PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

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

Third Quarter

First Nine Months

(In millions, except per share amounts)

2004

2003

2004

2003

Net sales

$4,741 

$5,125 

$15,151 

$14,446 

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

3,511 
257 
231 
212 
167 
(8)

3,966 
326 
242 
211 
200 
(101)

11,369 
919 
711 
656 
542 
(9)

11,334 
952 
728 
609 
606 
(39)

Total costs and expenses

4,370 

4,844 

14,188 

14,190 

Income from continuing operations before income taxes
Provision for income taxes

371 
132 

281 
97 

963 
352 

256 
69 

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

239 
1 

184 
8 

611 
(4)

187 
8 

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

240 
-- 

192 
-- 

607 
-- 

195 
28 

Net income

$240 

$192 

$607 

$223 

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

$  0.93 
0.01 

$  0.74 
0.03 

$  2.40 
(0.02)

$  0.75 
0.03 

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

$  0.94 
-- 

$  0.77 
-- 

$  2.38 
-- 

$  0.78 
0.11 

Net income

$  0.94 

$  0.77 

$  2.38 

$  0.89 

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

$  0.91 
-- 

$  0.73 
0.03 

$  2.33 
(0.02)

$  0.75 
0.03 

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

$  0.91 
-- 

$  0.76 
-- 

$2.31 
-- 

$  0.78 
0.11 

Net income

$  0.91 

$  0.76 

$  2.31 

$  0.89 

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

256.0 

7.2 

250.2 

2.1 

254.9 

7.5 

250.1 

0.7 

  Total assuming conversion

263.2 

252.3 

262.4 

250.8 

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

2

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

First Nine Months

(In millions, except per share amount)

2004

2003

Cash flows from operating activities
Net income
Adjustments to reconcile net income to cash provided by operations
    (excluding the effect of dispositions):
  Cumulative effect of accounting changes, net of taxes
  Other income, net
  Depreciation, amortization and accretion
  Deferred income taxes
  Increase in receivables
  (Increase) decrease 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

$     607 


-- 
(14)
724 
132 
(481)
(67)
208 
40 
(38)
(203)
31 

$     223 


(28)
(39)
783 
(67)
(282)
27 
74 
5 
333 
116 
37 

Cash provided by operations

939 

1,182 

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

(448)
(23)
1,416 
(14)

(480)
(2)
27 
(14)

Cash provided by (used for) investing activities

931 

(469)

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 (decrease) increase in short-term debt
Proceeds from option plan exercises
Cash dividends paid ($0.375 per share)

(5,270)
3,919 
(14)
(35)
(15)
(303)
53 
(97)

(6,318)
5,680 
(48)
-- 
(54)
190 
4 
(94)

Cash used for financing activities

(1,762)

(640)

Increase in cash
    Balance at beginning of period

108 
51 

73 
42 

    Balance at end of period

$      159 

$      115 

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

3

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

(In millions, except shares and per share amounts)

October 2,
2004

January 3,
2004

ASSETS
Current assets
  Cash and equivalents
  Receivables, less allowances of $29 and $36, respectively
  Inventories
  Deferred income tax assets
  Assets held for sale
  Other current assets

$       159 
1,898 
1,793 
125 
-- 
362 

$        51 
1,542 
1,848 
117 
739 
301 

Total current assets

4,337 

4,598 

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

17,711 
(9,426)

17,758 
(9,176)

Property, plant and equipment, net

8,285 

8,582 

Goodwill, net

7,478 

7,484 

Intangible assets, net

689 

716 

Assets held for sale

-- 

757 

Other assets

2,216 

2,268 

Total assets

$   23,005 

$   24,405 

4

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

(In millions, except shares and per share amounts)

October 2,
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
  Liabilities held for sale
  Other current liabilities

$    386 
558 
1,506 
287 
-- 
1,088 

$    689 
789 
1,404 
244 
189 
1,107 

Total current liabilities

3,825 

4,422 

Long-term debt, excluding current portion

7,968 

9,074 

Liabilities held for sale

-- 

206 

Other long-term liabilities

3,534 

3,826 

Deferred income tax liabilities

1,647 

1,483 

Commitments and contingencies

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;
    256,370,000 and 252,980,000 shares issued and outstanding
  Additional paid-in capital
  Retained earnings
  Long-term incentive plan deferred compensation
  Accumulated other comprehensive income

-- 

-- 

205 
3,579 
2,106 
-- 
141 

-- 

-- 

202 
3,473 
1,596 
(1)
124 

Total shareholders' equity

6,031 

5,394 

Total liabilities and shareholders' equity

$   23,005 

$   24,405 

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

5

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

Third Quarter

First Nine Months

(In millions)

2004

2003

2004

2003

Net income
 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

$     240 

54 

2 
-- 
-- 
-- 

$      192 

3 

(1)
2 
-- 
-- 

$     607 

(11)

2 
-- 
-- 
26 

$     223 

127 

(4)
9 
4 
-- 

Comprehensive income

$     296 

$    196 

$     624 

$     359 

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

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
GEORGIA-PACIFIC CORPORATION
October 2, 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.

Management is 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 audited financial statements for the fiscal year ended January 3, 2004 in our Form 8-K filed with the SEC on May 20, 2004 reflecting our non-integrated pulp businesses as discontinued operations.

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

On May 7, 2004, we completed the sale of our non-integrated mills at Brunswick, Georgia, and New Augusta, Mississippi, as well as affiliated assets, to Koch Cellulose, LLC ("Koch") and its subsidiaries. These pulp businesses were reported as discontinued operations through the date of the sale and the related assets and liabilities were retroactively classified as held for sale in our January 3, 2004 balance sheet. We ceased depreciation of the related assets on February 26, 2004 (the date of the definitive agreement). These pulp businesses were previously reported in the bleached pulp and paper segment.

We classify certain shipping and handling costs as selling and distribution expenses. Shipping and handling costs included in selling and distribution expenses were $66 million and $250 million for the third quarter and first nine months of 2004, respectively, and $104 million and $300 million for the third quarter and first nine months of 2003, respectively.

Other income, net

The following amounts are included in Other income, net

Third Quarter

First Nine Months

(In millions)

2004

2003

2004

2003

Asset impairments:
  Bellingham
  Old Town
  White City
  Other
Adjustment to asbestos insurance receivables
Early extinguishment of debt
Gain on asset sales, retirements and disposals, net
Other

$    -- 
-- 
-- 
-- 
-- 
-- 
(16)
8 

$      -- 
-- 
12 
1 
(118)
-- 
-- 
4 

$   11 
-- 
-- 
2 
-- 
53
(49)
(26)

$      -- 
74 
12 
8 
(118)
-- 
(14)
(1)

Other income, net

$    (8)

$  (101)

$   (9)

$   (39)

7

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:

Third Quarter

First Nine Months

(In millions, except per share amounts)

2004

2003

2004

2003

Net income as reported

$      240 

$      192 

$     607 

$     223 

Less total stock-based employee compensation expense
   determined under the fair value based method, net of taxes

-- 

(2)

(2)

(10)

Pro forma net income

240 

189 

605 

213 

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

15 

9 

61 

46 

Basic net income per share:
   As reported
   Pro forma

0.94 
0.94 

0.77 
0.76 

2.38 
2.37 

0.89 
0.85 

Diluted net income per share:
   As reported
   Pro forma

0.91 
0.91 

0.76 
0.75 

2.31 
2.31 

0.89 
0.85 

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 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 provisions 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.

During the second quarter of 2004, we adopted FASB Staff Position ("FSP") FAS 106-2 ("the FSP"), Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. The FSP provides specific guidance on how to account for the subsidy provided by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("the Act"). The FSP provides for either retroactive application to the date of enactment or prospective application from the date of adoption. We have elected retroactive application to the date of enactment, the impact of which

8

was a reduction to net postretirement benefit cost of approximately $4 million during the first nine months of 2004 and a reduction of the accumulated postretirement benefit obligation of approximately $67 million.

 2.

PROVISION FOR INCOME TAXES. The effective tax rate in 2004 was higher than the statutory rate primarily because taxes related to the sale of our interest in a Brazilian pulp business and taxes related to the sale of our domestic pulp business, partially offset by lower international income tax rates. The effective tax rate in 2003 was lower than the statutory rate primarily because of lower international income tax rates and the first quarter reversal of approximately $10 million of income tax contingency reserves no longer required in Europe.

 3.

EARNINGS PER SHARE. Basic 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 increase in dilutive securities during 2004 was due primarily to an increase in the number of shares potentially issuable under our performance awards. 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.

 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 Nine Months

(In millions)

2004

2003

Total interest costs
Interest capitalized

$     552  
(10)

$      611  
(5)

Interest expense

$     542  

$      606  

Interest paid

$     558  

$      525  

Income tax paid (refunds received), net

$     308  

$     (236)

Debt assumed by buyer in divestiture

$        73 

$           --  

Interest expense allocated to discontinued operations was $5 million and $11 million for the first nine months of 2004 and 2003, respectively.

 5.

DIVESTITURES.

Building Products Distribution

On May 7, 2004, we completed the sale of 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 (the buyer), for $818 million. In addition, we received $173 million in cash in June to settle an intercompany payable related to product sold to the building products distribution business prior to closing. This transaction resulted in a pre-tax gain of $20 million ($12 million after-tax gain), a portion of which was recognized in the third quarter upon final working capital settlement with the buyer. The gain is included in "Other income, net" on the statements of operations.

In addition, we entered into a six-year agreement for the building products distribution business to continue purchasing structural panels, lumber and other building products manufactured by us. This supply agreement contains substantially similar terms as the previous arrangement between our building products manufacturing and building products distribution businesses. Because our continuing involvement with this business via this supply agreement is considered significant, the building products distribution business is not permitted to be 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 was deemed to be held for sale and the related assets

9

and liabilities retroactively classified as such in our January 3, 2004 balance sheet. We ceased depreciation of the related assets on March 12, 2004 (the date of the definitive agreement).

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

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

(In millions)

ASSETS
Current assets
Property, plant and equipment, net

$    571 
201 

Total assets

$    772 

LIABILITIES:
Current liabilities
Deferred income tax liabilities

$    126 
3 

Total liabilities

$    129 

Net assets

$    643 

Non-integrated Pulp Mills

On May 7, 2004, we completed the sale of our non-integrated mills at Brunswick, Georgia, and New Augusta, Mississippi, along with a short-line railroad, to Koch Cellulose, LLC ("Koch") and its subsidiaries for $511 million in cash and a receivable of approximately $9 million for working capital. In addition, Koch assumed $73 million of indebtedness. This transaction resulted in a pre-tax gain of $5 million and an after tax loss of $13 million that was included in discontinued operations on the statements of operations. In October 2004, we received $9 million in satisfaction of the working capital receivable.

These pulp businesses were reported as discontinued operations through the date of the sale and the related assets and liabilities were retroactively classified as held for sale in our January 3, 2004 balance sheet. We ceased depreciation of the related assets on February 26, 2004 (the date of the definitive agreement). These pulp businesses were previously reported in the bleached pulp and paper segment.

10

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

DISCONTINUED OPERATIONS
CONDENSED BALANCE SHEETS
(Unaudited)

(In millions)

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

$     168 
338 
172 
1 

Total assets

$     679 

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

$      63 
97 
100 
6 

Total liabilities

$     266 

Net assets

$     413 

Operating results of these discontinued operations are shown below:

DISCONTINUED OPERATIONS
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

Third Quarter

First Nine Months

(In millions)

2004

2003

2004

2003

Net sales

$    -- 

$    153 

$   220 

$    447 

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

1 
-- 
-- 
-- 
-- 
(3)

112 
5 
18 
3 
4 
1 

179 
6 
13 
4 
5 
(5) 

351 
13 
54 
9 
11 
1 

Total costs and expenses

(2)

143 

202 

439 

Income from discontinuing operations before income taxes
Provision for income taxes

2 
1 

10 
2 

18 
22 

8 
-- 

Income (loss) from discontinued operations, net of taxes

$    1 

$    8 

$    (4)

$    8 

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

11

Other Asset Sales

During the second quarter of 2004, we sold all of our interests in a Brazilian pulp business for $71 million. This transaction resulted in a pre-tax gain of $24 million ($9 million after-tax gain) and was included in "Other income, net" on the statements of operations.

During the second quarter of 2004, we sold certain packaging assets and an aircraft and recognized a pre-tax gain of $26 million ($16 million after-tax gain). During the third quarter of 2004, we sold three hardwood lumber mills for proceeds of $27 million and recognized a pre-tax gain of $5 million ($3 million after tax). These gains are included in "Other income, net" on the statements of operations.

 6.

ASSET IMPAIRMENT AND RESTRUCTURING.

Bellingham

In June 2004, we signed a letter of intent with the Bellingham Port Authority (the "Port") to sell our Bellingham facilities to the Port and lease back certain of those facilities. The Port will assume most of our environmental liabilities associated with the facility. In connection with this agreement, we determined that the value of the related assets were impaired. Accordingly, in the second quarter of 2004, we recorded pre-tax charges to earnings of $11 million for asset impairments. Assuming the parties reach a formal agreement for this transaction, we expect closing to occur in the fourth quarter of 2004.

Old Town, Maine

On April 4, 2003, we announced that we would close 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. In the third quarter of 2003, we recorded a pre-tax charge of $7 million and $4 million in the North American consumer products segment for related severance and business exit costs, 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.

Fort James and Other

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, Wisconsin and Europe. During 2003, 2002 and 2001, 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 demolition activities) are expected to be completed by the fourth quarter of 2004 due to timing of receipt of the requisite permits. The leases and contracts at the administrative facilities expire through 2012. The following table provides a rollforward of these reserves from January 3, 2004 through October 2, 2004:

Type of Cost

(In millions)

Liability
Balance at
January 3, 2004

Use

Liability
Balance at
October 2, 2004

Employee termination
Facility closing costs

$     4 
30 

$     -- 
(10)

$     4 
20 

Total

$   34 

$   (10)

$   24 

 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)

October 2,
2004

January 3,
2004

Raw materials
Finished goods
Supplies
LIFO reserve

$        638 
778 
503 
(126)

$           625 
832 
489 
(98)

Total inventories

$      1,793 

$         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, packaging, pulp, paper, North American towel and tissue, Dixie, and international consumer products.

On May 7, 2004, we sold our non-integrated pulp mills at Brunswick, Georgia, and New Augusta, Mississippi, along with a short-line railroad to Koch. The goodwill associated with the pulp mill and the railroad was $169 million and $3 million, respectively, at January 3, 2004, and was included in net assets held for sale effective February 26, 2004 (the date of the definitive agreement)

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

(In millions)

North America Consumer Products

International Consumer Products

Packaging

Building Products Manufacturing

Consolidated

Balance as of January 3, 2004
Goodwill acquired during the year
Reclassifications
Foreign currency translation

$  5,831 
-- 
2 
-- 

$    987 
-- 
-- 
(9)

$    630 
1 
-- 
-- 

$    36 
-- 
-- 
-- 

$   7,484 
1 
2 
(9)

Balance as of October 2, 2004

$  5,833 

$    978 

$    631 

$    36 

$   7,478 

13

Intangible Assets

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

As of October 2, 2004

As of January 3, 2004

(In millions)

Gross Carrying
Amount

Accumulated
Amortization

Gross Carrying
Amount

Accumulated
Amortization

Trademarks
Patents and
  other

$   680 

137 

$   58 

70 

$   677 

132 

$   40 

53 

   Total

$   817 

$   128 

$   809 

$   93 

Aggregate Amortization Expense:
    First nine 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

$    24 
=====

$   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. 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.

14

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

First Nine Months

(In millions)

2004

2003

Asset retirement obligation at the beginning of the year
Net transition adjustments
Accretion expense
Revisions in estimated cash flow
Payments
Write-offs

$      49 
-- 
3 
(1)
(1)
(1)

$           67 
(21)
3 
--
(1)
-- 

Asset retirement obligation at the end of the third quarter

$      49 

$         48 

The asset retirement obligation liability balances were as follows:

(In millions)                                                                                          

October 2,
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 decreased by $1,736 million to $8,912 million at October 2, 2004 from $10,648 million at January 3, 2004. This decrease includes the effect of changes in foreign currency exchange rates of $15 million during this time period. For the nine months ended October 2, 2004, the weighted average interest rate on our total debt, including outstanding interest rate exchange agreements, was 7.2%.

As of October 2, 2004, we had $386 million outstanding under our $700 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 "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 repurchased the receivable interest sold into the program related to the building products distribution segment and the non-integrated pulp business upon their divestiture. Those receivables were transferred to the purchasers of those businesses pursuant to the divestitures described in Note 5. The amount of those repurchases was $416 million and $12 million, respectively.

On September 21, 2004, we elected to call $250 million of our 8.25% debentures due March 1, 2023 and $250 million of our 8.125% debentures due June 15, 2023. These debentures will be redeemed on or about October 28, 2004 using funds available under our existing credit facilities. We have classified the related debt as "Current portion of long-term debt" on the accompanying balance sheets as of October 2, 2004. In the fourth quarter of 2004, we expect to record a pretax charge of $22 million for call premiums and to write off deferred debt issuance costs.

On July 2, 2004, we entered into a new $2.5 billion, five-year, senior unsecured credit facility ("Senior Credit Facility") that includes a $500 million non-amortizing term loan. This new credit facility matures July 2, 2009 and replaces a $2.25 billion, five-year credit facility that would have matured November 3, 2005. In connection with this new facility, we recorded a pre-tax charge of approximately $3 million to write off certain previously deferred debt issuance costs during the second quarter of 2004.

15

On December 11, 2003, we completed a private placement of $500 million of 8% senior notes, due in 2024. Net proceeds from the private placement were used to pay down a portion of our five-year credit facility that would have matured in November 2005, described above. On July 1, 2004, we completed an offer to exchange these notes for new notes with substantially identical terms that are registered under the Securities Act. We paid approximately $7 million in fees and expenses associated with these transactions. The fees are being amortized over the term of the senior notes.

On March 1, 2004, we redeemed $243 million of our 9.875% debentures due November 1, 2021. On March 31, 2004, we also redeemed $250 million of our 9.625% debentures due March 15, 2022. In connection with these transactions we recorded a pre-tax 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" in the accompanying statements of operations.

On April 20, 2004, we redeemed $250 million of our 9.5% debentures due May 15, 2022. On May 6, 2004, we also redeemed $240 million of our 9.125% debentures due July 1, 2022. In connection with these transactions, we recorded a pre-tax charge of $24 million for call premiums and to write off deferred debt issuance costs during the second quarter of 2004. This charge for the early extinguishment of debt was included in "Other losses, net" in the accompanying statements of operations.

On April 2, 2004, we borrowed a total of $400 million of 2.6% short-term notes which were repaid on May 7, 2004. Net proceeds from this borrowing were used to pay down a portion of our five-year credit facility that would have matured in November 2005, described above.

In connection with the sale of our non-integrated pulp mills and short-line railroad to Koch on May 7, 2004 (see Note 5), Koch assumed $73 million of indebtedness. In addition, we defeased an outstanding $24 million tax-exempt bond on April 30, 2004 in order to transfer certain assets to Koch.

On July 14, 2004, Moody's Investors Service ("Moody's") upgraded our liquidity rating from SGL-3 (adequate) to SGL-2 (good). Moody's indicated that the upgrade was in response to our Senior Credit Facility that we entered into on July 2, 2004. On May 4, 2004, Standard & Poor's Ratings Services revised its outlook on our long-term debt to 'stable' from 'negative' and affirmed its rating of BB+. Standard & Poor's Ratings Services indicated that the ratings actions reflect our improving financial profile and much better liquidity. On April 28, 2004, Fitch Ratings increased our senior unsecured long-term debt ratings to BB+ from BB and changed our rating outlook to 'stable'. Fitch Ratings indicated that this upgrade is primarily due to debt reductions resulting from expected asset sales as well as increased cash flows from operations. Additionally, on April 14, 2004, Moody's revised the outlook for our Senior Implied Ba2 debt rating to 'stable' from 'negative' citing our plans to reduce debt with proceeds from our expected asset sales.

At October 2, 2004, we had $630 million outstanding under our new Senior Credit Facility at a weighted-average interest rate of 3.1% with a maturity date of July 2, 2009. In addition, $559 million of borrowing capacity under this facility was committed to support outstanding letters of credit and similar instruments. Amounts outstanding under this facility are included in "Long-term debt, excluding current portion" in the accompanying consolidated balance sheets.

16

The amounts outstanding under our Senior Credit Facility include the following:

(In millions)

October 2,
2004

Commitments:
  Revolving Loans
  Term Loans

$   2,000 
500 

Credit facilities available

2,500 

Amounts Outstanding:
  Letters of Credit Agreements*
  Senior Credit Facility due July 2009, average rate of 3.0%
  Term Loans due July 2009, average rate of 3.1%

(559)
(130)
(500)

Total credit balance outstanding

(1,189)

Total credit available

$   1,311 

*

The Letters of Credit Agreements only include Standby Letters of Credit supported by the Senior Credit Facility.

Covenants in the Senior Credit Facility require a maximum leverage ratio (as defined) of 67.50% for each remaining fiscal quarter during 2004 and 65.00% thereafter, a minimum interest coverage ratio (as defined) of 2.50 to 1.00 in any quarter hereafter, and a minimum net worth (as defined) that is not less than the sum of 80% of consolidated net worth (as defined) as of the end of our fiscal year 2003 and an amount equal to 50% of consolidated net income (as defined) earned in each fiscal quarter commencing on January 4, 2004. Minimum net worth calculations follow:

(In millions)

October 2,
2004

Adjusted Net Worth:

  Net worth

$   6,031 

  Accumulated other comprehensive income

(141)

  Goodwill impairments

-- 

Adjusted Net Worth

5,890 

Required Net Worth:

  80% of Net Worth as of January 3, 2004

4,216 

  50% of Net Income beginning first quarter 2004*

304 

Required Net Worth

4,520 

Adjusted Net Worth surplus

$   1,370 

*

Does not include quarters with net losses.

Our borrowing arrangements contain a number of financial and non-financial covenants, which restrict our activities. We were in compliance with these debt covenants as of October 2, 2004, with a leverage ratio of 60.21%, an interest coverage ratio of 3.73 to 1.00, and an adjusted net worth surplus (as defined) as shown 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 $62 million of our revenue bonds are supported by letters of credit that expire within one year. We have the ability and intent to refinance these revenue bonds on a long-term basis. Therefore, maturities of these obligations are reflected in accordance with their stated terms.

17

At October 2, 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 these agreements when the market interest rate falls within this range. For the nine months ended October 2, 2004, these agreements reduced interest expense by less than $2 million. The agreements had a weighted-average maturity of approximately one year at October 2, 2004.

The estimated fair value of our interest rate exchange agreements at October 2, 2004 was a $2 million asset. The asset balance represents the estimated amount we would have received if these agreements were terminated on October 2, 2004. The fair value at October 2, 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 October 2, 2004 we had $1,160 million of floating rate debt outstanding, which represented approximately 13% of our total debt balance.

We currently have $1.5 billion of debt and equity securities available for issuance under a shelf registration statement filed with the SEC in 2000.

11.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. During the third quarter of 2004, we entered into commodity swap agreements under our company-wide natural gas hedging program to reduce the risk inherent in fluctuating natural gas prices. These swap agreements are considered cash flow hedges of our natural gas purchases and differences paid and received under the swap agreements are recognized as adjustments to gas costs. These hedges are considered to be highly effective in offsetting the cash flows of our natural gas costs and therefore the changes in fair value are recorded in accumulated other comprehensive income. With each type of cash flow hedge, the settlement of the forecasted transaction will result in the reclassification into earnings of gains and losses that are reported in accumulated other comprehensive income.

At October 2, 2004, these contracts had a notional quantity 2.9 million MMBtus of natural gas and the fair market value of such contracts was an asset of $4 million. As of October 2, 2004, $4 million of deferred gains on these hedges included in accumulated other comprehensive income are expected to be reclassified into earnings during the next 4 months.

12.

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.

18

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

Third Quarter

First Nine Months

(In millions)

2004

2003

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
Settlement and curtailment losses
Contributions to multiemployer pension plans

$   34 
62 
(70)
9 
3 
-- 
2 

$   34 
62 
(60)
12 
6 
12 
2 

$   108 
188 
(214)
26 
11 
13 
7 

$   103 
185 
(181) 
36 
18 
12 
7 

Net periodic pension cost

$   40 

$   68 

$  139 

$  180 

The net periodic pension cost above includes approximately $1 million for the third quarter of 2003 and $1 million and $3 million for the first nine months of 2004 and 2003, respectively, reported as discontinued operations.

Through October 2, 2004, we recognized $139 million of pension expense. We anticipate recording an additional $41 million of pension expense in the remainder of 2004 for a total of $180 million, which includes settlement and curtailment losses of $13 million related to the second-quarter 2004 sales of our building products distribution segment and our non-integrated pulp mills. The $8 million reduction in expected expense for the year from the amount expected at the end of the second quarter is primarily related to anticipated settlement losses that were not incurred.

Through October 2, 2004, we made pension contributions of $182 million. We presently anticipate contributing an additional $26 million to fund our pension plans in the remainder of 2004 for a total of $208 million for 2004.

Health Care and Life Insurance Benefits

The majority of our retiree medical plans provide prescription drug benefits that will 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 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, we have included the effects of the Act on our medical plans retroactively beginning in the second quarter of 2004. The reduction in our accumulated postretirement benefit obligation attributed to past service is approximately $67 million. The impact of the subsidy on net periodic postretirement benefit cost is a reduction in the interest cost on the accumulated postretirement benefit obligation and the elimination of our requirement to amortize unrecognized gains or losses. The reduction in interest cost for the third quarter and first nine months of 2004 was approximately $1 million and $2 million, respectively. The required amortization for the third quarter and first nine months of 2004 would have been approximately $1 million and $2 million, respectively.

19

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

Third Quarter

First Nine Months

(In millions)

2004

2003

2004

2003

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

$    1 
9 
(4)
- 

$    1 
9 
(4)
- 

$    3 
28 
(13)
1 

$   4 
31 
(9)
 - 

Net periodic postretirement benefit cost

$    6 

$    6 

$    19 

$  26 

Through October 2, 2004, we made contributions of $64 million for the payment of benefits. We presently anticipate contributing an additional $16 million for the payment of benefits from our retiree medical plans in the remainder of 2004 for a total of $80 million for 2004.

13.

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 possible liabilities, and defense costs, from actual or potential claims and legal proceedings involving a wide variety of issues.

ENVIRONMENTAL MATTERS

We are involved in environmental remediation activities at approximately 173 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 43% are being investigated, approximately 21% are being remediated and approximately 36% 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 technologies 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 $130 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 their financial condition and probable contribution on a per-site basis.

20

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

In millions

First Nine Months

Fiscal Year Ended

2004

2003

2003

2002

2001

Beginning balance
Expense (income) included in earnings:
  Related to previously existing matters
  Related to new matters
Amounts related to acquisitions:
  Purchase price allocations
Reclassification of reserves
Payments

$   230 

2 
5 

-- 
7 
(5)

$   306 

-- 
-- 

-- 
(3)
(6)

$   306 

(64) 
1 

-- 
(4)
(9)

$   318 

14 
-- 

-- 
-- 
(26)

$   121 

2 
15 

207 
-- 
(27)

Ending balance

$   239 

$   297 

$   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.

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

21

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 $34.7 million on the Kalamazoo River Superfund Site through October 2, 2004 broken down as follows:

Site

(in millions)

River

$  20.2

King Highway

9.4

A Site

2.1

Willow Blvd.

                 3.0

           $  34.7

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 allow for capping in any areas of OUs 3 and 4.

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 remedial investigation work as a group.

22

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 that 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 October 2, 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 conducted pre-design sampling in OUs 3, 4 and 5 in the summer of 2004.

In 2002, we entered into an agreement with the WDNR and the United States Fish and Wildlife Service to 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 indemnification for these liabilities.

WHATCOM WATERWAY SUPERFUND SITE

The Whatcom Waterway is a Federal channel located adjacent to our facilities 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.

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 that the cost of the remedy will be shared among a small group of PLPs. We have spent approximately $4 million through October 2, 2004 on the Whatcom Waterway site, all of which was charged to earnings.

23

In June of 2004, we signed a letter of intent with the Bellingham Port Authority (the "Port") to sell our Bellingham facilities to the Port and lease back certain of those facilities. The Port will assume most of our environmental liabilities associated with the facility and Whatcom Waterway. Assuming the parties reach a formal agreement for this transaction, closing could occur in the fourth quarter of 2004.

OTHER

The United States EPA issued a "Finding of Violation" ("FOV") to the Company on December 4, 2003, alleging violations of certain air regulations at one of our Green Bay, Wisconsin paper mills.  The FOV alleged two types of violation, one concerning a coal-fired boiler at the plant and the other concerning certain industrial refrigeration equipment.  EPA has recently informed the Company of its initial penalty calculation of $231,000 to settle the refrigerant issues.  The Company is continuing its negotiations with EPA and believes it will settle those issues for less than the EPA-calculated amount.

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

These suits allege a variety of lung and other diseases based on alleged exposure to our products. In many cases, the plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that any injuries they have incurred did in fact result from exposure to our products. Virtually all asbestos suits involve multiple defendants and seek money damages. We are unable to provide any meaningful disclosure about the total amount of such damages, for the following reasons:

●

We do not track this data in any form since we do not consider the amount of damages, if any, alleged in the initial complaint relevant in assessing our exposure to asbestos liabilities;

●

In the past, we estimated that less than 15% of the claims then pending against us contained any specific demand for damages, as opposed to a general demand for such damages as the plaintiff may prove at trial, or a demand which was stated as being in excess of the minimum jurisdictional limit of a particular court;

●

Those complaints which did contain a specific damage demand nearly always involved multiple defendants (anywhere from 30 to over 100), most of which never manufactured joint systems products. In this review, we did not identify any complaint which stated a specific demand for money damages solely from us;

●

Claims which did allege specific damages often alleged the same amount of damages regardless of the specific disease a plaintiff may have had. In addition, in many such cases no specific disease was alleged, and thus the damages alleged were meaningless because the ultimate settlement value of any claim is significantly influenced by the actual disease the plaintiff is able to prove; and

●

Because we do not track this data and do not consider the amount of damages, if any, alleged in the initial complaint relevant in assessing our exposure to asbestos liabilities, we have not updated this analysis and do not intend to do so in the future.

24

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

First Nine Months

Fiscal Year Ended

2004

2003

2003

2002

2001

Claims Filed ¹

22,800

34,100

39,000

41,700

39,700

Claims Resolved ²

27,300

35,900

43,500

35,100

30,900

Claims Unresolved at End of Period

59,800

67,000

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 771 asbestos premises liability claims.

Asbestos Liabilities

From the commencement of this litigation through October 2, 2004, we either had settled, had dismissed or were in the process of settling a total of approximately 340,500 asbestos claims. For this same period our asbestos payments, for liability, defense and administration, before insurance recoveries and tax benefits, totaled approximately $775 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.

25

During 2003 we observed a number of developments involving our asbestos litigation, including the following:

●

The total number of new claims filed in 2003 was slightly below 2002 levels; the rate of such filings peaked in the third quarter and then declined sharply in the third and fourth quarters. The peak in the third quarter was due primarily to the passage of tort reform legislation in Mississippi, which became effective at the end of 2002 and which resulted in a large number of claims being filed in Mississippi by plaintiff's lawyers seeking to ensure their claims would be governed by the law in effect prior to passage of tort reform.

●

The United States Senate Judiciary Committee passed a bill that would establish a trust fund to pay future asbestos-related disease claims and remove such cases from federal and state courts, with industry and insurers funding the trust with payments estimated to total about $114 billion over a 50-year period; the legislation reflected widespread concern over the inability of courts to deal fairly and efficiently with asbestos claims and the fact that 50-60% of total asbestos payments in the United States represent legal fees and related costs.

●

Tort reform legislation was enacted in Arkansas, Mississippi, Ohio, Texas and West Virginia, which are states that together account for a significant number of the asbestos claims pending against us; the effect of such legislation cannot be assessed yet.

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 asbestos costs we will incur based upon currently available information.

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. 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. All of our available insurance is included in our insurance receivable.

26

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.

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.

Generally, NERA's projections assume:

●

That the number of new claims to be filed against us each year through 2013 will decline at a fairly constant rate each year beginning in 2003;

●

That the percentage of claims settled by us will be about three-quarters of the total number of claims resolved (whether by settlement or dismissal) each year through 2013;

●

That the average estimated per case settlement costs are anticipated to decrease slightly over the period through 2013; and

●

That the total amount paid by us in settlements, and in defense and administrative costs, will decline at varying rates over the period through 2013

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. With the assistance of our outside advisors, we are monitoring 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.

27

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 nine months of each of 2004 and 2003 (dollars in millions):

First Nine Months

Fiscal Year End

2004

2003

2003

2002

2001

Asbestos Liabilities
Beginning Balance
Accruals
Payments

$   1,027 
-- 
(145)

$   1,162 
-- 
(134)

$     1,162 
54 
(189)

$     836 
507 
(181)

$     136 
784 
(84)

Ending Balance

$     882 

$   1,028 

$    1,027 

$    1,162 

$    836 

Insurance Receivable
Beginning Balance
Accruals
Receipts

$      576 
-- 
(26)

$      670 
118 
(77)

$    670 
156 
(250)

$    527 
192 
(49)

$    172 
421 
(66)

Ending Balance

$      550 

$      711 

$    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.

During the first nine months of 2004 the number of new asbestos claims filed against us decreased 33% compared to the first nine months of 2003. Our payments to settle pending asbestos cases were approximately equal to our projections for the period and equal to the amount paid in the first nine months of 2003. However, we are spending significantly more money to defend these cases than we had projected, and we expect defense costs will remain at their current level for an unknown period of time. Defense costs have increased as we have undertaken more discovery with regard to the medical condition and allegations of causation of plaintiffs. Additionally, we have taken more cases to trial. With the assistance of our outside advisors, we are monitoring the amount of future defense costs we expect to incur, and the potential impact of such costs on our settlement projections and the asbestos reserves.

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.

28

OTHER LITIGATION

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 nine months of 2004, we recorded a pre-tax charge of $11 million for the settlement of these lawsuits. We have resolved all of these opt out cases.

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 alleged 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 in Federal District Court in San Francisco against Fort James asserting, among other claims, that the transactions described above constituted fraudulent conveyances and seeking unspecified damages. Early in July 2004 that court in San Francisco dismissed a number of these claims, and continued proceedings with respect to two remaining claims. The court had earlier lifted an injunction imposed by the Federal Bankruptcy Court in Oakland which prevented us from preceding with an action we filed in Delaware that asserts that a 1998 agreement released all claims by CV and CP against Fort James. CV and CP have appealed these rulings. 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.

Although the ultimate outcome of these and other 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 October 2, 2004, GA-MET had an outstanding mortgage loan payable to Metropolitan in the amount of $123 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

29

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.

• SCA -- In connection with the sale of our away-from-home tissue manufacturing assets to SCA, we agreed to indemnify SCA with respect to certain losses resulting from breaches of our representations and warranties contained in the sale agreement. We are not required to pay under this general indemnification obligation until claims against us, on a cumulative basis, exceed $2 million. Upon exceeding this $2 million threshold, we generally are obligated to provide indemnification for any losses in excess of $1 million, up to a limit of $425 million. The majority of these general indemnification obligations expired on March 2, 2003, and SCA has asserted some claims under these provisions. However, we remain subject to certain claims by SCA for various environmental claims until early 2009. Unlike our $425 million limit on liability with respect to general claims, our liability with respect to certain environmental claims made by SCA is capped at $850 million, less the amount of any indemnification payments previously made under our general indemnification obligations.
• Domtar Inc. -- In connection with the sale of certain of our paper and pulp mills to Domtar, we agreed to indemnify Domtar for certain losses resulting from breaches of our representations and warranties contained in the sale agreement. We are not required to pay under this general indemnification obligation until claims against us, on a cumulative basis, exceed $16 million. Upon exceeding this $16 million threshold, we generally are obligated to provide indemnification for any losses in excess of $16 million, up to a limit of $500 million. The majority of these general indemnification obligations expired on March 31, 2003, and Domtar has asserted some claims under these provisions. However, we remain subject to certain claims by Domtar for various environmental liabilities assumed by it until mid-2011. Our liability with respect to these environmental claims is capped at $100 million, and is subject to the $16 million threshold discussed above.

30

• Norampac, Inc. -- As part of an asset exchange with Norampac, we agreed to indemnify Norampac with respect to any losses resulting from (i) the breach of limited representations and warranties contained in the asset exchange agreement, (ii) any pre-exchange liabilities related to the exchanged facility not assumed by Norampac, and (iii) any environmental liability related to the pre-exchange operations of the exchanged facility. We are not required to pay under this general indemnification obligation until claims against us, on a cumulative basis, exceed $500,000. Upon exceeding this threshold, we generally are obligated to provide indemnification for any losses in excess of $500,000, up to a limit of $10 million. The majority of these general indemnification obligations and the environmental liability indemnity expire in April 2006.

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.

31

14.

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 guaranteed our $500 million and $1.5 billion senior notes offerings (see Note 10), which were completed on June 3, 2003 and January 30, 2003, respectively. Fort James Operating Company, a subsidiary of Fort James, guarantees the $500 million senior notes and the securities issued by Fort James. Similarly, certain of our domestic subsidiaries guarantee our Senior Credit Facility. Each subsidiary issuer or subsidiary guarantor is 100% owned by us and all guarantees are full and unconditional.

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 nine months of 2004 resulting in G-P Receivables recognizing a credit to general and administrative expense of $581 million, and the Corporation, Fort James Guarantor Subsidiary, and Other Non-Guarantor Subsidiaries recognizing a corresponding charge to general and administrative expense of $522 million, $5 million and $53 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 nine months of 2003. At the end of the second quarter of 2004, the transfer agreement between G-P Receivables and our participating domestic subsidiaries was amended whereby the discount factor has been substantially reduced for all future purchases beginning with the third quarter. As a result, the credit to general and administrative expenses to be recognized by G-P Receivables will continue to be significantly less in subsequent periods.

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:

CONSOLIDATING STATEMENTS OF INCOME
THIRD 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

$   2,396 

$       -- 

$   1,206 

$     537 

$   1,183 

$    (581)

$   4,741 

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

1,908 
79 

101 
141 
111 


(210)

-- 
-- 

-- 
-- 
4 


(106)

833 
108 

61 
41 
91 


5 

399 
47 

33 
26 
(61)


1 

952 
23 

36 
4 
22 


3 

(581)
-- 

-- 
-- 
-- 


299 

3,511 
257 

231 
212 
167 


(8)

Total costs and expenses

2,130 

(102)

1,139 

445 

1,040 

(282) 

4,370 

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

266 

29 

102 

(2)

67 

25 

92 

28 

143 

52 

(299)

-- 

371 

132 

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

237 

3 

104 

-- 

42 

-- 

64 

-- 

91 

(2) 

(299)

-- 

239 

1 

Net income (loss)

$     240 

$      104 

$      42 

$      64 

$     89 

$    (299)

$     240 

32

CONSOLIDATING STATEMENTS OF INCOME
THIRD 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

$     2,944 

$      - 

$    1,186 

$     512 

$     1,079 

$   (596)

$   5,125 

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

2,453 
140 

113 
124 
127 


(246)

- 
- 

- 
- 
5 


(100)

818 
115 

61 
36 
104 


- 

367 
43 

30 
39 
(59)


(1)

924 
28 

38 
12 
23 


16 

(596)
- 

- 
- 
- 


230 

3,966 
326 

242 
211 
200 


(101)

Total costs and expenses

2,711 

(95)

1,134 

419 

1,041 

(366)

4,844 

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

233 

32 

95 

(2)

52 

19 

93 

26 

38 

22 

(230)

-- 

281 

97 

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

201 


(9)

97 


-- 

33 


-- 

67 


-- 

16 


17 

(230)


-- 

184 

 
8

Net (loss) income

$   192 

$     97 

$    33 

$     67 

$     33 

$   (230)

$    192 

33

CONSOLIDATING STATEMENTS OF INCOME
FIRST NINE MONTHS 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

$   8,284 

$       -- 

$   3,556 

$   1,667 

$   3,412 

$  (1,768)

$  15,151 

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

6,606 
344 

317 
932 
354 


(801)

 
 

 
 
21 


(289)