okay, and could you talk about cap spending plans for the
combined entity? Fort James has kept their cap spending at
fairly high levels, around $550 million.
P. Correll Their view to us, and of course, we haven't been through each
mill to know what it is, but their view is that their spending
could and will trend down, and that they will come down to a
level about $100 million below that. Clearly, we're committed to
hold our capital spending to below depreciation, and I'm not
knowledgeable enough yet about their facilities to comment on
that.
R. Snyder Okay, and then they've made a lot of indications that they may go
along with a new machine on the West Coast. What is your views
on that? Would you subscribe to that?
P. Correll Well, we need to understand it and evaluate it and weigh the need
for it or the logic behind it, compared to the capacity increases
we know we're going to get in their other facilities and our
facilities as a result of this merger.
<PAGE>
R. Snyder Okay, and just how are you planning to position brands? I mean
like Angel Soft versus Northern Tissue, and some of the different
situations in the away from home area? Is there going to be some
repositioning of brands and what target markets you're looking
at?
L. Thomas Rich, we think there's a real opportunity for repositioning
brands. We think a good, better, best strategy is going to work
well, both in tissue as well as towels. We've looked at their
Quilted Northern as a good premium product. Our Angel Soft as a
good mid-tier product, and then a good value product where we'd
probably going to take their Soft N' Gentle and rationalize with
our Coronet.
We think over on the towel side, we'll have a good combination
with their Brawny, our Sparkle and their Mardi Gras. We think it
will actually end up with quite a bit of additional margin for us
in terms of some of those products on our southern machines. We
also think that this is going to give us a real opportunity for
optimization on grade loading across our machines.
The same is true when you look at away from home. They had not
made the progress on away from home in terms of base sheet
rationalization that
<PAGE>
they felt was possible. We certainly agree with that. When we
look at that across our machines we think there is real
opportunity there for us. So we see good product synergies in
terms of how we'll position the brands both in retail and then
away from home.
The other thing that is very good is that they are very strong in
private label and we're not. We've really not in the private
label business. We think there's a real opportunity for growing
private label with this combined capacity. The other thing is,
they've been very strong in the club channel, as a matter of
fact, about 25% of their retail business, and we've not been in
that channel at all. So we think there's a real opportunity there
for our retail brands in the club channel. So it looks to us like
it's going to be a very good fit and give us good synergies on
the brand side.
R. Snyder Just following up, last question, Lee, could you breakout the
$500 million in synergies?
L. Thomas I'd tell you could look at it in kind of three big categories.
We've got what I would call overhead or SG&A kind of category,
and that's about $150 million. Then in what I'd call
manufacturing and logistics, that gets
<PAGE>
everything from increased yield and throughput all the way down
through purchasing and how we're going to deal with raw materials
and shipping and some of the freight optimization. That's about
$175 million. The product category I was just talking about,
probably another $175 million. We're looking at that as synergies
that would be fully developed over a three year period of time.
R. Snyder What is the timing then? Do you get half of this in the first
year?
L. Thomas Actually, I think we're going to get half of it by the end of the
second year. So that's about a year and a half.
R. Snyder Okay, thanks a lot.
Coordinator The next question comes from Matt Burler from Morgan Stanley Dean
Witter.
M. Burler Good morning and a couple of quick questions here. Can you
discuss the complexity issues, and I guess what you've learned in
your due diligence process that gives you comfort that you can
take on the merger of your tissue business with theirs? I think
it's pretty well known that Fort James
<PAGE>
had a little bit of difficulty accomplishing the merger of Fort
Howard and James River. I know some of the Fort Howard people
left, but maybe you can just share with us some of your due
diligence findings that give you comfort.
Then secondly, on Unisource, I take it that there is some
distribution synergies between Unisource and Fort James, and
maybe you could discuss that with us, please.
P. Correll Well, Matt, what we found in due diligence was three things.
Number one, that they had not done the product rationalization on
the commercial side. We have just been through that with
Wisconsin Tissue, and as you know, we did it in six months. It's
done. 25% of the SKUs are gone, a lot of synergies. They'd say
it's a centralized order system. It's over. So the fact that
they had not what we had already done raised our confidence
level, because obviously we knew we could do it because we had
just done it.
Secondly, their order entry system is an older system with a lot
of opportunities. As you know, we're up live on SAP on both
consumer and
<PAGE>
commercial. They work, and we're taking orders and shipping
stuff. The benefits are there. So that left us with a lot of
encouragement.
Thirdly, as I said, the productivity in the Fort Howard
facilities have fallen off. We were aware of the executives that
moved, but until you get down at the mill level, you're not aware
of how many superintendents and people like that have left. We
know a lot of them have left because we hired them to start up
the Fort Hudson operation. We're absolutely convinced that we
can go in there and fix that. We know how to do that. We do
that for a living. I think we're recognized as one of the best
mill operators in this industry. So those three things really
gave us confidence that we can drive these synergies quickly.
Then as you said, Unisource, of course, I think they are Fort
James' biggest customer, or one of them. They are a lot of
synergies there, a lot of opportunities, and we're very
encouraged about that. That's going to be a big asset to us as.
The other big asset is we know what their market position is. We
don't need to speculate because we're selling it.
M. Burler Pete, just following up on due diligence, last year, Fort James
talked about a $50 million hiccup related to their warehousing
and distribution
<PAGE>
problems. Did you get comfort, I guess you did, that those
problems were behind them and that that's going to swing around?
P. Correll Well, luckily they are not behind them but they are well underway
to being behind them. The solution is right, and they are going
to get it. So we're very comfortable that it's going to be
fixed, but it's not fixed as of this minute.
L. Thomas Matt, this is Lee Thomas. There were two big components to it
that are actually coming online. They are putting a big new
distribution center down out of Savannah and they are doing
another one over in Alabama, that are basically coming online
now. That is a big part of the solution there. We also took a
close look at the progress they had made over the course of this
year versus last year, and actually working through the out of
pattern shipment issues they had and their excess warehousing and
freight cost. They've made pretty good progress.
As Pete said, they still have a ways to go. We've spent a lot of
time on that in our own operation and have a good feel for how to
deal with it. We feel good about, one, the direction they've
started, some of the new assets
<PAGE>
they are bringing on, and also our ability to get the full
realization of those benefits.
M. Burler Then lastly, Pete, Fort James obviously has a very big European
business. Can you share with us your thoughts about how that
fits into your longer-term strategy? Do you want to hold onto
that business, or is that potentially a better fit with another
existing European tissue company?
P. Correll Well, what we want to do, Matt, is understand that, get in there.
Clearly, its returns have not been adequate. Their market
position in some countries is really powerful. I mean, they have
the number one brand and franchise in France, for example. They
are big in the UK, the number one or two producer. We need to
understand that. We are getting from our own customers,
especially people like Wal-Mart who are saying, "Go international
with us."
We've always said we didn't want to be in international markets
unless our customers took us there or we had a franchise that
took us there. This one has one going there. Now we have to
understand, can we generate an adequate return, or is it worth
more to somebody else? We're going to be on that with both feet.
<PAGE>
I would not look for a short-term decision. We need to
understand it, which we don't. We have not been to those
facilities. We have just looked at the financial data and talked
to their people, who appear to be very competent, upbeat people,
but the results are there.
M We've acquired an option there. We have to figure out how to
maximize the value of.
P. Correll Right, that's well said.
M. Burler Okay, thanks, guys.
Coordinator The next question comes from Amy Chasen from Goldman Sachs.
A. Chasen I just wanted to know what if you could tell us how you see the
landscape shaping out once you do all of the potential
divestitures in terms of market share in the US, both in the away
from home and the retail business?
P. Correll I look for us to be the biggest tissue producer in the away from
home and the consumer segment.
<PAGE>
A. Chasen I think your away from home market share in the US of the
combined companies is close to 50%. I just wanted to know where
you see that ultimately shaping out.
P. Correll Well, we're not sure, in fact, we are sure that the US is not a
market. That North America is the market, because tissue rolls
move aggressively across both borders. So the market is
certainly not United States, it is North America. Our shares are
not that big in all of North America. We believe that when we
finish negotiations with the Justice Department, we'll be the
largest tissue producer in North America.
A. Chasen Can you tell me what that market share is right now?
P. Correll No, but the Justice Department might do it.
A. Chasen All right, thank you.
Coordinator The next question comes from Linda Leberman from Bear Sterns.
L. Leberman You talk about reduce the cyclicality and get out of the more
cyclical businesses. Could you just comment on where the
uncoated free sheet
<PAGE>
business is in your mind? Does that fall into the category as one
of the more cyclical business that might be considered for
divestiture at some point?
P. Correll Well, sure, it might be considered if we're wrong, but right now
it fits in the category of with the Xerox deal and with the
Unisource deal and with our investment strategy of spending
significantly less in depreciation, that we can convert that into
a much, much better business in the future. If we're wrong, then
you're right. History says it belongs to the other category, but
we're committed to making the future not like the history.
L. Leberman Okay, I guess as a follow on, I mean the brown side of the
business, does that come into the category?
P. Correll No, as you know, we have rapidly integrated that business.
That's one business we can measure our performance cleanly versus
others, because there are so many pure companies plus everybody's
segment reports. We know for sure that we're either number one
or number two in return on investment of that. We...on a
quarterly basis. I think that business is part of Georgia
Pacific's portfolio and ought to stay there. We ought to search
for opportunities to increase value there.
<PAGE>
L. Leberman So we really should be thinking pulp businesses, pulp mills in
terms of reducing cyclicality.
P. Correll Well, there are other products. We make other things that are
relatively cyclical on the other side of the business.
L. Leberman Anything specific?
P. Correll Like I've said, we've got things underway. We've got investment
bankers hired. We've got processes underway, and when we have
things to show you that we can stand up and say, "We did it,"
we'll show it to you.
L. Leberman Okay, and just lastly, I know the second quarter isn't the real
focus right now, but can you just address the working capital
issue that's been talked about in the second quarter? Kind of
where you are on it, how much of a handle you have on it, and how
much you think we can get it down going into the third quarter?
D. Huff Yes, the working capital is higher. You've seen it. Most of
that in this quarter has been uncoated free sheet at Unisource,
which is uncoated free sheet. We are addressing that now with
down time, but there is a broader
<PAGE>
issue there that has to do with the processes that go through the
company, that we have a major initiative going on now with an
outside outfit that we're working with. We have great hopes and
actually some commitments that we're going pull working capital
down pretty rapidly it the second half of the year. It has to do
with payables as well as the receivables in inventory.
L. Leberman Okay, but if you look at it, the bigger area of where it
ballooned up was Unisource side of it.
L. Thomas One thing that went on with Unisource is we took on several new
product categories at Unisource. We knew that as we went into
it. Particularly on the coated paper side of things, we took on
a new sappy coated line, we took on several other coated lines.
Additionally, when we acquired Unisource, their inventories had
gone too far down in terms of service levels on uncoated free
sheets.
So Danny is right, basically, the inventory is up as far as
Unisource is concerned. It's up too high overall when you look
across our manufacturing and Unisource. We're dealing with that
through a significant amount of down time.
<PAGE>
D. Huff We're also working on the receivables in Unisource, which as you
know has been an ongoing effort. We have a process in place now
to address that as well.
L. Leberman But who now is kind of overseeing and responsible for Unisource?
Who going forward to make this all happen is going to be the
point person?
P. Correll Well, it's still Chuck Gifano, who is President of Unisource.
Right now, Chuck reports to Lee but we're going to begin a
transition of moving Unisource over to Clint Kennedy, as Lee
spends all his time on the Fort James and tissue businesses.
Danny's the newly appointed czar of working capital, and we've
got a lot going on, and I think all of you are going to be
shocked at how much working capital comes out of Georgia Pacific
over the next six months.
D. Huff Actually, Matt Tysor, who is the CFO of Unisource, is the one
who's the focal point on the working capital issue. He's got it
well in hand right now. He and Jim Turrel, who is our
Controller, Jim Turrel is in control of this project that we have
underway that's kind of company wide. The first initiative in
this company wide process is Unisource receivables, inventories,
and then the payables on the other side. The payables is
<PAGE>
where there is a real, we think a quick hit, low hanging fruit,
because frankly we've been way to kind and gentle to our vendors.
L. Leberman Okay, and you mentioned Clint Kennedy. Can you say that again?
What is going to be his area of responsibility now, from what?
P. Correll Well, Clint has got today market pulp and container board and our
corporate wide marketing effort. Lee is going to give Clint
white paper, and over time, Unisource. Steve McAdam, who has
been with us two or three years--I don't know that many of you
know him--will be running our container board business, and he's
also going to take over our corporate purchasing effort, and
he'll report direct to me.
L. Leberman Okay, thanks very much. Good luck with all of this.
P. Correll Thank you, Linda. We'll need it.
Coordinator The next question comes from Mark Winetraub from Goldman Sachs.
M. Winetraub Hello, three quick ones. First, thinking through the pulp side
of the equation, is the direction going is that you feel that
even thinking about the
<PAGE>
tissue business, you don't need to be integrated into it other
than in those facilities where it's onsite?
P. Correll Well, they buy about 400,000 tons of pulp total. In any
divestiture strategy, you can imagine for us, because of where we
make pulp, we'll have more market pulp than that. So we will
insulated from the pulp cycle, if that's what you're question is.
M. Winetraub Yes, and second, what would kind of be an initial number for
goodwill to be using?
D. Huff I think the total number 7.2 billion.
M 182 annually.
M. Winetraub Lastly, in terms of the IT platforms at Fort James, how do you
imagine that integration process with the SAP systems you have?
How is that going to proceed, and is that going to be a fairly
costly process?
P. Correll No, it won't be costly. It will high return. We've got the
systems up and running. We're just not going to go real fast.
We want to be very sure
<PAGE>
that we know what we're doing, but we know that we have SAP
systems working in both our consumer and our commercial
businesses.
M There also is quite an opportunity because of our SAP systems
with our human resources and payroll systems and our financials.
They've got SAP in those categories. We'll be able to integrate
fairly quickly on the back office part. One, we don't think there
is going to be expense. We think there is going to be opportunity
here for synergies. So we look at this as a good thing on the
system side.
M. Winetraub Okay, what I meant is, is there going to be a lot of expenditures
up front? Obviously, you hope to get good returns on those
expenditures.
P. Correll No, because we've already got their systems in place.
Coordinator The next question comes from Mark Wild from Deutsche Bank Alex
Brown.
M. Wild Pete, I've got three questions. First of all, I'm wondering if
you could just talk a little bit more about Fort James as a turn
around situation. You talked about some things that are going to
be entailed here, but I wondered
<PAGE>
if you could talk about other issues like whether or not you're
going to have to bring in new staffing, anything to help you on
the marketing side, things like that?
P. Correll No, we've been impressed with the Fort James people we've met at
the operating and marketing level. Now we haven't met many.
We're very impressed with the people at Dixie Cup, that they've
got their acts together. We've very impressed that Europe, as
the business is running. We're impressed with both the people
and the reputation of most of the people that we've met on the
domestic system. We think the opportunities that will exist are
primarily on the manufacturing side. We're deep there and we are
good there.
M. Wild The second question I had is the amount of capital that's still
going into the tissue business. It seems like the other big
players in the industry are still investing in new machines, even
though the market seems to been a little over supplied recently.
Does that concern you?
P. Correll Sure, but the market growth rate demands a couple of big machines
a year. A lot of us have got little machines that need to come
down. So it concerns me, but I don't think tissue is ever going
to become a 95%
<PAGE>
operating rate business. I believe it's a brand business. If you
look a the price curves of tissue, you find that when it gets a
pulp shock it takes it a while for recovery. In the marketplace,
conversely, when pulp collapses it takes them a long time to give
it back. So we feel good about the outlook for the tissue
business.
M. Wild So you would say the industry though, is going to do larger
machines. You're going to go in and you're going to have to
continue to knock some of these small machines out?
P. Correll Absolutely.
M. Wild Finally, Pete, to come back to this issue about sort of some of
the offshore markets like Europe and elsewhere, it does seem to
me, if you look at your situation in tissue now, you've got a
very high market share in North America. It's a fairly mature
market here, with relatively low growth in North America.
Doesn't that ultimately mean if you're going to take this tissue
business beyond just a turnaround situation, that you're going to
have to go within the more and more offshore markets over time?
<PAGE>
P. Correll Yes, but what we need to do is be sure that we can do that with a
high return. That's why we've got to understand Europe before we
make any precipitous decision, because they are in a lot of
countries in Europe, some of which are very high growth
developing markets. That's why we're saying we have to go
slowly, and I hope that we find an opportunity. But we're going
to go slowly and decide what makes sense.
M. Wild Okay, thanks, Pete.
Coordinator The next question comes from Cathleen Reid from Merrill Lynch.
C. Reid Good morning, just a quick question. Could you please discuss
any pricing or promotion plans you have for some of the North
America consumer tissue categories? In particular, bath tissue
since excluding any anti-trust, you would now become the market
leader in that category.
P. Correll Well, there's very little I could say about that. Right now
we're still fierce competitors. We're going to stay fierce
competitors until the day we'll merge, and we're going to promote
Sparkle and Angel Soft aggressively like we've been going. I'm
sure they'll continue to do the same. After that's over and we
merge, as Lee says, we think there's a wonderful
<PAGE>
product rationalization story here. We'd be able to talk about
that more once we owned it.
C. Reid Okay, and just any anticipated price increases in any of those
other categories, given increased pulp prices?
P. Correll Well, we're increasing tissue prices now. We have pulled the
pulp price through in consumer. It's pulling through more
slowing in commercial, but it's pulling through. June prices
were more encouraging than May, and we feel good about it, but
that doesn't have anything to do with transaction. Factually, we
are pulling through the price increases.
C. Reid Okay, great, thanks.
Coordinator The next question comes from John Linehan from Tero Price.
J. Linehan Good morning, I had two questions for you, Pete. The first is,
if you look at Georgia Pacific, I think it'd be fair to
characterize it as a paper company, commodity paper company.
Fort James has got clearly the away from home, which you
categorize that way. There is a very strong retail element to
Fort James, which requires a lot of marketing expertise. I
<PAGE>
was wondering, going forward, do you believe that you have the
in-house expertise to manage Fort James brands, or do you believe
that the Fort James people offer that to you?
P. Correll I believe it's a combination of that. I believe the fact that
we've taken Angel Soft from a brand nobody ever heard of in 1988
and made it the number two bath tissue brand in the United States
says we know a lot more about brands and marketing than given
credit for. If you walk through a Home Depot or a Lowes store
and look at how Georgia Pacific is positioned--but I believe Fort
James brings a wonderful infusion of high talent in that area
that we intend to entice to stay with us and capitalize on it.
J. Linehan Then the second question is, you've talked about the new debt
targets and the lack of share repurchase until 2003. Can you
talk how this deal impacts The Timber Company and their share
repurchase program?
P. Correll We haven't sorted that out. The answer is, I don't know the
answer to that. Our board has not dealt with that. We formally
meet for the first time as a board August first, but right now
The Timber Company is out of the market.
<PAGE>
J. Linehan Until that board meeting.
P. Correll Yes, until we sort through this. Yes, sir.
J. Linehan Okay, thank you very much.
Coordinator The next question comes from Turrell Armstrong from the Ohio
Teachers.
T. Armstrong Hello, my question is, we've talked about the manufacturing
skills. What about the distribution side of the equation, given
the issues Georgia Pacific has had in the past with distribution?
As second question, given the knowledge of its facilities, what
surprises do you estimate? Are there any surprises on the
horizon with regards to your estimates to the synergies?
P. Correll Well, I think our track record on building products distribution
is suspect, at best. I think our track record on paper and
tissue distribution is excellent. We bought Unisource and we've
turned it around. So I think we bring skills there. I'm
embarrassed about building products but proud about pulp paper
distribution. Sure, we'll find some surprises on the mill side,
but this is a very open industry. We, I think, have a very good
understanding of what the opportunities are and where they are.
<PAGE>
T. Armstrong Okay, thank you.
Coordinator The next question comes from Bill Reid from Merrill Lynch.
B. Reid Yes, hello, I was wondering if you give us a quick overview of
where you might stand with the rating agencies at this point? I
know you've said it already, but just sort of a case you're
presenting to them for an investment grade, maintaining the
investment grade ratings, which is obviously important to you.
D. Huff We have met with the rating agencies. We have talked to them in
confidence several days, obviously prior to this, so that this
would not be a surprise to them. We also, when we met with them,
told them that it was critical to us to maintain our long
standing promise to the debt markets, which was that we're not
going to put the company under stress. We're going to maintain
investment grade, and that's how we constructed the transaction,
which is why as distasteful as it was to all of us to have to
issue any equity at all in this transaction, is why we did $1.5
billion of equity to get this deal done.
<PAGE>
So we've met with them. Obviously, they have not had a chance
yet to normalize their opinions, but we are fairly secure that we
will remain investment grade because that is the whole approach
we've taken to the transaction.
B. Reid Then the follow on, in terms of to get the debt down quickly into
the sub $10 billion level, is going to be then a combination of
cash flow and asset sales?
D. Huff That's correct.
B. Reid Okay, great, thank you.
Coordinator The next question comes from Amy Sung from Salomon Smith Barney.
G. Fullum Just as a follow on to Bill's question. This is Gene Fullum from
Salomon, and I'm the paper and forest products analyst here.
What if the agencies come back to you with a no go, and feel that
there is a very strong likelihood of downgrade to non-investment
grade? Is this deal then off from your perspective, or do the
strategic advantages going forward outweigh a possible downgrade
to non-investment grade?
<PAGE>
D. Huff I think the answer to that is we will work with the rating
agencies to make sure we do maintain the best credit over time.
G. Fullum Okay, so you would then alter the terms, the deal, in order to do
that?
D. Huff No, we may alter the terms of our target...
G. Fullum Within the confines of keeping an investment grade rating?
D. Huff That's correct. There aren't any financing outs in this deal.
G. Fullum Could you elaborate on that please?
P. Correll Well, I mean we can't alter the deal. We've got a deal. So what
we would have to alter, as Danny said, is what it was that made
them reach that decision, although we don't think that's a
decision they are going to reach.
D. Huff There are two things, obviously that are the concern here. One
is the debt target and one is the how ever long it takes us to
get there. Those are the two issues we have to work with.
<PAGE>
G. Fullum Understood, thank you very much.
Coordinator The next question comes from Mark Connelly from Credit Suisse
First Boston.
M. Connelly I just wanted to get a small clarification that you have not yet
decided who will actually be running the retail tissue system?
Secondly, I wanted to come back to your comments about private
label. Private label has been, from our perspective, the
toughest question for Fort James to answer. As you correctly
note, there is probably going to be some good growth in private
label, but it's going to come out of the pockets of branded
players. Do you think that Fort James is well positioned to hang
onto that, or are they potentially the weak link in the branded
product, and you're basically just going to be swapping like for
like?
P. Correll Two things, number one as I said, the whole Fort James
organization plus our tissue business will report to Lee Thomas,
which is he'll have Dixie, Europe and North American tissue, and
Mike Barrant, who works for us and runs our tissue business, will
run North American tissue.
<PAGE>
M. Connelly Will he be directly responsible for the retail business that
you're picking up, or is there going to be somebody else under
him taking on the whole of the Fort James tissue?
P. Correll There will be a retail guy and a commercial guy and a club guy,
etc.
M. Connelly Okay, but you have not decided who the retail guy is yet?
P. Correll No, we're still going to sort through all of that. We've got
strong people. They've got strong people. Mike's got some tough
choices to make. In terms of the brands, we feel very strongly
that we can put together a brand portfolio here that has equity
with the consumer and will survive, and that the clubs will
harvest brands, but not these brands.
D. Huff And that we'll continue to be very strong, and we think they are
very strong in the private label business.
M. Connelly Okay, so you think its going to be somebody else's brands that
come out the losers?
D. Huff That's right.
<PAGE>
M. Connelly Thank you.
Coordinator The next question comes from David Sotnick from Credit Suisse
First Boston.
D. Sotnick Hello, just quickly the debt issue, at $9.5 billion, that is the
number for the group, correct?
P. Correll That's correct.
D. Sotnick You get to that $10.5 billion, which is about equal to the
existing debt levels of the two companies right now?
P. Correll That's correct.
D. Sotnick So you'd be paying down the incremental. I'm guessing if you
were to come to the bond market for some short-term needs, it
would be fairly short-term maturities in terms of the paper you
would need, if not fully financed by the banks?
<PAGE>
D. Huff That's correct. One of the benefits we have is, the nature of
the existing GP debt portfolio, as you know, is very long-term.
The intermediate term that's required for this fits nicely within
the buckets that are open, so that there is not a lot of
refinancing risk along the way, once we take out the initial
capital markets bridge.
D. Sotnick Okay, and the last thing, any way we could look at what the,
through asset sales, what sort of mid-cycle EBIT DA would be
lost? I mean, are you looking at maintaining any sort of debt to
EBIT DA targets, because it would come out to about two and a
half times where you were before, and after, once asset sales are
done, you base case cash flow analysis.
D. Huff Let me put it to you this way. I think the best way to say it is
that we feel that we have very strong Bbb type ratios today when
you look at coverages. In fact, if you look at 2000, obviously
this is a very good year in the history of GP in terms of our
numbers. We think that once we get to the $9.5 billion debt
target, based on the cash flows we expect out of the business,
that those coverages numbers will be the same or better.
D. Sotnick Great, thanks a lot.
<PAGE>
Coordinator The next question comes from David Woodiap from Harris Bank.
D. Woodiap I gather you're expecting a 40 year amortization of goodwill.
I'm just wondering how confident you are of being allowed to do
that by the SEC. They seem to be very reticent.
P. Correll We're highly confident on that one, David.
D. Woodiap I just had another question too on the earlier question about the
share repurchase by The Timber Company. If the board decides The
Timber Company cannot continue to buy back shares, just the
classical type of conflict of interest?
P. Correll I would ask you to stay tuned. I think you will not be
displeased with the outcome of The Timber Company.
D. Woodiap Okay, one final housekeeping matter, is there still going to be
the Wednesday conference calls to discuss the quarterly results?
M No, David, there are not.
<PAGE>
D. Woodiap It looks like you're going to be busy in the Investor Relations
Department.
M Yes, that's right.
P. Correll Well, we'll be in New York for the meeting and we'll be
available. We're not planning another conference call.
D. Woodiap Okay, thank you very much.
Coordinator The next question comes from Anna Tarma from Merrill Lynch.
A. Tarma Good morning, two questions. First of all, can you talk a bit
from the customer perspective as to whether you expect a lot of
customer cannibalization? Secondly, from an anti-trust
perspective, if you need to do further divestitures above the
250,000 ton level that you've announced, at what point do you
reach a walk away point from the transaction here?
P. Correll On the latter point, I don't think it's productive for me to
speculate any more on the divestitures to get this deal done,
other than to just assure you all that we've had good advice and
we know what we probably to do. We're prepared to go do it. It
will be value adding when we get it done.
<PAGE>
In terms of customer cannibalization, no. These two companies,
both of us have been selling to buyable high growth customers,
and we think we can offer a better proposition to all of our
customers. The initial customer reaction we're getting would
support that, because that's what they are saying as we're
calling them as we speak.
Coordinator We have a follow up question from Francis Lu from US Warberg.
F. Lu Yes, just one question, sort of on going forward and thinking
through some of your objectives to get more stable cash flows,
and to have that reflected in the higher multiple. To the extent
that the business remains somewhat diversified in terms of the
product lines, if that didn't perhaps result in a higher multiple
which reflected the value of the tissue business, could we at
some point perhaps see something along the lines of another spin
off or...stock, specifically focusing on tissue? I think it's
something that you've referred to, perhaps not in great detail,
but as a concept previously.
P. Correll Francis, one should never say never, but I'm about letter stocked
out. I think tissue will represent a third of Georgia Pacific.
That's a pretty big
<PAGE>
thing, and still with some international opportunities, etc. So
the answer is never say never, but I doubt it.
F. Lu Okay, and it has a cap in terms of the upside on Fort James, but
it doesn't have a floor. Any particular sort of rationale for
that that you can provide some color on?
P. Correll We weren't going to issue anymore than 54.5 million shares.
F. Lu Okay, thanks.
R. Good Thank you all, and I'm sure many of you we will see again
tomorrow in New York. I'd just like to close that certain
statements contained in this release, including without
limitation the existence and achievement of synergies and the
combined businesses of Georgia Pacific and Fort James, plans for
future transformation and divestitures, increases in earnings
predictability, and future financial performance are forward
looking statements based on current expectations.
The accuracies of such statements is subject to a number of risks
and uncertainties and assumptions, including, but not limited to,
the affect of
<PAGE>
general and global and domestic economic conditions on the demand
for tissue products. Realization of cost savings and synergies in
integrating the two businesses, the existence of financially
capable buyers for businesses to be divested, changes in the
production of and demand for tissue and other products
manufactured by Georgia Pacific, and other factors listed in the
SEC commission filings of Georgia Pacific and Fort James. Thank
you all and good afternoon.
