SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

-------------------

FORM 10-Q

[X]         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 3, 2004

or

[   ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number 1 - 3506

- -------------------





GEORGIA-PACIFIC CORPORATION
(Exact Name of Registrant as Specified in its Charter)

GEORGIA

93-0432081

(State of Incorporation)

(IRS Employer Id. Number)

133 PEACHTREE STREET, N.E., ATLANTA, GEORGIA 30303

(Address of Principal Executive Offices)

(404) 652 - 4000

(Telephone Number of Registrant)

- -------------------

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.         Yes   X       No          

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
    Yes     X           No          

As of the close of business on April 26, 2004, Georgia-Pacific Corporation had 254,953,022 shares of Georgia-Pacific Common Stock outstanding.

PART I - FINANCIAL INFORMATION
- -------------------------------------------

Item 1.

Financial Statements

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Georgia-Pacific Corporation and Subsidiaries

First Quarter

(In millions, except per share amounts)

2004

2003

Net sales

$   5,222 

$   4,438 

Costs and expenses
   Cost of sales
   Selling and distribution
   Depreciation, amortization and accretion
   General and administrative
   Interest, net
   Other losses, net

3,965 
358 
244 
219 
197 
26 

3,521 
305 
243 
191 
204 
78 

Total costs and expenses

5,009 

4,542 

Income (loss) from continuing operations before income taxes
(Provision) benefit for income taxes

213 
(71)

(104)
53 

Income (loss) from continuing operations
Income (loss) from discontinued operations, net of taxes

142 
5 

(51)
(7)

Income (loss) before accounting change
Cumulative effect of accounting change, net of taxes

147 
- - 

(58)
28 

Net income (loss)

$     147 

$     (30)

2

 CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Continued)
Georgia-Pacific Corporation and Subsidiaries
(In millions, except per share amounts)

Basic per share:
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of taxes

$    0.56 
0.02 

$   (0.20)
(0.03)

Income loss before accounting change
Cumulative effect of accounting change, net of taxes

0.58 
- 

(0.23)
0.11 

Net Income (loss)

$    0.58 

$   (0.12)

Diluted per share:
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of taxes

$    0.55 
0.02 

$   (0.20)
(0.03)

Income (loss) before accounting change
Cumulative effect of accounting change, net of taxes

0.57 
- 

(0.23)
0.11 

Net income (loss)

$    0.57 

$   (0.12)

Shares (denominator):
  Weighted average shares outstanding
Dilutive securities:
   Options

253.5 

3.9 

250.1 

- 

  Total assuming conversion

257.4 

250.1 

The accompanying notes are an integral part of these consolidated financial statements.

3

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Georgia-Pacific Corporation and Subsidiaries

First Quarter

(In millions, except per share amount)

2004

2003

Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net loss to cash used for operations:
  Cumulative effect of accounting change, net of taxes
  Other loss, net
  Depreciation, amortization and accretion
  Deferred income taxes
  Increase in receivables
  Increase in inventories
  Increase in accounts payable
  Change in other working capital
  Change in taxes payable/receivable
  Change in other assets and other long-term liabilities
  Other

$     147 

- - 
26 
256 
(46)
(325)
(170)
101 
50 
- - 
(91)
4 

$     (30)

(28)
79 
261 
(59)
(162)
(99)
8 
(11)
(23)
18 
21 

Cash used for operations

(48)

(25)

Cash flows from investing activities
Property, plant and equipment investments
Net proceeds from sales of assets
Other

(109)
7 
(6)

(123)
1 
(9)

Cash used for investing activities

(108)

(131)

Cash flows from financing activities
Repayments of long-term debt
Additions to long-term debt
Fees paid to issue debt
Fees paid to retire debt
Net decrease in bank overdrafts
Net increase (decrease) in short-term debt
Proceeds from option plan exercises
Cash dividends paid ($0.125 per share)

(1,304)
940 
- - 
(18)
(6)
570 
34 
(32)

(2,776)
3,132 
(38)
- - 
(99)
(10)
- -- 
(31)

Cash provided by financing activities

184 

178 

Increase in cash
    Balance at beginning of period

28 
51 

22 
42 

    Balance at end of period

$      79 

$      64 

The accompanying notes are an integral part of these consolidated financial statements.

4

CONSOLIDATED BALANCE SHEETS (Unaudited)
Georgia-Pacific Corporation and Subsidiaries

(In millions, except shares and per share amounts)

April 3,
2004

January 3,
2004

ASSETS
Current assets
  Cash and equivalents
  Receivables, less allowances of $32 and $36, respectively
  Inventories
  Deferred income tax assets
  Net assets held for sale
  Other current assets

$        83 
1,663 
1,915 
117 
1,799 
280 

$        51 
1,542 
1,848 
117 
1,496 
301 

Total current assets

5,857 

5,355 

Property, plant and equipment
  Land, buildings, machinery and equipment, at cost
  Accumulated depreciation

17,816 
(9,392)

17,758 
(9,176)

Property, plant and equipment, net

8,424 

8,582 

Goodwill, net

7,465 

7,484 

Intangible assets, net

702 

716 

Other assets

2,239 

2,268 

Total assets

$   24,687 

$   24,405 

5

CONSOLIDATED BALANCE SHEETS (Unaudited) (Continued)
Georgia-Pacific Corporation and Subsidiaries

(In millions, except shares and per share amounts)

April 3,
2004

January 3,
2004

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Secured borrowings and other short-term notes
  Current portion of long-term debt
  Accounts payable
  Accrued compensation
  Net liabilities held for sale
  Other current liabilities

$    1,259 
1,248 
1,417 
213 
448 
1,208 

$    689 
789 
1,404 
244 
395 
1,107 

Total current liabilities

5,793 

4,628 

Long-term debt, excluding current portion

8,236 

9,074 

Other long-term liabilities

3,713 

3,826 

Deferred income tax liabilities

1,423 

1,483 

Commitments and contingencies (Note 12)

Shareholders' equity
  Preferred stock, no par value; 10,000,000 shares authorized;
    no shares issued or outstanding
  Junior preferred stock, no par value; 25,000,000 shares authorized;
    no shares issued or outstanding
  Common stock, par value $0.80; 400,000,000 shares authorized;
    254,562,000 and 252,980,000 shares issued and outstanding
  Additional paid-in capital
  Retained earnings
  Long-term incentive plan deferred compensation
  Accumulated other comprehensive income

- - 

- - 

203 
3,529 
1,711 
(1)
80 

- - 

- - 

202 
3,473 
1,596 
(1)
124 

Total shareholders' equity

5,522 

5,394 

Total liabilities and shareholders' equity

$   24,687 

$   24,405 

The accompanying notes are an integral part of these consolidated financial statements.

6

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
Georgia-Pacific Corporation and Subsidiaries

First quarter

(In millions)

2004

2003

Net income (loss)
 Other comprehensive income (loss) net of tax:
   Foreign currency translation adjustments
   Derivative instruments
      Fair market value adjustments on derivatives
      Reclassification adjustments for losses included in net income
   Unrealized gain on securities
   Minimum pension liability adjustment

$   147 

(44)

- - 
- - 
- - 
- - 

$    (30)

57 

(1)
3 
4 
- 

Comprehensive income

$    103 

$    33 

The accompanying notes are an integral part of these consolidated financial statements.

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
GEORGIA-PACIFIC CORPORATION
April 3, 2004

 1.

PRINCIPLES OF PRESENTATION AND ACCOUNTING POLICIES. These consolidated financial statements include the accounts of Georgia-Pacific Corporation and subsidiaries. We prepared the consolidated financial statements following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP (accounting principles generally accepted in the United States of America) can be condensed or omitted. All significant intercompany balances and transactions were eliminated in consolidation.

We are responsible for the unaudited financial statements included in this document. The financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our financial position, results of operations and cash flows. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our annual report on Form 10-K for the fiscal year ended January 3, 2004.

On February 26, 2004, we announced that we reached a definitive agreement for Koch Cellulose, LLC ("Koch"), a wholly owned subsidiary of Koch Industries, Inc., to acquire our non-integrated pulp mills at Brunswick, Georgia, and New Augusta, Mississippi, and a short-line railroad. Accordingly, these businesses are reported as discontinued operations in the accompanying statements of operations, and the related assets and liabilities are classified as held for sale in the accompanying balance sheets (see Note 5).

Additionally, on March 12, 2004, we announced that we reached a definitive agreement to sell our building products distribution segment to a new company owned by Cerberus Capital Management L.P., a private investment firm, and members of the building products distribution business' management team. On March 30, 2004, we announced that we agreed to sell an interest in our Brazilian pulp businesses. The related assets and liabilities associated with these businesses are classified as held for sale in the accompanying balance sheets (see Note 5).

We classify certain shipping and handling costs as selling and distribution expenses. Shipping and handling costs included in selling and distribution expenses were $103 million and $95 million for the first quarter of 2004 and 2003, respectively.

Certain 2003 amounts have been reclassified to conform with the 2004 presentation.

Stock-Based Compensation

Effective December 29, 2002, we adopted Statement of Financial Accounting Standards ("SFAS") No. 148, Accounting for Stock-Based Compensation--Transition and Disclosure ("SFAS No. 148"), an amendment of SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"). SFAS No. 148 provides alternative methods of transition to SFAS No. 123's fair value method of accounting for stock-based compensation and amends the disclosure provisions of SFAS No. 123. We utilized the prospective method in accordance with SFAS No. 148 and applied the expense recognition provisions of SFAS No. 123 to stock options awarded or modified in 2003 and thereafter. Prior to 2003, we accounted for our stock-based compensation plans under APB Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25"), and disclosed pro forma effects of the plans on net income and earnings per share as provided under SFAS No. 123. Because the fair market value on the date of grant was equal to the exercise price, no compensation expense had been recognized under APB No. 25 for stock options issued prior to 2003. Had compensation cost for the options issued prior to 2003 been determined based on the fair value at the grant dates consistent with the method of SFAS No. 123, the pro forma net income and earnings per share would have been as follows:

8

(In millions, except per share amounts)

First Quarter

2004

2003

Net income (loss) as reported
Less total stock-based employee compensation expense determined
   under the fair value based method, net of taxes

$   147 

(1)

$   (30)

(1)

Pro forma net income (loss)

$   146 

$   (31)

Stock-based employee compensation cost, net of taxes, included in
   the determination of net income as reported

23 

3 

Basic net income (loss) per share:
   As reported
   Pro forma

$   0.58 
$   0.58 

$   (0.12)
$   (0.12)

Diluted net loss per share:
   As reported
   Pro forma

$   0.57 
$   0.57 

$   (0.12)
$   (0.12)

Accounting Changes

In January 2003, the Financial Accounting Standards Board (the "FASB") released Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46"). FIN 46 requires that all primary beneficiaries of Variable Interest Entities (VIE) consolidate that entity in their financial statements. FIN 46 is effective immediately for VIEs created after January 31, 2003 and for VIEs in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to VIEs in which an enterprise holds a variable interest it acquired before February 1, 2003. In December 2003, the FASB published a revision to FIN 46 ("FIN 46R") to clarify some of the provisions of the interpretation and defer the effective date of implementation for certain entities. Under the guidance of FIN 46R, entities that do not have interests in structures that are commonly referred to as special purpose entities are required to apply the pro visions of the interpretation in financials statements for periods ending after March 14, 2004. We do not have interests in special purpose entities that are not consolidated.

 2.

PROVISION FOR INCOME TAXES. Income from continuing operations before income taxes was $213 million and we reported an income tax provision of $71 million for the first quarter of 2004, compared with a loss from continuing operations before income taxes of $104 million and an income tax benefit of $53 million for the first quarter of 2003. The effective tax rate in 2004 was different from the statutory rate primarily because of lower international income tax rates and utilization of state tax credits. The effective tax rate in 2003 was different from the statutory rate primarily because of lower international income tax rates, utilization of state tax credits and the reversal of approximately $10 million of income tax contingency reserves no longer required in Europe.

 3.

EARNINGS PER SHARE. Basic (loss) earnings per share is computed based on net income and the weighted average number of common shares outstanding. Diluted earnings per share reflect the assumed issuance of common shares under long-term incentive stock option and stock purchase plans. The computation of diluted earnings per share does not assume conversion or exercise of securities that would have an antidilutive effect on earnings per share.

9

 4.

SUPPLEMENTAL DISCLOSURES -- CONSOLIDATED STATEMENTS OF CASH FLOWS. The cash impact of interest and income taxes is reflected in the table below. The effect of foreign currency exchange rate changes on cash was not material in either period.

First quarter

(In millions)

2004

2003

Total interest costs -- continuing operations
Interest capitalized

$      201 
(4)

$      206 
(2)

Interest expense -- continuing operations

$      197 

$      204 

Interest expense -- discontinued operations

$          3 

$          3 

Total interest expense

$      200 

$      207 

Interest paid

$      180 

$      114 

Income tax paid, net

$      126 

$        28 

 5.

DIVESTITURES. On March 12, 2004, we announced that we reached a definitive agreement to sell our building products distribution segment to a new company owned by Cerberus Capital Management L.P., a private investment firm, and members of the building products distribution business' management team. Closing on the sale is subject to customary conditions and is expected to close in the second quarter of 2004. The overall transaction is valued at approximately $810 million, which assumes $630 million of working capital at closing. We expect the transaction to result in net after tax proceeds of approximately $780 million, which will be used to repay debt. Actual cash proceeds could be larger or smaller depending upon the actual working capital value at closing. We expect to record a small gain on the sale upon closing.

In connection with the closing of this transaction, we expect to enter into a six-year agreement, which will require the building products distribution business to continue purchasing minimum amounts of structural panels, lumber and other building products manufactured by us. This supply agreement contains terms substantially similar to the current arrangement between our building products manufacturing and building products distribution businesses. Because our continuing involvement with this business under this supply agreement is considered significant to the building products distribution business, the business is not reported as a discontinued operation in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment and Disposal of Long-Lived Assets." The building products distribution business is deemed to be held for sale and the related assets and liabilities are classified as such on the accompanying balance sheet s. Also, effective March 12, 2004, we ceased depreciation of the related assets.

The following are major classes of assets and liabilities for the building products distribution business that were held for sale at April 3, 2004 and January 3, 2004:

10

BUILDING PRODUCTS DISTRIBUTION ASSETS AND LIABILITIES HELD FOR SALE
CONDENSED BALANCE SHEETS
(Unaudited)

(In millions)

April 3,
2004

January 3,
2004

ASSETS
Current assets
Property, plant and equipment, net

$     873 
199 

$    571 
201 

Total assets

$  1,072 

$    772 

LIABILITIES:
Current liabilities
Deferred income tax liabilities

$    189 
3 

$    126 
3 

Total liabilities

$    192 

$    129 

Net assets

$    880 

$    643 

On March 30, 2004, we announced that we agreed to sell an interest in our Brazilian pulp businesses for $75 million. This transaction is expected to close during the second quarter of 2004. After tax proceeds are expected to be approximately $56 million. We expect to utilize the proceeds of this sale to further reduce debt. We expect to recognize a small after tax gain on the sale upon closing. These equity investments are deemed to be held for sale and $46 million and $45 million has been classified as net assets held for sale at April 3, 2004, and January 3, 2004, respectively.

On February 26, 2004, we announced that we reached a definitive agreement for Koch to acquire our non-integrated pulp mills at Brunswick, Georgia, and New Augusta, Mississippi, and a short-line railroad for $610 million, including the assumption of $73 million of indebtedness. The sale, which is contingent on regulatory approvals and satisfaction of customary conditions, is expected to be completed in the second quarter of 2004. We expect the transaction to result in debt reduction of $535 million, which includes cash and $73 million of debt to be assumed by Koch. We also intend to defease an outstanding $24 million tax-exempt bond prior to the consummation of the transaction in order to transfer certain assets to Koch. Based on the expected value of this transaction, we recognized a goodwill impairment loss of $106 million in accordance with SFAS No. 142 in t he fourth quarter of 2003. We expect to recognize a small after tax loss on the sale upon closing.

These businesses are reported as discontinued operations in the accompanying statements of operations and the related assets and liabilities are classified as held for sale in the accompanying balance sheets. Effective February 26, 2004, we ceased depreciation of the related assets. These pulp businesses were previously reported in the bleached pulp and paper segment and the railroad was reported in the packaging segment.

The following are major classes of assets and liabilities for these discontinued operations that were held for sale at April 3, 2004 and January 3, 2004:

11

DISCONTINUED OPERATIONS
CONDENSED BALANCE SHEETS
(Unaudited)

(In millions)

April 3,
2004

January 3,
2004

ASSETS
Current assets
Property, plant and equipment, net
Goodwill, net
Other assets

$     176 
332 
172 
1 

$     168 
338 
172 
1 

Total assets

$     681

$     679 

LIABILITIES:
Current liabilities
Long-term debt
Deferred income tax liabilities
Other long-term liabilities

$      53 
97 
100 
6 

$      63 
97 
100 
6 

Total liabilities

$     256 

$     266 

Net assets

$     425 

$     413 

The components of income (loss) from discontinued operations for the first quarters of 2004 and 2003 are shown below:

DISCONTINUED OPERATIONS
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)

First Quarter

(In millions)

2004

2003

Net sales

$    157 

$    129 

Costs and expenses

  Cost of sales

121 

113 

  Selling and distribution

10 

4 

  Depreciation, amortization and accretion

13 

18 

  General and administrative

3 

3 

  Interest, net

3 

3 

Total costs and expenses

150 

141 

Income (loss) from discontinuing operations before income taxes
(Provision) benefit for income taxes

7 
(2)

(12)
5 

Income (loss) from discontinued operations, net of taxes

$      5 

$     (7)

12

The interest expense allocated to the discontinued operation represents the interest associated with the debt that will be assumed by the buyer and interest on debt that is required to be repaid as a result of the disposal transaction.

 6.

ASSET IMPAIRMENT AND RESTRUCTURING. On April 4, 2003, we announced the closure of tissue-manufacturing and converting operations at our Old Town, Maine mill. The mill's pulp and dryer operations are continuing to operate. The determination to close the tissue operations was based on excess capacity of tissue production, the mill's geographic location and high energy and fiber costs. In connection with this closure, we determined that the value of related tissue assets and certain pulp assets at this location was impaired. Accordingly, in the first quarter of 2003, we recorded a pre-tax impairment charge to earnings in the North America consumer products segment and bleached pulp and paper segment of $25 million and $49 million, respectively. Following the impairment charge, the carrying value of fixed assets was approximately $75 million. The fair value of the impaired assets was determined using the present value of expected future cash flows. This impairment charge was recorded in "Other losses, net" in the accompanying consolidated statements of operations.

On May 2, 2003, the Governor of Maine announced an economic support plan that enabled us to restart one of our closed tissue machines along with eight converting lines and retain related manufacturing and support personnel. In accordance with generally accepted accounting principles, none of the impairment charge recorded in the first quarter of 2003 was reversed.

In connection with the acquisition of Fort James, we recorded liabilities totaling approximately $78 million for employee termination costs relating to approximately 960 hourly and salaried employees. In addition, we determined that we would strategically reposition our communication papers business to focus on faster-growing paper segments by retiring four high-cost paper machines and associated pulping facilities at our Camas, Washington mill and recorded liabilities of approximately $26 million to exit these activities. In addition, we recorded liabilities of $35 million primarily for lease and contract termination costs at administrative facilities that have been or will be closed in California, Connecticut, Illinois, Virginia and Wisconsin. During 2001 through 2003, approximately 940 employees were terminated and approximately $74 million of the reserve was used to pay termination benefits. The remaining employee terminations and Camas closing activities (primarily demoli tion activities) are expected to be completed in the fourth quarter of 2004 due to timing of receipt of the requisite permits. The leases and contracts at the administrative facilities expire at various dates through 2012. The following table provides a rollforward of these reserves from January 3, 2004 through April 3, 2004:

Type of Cost

In millions

Liability
Balance at
January 3, 2004

Use

Liability
Balance at
April 3, 2004

Employee termination
Facility closing costs

$     4 
30 

$    - 
(5)

$      4 
25 

Total

$   34 

$   (5)

$    29 

13

 7.

INVENTORY VALUATION. Inventories include costs of materials, labor, and plant overhead. We use the dollar value method for computing LIFO inventories. The major components of inventories were as follows:

(In millions)

April 3,
2004

January 3,
2004

Raw materials
Finished goods
Supplies
LIFO reserve

$            613 
911 
488 
(97)

$           625 
832 
489 
(98)

Total inventories

$          1,915 

$         1,848 

 8.

GOODWILL AND INTANGIBLE ASSETS. Effective December 30, 2001, we adopted SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 eliminates the pooling of interests method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires that entities assess the fair value of the net assets underlying all acquisition-related goodwill on a reporting unit basis effective beginning in 2002. When the fair value is less than the related carrying value, entities are required to reduce the amount of goodwill. Our reporting units are: structural panels, lumber, industrial wood products, gypsum, chemical, building products distribution, packaging, pulp, paper, North American retail towel and tissue, North American commercial towel and tissue, Dixie, and international consumer products.

During the first quarter we reached a definitive agreement to sell our non-integrated pulp mills at Brunswick, Georgia, and New Augusta, Mississippi, and a short-line railroad (see Note 5). The goodwill associated with the pulp mill and the railroad was $169 million and $3 million, respectively, at both April 3, 2004 and January 3, 2004, and has been reclassified to "Net assets held for sale" in the accompanying balance sheets.

The changes in the carrying amount of goodwill for the first three months of 2004 are as follows:

In millions

North America Consumer Products

International Consumer Products

Packaging

Bleached Pulp and Paper

Balance as of January 3, 2004
Foreign currency translation

$  5,831 
- - 

$    987 
(19)

$    630 
- - 

$    - 
- - 

Balance as of April 3, 2004

$  5,831 

$    968 

$    630 

$    - 

In millions

Building Products Manufacturing

Building Products Distribution

All Other

Consolidated

Balance as of January 3, 2004
Foreign currency translation

$    36 
- - 

$      - 
- - 

$      - 
- - 

$   7,484 
(19)

Balance as of April 3, 2004

$    36 

$      - 

$      - 

$   7,465 

14

Intangible Assets

The following table sets forth information for intangible assets subject to amortization:

As of April 3, 2004

As of January 3, 2004

In millions

Gross Carrying
Amount

Accumulated
Amortization

Gross Carrying
Amount

Accumulated
Amortization

Trademarks
Patents and
  other

$   676 

137 

$   50 

61 

$   677 

132 

$   40 

53 

   Total

$   813 

$   111 

$   809 

$   93 

Aggregate Amortization Expense:
    First three months of 2004

Estimated Amortization Expense:
    For fiscal year 2004
    For fiscal year 2005
    For fiscal year 2006
    For fiscal year 2007
    For fiscal year 2008

$     8 
=====

$   29 
29 
20 
20 
20 

 9.

ASSET RETIREMENT OBLIGATIONS. Effective December 29, 2002, we changed our method of accounting for asset retirement obligations in accordance with SFAS No. 143, Accounting for Asset Retirement Obligations. Under SFAS No. 143, we recognize asset retirement obligations in the period in which they are incurred if a reasonable estimate of the fair value can be made. When the liability is initially recorded, we capitalize the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, we will recognize a gain or loss for any difference between the settlement amount and the liability recorded.

Our asset retirement obligations consist primarily of landfill capping and closure and post-closure costs and quarry reclamation costs. We are legally required to perform capping and closure and post-closure care on the landfills and reclamation on the quarries. In accordance with SFAS No. 143, for each landfill and quarry we recognized the fair value of a liability for an asset retirement obligation and capitalized that cost as part of the cost basis of the related asset. The related assets are being depreciated on a straight-line basis over 25-years. We have additional asset retirement obligations with indeterminate settlement dates; the fair value of these asset retirement obligations cannot be estimated due to the lack of sufficient information to estimate a range of potential settlement dates for the obligation. An asset retirement obligation related to these assets will be recognized when we know such information.

The following table describes changes to our asset retirement obligation liability:

(in millions)

First Quarter 2004

Asset retirement obligation at the beginning of the year
Accretion expense
Payments

$         49 
1 
(1)

Asset retirement obligation at the end of the quarter

$         49 

15

The asset retirement obligation liability balances were as follows:

(in millions)

April 3,
2004

January 3,
2004

Amounts of liability for asset retirement obligations
   at beginning of period
Amounts of liability for asset retirement obligations
   at end of period

$    49 

$    49 

$    46 

$    49 

10.

DEBT. Our debt increased by $192 million to $10,840 million at April 3, 2004 (including approximately $97 million of debt classified as "Net liabilities held for sale") from $10,648 million at January 3, 2004 (including approximately $97 million of debt classified as "Net liabilities held for sale"). This increase was somewhat offset by changes in foreign currency exchange rates of $16 million during this time period. At April 3, 2004, the weighted average interest rate on our total debt, including outstanding interest rate exchange agreements, was 7.2%.

As of April 3, 2004, we had $859 million outstanding, under our $900 million accounts receivable secured borrowing program. G-P Receivables, Inc. ("G-P Receivables") is our wholly owned subsidiary and is the special purpose entity into which some of our receivables and the receivables of participating domestic subsidiaries are sold. G-P Receivables, in turn, sells an interest in the receivables to the various banks and entities. This program is accounted for as a secured borrowing. The receivables outstanding under these programs and the corresponding debt are included as both "Receivables" and "Secured borrowings and other short-term notes," respectively, in the accompanying balance sheets. As collections reduce previously pledged interests, new receivables may be pledged. G-P Receivables is a separate corporate entity and its assets will be available first and foremost to satisfy the claims of its creditors. We intend to repurchase the receivable interest sold into the progr am related to the building products distribution segment. Those receivables will be transferred to the purchaser of that segment pursuant to the divestiture described in Note 5. The amount of that repurchase is currently anticipated to be approximately $380 million.

On April 2, 2004, we borrowed a total of $400 million of 2.6% short-term bank loans scheduled to mature on June 4, 2004. Net proceeds from the loans were used to pay down a portion of our Multi-Year Revolving Credit Facility.

On February 27, 2004, we called $243 million of our 9.875% debentures due November 1, 2021. We also called $250 million of our 9.625% debentures due March 15, 2022 on March 31, 2004. In conjunction with these transactions we recorded a pretax charge of $26 million for call premiums and to write off deferred debt issuance costs during the first quarter of 2004. This charge for the early extinguishment of debt was included in "Other losses, net" on the accompanying statements of operations.

In connection with the proposed sale of our non-integrated pulp mills and short-line railroad to Koch (see Note 5), Koch will assume $73 million of indebtedness. In addition, we also intend to defease an outstanding $24 million tax-exempt bond prior to the consummation of the transaction in order to transfer certain assets to Koch.

Also in the first quarter of 2004, we elected to call $250 million of our 9.5% debentures due May 15, 2022 and redeemed these debentures on April 20, 2004. We also announced that we have elected to call $240 million of our 9.125% debentures due July 1, 2022, and we expect to redeem these debentures on or about May 6, 2004. We expect to use funds available under our revolving credit facility to redeem these debentures. We have classified the related debt as "Current portion of long-term debt" on the accompanying balance sheets as of April 3, 2004. In the second quarter of 2004, we expect to record a pretax charge of $24 million for call premiums and to write off deferred debt issuance costs.

16

Our international operations create exposure to foreign currency exchange rate risks. At April 3, 2004, we had outstanding approximately $361 million (net of discount) of Euro-denominated bonds, which were designated as a hedge against our net investment in Europe. The use of this financial instrument allows us to reduce our overall exposure to exchange rate movements, since the gains and losses on this instrument substantially offsets losses and gains on the assets, liabilities and transactions being hedged. These Euro-denominated bonds mature on June 29, 2004.

The indentures associated with our $500 million and $1.5 billion senior notes offerings completed in 2003 allow Georgia-Pacific and any restricted subsidiary (as defined in the indentures) of Georgia-Pacific to incur any debt so long as we meet a fixed charges coverage ratio of 2.00 to 1.00 (as defined in the indentures). In addition, we can incur significant amounts of other items of permitted debt (as defined in the indentures) without being in compliance with the fixed charge coverage ratio. The senior notes indentures allow us to make restricted payments, including making restricted investments, if certain conditions are met. We can, however, make permitted payments and permitted investments without complying with such conditions. These offerings also contain various non-financial covenants. We were in compliance with these debt covenants as of April 3, 2004.

At April 3, 2004, we had $408 million outstanding under our Multi-Year Revolving Credit Facility at a weighted-average interest rate of 3.2% with a maturity date of November 28, 2005. In addition, $644 million of borrowing capacity under the facility was committed to support outstanding letters of credit and similar instruments. Borrowings under this facility bear interest at market rates. These interest rates may be adjusted according to a rate grid based on our debt ratings. Fees and margins may also be adjusted according to a pricing grid based on our debt ratings. Fees include a facility fee of 0.4% per annum on the aggregate commitments of the lenders as well as up-front fees. During the first quarter of 2004, we paid $2 million in commitment fees. Amounts outstanding under this facility are included in "Long-term debt, excluding current portion" on the accompanying consolidated balance sheets. We are currently evaluating opportunities to renegotiate the Multi-Year Revolv ing Credit Facility in advance of its maturity on November 28, 2005.

17

The amounts outstanding under our credit agreement include the following:

 In millions

April 3, 2004

Revolving loans

$2,250 

Term loans

250 

Credit facilities available

2,500 

Amounts Outstanding:
  Letter of credit agreements*
  Revolving loans due November 2005, average rate of 2.9%
  Term loans due November 2005, average rate of 3.3%

(644)
(158)
(250)

Total credit balance outstanding

(1,052)

Total credit available

$    1,448 

*  The Letter of Credit Agreements only include Standby Letter of Credits from Bank of America.

Covenants in the Multi-Year Revolving Credit Facility require a maximum leverage ratio (as defined) of 65.00% on April 3, 2004 and thereafter. These covenants also require a minimum interest coverage ratio (as defined), of 2.50 to 1.00 on April 3, 2004; 2.75 to 1.00 on July 3, 2004; and 3.00 to 1.00 on October 2, 2004 and thereafter. In addition, the covenants require a minimum net worth (as defined) that changes quarterly. The covenants also require a maximum debt level of $12,538 million, which changes quarterly, should our leverage ratio be equal to or exceed 65.00%. We were in compliance with these debt covenants as of April 3, 2004, with a leverage ratio of 61.25%, an interest coverage ratio of 3.06 to 1.00, a debt level (as defined) of $10,674 million and an adjusted net worth surplus (as defined) as shown below:

In millions

April 3, 2004

Adjusted Net Worth:

Net worth

$    5,522 

Goodwill impairments

757 

Minimum pension liability adjustment

473 

Adjusted Net Worth

6,752 

Required Net Worth:

80% of net worth as of the Credit Agreement closing date

4,650 

50% of net Income from fourth quarter 2000 through 2004*

281 

Proceeds of capital stock or equity interest from fourth quarter 2000 through 2004

1,152 

The Timber Company Net Worth

(329)

Required Net Worth

5,754 

Adjusted Net Worth surplus

$      998 

*  Does not include quarters with net losses.

18

Our borrowing agreements contain a number of financial and non-financial covenants, which restrict our activities. The more significant financial covenants are discussed above. In addition, certain agreements contain cross-default provisions.

Our continued compliance with these restrictive covenants is dependent on a number of factors, many of which are outside of our control. Should events occur that result in noncompliance, we believe there are remedies available that are acceptable to our lenders and us.

Approximately $148 million of our revenue bonds are supported by letters of credit that expire within one year. We intend to renew the letters of credit supporting these revenue bonds. Therefore, maturities of these obligations are reflected in accordance with their stated terms.

At April 3, 2004, we had interest rate exchange agreements (a collar) that effectively capped $47 million of floating rate obligations to a maximum interest rate of 7.5% and established a minimum interest rate on these obligations of 5.5%. Our interest expense is unaffected by this agreement when the market interest rate falls within this range. During the first quarter of 2004, these agreements reduced interest expense by less than $1 million. The agreements had a weighted-average maturity of approximately two years at April 3, 2004.

The estimated fair value of our interest rate exchange agreements at April 3, 2004 was a $3 million asset. The asset balance represents the estimated amount we would be paid if these agreements were terminated on April 3, 2004. The fair value at April 3, 2004 was estimated by calculating the present value of anticipated cash flows. The discount rate used was an estimated borrowing rate for similar debt instruments with like maturities.

At April 3, 2004 we had $1,902 million of floating rate debt outstanding, which represented approximately 18% of our total debt balance.

As of April 3, 2004, we had $1.5 billion of debt and equity securities available for issuance under a shelf registration statement filed with the Securities and Exchange Commission in 2000.

11.

RETIREMENT PLANS

Defined Benefit Pension Plans

Most of our employees participate in noncontributory defined benefit pension plans. These include plans that are administered solely by us and union-administered multiemployer plans. Our funding policy for solely administered plans is based on actuarial calculations and the applicable requirements of federal law. Contributions to multiemployer plans are generally based on negotiated labor contracts.

Benefits under the majority of plans for hourly employees (including multiemployer plans) are primarily related to years of service. We have separate plans for salaried employees and officers under which benefits are primarily related to compensation and age. The officers' plan and the supplemental retirement plan for eligible executives are not funded and are nonqualified for federal income tax purposes.

19

Net periodic pension cost for our pension plans during the first quarters of 2004 and 2003 included the following components:

In millions

First Quarter

2004

2003

Service cost of benefits earned
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of losses
Amortization of prior service cost
Contributions to multiemployer pension plans

$    37 
63 
(72)
8 
4 
3 

$    34 
62 
(60)
12 
6 
2 

Net periodic pension cost

$    43 

$    56 

The net periodic pension cost above includes approximately $1 million that is reported as discontinued operations in 2004 and 2003.

Through April 3, 2004, we recognized $43 million of pension expense. We anticipate recording an additional $164 million of pension expense in the remainder of 2004 for a total of $207 million, which includes estimated settlement and curtailment losses of $16 million related to the anticipated second-quarter 2004 sales of our building products distribution segment and our non-integrated pulp mills.

Through April 3, 2004, we made $9 million of pension contributions. We presently anticipate contributing an additional $198 million to fund our pension plans in the remainder of 2004 for a total of $207 million for 2004.

Health Care and Life Insurance Benefits

The majority of our retiree medical plans provide prescription drug benefits that may be affected by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ("the Act"), signed into law in December 2003. In accordance with FSP FAS 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, the effects of the Act on our medical plans have not been included in the measurement of our net periodic postretirement benefit cost for the first quarter of 2004. Specific authoritative guidance from the FASB on the accounting for the federal subsidy is pending and that guidance, when issued, may require us to revise previously reported information and may require us to amend our plans to benefit from the Act.

Net periodic postretirement benefit cost during the first quarters of 2004 and 2003 included the following components:

In millions

First Quarter

2004

2003

Service cost of benefits earned
Interest cost on accumulated postretirement benefit obligation
Amortization of prior service credit
Amortization of unrecognized loss

$      1 
10 
(4)
1 

$       2 
11 
(2)
- - 

$      8 

$     11 

20

12.

COMMITMENTS AND CONTINGENCIES. We are involved in various legal proceedings incidental to our business and are subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which we operate. As is the case with other companies in similar industries, Georgia-Pacific faces exposure from actual or potential claims and legal proceedings involving environmental matters. Liability insurance in effect during the last several years provides only very limited coverage for environmental matters.

ENVIRONMENTAL MATTERS

We are involved in environmental remediation activities at approximately 175 sites, both owned by us and owned by others, where we have been notified that we are or may be a potentially responsible party ("PRP") under the United States Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or similar state "superfund" laws. Of the known sites in which we are involved, we estimate that approximately 41% are being investigated, approximately 20% are being remediated and approximately 39% are being monitored (an activity that occurs after either site investigation or remediation has been completed). The ultimate costs to us for the investigation, remediation and monitoring of many of these sites cannot be predicted with certainty, due to the often unknown nature and magnitude of the pollution or the necessary cleanup, the varying costs of alternative cleanup methods, the amount of time necessary to accomplish the cleanups, the evolving nature of cleanup t echnologies and governmental regulations, and the inability to determine our share of multiparty cleanups or the extent to which contribution will be available from other parties, all of which factors are taken into account to the extent possible in estimating our liabilities. We have established reserves for environmental remediation costs for these sites that we believe are probable and reasonably able to be estimated. To the extent that we are aware of unasserted claims, consider them probable, and can estimate their potential costs, we include appropriate amounts in the reserves.

Based on analyses of currently available information and previous experience with respect to the cleanup of hazardous substances, we believe it is reasonably possible that costs associated with these sites may exceed current reserves by amounts that may prove insignificant or that could range, in the aggregate, up to approximately $128 million. This estimate of the range of reasonably possible additional costs is less certain than the estimates upon which reserves are based, and in order to establish the upper limit of this range, assumptions least favorable to us among the range of reasonably possible outcomes were used. In estimating both our current reserve for environmental remediation and the possible range of additional costs, we have not assumed we will bear the entire cost of remediation of every site to the exclusion of other known PRPs who may be jointly and severally liable. The ability of other PRPs to participate has been taken into account, based generally on the ir financial condition and probable contribution on a per-site basis.

21

Presented below is the activity in our environmental liability account for the last three fiscal years and first three months of 2004 and 2003.

In millions

First Quarter

Fiscal Year Ended

2004

2003

2003

2002

2001

Beginning balance
Expense charged to earnings:
  Related to previously existing matters
  Related to new matters
Amounts related to acquisitions:
  Purchase price allocations
Reclassification of reserves
Payments

$   230 

1 
- - 

- - 
7 
(3)

$   306 

- - 
- - 

- - 
- - 
(2)

$   306 

(64) 
1 

- - 
(4)
(9)

$   318 

14 
- - 

- - 
- - 
(26)

$   121 

2 
15 

207 
- - 
(27)

Ending balance

$   235 

$   304 

$   230 

$   306 

$   318 

KALAMAZOO RIVER SUPERFUND SITE

We are currently implementing an Administrative Order by Consent ("AOC") entered into with the Michigan Department of Natural Resources and the United States Environmental Protection Agency ("United States EPA") regarding an investigation of the Kalamazoo River Superfund Site. The Kalamazoo River Superfund Site is comprised of 35 miles of the Kalamazoo River, three miles of Portage Creek and a number of operable units in the form of landfills, waste disposal areas and impoundments. We became a PRP for the site in December 1990 by signing the AOC. There are two other named PRPs at this time. The contaminant of concern is polychlorinated biphenyls ("PCBs") in the river sediments and residuals in the landfills and waste disposal areas.

A draft Remedial Investigation/Feasibility Study ("RI/FS") for the Kalamazoo River was submitted to the State of Michigan on October 30, 2000 by us and other PRPs. The draft RI/FS evaluated five remedial options ranging from no action to total dredging of the river and off-site disposal of the dredged materials. In February 2001, the PRPs, at the request of the State of Michigan, also evaluated 9 additional potential remedies. The cost for these remedial options ranges from $0 to $2.5 billion. The draft RI/FS recommends a remedy involving stabilization of over twenty miles of riverbank and long-term monitoring of the riverbed. The total cost for this remedy is approximately $73 million. It is unknown over what timeframe these costs will be paid out. The United States EPA has taken over management of the RI/FS and is evaluating the proposed remedy. We cannot predict what impact or change will result from the United States EPA's assuming management of the site.

We are paying 45% of the costs for the river portion of the RI/FS investigation based on an interim allocation. This 45% interim allocation includes the share assumed by Fort James prior to its acquisition by us. Several other companies have been identified by government agencies as PRPs, and all but one is believed to be financially viable.

As part of implementing the AOC, we have investigated the closure of two disposal areas which are contaminated with PCBs. The cost to remediate one of the disposal areas, the King Highway Landfill, was approximately $9 million. The remediation of that area is essentially complete and we are waiting for final approval of the closure from the State of Michigan. A 30-year post-closure care period will begin upon receipt of closure approval, and over that period we will make expenditures accrued for post-closure care. We are solely responsible for closure and post-closure care of the King Highway Landfill.

22

It is anticipated that the cost for closure of the second disposal area, the Willow Boulevard/A Site landfill, will be approximately $8 million. The State of Michigan has drafted a new RI/FS for this landfill and we are in the process of preparing comments on that document. The new draft RI/FS evaluates the same remedies proposed by the PRPs. The decision as to the actual remedy will be made by the United States EPA after the RI/FS is finalized, which is expected to be this year. We believe the United States EPA will require a remedy for this landfill similar to the King Highway landfill closure. It is anticipated these costs will be paid out over the next five years, and costs for post-closure care for 30 years following certification of the closure. We are solely responsible for closure and post-closure care of the Willow Boulevard portion of the landfill, and are sharing investigation costs for the A Site portion of the landfill with Millennium Holdings on an equal basis. A final determination as to how closure and post-closure costs for the A Site will be allocated between us and Millennium Holdings has not been made; however, our share should not exceed 50%.

We have spent approximately $33.5 million on the Kalamazoo River Superfund Site through April 3, 2004 broken down as follows:

Site

(in millions)

River

$  19.4

King Highway

9.1

A Site

2.0

Willow Blvd.

                 3.0

           $  33.5

All of these amounts were charged to earnings.

The reserve for the Kalamazoo River Superfund Site is based on the assumption that the bank stabilization remedy will be selected as the final remedy by the United States EPA and the State of Michigan, and that the costs of the remedy will be shared by several other PRPs.

FOX RIVER SUPERFUND SITE

The Fox River site in Wisconsin is comprised of 39 miles of the Fox River and Green Bay. The site was nominated by the United States EPA (but never finally designated) as a Superfund site due to contamination of the river by PCBs through wastewater discharged from the recycling of carbonless copy paper from 1953-1971. We became a PRP through our acquisition of Fort James.

In late July of 2003, the Wisconsin Department of Natural Resources ("WDNR") and the United States EPA issued a Record of Decision ("ROD") for Operable Units ("OU") 3, 4 and 5 of the Fox River. OU 3 is the section of the Fox River running downstream from Little Rapids to the De Pere dam, and Operable Unit 4 runs from the De Pere dam downstream to the mouth of the Fox River at Green Bay. Operable Unit 5 is Green Bay. The Fort James facility, which potentially discharged PCBs, is located in OU 4 approximately 3 miles downstream from the De Pere dam.

The ROD calls for the removal by dredging of all sediments in OUs 3 and 4 containing PCBs above one part per million. The amount of sediment estimated to contain PCBs above one part per million is 586,800 cubic yards in OU 3 and 5,880,000 cubic yards in OU 4. The ROD also calls for monitored natural recovery for OU 5. The ROD estimates the dredging remedy for OUs 3 and 4 and the monitored natural recovery for OU 5 will cost $324 million. However, the ROD does allow for capping as an alternative remedy to dredging in certain areas of OUs 3 and 4 if capping would be less costly than dredging and provide the same level of protection as dredging. The WDNR estimated that approximately 40% of the total volume of contaminated sediments in OUs 3 and 4 would be eligible for capping based upon the capping criteria defined in the ROD. The allowance for capping in the ROD represents a major change from the proposed remedial action plan issued by WDNR in 2001, which did not provide or allo w for capping in any areas of OUs 3 and 4.

23

Six other companies have been identified by the governments as PRPs. Under an interim allocation agreement, we were paying 30% of costs incurred by the PRPs in analyzing and responding to all of the governmental documents which preceded the issuance of the ROD. With the issuance of the ROD, we do not anticipate that the PRPs will be engaged in any further formal work as a group. We believe that all of the PRPs are liable for some portion of the costs of remediating OUs 4 and 5, and that our ultimate liability will be less than 30% of the total estimated cost of remediating the Fox River site.

Following issuance of the ROD we analyzed its remedial provisions as well as the relevant facts impacting our potential liability. We concluded that we will be able to utilize the capping remedy to the extent permitted by the ROD. We also concluded that there are geographic limitations on our potential liability, and we can limit our responsibility for the removal and capping of PCBs to the part of OU 4 immediately adjacent to and downstream from the Fort James facility in Green Bay, Wisconsin. We share liability for any appropriate monitoring in OU 5 with all of the PRPs. Based on these considerations we determined that we would not be required to utilize all of the reserve previously established for this site, and in December, 2003 reduced such reserve by approximately $66 million.

We have spent approximately $38 million from 1995 to April 3, 2004 on the Fox River site, some of which was spent by Fort James prior to its acquisition by us.

Along with another PRP, we have entered into an Administrative Order on Consent ("AOC") to prepare the remedial design for OUs 3, 4 and 5. We are presently developing a work plan for the design effort and expect to conduct pre-design sampling in OUs 3, 4 and 5 this summer.

In 2002, we entered into an agreement with the WDNR and the United States Fish and Wildlife Service that would settle claims for natural resource damages under CERCLA, the Federal Water Pollution Control Act and state law for approximately $12 million, and to date have paid approximately $9 million of this amount. The agreement was entered by the Federal District Court in Wisconsin on March 19, 2004 and is now effective. The $12 million to be paid under this agreement is separate and apart from any costs related to remediation of the Fox River site.

In 1999 we and Chesapeake Corporation formed a joint venture to which a Chesapeake subsidiary, Wisconsin Tissue Mills, Inc., contributed tissue mills and other assets located along the Fox River. Wisconsin Tissue is one of the PRPs for the Fox River site. Chesapeake and Wisconsin Tissue specifically retained all liabilities arising from Wisconsin Tissue's status as a PRP, and indemnified the joint venture and us against these liabilities. In 2001, we (having acquired all of Chesapeake's interest) sold this joint venture to Svenska Cellulosa Aktiebolaget (publ) ("SCA") and indemnified SCA and the joint venture against all environmental liabilities (including all liabilities arising from the Fox River site for which Wisconsin Tissue is ultimately responsible) arising prior to the closing of the SCA sale. As part of the agreement pursuant to which we acquired Chesapeake's interest in the joint venture, Chesapeake specifically agreed that we would retain Chesapeake's prior indemni fication for these liabilities.

WHATCOM WATERWAY SUPERFUND SITE

The Whatcom Waterway is a Federal channel located adjacent to our pulp and paper mill in Bellingham, Washington. The State of Washington declared the Whatcom Waterway a Superfund site due to historical contamination of sediments with woody debris, phenolics and mercury. On March 6, 1995, the Washington Department of Ecology named us as a Potentially Liable Party ("PLP") in the case. The State is presently preparing to name other PLPs in the case.

We completed an RI/FS and identified a preferred remedial alternative comprised of a combination of dredging, capping and habitat restoration with a total estimated cost of $23 million. It is anticipated these costs will be paid out over the next 5 to 10 years. We have completed interim remedial action and habitat restoration of a portion of the site. Environmental monitoring of this portion of the site is ongoing. The reserve for the Whatcom Waterway site is based on the assumptions that the $23 million proposed remedy involving limited dredging and capping will be selected by the State of Washington as the final remedy and

24

that the cost of the remedy will be shared among a small group of PLPs.

We have spent approximately $3.6 million through April 3, 2004 on the Whatcom Waterway site, all of which was charged to earnings.

ASBESTOS LITIGATION

We and many other companies are defendants in suits brought in various courts around the nation by plaintiffs who allege that they have suffered personal injury as a result of exposure to asbestos-containing products. Our asbestos liabilities relate primarily to joint systems products manufactured by Bestwall Gypsum Company and our gypsum business that contained small amounts of asbestos fiber. We acquired Bestwall in 1965, and discontinued using asbestos in the manufacture of these products in 1977.

Pending Claims

25

The following table presents information about the approximate number of our asbestos claims during the past three fiscal years and the first fiscal quarters of each of 2004 and 2003:

First Quarter

Fiscal Year Ended

2004

2003

2003

2002

2001

Claims Filed ¹

8,800

10,400

39,000

41,700

39,700

Claims Resolved ²

9,300

12,500

43,500

35,100

30,900

Claims Unresolved at End of Period

63,800

66,700

64,300

68,800

62,200

Claims Filed includes all asbestos claims for which service has been received and/or a file has been opened by us and each such claim represents a plaintiff who is pursuing an asbestos claim against us.

Claims resolved include asbestos claims which have been settled or dismissed or which are in the process of being settled or dismissed based upon agreements or understandings in place with counsel for the claimants

In addition, Fort James Corporation, one of our wholly-owned subsidiaries, currently is defending approximately 790 asbestos premises liability claims.

Asbestos Liabilities

From the commencement of this litigation through April 3, 2004, we either had settled, had dismissed or were in the process of settling a total of approximately 322,500 asbestos claims. For this same period our asbestos payments, for liability, defense and administration, before insurance recoveries and tax benefits, totaled approximately $677 million. We generally settle asbestos claims for amounts we consider reasonable given the facts and circumstances of each claim.

In the fourth quarter of 2001, we recorded a pre-tax charge to earnings of $350 million to cover the probable and reasonably estimable asbestos liabilities and defense costs we believed we would pay through 2011, net of expected insurance recoveries during this same period. The charge was based on projections prepared by National Economic Research Associates (NERA) and Navigant Consulting (formerly known as Peterson Consulting), nationally recognized firms with expertise in asbestos liability and insurance coverage matters, and contained many assumptions. NERA's projection of our future asbestos liabilities assumed that beginning in 2001 the number of new claims filed against us for asbestos-related injuries would decline at a fairly constant rate each year through 2011. It also assumed that we would pay about $105 million for our asbestos liabilities and defense costs in 2002 (compared to about $84 million in 2001), with such payments then declining at varying rates over the period through 2011.

In fact, during 2002 the number of new claims filed against us increased somewhat and our total asbestos liabilities and defense costs were approximately $75 million more than NERA's projection had assumed. This result was due principally to higher settlement costs in 2002 for claims involving mesothelioma, which represent a very small percentage of our total asbestos claims but accounted for well over half of our total asbestos liabilities in 2002. In addition, during 2001 a number of other manufacturers of asbestos-containing products, including one of our principal competitors in the manufacture of joint systems products, filed for bankruptcy. During 2002 many plaintiff lawyers increased their settlement demands on us, principally in mesothelioma cases, to compensate for these bankruptcies. As a result, at the end of 2002 NERA increased its original estimate of our asbestos liabilities and defense costs over the period through 2011, and extended the projection through 2012, to a total of slightly less than $1.2 billion, before any insurance recoveries and ignoring possible tax benefits. In the fourth quarter of 2002 we recorded an additional pre-tax charge to earnings of $315 million which, when added to amounts remaining from the charges recorded in 2001, we believed were sufficient to cover our projected asbestos liabilities and defense costs, net of expected insurance recoveries, through 2012.

26

For 2003, our total payments for asbestos liabilities and defense costs (before insurance and tax benefits) were $189 million. NERA has reviewed our 2003 asbestos liability and defense cost payments and compared them to the revised estimate it made at the end of 2002. Based on this review, NERA concluded that the 2003 payments were in line with its revised estimate and that the assumptions it used in that estimate remain valid. Accordingly, the only adjustment to our asbestos reserve in 2003 was to accrue an additional amount equal to payments we anticipate making in 2013 for asbestos liabilities and defense costs, so that the reserve remains a ten-year reserve. NERA estimated this amount to be $54 million (before insurance and tax benefits). Accordingly, in the fourth quarter of 2003 we recorded a pre-tax charge of $54 million to record this additional accrual. We believe that NERA's projection for 2004 through 2013 represents the best estimate of the reasonably estimable asb estos costs we will incur based upon currently available information.

On April 22, 2004, the United States Senate voted against cloture on a bill, which was substantially similar to the bill described above that was passed by the United States Senate Judiciary Committee in 2003. The vote, on a motion to impose cloture on the debate surrounding the bill, was 50-47; 60 votes were required to impose cloture. Cloture is a procedural step to limit debate on a bill. Leaders of both political parties have announced they will have further negotiations about this bill.

Insurance

In 2001, 2002 and again in 2003, we, with advice from legal counsel and Navigant Consulting, also reviewed our existing insurance policies, analyzed publicly available information bearing on the creditworthiness of our various insurers, and employed insurance allocation methodologies which we and our advisors considered appropriate to ascertain the amount of probable insurance recoveries from our insurers for our present and future asbestos liabilities. Assumptions were made about self-insurance reserves, policy exclusions, liability caps and gaps in our coverage, the resolution of allocation issues among various layers of insurers, as well as insolvencies of certain of our insurance carriers and the continued solvency of our other insurers. Based on this analysis, Navigant Consulting projected our expected insurance recoveries for asbestos liabilities and costs over the period through 2013.

During 2003 we entered into agreements with several of our insurers to confirm amounts payable by them under applicable policies. These agreements generally provide that we will be able to recover more insurance than we had assumed when we were projecting our insurance receivables in 2001 and 2002.

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During 2003 we revised our insurance receivable to include recoveries under these agreements, to account for favorable negotiations and other recoveries from certain other insurers, to change our allocation methodology for remaining solvent insurers consistent with these agreements, and to reflect possible insolvencies at two of our insurers. The net effect of these changes was to increase our total insurance receivable by $156 million during 2003.

The insurance receivables recorded by us do not assume any recovery from insolvent carriers, and assume that those carriers which are currently solvent will continue to be solvent. However, there can be no assurances that these assumptions will be correct. Substantially all of the insurance recoveries deemed probable are from insurance companies rated A- (excellent) or better by A.M. Best Company. No more than 33% of such insurance recoveries are from any one company, though several of the insurers are under common control. All of our available insurance is included in our insurance receivable.

In the fourth quarter of 2003, we sold without recourse approximately $156 million of our insurance receivables representing claims already paid by us to a third party for approximately $147 million in cash.

Key Assumptions

The analyses and projections of NERA and Navigant Consulting are based on their professional judgment. The more important assumptions in NERA's projection of the number of claims that will be filed against us include the population potentially exposed to asbestos-containing products manufactured by us, the expected occurrence of various diseases in these potentially exposed populations, the rate at which these potentially exposed populations actually file claims, and activities of the asbestos plaintiffs bar designed to maximize its profits from such claims. The cost of settling claims is driven by these same assumptions, as well as by prevailing judicial and social environments in the jurisdictions in which claims are filed, the rulings by judges and the attitudes of juries in respect to the value of each such claim, the insolvencies of other defendants to a particular claim, and the impact of verdicts against other defendants on settlement demands against us.

Among the more important assumptions made by Navigant Consulting in projecting our future insurance recoveries are the resolution of allocation issues among various layers of insurers, the application of particular theories of recovery based on decided cases, and the continuing solvency of various insurance companies.

Given these assumptions and the uncertainties involved in each of them, our actual asbestos liabilities, defense costs and insurance recoveries could be higher or lower than those currently projected and/or recorded. However, these assumptions are only some of those contained in the NERA and Navigant Consulting projections, and all of such assumptions are only one aspect of the overall projections made by those firms. Changes in the foregoing assumptions, or others, whether from time to time or over the period covered by such projections, may or may not affect the validity of the overall projections. We intend to monitor our accrued asbestos liabilities, defense costs and insurance recoveries against these overall projections, and will make adjustments to such accruals as required by generally accepted accounting principles.

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Summary of Accruals

In the fourth quarter of 2003 we recorded a net pre-tax charge to earnings of $16 million, which when added to our existing reserves are estimated to cover the probable and reasonably estimable asbestos liabilities and defense costs we believe we will pay through 2013, net of expected insurance recoveries during this same period. The following table summarizes accruals to, and payments from, our reserve for our total asbestos personal injury liabilities, receipts from our insurance carriers, including the monetization of a part of such receivables in 2003 as described above, and other changes to our expected insurance receivables, for the last three fiscal years and first fiscal quarters of each of 2004 and 2003 (dollars in millions):

First Quarter

Fiscal Year End

2004

2003

2003

2002

2001

Asbestos Liabilities
Beginning Balance
Accruals
Payments

$   1,027 
- 
(47)

$    1,163 
- - 
(46)

$     1,162 
54 
(189)

$     836 
507 
(181)

$     136 
784 
(84)

Ending Balance

$      980 

$    1,117 

$    1,027 

$    1,162 

$    836 

Insurance Receivable
Beginning Balance
Accruals
Receipts

$      576 
- - 
(11)

$    670 
- - 
(42)

$    670 
156 
(250)

$    527 
192 
(49)

$    172 
421 
(66)

Ending Balance

$      565 

$    628 

$    576 

$    670 

$    527 

The amounts accrued for asbestos liabilities are recorded under "Other current liabilities" and "Other long-term liabilities," and the amounts accrued for insurance receivables are reflected under "Other current assets" and "Other assets," in the accompanying consolidated balance sheets.

There can be no assurance that our currently accrued asbestos liabilities will be sufficient to cover our payments for such liabilities and related defense costs, or that our accrued insurance recoveries will be realized, through 2013. We believe that it is reasonably possible that we will incur additional charges for our asbestos liabilities and defense costs in the future which could exceed our existing reserves, but cannot estimate such excess amount at this time. We also believe that it is reasonably possible that such excess liabilities could be material to our operating results in any given quarter or year but, based on the information available to us at present, do not believe that it is reasonably possible that such excess liabilities would have a material adverse effect on our long-term results of operations, liquidity or consolidated financial position.

OTHER LITIGATION

In late December 2003, we settled all claims in a class action lawsuit filed against us and the Georgia-Pacific Corporation Salaried Employees Retirement Plan (the "Plan") in 1997 seeking recovery of alleged underpayments of lump-sum benefits to persons taking early retirement. In February 2004, the District Court entered a preliminary order approving the settlement, which, among other things, scheduled a fairness hearing on the settlement. At the fairness hearing, the District Court will be requested to finally approve the settlement agreement as fair, reasonable, and adequate. Under the settlement the Plan will pay $67 million in additional benefits to certain class members plus 1% simple annual interest from December 18, 2003 until the date of distribution, which includes attorney and class representative fees, and costs to administer the settlement. All claims against the Plan and us will be dismissed with prejudice. The settlement may affect our net periodic pension cost and obligation to fund the Plan over time; however, we

29

believe that the settlement should not have a material impact on our funding obligations or results of operations. An estimated settlement amount has been included in our projected benefit obligation.

In 2003, we settled a class action antitrust lawsuit filed against us and other manufacturers of containerboard. However, a significant number of plaintiffs opted out of the class and brought suit against the same defendants, making substantially the same allegations. During the first quarter of 2004, we recorded a pre-tax charge of $6 million for the settlement of these lawsuits. We have resolved the bulk of these opt out cases, however a small number remain pending.

In August 1995, Fort James, at the time a publicly-held corporation, transferred certain assets and liabilities of its communications paper and food packaging businesses to two newly formed companies, Crown Vantage, Inc. ("CV"), (a wholly-owned subsidiary of Fort James) and CV's subsidiary Crown Paper Co. ("CP"). CP then entered into a $350 million credit facility with certain banks and issued $250 million face amount of senior subordinated notes. Approximately $483 million in proceeds from these financings were transferred to Fort James in payment for the transferred assets and other consideration. CV also issued to Fort James a pay-in-kind note with a face amount of $100 million. CV shares were then spun off to the Fort James shareholders and CV operated these businesses as a stand-alone company beginning in August 1995.

In March 2001, CP and CV filed for bankruptcy. Various creditors have indicated that the borrowings made by CP and CV, and the payments to Fort James for the assets transferred to CV and CP, caused those companies to become insolvent, and that the transfer of these assets therefore was a fraudulent conveyance. In April 2001, Fort James filed suit against CP and CV in Federal Bankruptcy Court in Oakland, California seeking a declaratory judgment that the transactions did not involve any fraudulent conveyance and that other parties and actions were the cause of the bankruptcy of CV and CP. In September 2001, CV filed suit against Fort James asserting, among other claims, that the transactions described above constituted fraudulent conveyances and seeking unspecified damages. Fort James does not believe that any of its actions in establishing CV or CP involved a fraudulent conveyance or caused the bankruptcy of those companies, and it intends to defend itself vigorously.

The Wisconsin Department of Natural Resources ("WDNR") has referred a Notice of Violation ("NOV") to the Wisconsin Department of Justice ("WDOJ") for further action. The NOV alleges violations by one of our Green Bay paper mills of certain air regulations and permitting requirements concerning emissions from the mill's printing operations and emission monitoring requirements for the mill's dry forming operations. The Company discovered and voluntarily disclosed to WDNR the facts underlying both sets of allegations. Still, the civil penalty may exceed $100,000.

Although the ultimate outcome of these environmental matters and legal proceedings cannot be determined with certainty, based on presently available information management believes that adequate reserves have been established for probable losses with respect thereto. Management further believes that the ultimate outcome of these and other environmental matters and legal proceedings could be material to operating results in any given quarter or year but will not have a material adverse effect on our long-term results of operations, liquidity or consolidated financial position.

GUARANTEES AND INDEMNIFICATIONS

Georgia-Pacific is a party to contracts in which it is common for us to agree to indemnify third parties for certain liabilities that arise out of or relate to the subject matter of the contract. In some cases, this indemnity extends to related liabilities arising from the negligence of the indemnified parties, but usually excludes any liabilities caused by gross negligence or willful misconduct. We cannot estimate the potential amount of future payments under these indemnities until events arise that would trigger a liability under the indemnities.

We are a 50% partner in a joint venture ("GA-MET") with Metropolitan Life Insurance Company ("Metropolitan"). GA-MET owns and operates our main office building in Atlanta, Georgia. We account for the investment in GA-MET under the equity method. At April 3, 2004, GA-MET had an outstanding

30

mortgage loan payable to Metropolitan in the amount of $126 million. The note bears interest at 9.5%, requires monthly payments of principal and interest through 2011, and is secured by the land and building owned by the joint venture. In the event of foreclosure, each partner has severally guaranteed payment of one-half of any shortfall of collateral value to the outstanding secured indebtedness. Based on present market conditions and building occupancy, the likelihood of any obligation to us with respect to this guarantee is considered remote.

Additionally, in connection with the sale of assets and the divestiture of businesses, we may agree to indemnify the buyer of the assets and related parties for certain losses or liabilities incurred by the buyer with respect to (i) the representations and warranties made by us to the buyer in connection with the sale and (ii) liabilities related to the pre-closing operations of the assets sold. Indemnities related to pre-closing operations generally include environmental liabilities, tax liabilities, and other liabilities not assumed by the buyer in the transaction.

Indemnities related to the pre-closing operations of sold assets normally do not represent additional liabilities to us, but simply serve to protect the buyer from potential liability associated with our obligations existing at the time of the sale. As with any liability, we have previously accrued for those pre-closing obligations that are considered probable and reasonably estimable. We have not accrued any additional amounts as a result of the indemnities summarized below, which result from significant asset sales and divestures in recent years.

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We do not believe that any amounts that we may be required to pay under the indemnities set forth in the agreements relating to the divestitures summarized above will be material to our results of operations, financial position, or liquidity. We will accrue a liability related to a specific indemnity when future payment is probable and the amount is reasonably estimable.

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13.

CONDENSED CONSOLIDATING INFORMATION. Fort James is an issuer of certain securities registered under the Securities Act of 1933, thus subjecting it to reporting requirements under Section 15(d) of the Securities Exchange Act of 1934. Fort James and Fort James Operating Company, a subsidiary of Fort James, guaranteed our $500 million and $1.5 billion senior notes offerings, which were completed on June 3, 2003 and January 30, 2003, respectively. Fort James Operating Company guarantees the securities issued by Fort James. Similarly, certain of our domestic subsidiaries guarantee our Multi-Year Revolving Credit Facility. Each subsidiary issuer or subsidiary guarantor is 100% owned by us and all guarantees are full and unconditional.

Certain assets and liabilities are administered by us, and, accordingly, are maintained at the Corporation and thus are not reflected on the balance sheets of our subsidiaries. The statements of operations properly reflect all results of operations of each respective entity. The following condensed consolidating financial information is presented in lieu of consolidated financial statements for Fort James and Fort James Operating Company because the securities issued by Fort James are fully and unconditionally guaranteed by us:

Included in Other Non-Guarantor Subsidiaries is our wholly owned subsidiary G-P Receivables, a special purpose entity into which some of our receivables and the receivables of participating domestic subsidiaries are sold. G-P Receivables bought these receivables at a significant discount during the first quarter of 2004 resulting in G-P Receivables recognizing a credit to general and administrative expense of $286 million, and the Corporation, Fort James Guarantor Subsidiary, and Other Non-Guarantor Subsidiaries recognizing a corresponding charge to general and administrative expense of $256 million, $4 million and $26 million, respectively. Prior to December 2003, G-P Receivables purchased the receivables at face value; accordingly, no such income or loss was recognized in the first quarter of 2003.

33

CONSOLIDATING STATEMENTS OF INCOME
FIRST QUARTER 2004

In millions

Georgia-Pacific
Corp.

Fort James
Corp.

Fort James
Guarantor
Subsidiary

Fort James
Non-Guarantor
Subsidiaries

Other
Non-Guarantor
Subsidiaries

Consolidating
Adjustments

Consolidated
Amounts

Net sales

$    3,021 

$      - 

$   1,141 

$    578

$    1,084 

$   (602)

$   5,222 

Costs and expenses
  Cost of sales
  Selling and distribution
  Depreciation, amortization
    and accretion
  General and administrative
  Interest, net
  Other (income) losses,
    including equity income
    in affiliates

2,441 
159 

112 
392 
131 


(277)

- - 
- - 

- - 
- - 
9 


(96)

818 
125 

61 
43 
96 


1 

393 
46 

36 
30 
(61)


(1)

916 
28 

35 
(246)
22 


1 

(603)
- - 

- - 
- - 
- - 


398 

3,965 
358 

244 
219 
197 


26 

Total costs and expenses

2,958 

(87)

1,144 

443 

756 

(205)

5,009 

(Loss) income from continuing
  operations before
  income taxes
Benefit (provision) for
  income taxes

63 

82 

87 

3 

(3)

1 

135 

(37)

328 

(120)

(397)

- - 

213 

(71)

Income (loss) from continuing
  operations
Income from discontinued
  operations, net of taxes

145 

2 

90 

- - 

(2)

- - 

98 

- - 

208 

4 

(397)

(1)

142 

5 

Income (loss) before
  accounting change
Cumulative effect of
  accounting change,
  net of taxes

147 


- -

90 


- - 

(2)


- - 

98 


- - 

212 


- - 

(398)


- - 

147 


- - 

Net income (loss)

$    147 

$    90 

$    (2)

$    98 

$   212 

$    (398)

$     147 

34

CONSOLIDATING STATEMENTS OF INCOME
FIRST QUARTER 2003

In millions

Georgia-Pacific
Corp.

Fort James Corp.

Fort James
Guarantor
Subsidiary

Fort James
Non-Guarantor
Subsidiaries

Other
Non-Guarantor
Subsidiaries

Consolidating
Adjustments

Consolidated
Amounts

Net sales

$   2,346 

$      - 

$   1,195 

$    500 

$    976 

$    (579)

$   4,438 

Costs and expenses
  Cost of sales
  Selling and distribution
  Depreciation, amortization
    and accretion
  General and administrative
  Interest, net
  Other losses (income),
    including equity income
    in affiliates

2,076 
118 

114 
103 
131 


(93)

- - 
- - 

- - 
- - 
6 


(66)

849 
116 

64 
37 
109 


74 

356 
43 

28 
37 
(62)


- - 

819 
28 

37 
14 
20 


- - 

(579)
- - 

- - 
- - 
- - 


163 

3,521 
305 

243 
191 
204 


78 

Total costs and expenses

2,449 

(60)

1,249 

402 

918 

(416)

4,542 

(Loss) income from continuing
  operations before
  income taxes
Benefit (provision) for
  income taxes

(103)

73 

60 

2 

(54)

21 

98 

(21)

58 

(22)

(163)

- - 

(104)

53 

Income (loss) from continuing
  operations
Income from discontinued
  operations, net of taxes

(30)

(3)

62 

- - 

(33)

- - 

77 

- - 

36 

(4)

(163)

- - 

(51)

(7)

(Loss) income before
  accounting change
Cumulative effect of
  accounting change,
  net of taxes

(33)


3 

62


2

(33)


22 

77 


- - 

32 


1 

(163)


- - 

(58)


28 

Net (loss) income

$    (30)

$     64 

$    (11)

$     77 

$     33 

$    (163)

$     (30)

35

CONSOLIDATING STATEMENTS OF CASH FLOWS
FIRST QUARTER 2004

In millions

Georgia-Pacific
Corp.

Fort James Corp.

Fort James
Guarantor
Subsidiary

Fort James
Non-Guarantor
Subsidiaries

Other
Non-Guarantor
Subsidiaries

Consolidating
Adjustments

Consolidated
Amounts

Cash (used for) provided
  by operating activities

$     (141)

$       (1)

$        10 

$        121 

$        (37)

$        - 

$       (48)

Cash flows from investing
  activities:
    Property, plant and
      equipment investments
    Net proceeds from sales
      of assets
    Other

(46)

5 
(2)

- - 

- - 
- - 

(34)

1 
- - 

(11)

1 
(1)

(18)

- - 
(3)

- - 

- - 
- - 

(109)

7 
(6)

Cash used for investing
  activities

(43)

- -