As filed with the Securities and Exchange Commission on June 21, 2002

Registration No. 333-90596

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT NO. 1

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

CP&P, INC.

(Exact name of registrant as specified in its charter)

Georgia		2621		01-0693428
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

133 Peachtree Street, N.E.

Atlanta, Georgia 30303

(404) 652-4495

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

James F. Kelley

Executive Vice President and General Counsel

Georgia-Pacific Corporation

133 Peachtree Street, N.E.

Atlanta, Georgia 30303

(404) 652-4000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

William R. Spalding		Alan J. Sinsheimer
King & Spalding		Sullivan & Cromwell
191 Peachtree Street		125 Broad Street
Atlanta, Georgia 30303		New York, New York 10004

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

If any securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), check the following box. ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ¨

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price(1)		Amount of Registration Fee(2)

Common Stock, par value $.01 per share, together with the Series A Junior Preferred Participating Stock Purchase Rights	$	1,000,000,000	$	92,000

(1)

Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) of the Securities Act.

(2)

Previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated June 21, 2002.

CP&P, INC.

Common Stock

This is an initial public offering of shares of common stock of CP&P, Inc. All of the shares of common stock are being sold by CP&P.

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $ and $ . Application will be made for listing of the common stock on the New York Stock Exchange under the symbol “ ”.

See “ Risk Factors” beginning on page 11 to read about factors you should consider before buying shares of the common stock.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

	Per Share	Total
Initial public offering price	$	$
Underwriting discount	$	$
Proceeds, before expenses, to CP&P	$	$

To the extent that the underwriters sell more than shares of common stock, the underwriters have the option to purchase up to an additional shares from CP&P at the initial public offering price less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on , 2002.

Goldman, Sachs & Co.

Banc of America Securities LLC Morgan Stanley

Prospectus dated , 2002.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. Because it is a summary, it does not contain all of the information you should consider before making an investment decision. You should read the entire prospectus carefully, including the “Risk Factors” section and our audited combined financial statements and unaudited pro forma financial statements and the related notes to those statements. In this prospectus, unless the context suggests otherwise, “CP&P ”, the “Company”, “we”, “us” and “our” each refers to CP&P, Inc. and its subsidiaries. “Consumer Products Company” refers to Georgia-Pacific Corporation’s consumer products, packaging, and paper and pulp businesses. Unless otherwise indicated, any “fiscal” year of our company refers to our fiscal year ended or ending on the Saturday closest to December 31 of such year.

Our Company

We operate in three business segments—consumer products, packaging, and paper and pulp—and had $12.4 billion in revenue in fiscal 2001. Our consumer products business includes our North American and international bathroom tissue, paper towel and paper napkin businesses and our Dixie disposable tableware business. Our consumer products business had fiscal 2001 revenue of approximately $7.1 billion. We sell our consumer products in both retail and commercial (or away-from-home) markets, and we manufacture both our own brands and private label products. Our packaging business sells corrugated and other packaging products and had fiscal 2001 revenue of approximately $2.5 billion. Our paper and pulp business, which had fiscal 2001 revenue of approximately $2.8 billion, consists of our paper manufacturing assets that are located within our tissue manufacturing facilities, as well as our fluff pulp mill and two market pulp mills.

Consumer Products

We are the largest North American producer of tissue-based consumer products, with leading market shares in bathroom tissue, paper towels and paper napkins. Our Dixie business is the largest producer in the North American disposable tableware market. We are also a leading producer of tissue-based consumer products in many international markets, including France, the United Kingdom, Ireland, Finland, the Netherlands, Italy, Spain and Greece. We also have expanding tissue operations in other international markets, including China, Mexico, Russia and Turkey. Our portfolio of brands includes well-known consumer products with strong market positions created and supported by product development and innovation, advertising and marketing, strategic acquisitions, manufacturing scale and long-standing customer and distributor relationships.

Strengths

•

Number One Global Producer of Bathroom Tissue, Paper Towels and Paper Napkins. We are the world’s largest producer of bathroom tissue, paper towels and paper napkins.

•

Well-Known Brands in North America and Europe. We estimate that at least one of our bathroom tissue or paper towel products is used by approximately 55% of North American households. Our leading brands are:

North America	Rank	Europe	Rank
Quilted Northern bathroom tissue	#2	Lotus bathroom tissue (France)	#1
Angel Soft bathroom tissue	#3	Lotus paper handkerchiefs (France)	#1
Brawny paper towels	#2	Okay kitchen towels (France)	#1
Sparkle paper towels	#3	Colhogar bathroom tissue (Spain)	#1
Vanity Fair premium napkins	#1	Colhogar paper towels (Spain)	#1
Mardi Gras paper napkins	#1	KittenSoft bathroom tissue (Ireland)	#1
Dixie disposable tableware	#1	KittenSoft paper towels (Ireland)	#1

•

Depth of Brand Portfolio in North America. Our full range of leading brands in different categories allows retailers to reduce their expenses through a single-source purchase that meets the broad spectrum of quality and price demands of their customers.

•

Number One Private Label Manufacturer in North America and Number Two in Europe. Offering both private label and branded products allows us to establish closer relationships with our retail customers and provides us with a greater share of shelf space in their stores.

•

Number One Position in the North American Commercial Market. We sold more tissue products in the commercial channel than any other company in North America in 2001 and have a 40% market share, based on volume.

•

Number One Position in North American Disposable Tableware Market. Dixie is one of the most recognized consumer product brand names in North America and is the largest producer of disposable tableware in North America.

•

Continued Cost Savings Through Integration of Fort James. Through 2003, we expect to realize a cumulative total of over $500 million of cost synergies from our integration of Fort James Corporation, which we acquired in November 2000.

•

Industry-Leading Manufacturing Facilities. Our industry-leading, low cost manufacturing capabilities provide us with scale and cost advantages over many of our competitors.

Strategies

We intend to achieve our objectives through the following strategies:

•

Leverage the Depth of Our Product Offering. We will continue to use the depth of our branded product offering in the bathroom tissue, paper towel, paper napkin and disposable tableware categories to increase sales to our customers.

•

Support Our Brands Through Advertising, Marketing and Promotions. We will continue to support our well-known brands through innovative advertising, marketing and promotional campaigns.

•

Optimize Brand Positioning Within Our Portfolio. We will continue to refine the relative positioning of our brands within our broad portfolio of products to target specific consumer segments, reduce brand overlap and increase dollar market share.

•

Leverage Established Position in Growing Sales Channels. We will continue to focus on high-growth sales channels, including wholesale clubs, mass merchandise stores and dollar stores, in order to outpace industry growth.

•

Continue to Expand Our International Operations. We have expanded our international operations to China, Mexico, Russia and Turkey. We plan to continue controlled expansion into additional Asian, South American and other international markets.

•

Continue to Innovate Through Research and Development. We continually seek to strengthen the quality of our brand portfolio through research and the development of product innovations, such as Quilted Northern Moist Wipes, Brawny Shop Towels and Dixie Rinse & ReUse Disposable Stoneware plates.

•

Maximize Operating Efficiency to Lower Costs and Improve Margins. We continuously implement quality control, training, safety and maintenance initiatives to improve operating efficiency.

Packaging

Strengths

•

Manufacturing Expertise and Industry-Best Facilities. Our facilities provide us with significant competitive advantages through economies of scale, an emphasis on safety, disciplined capital spending and manufacturing expertise.

•

Industry-Leading Returns. We believe that our packaging business has the highest return on assets among the major companies in our industry segment.

•

Strategic Relationships with Large National Customers. We have established key supplier relationships with large national food companies such as Unilever, Kellogg, Kraft, General Mills, ConAgra, Sara Lee, M & M/Mars, Coca-Cola and Pepsi, and we also work with mass merchandisers and grocery retailers such as Wal-Mart, Albertson’s, Kroger and Meijer.

Strategies

•

Emphasize Demand-Driven Production. All of our facilities follow a manufacturing strategy built on demand-driven production planning, operating efficiency and safe, low cost production.

•

Aggressive Cost Management and Disciplined Capital Investment. Our managers are focused on aggressively managing operating and overhead costs, and we will limit capital investments to select, value-added packaging assets.

•

Expand Product Offering Through Research and Development. Our state-of-the-art technology center will continue to develop and bring to market value-added products that differentiate us from our competitors. We also provide customized technical services to our customers which enhance these relationships.

Paper and Pulp

Our paper business produces office and printing paper, kraft paper and bleached board products at six of our tissue manufacturing facilities in North America. We focus on many of the same retail and commercial customers to which we sell tissue and Dixie disposable tableware products, including Wal-Mart, Costco and Sam’s Club. Our pulp business produces fluff pulp and other specialty pulps in our Brunswick, Georgia mill, and market pulp in our Leaf River and Old Town mills.

Strengths

•

Sole Licensing and Sourcing Rights to Xerox Copier Paper. We own the sole U.S. and Canadian license for, and sourcing rights to, Xerox brand copier paper, one of the most recognized names in office and printing papers.

•

Low Cost Paper Manufacturing Facilities. The location of our office and printing paper manufacturing facilities within our tissue manufacturing facilities helps us to reduce our unit costs and improve our return on assets in both our consumer products and paper businesses.

•

Leading Supplier of Fluff Pulp. We are the world’s second largest supplier of fluff pulp, which is used by our customers to produce disposable diapers and other absorbent hygiene products. Our fluff pulp mill is one of the lowest-cost facilities in the industry.

Strategies

•

Sell Paper in the Fastest Growing Sales Channels and to the Largest Retailers. We intend to continue to focus our paper sales on the fast-growing wholesale club, specialty office retailer, mass merchandise and dollar store sales channels.

•

Focus on Customer Needs. As demand for disposable diapers and absorbent hygiene products continues to grow globally, we intend to focus our fluff pulp product development and logistic support efforts on our key customers as they expand internationally.

•

Maximize Return on Existing Market Pulp Investment. We intend to continue our strategy of low capital investment and operating at levels that meet our customers’ demand and maximize our profits and cash flow.

Reorganization Transactions and Distribution

Georgia-Pacific’s board of directors has approved a plan to separate its consumer products, packaging, and paper and pulp businesses from its building products and distribution businesses. The major elements of this plan are the following:

•

Georgia-Pacific will contribute the assets and liabilities relating to its consumer products, packaging, and paper and pulp businesses to us;

•

Georgia-Pacific will sell up to $1 billion of senior subordinated notes and borrow approximately $ million under a new secured senior credit facility;

•

Unisource, a subsidiary of Georgia-Pacific, will borrow approximately $ million under a new secured senior credit facility;

•

Georgia-Pacific will use the proceeds from the sale of its notes and the borrowings under the new Georgia-Pacific and Unisource credit facilities to retire a portion of Georgia-Pacific’s existing debt;

•

We will assume approximately $2.6 billion of Georgia-Pacific’s indebtedness, including obligations relating to up to approximately $869 million of industrial revenue bonds;

•

We will offer to exchange 16 series of our new debt securities for 16 series of outstanding publicly held debt securities of Georgia-Pacific having an aggregate principal amount of approximately $5.65 billion, which we will have assumed from Georgia-Pacific subject to its right to cause us to assume an equal principal amount of other Georgia-Pacific debt in lieu of any outstanding debt securities that are withdrawn from, or not validly tendered in, the exchange offers; any such untendered or withdrawn debt securities will remain obligations of Georgia-Pacific, and we expect Georgia-Pacific to cause us to assume, and then we would refinance, an equal amount of other Georgia-Pacific debt;

•

We will borrow approximately $ million under a new unsecured senior credit facility;

•

We will sell common stock that will represent approximately % of our shares in this public offering that we expect to raise approximately $1 billion;

•

We will use the proceeds from the borrowings under our new credit facility and the sale of our common stock to retire a portion of the debt we assume from Georgia-Pacific; and

•

Approximately six months after completion of the public offering of our common stock, Georgia-Pacific intends to distribute the remaining shares of common stock it holds in our company to Georgia-Pacific’s shareholders.

We refer to the transaction in which Georgia-Pacific will distribute the remaining shares it holds in our company to its shareholders as the “distribution”, and we refer to the other transactions described in the bullets above as the “reorganization transactions”. We and Georgia-Pacific reserve the right to modify any or all of the reorganization transactions in any respect or to terminate the plan. We may also make a public offering of securities convertible into our common stock as part of the reorganization transactions. Moreover, even if the reorganization transactions are completed as planned, Georgia-Pacific reserves the right to delay or cancel the distribution altogether or to convert us into an independent publicly owned entity through a mechanism other than the distribution.

Separation and Transitional Arrangements

In connection with Georgia-Pacific’s contribution of assets and liabilities to us, we will enter into agreements with Georgia-Pacific related to the separation of our business operations from Georgia-Pacific’s, as well as agreements under which we will agree with Georgia-Pacific to provide each other with various interim and ongoing services and information. See “Arrangements Between Us and Georgia-Pacific” for a discussion of these agreements. Our relationship with Georgia-Pacific will be governed by, and limited to, the terms of these agreements. Although we believe that these agreements have terms that are consistent with arm’s-length arrangements, these agreements are being negotiated in the context of a parent-subsidiary relationship, and therefore may be less favorable to us than if they had been negotiated with unaffiliated third parties. The assets and liabilities to be transferred to us are described more fully in the agreements that will govern our separation from Georgia-Pacific and in our audited combined financial statements and notes to those statements that are included elsewhere in this prospectus.

Distribution by Georgia-Pacific of Our Common Stock

After the completion of this offering, Georgia-Pacific will own approximately % of our outstanding shares of common stock. Georgia-Pacific currently plans to distribute to its shareholders all of the shares of our common stock it holds approximately six months after the completion of this offering. However, Georgia-Pacific is not obligated to effect the distribution. The distribution is subject to, among other things, the approval of Georgia-Pacific’s board of directors and Georgia-Pacific’s receipt of a private letter ruling from the Internal Revenue Service that certain reorganization transactions and the distribution will be tax-free to Georgia-Pacific and its shareholders for U.S. federal income tax purposes. Georgia-Pacific’s board of directors may elect to consummate the distribution without a ruling from the Internal Revenue Service, in which case Georgia-Pacific may choose to obtain an opinion of tax counsel, which would not be binding on the IRS or any court. Any of the conditions to the distribution may be waived by the Georgia-Pacific board. If Georgia-Pacific makes this distribution, we will become an independent, publicly-owned company and will no longer be a subsidiary of Georgia-Pacific. Georgia-Pacific may use a method other than the contemplated distribution to convert us into an independent, publicly-owned company, and Georgia-Pacific may decide to retain its ownership of us indefinitely.

After completion of all of the reorganization transactions, Georgia-Pacific will continue to own all of the assets related to its building products manufacturing and distribution businesses and Unisource, its paper and industrial supplies distribution business, together with the liabilities relating to those businesses. These liabilities will include liabilities related to pending and future litigation involving personal injury and property damage as a result of alleged exposure to an asbestos-containing product previously manufactured by Georgia-Pacific’s gypsum division, which is part of its building products manufacturing business. See “Risk Factors—Risks Related to Our Separation from Georgia-Pacific— We may be exposed to Georgia-Pacific’s asbestos-related or other liabilities even after the distribution”.

Georgia-Pacific has agreed to indemnify us for any losses arising out of the liabilities it is retaining. Accordingly, we should not ultimately be affected in any material way by any of those Georgia-Pacific liabilities. In order to help you assess Georgia-Pacific’s financial strength, we have included in “Annex A” to this prospectus certain information with respect to the business and operations of Georgia-Pacific after the distribution of our common stock.

Benefits of the Separation

We believe that we will realize substantial benefits from the reorganization transactions, including this offering and our separation from Georgia-Pacific. These benefits include:

Greater Strategic Focus. Our businesses are distinct from those of Georgia-Pacific in their financial and operating characteristics, capital needs, business cycles, growth potential and competitive conditions. Our separation from Georgia-Pacific will allow us to independently pursue our strategies to deliver value to our shareholders. This effort will be supported by our own board of directors, management team and employees.

Improved Financial Performance and Returns. The greater predictability of financial performance and higher returns that are characteristic of our businesses will be more clearly evident to investors after we are separated from Georgia-Pacific.

Direct Access to Capital Markets. As a separate company with our own publicly-traded stock, we will have direct access to the capital markets to issue our own debt and equity securities to fund our businesses and to grow opportunistically through acquisitions.

Better Incentives for Employees and Greater Accountability for Management. By tying our incentive compensation plans to the market performance of our separately traded common stock, we expect to strengthen employee motivation and management focus. This offering and our separation from Georgia-Pacific will enable us to offer our employees compensation that is directly linked to the performance of our business and stock price, which we expect will enhance our ability to attract and retain qualified personnel.

General

We were incorporated in Georgia on May 16, 2002. Our principal executive offices are located at 133 Peachtree Street, N.E., Atlanta, Georgia 30303, and our telephone number is (404) 652-4495. Our website is located at www. . Information contained on our website is not incorporated by reference into this prospectus and should not be considered a part of this prospectus.

Quilted Northern^®, Brawny^®, Mardi Gras^®, Angel Soft^®, Soft ‘n Gentle^®, Sparkle^®, Vanity Fair^®, MD^®, So-Dri^®, Zee^®, Dixie^®, Cormatic^®, Ultimatic^®, Envision^®, Preference^®, Spectrum^®, Geocycle^®, Eclipse^®, Eureka^®, Lotus^®, Colhogar^®, KittenSoft^®, Embo^®, Tenderly^®, Delica^®, Selpak^® and Demak’up^® are registered trademarks of Georgia-Pacific Corporation or its subsidiaries. We also have a number of other registered marks, trade names and pending trademark applications, related to our brands’ products and concepts. All other registered trademarks and trade names referred to in this prospectus are the property of their respective owners.

The Offering

Common stock offered by us		shares

Common stock to be offered by us pursuant to the over-allotment option		shares

Common stock to be outstanding after this offering		shares

Common stock to be held by Georgia-Pacific immediately following this offering		shares

Use of proceeds		We intend to use the net proceeds from this offering to repay a portion of the indebtedness of Georgia-Pacific that we will assume as part of the reorganization transactions.

Proposed New York Stock Exchange symbol		“ ”

The number of shares of our common stock that will be outstanding after this offering is based on our shares of common stock outstanding as of , 2002, and excludes shares of common stock that will be issuable upon exercise of employee stock options that will be issued to our employees at the time of the distribution in substitution for Georgia-Pacific stock options.

Except as otherwise indicated, all information in this prospectus assumes no exercise of the underwriters’ over-allotment option.

Summary Combined and Pro Forma Financial Data

The following summary combined financial data for each of the three fiscal years in the period ended December 29, 2001 are derived from our combined financial statements and the notes to those statements included elsewhere in this prospectus, which have been audited by Ernst & Young LLP, independent auditors. The summary combined financial data for each of the fiscal years ended December 31, 1997 and December 31, 1998 are derived from our unaudited combined financial statements for those periods. The summary combined financial data for the fiscal quarters ended March 31, 2001 and March 30, 2002 and the summary balance sheet data as of March 30, 2002 are derived from our unaudited interim combined financial statements and the notes to those statements included elsewhere in this prospectus and, in our opinion, reflect all adjustments, consisting of normal accruals, necessary for a fair presentation of the data for those periods. Our results of operations for the fiscal quarter ended March 30, 2002 may not be indicative of results that may be expected for the full year. The assets, liabilities and operating expenses in the historical financial statements reflect assets, liabilities and direct operating expenses of our businesses together with allocations of certain assets and liabilities based on management’s intentions or expectations and allocations of certain Georgia-Pacific corporate items that have been charged to us based on usage and other methodologies appropriate for such items. Our historical financial results reflect several significant acquisitions and dispositions, including Georgia-Pacific’s acquisition of Fort James Corporation in November 2000, its sale of tissue assets to Svenska Cellulosa Aktiebolaget SCA in March 2001 and its sale of paper and pulp assets to Domtar, Inc. in August 2001. Accordingly, the historical periods presented are not necessarily comparable. This financial data may not be indicative of our future performance and do not reflect what our financial position and results of operations would have been had we operated as a separate, stand-alone entity during the periods presented.

The unaudited pro forma financial statement data for fiscal 2001 and the fiscal quarter ended March 30, 2002 give effect to the reorganization transactions based on the assumptions described in the pro forma financial statements as if they had occurred at the beginning of the periods presented. The pro forma balance sheet data give effect to the reorganization transactions as if they occurred on March 30, 2002. The unaudited pro forma financial statements do not purport to represent what our results of operations and financial condition would have been had the reorganization transactions occurred on the dates indicated or to predict our results of operations or financial condition in the future. The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable.

You should read the table below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, our unaudited pro forma financial statements and our audited and unaudited combined financial statements and the notes related to those statements included elsewhere in this prospectus.

	Fiscal Year															First Quarter						Pro Forma for the Reorganization Transactions
	1997			1998			1999			2000			2001			2001			2002			Fiscal Year 2001			First Quarter 2002
	(in millions, except per share data)
Statement of Operations Data:
Net sales		$5,886			$6,018			$6,443			$7,949			$12,427		$	3,300		$	2,862		$	12,427		$	2,862

Operating expenses		5,825			5,885			5,983			6,987			11,296			3,098			2,582			11,296			2,582
Interest		314			367			291			375			878			253			188			824			175
Other loss		—			5			—			204			63			—			—			63			—

Total costs and expenses		6,139			6,257			6,274			7,566			12,237			3,351			2,770			12,183			2,757

Income (loss) before income taxes, extraordinary item and accounting change		(253	)		(239	)		169			383			190			(51	)		92			244			105
(Provision) benefit for income taxes		85			76			(72	)		(148	)		(356	)		(2	)		(30	)		(376	)		(35	)

Income (loss) before extraordinary item and accounting change		(168	)		(163	)		97			235			(166	)		(53	)		62		$	(132	)	$	70

Extraordinary loss from early retirement of debt, net of taxes		—			(9	)		—			—			(12	)		(12	)		—
Cumulative effect of accounting change, net of taxes		(47	)		—			—			—			11			11			—

Net income (loss)	$	(215	)	$	(172	)	$	97		$	235		$	(167	)	$	(54	)	$	62

Basic and diluted net income (loss) per share

Other Data:
EBITDA, as adjusted (1)	$	692		$	695		$	1,026		$	1,680		$	2,300		$	575		$	495		$	2,300		$	495
Capital expenditures							$	378		$	571		$	576		$	155		$	100			155			100
Weighted average basic and diluted shares

	March 30, 2002
	Actual			Pro Forma for the Reorganization Transactions
Balance Sheet Data:
Working (deficit) capital	$	(802	)	$	92
Total assets		19,300			19,338
Long-term debt		7,593			7,593
Senior deferrable notes		863			863
Equity		4,053			4,985

(1)

EBITDA, as adjusted, is defined as net income before interest, taxes, depreciation and amortization and unusual items. EBITDA, as adjusted, is not an alternative measure of operating results or cash flows from operations, as determined in accordance with generally accepted accounting principles, but we include it because we believe it is a widely accepted indicator of our ability to incur and service debt and make capital expenditures. EBITDA, as adjusted, does not give effect to cash used for principal repayments of debt or capital expenditures or changes in working capital needs and thus does not reflect excess funds available for discretionary uses. In addition, EBITDA, as adjusted, as presented herein may not be comparable to similarly titled measures reported by other companies. The unusual items consist of the $14 million pre-tax loss from a fire at our Crossett, Arkansas facility in 2002, the $63 million pre-tax loss on the sale of paper and pulp assets in fiscal 2001, the $83 million pre-tax loss on the closure of the Bellingham, Washington pulp and lignin operations in fiscal 2001, the $204 million pre-tax loss on write down of the Georgia-Pacific tissue assets in fiscal 2000, and the $57 million pre-tax charge in fiscal 2000 for the closure of the Kalamazoo, Michigan paper mill.

RISK FACTORS

You should carefully consider the following risks and other information contained in this prospectus before deciding to invest in shares of our common stock. The risks described below are not the only ones facing our company. Additional risks not presently known to us or which we currently consider immaterial also may adversely affect our company and your investment. If any of the following risks and uncertainties actually occurs, our business, financial condition and operating results could be materially adversely affected. This adverse effect on our business, financial condition and operating results could cause the trading price of our common stock to decline, and you may lose all or part of your investment.

Risks Related to Our Business

We face intense competition in each of our businesses. If we cannot successfully compete in the marketplace, our business, financial condition and operating results may be materially adversely affected.

Consumer Products. We face intense competition in the consumer products industry in our major North American and European markets. Our key competitors include both large, diversified paper and consumer products companies with widely recognized brands, including The Procter & Gamble Company, Kimberly-Clark Corporation, Svenska Cellulosa Aktiebolaget SCA, and smaller private label and generic product manufacturers with lower-priced products. We compete on the basis of brand recognition and loyalty, product quality and performance, price, marketing, product development, service, sales and distribution. Competing in this industry involves the following key risks that could have a material adverse effect on our business, financial condition and operating results:

•

failure to anticipate and respond to changing consumer preferences and demographics;

•

failure to develop new and improved products;

•

failure of consumers to accept our brands and exhibit brand loyalty;

•

aggressive pricing by competitors, which may force us to decrease prices or increase advertising and promotional spending in order to maintain market share;

•

failure of our advertising and promotional spending to increase (or even maintain) sales volume and market share; and

•

consolidations of retailers and distribution channels that shrink our potential markets.

Packaging. Our packaging business also faces significant competition driven by intense pricing pressures. Competition in the various markets in which we participate comes from companies of various sizes, many of which are larger and have greater financial and other resources than our packaging business and thus can better withstand adverse economic or market conditions. We also face competition from numerous smaller, regional packaging companies. If our facilities do not remain as cost efficient as those of our competitors, or if our competitors otherwise are able to offer lower prices, we may lose customers to our competitors, which could have a material adverse effect on our business, financial condition and operating results.

Even in strong markets, price pressures may emerge as packaging industry competitors attempt to gain a greater market share by lowering prices. In addition, packaging companies that do not currently compete directly with our value-added and graphics products may introduce competing products in the future.

Paper and Pulp. Our paper business also operates in a market that is highly competitive. The top five competitors hold more than 60% of the market share. In addition, the paper industry is facing a consolidating customer base. We may not be able to maintain or improve our market share among our competitors or successfully sell our paper products to a shrinking pool of customers.

If the cost of key raw materials such as pulp and wastepaper increases, our cost of sales will increase, and our operating results may be materially adversely affected.

We depend heavily on access to sufficient, reasonably-priced quantities of wood, pulp and wastepaper. We use wood fiber to make pulp, which we use along with purchased wastepaper to manufacture our tissue and paper products. We also use wood fiber and wastepaper to manufacture containerboard. Like most commodities, these raw materials are subject to significant price fluctuations due to the cyclical nature of their markets. If the costs of these raw materials increase, our cost of sales will increase, and our operating results may be materially adversely affected. We also buy and sell pulp and can be impacted by pulp price fluctuations. Furthermore, we may not be able to pass increased raw materials prices on to our customers if the market or existing agreements with our clients do not allow us to raise the prices of our finished products. If price adjustments significantly trail the increase in raw materials prices or if we cannot effectively hedge against price increases, our operating results may be materially adversely affected.

Our investments in research and development may not generate new and improved consumer products, which could materially adversely affect our revenue and market share.

We intend to continue to make investments in research and development to develop new and improved consumer products. We need to continue to develop new products and improve our existing products in order to maintain our market share. However, we cannot assure you that we will have sufficient resources to invest in the development of new and enhanced products. Our failure to continue making such investments could restrain our revenue growth and harm our operating results. In addition, even if we are able to invest sufficient resources in research and development, we cannot assure you that these investments will generate revenues that exceed our expenses, will generate any revenues at all or will result in any commercially acceptable products.

We may not be able to sustain growth in our international markets or continue to generate significant revenues abroad, which would materially adversely affect our operating results.

We generated 19% of our revenues for fiscal 2001 from sales in Finland, France, Greece, Ireland, Italy, the Netherlands, Russia, Spain, Turkey and the United Kingdom. We anticipate devoting significant resources and management attention to expanding our international tissue operations, both in our existing overseas markets and in new markets in other countries. However, our existing international operations and future international expansion subject us to the following risks:

•

expenses associated with adapting our products to each foreign market we target or plan to target;

•

maintaining differing brand names and corresponding intellectual property rights;

•

changes in individual country, regional, political or economic conditions;

•

instability and illiquidity in foreign financial markets;

•

greater difficulty in staffing and managing foreign operations;

•

protectionist laws and business practices that favor local competitors;

•

unreliability of judicial processes;

•

longer sales cycles and collection periods;

•

significantly higher distribution costs; and

•

multiple, conflicting and changing laws and government regulations.

In addition, our existing international operations and future international expansion subject us to foreign currency exchange fluctuations, primarily with respect to the Canadian dollar, the Mexican peso and the Euro. Our operating results in foreign countries may fluctuate from period to period due to exchange rate movements in relation to the U.S. dollar, particularly exchange rate movements in the Euro, which is our largest non-U.S. exposure.

Georgia-Pacific acquired Fort James Corporation in November 2000, and we may not be able to successfully complete integration of its operations, achieve anticipated cost synergies and pursue new product opportunities.

The Fort James businesses that Georgia-Pacific acquired on November 27, 2000 represent a significant portion of our consumer products business. We cannot assure you that we will be able to build upon Georgia-Pacific’s integration efforts to date, successfully complete the integration or achieve the remaining cost synergies and other benefits anticipated in connection with the acquisition. Our failure to successfully integrate the businesses acquired from Fort James would have a material adverse effect on our operating results.

If energy costs rise or we fail to efficiently manage our energy use, our operating expenses will increase, and our operating results may be adversely affected.

We incur significant energy costs in our manufacturing operations. Use of electricity, natural gas, and petroleum-based fuels accounts for 8% of our annual operating costs. Despite efforts to minimize our energy costs, they remain subject to factors that are beyond our control, including market supply, pricing and regulatory decisions. We cannot assure you that we will be able to efficiently manage our energy use or that our operating results will not suffer from the negative impact of volatility in the energy market.

Our businesses could suffer in the event of a unionization drive or a strike, work slowdown or other labor disruption that could harm our operating results.

We may experience unionization drives or strikes, work slowdowns or other labor disruptions in the future that could harm our operating results. Upon expiration of any existing collective bargaining agreements, we may not be able to reach new agreements on terms satisfactory to us without labor disruption. Our non-union facilities may become subject to labor union organizing efforts which, if successful, could increase the risk of work stoppages and potentially lead to higher labor costs.

Compliance with environmental rules and regulations and potential liabilities arising from related environmental liabilities may increase our operating costs and require us to incur additional substantial costs, which may have a material adverse effect on our operating results and profitability.

Our businesses are subject to many environmental laws and regulations relating to the control and discharge of pollutants and other emissions on or into land, water and air and to the use, disposal and remediation of hazardous substances or other contaminants. We may incur significant costs to comply with existing and future environmental laws and regulations that may have a material adverse impact on our operating results and profitability. Moreover, these environmental rules may become more stringent in the future. If we fail to comply with applicable environmental rules, regulations and permit requirements, we will face civil and criminal fines, penalties and enforcement actions, including regulatory or judicial injunctions that may curtail our operations, require us to install pollution control equipment, or impose other costly corrective or remedial measures. In addition, we currently are, and from time to time in the future will be, involved in a number of environmental matters and legal proceedings. These matters and proceedings have in the past caused, and may in the future cause, us to incur substantial costs. Such proceedings are based on liability under environmental laws for damages resulting from past or present spills or releases of hazardous or toxic substances on or from our properties, or on tort liability relating to exposure to hazardous substances. Liability under

these laws may be imposed without regard to whether we knew of, or were responsible for, the presence of such substances on our property.

We may not adequately protect our intellectual property rights, which may harm our operating results.

As a consumer products company, we rely heavily on trademarks and copyrights to protect our brands, and patents and trade secrets in the manufacture of many of our products. We cannot assure you that these protections will adequately safeguard our intellectual property rights or that we will not incur significant costs to defend our intellectual property rights, which could harm our operating results. Although we are not aware that any of our intellectual property rights infringe upon the proprietary rights of third parties, third parties may make such claims in the future. Any infringement claims, whether with or without merit, could be time-consuming, result in costly litigation or damages, undermine the exclusivity and value of our brands, decrease sales or require us to enter into royalty or licensing agreements that may not be on acceptable terms.

Risks Related to Our Separation from Georgia-Pacific

We may be exposed to Georgia-Pacific’s asbestos-related or other liabilities even after the distribution.

Even if we are separated from Georgia-Pacific in the distribution, third parties may seek to hold us responsible for Georgia-Pacific’s obligations, including its asbestos or environmental liabilities, under several legal theories.

Georgia-Pacific has agreed to retain liabilities relating to the businesses it is retaining and to indemnify us for any losses arising out of those liabilities. Accordingly, assuming Georgia-Pacific remains solvent, we should not ultimately be affected in any material way by any of those Georgia-Pacific liabilities. However, if Georgia-Pacific encounters financial difficulty and becomes unable to discharge those liabilities or to fulfill its obligations under that indemnity:

•

claimants may be successful in arguing that we are responsible for Georgia-Pacific’s obligations; and

•

defending against those liabilities may be costly and may divert management attention away from our businesses.

Under such circumstances, potential liability may have a material adverse effect on our business, financial condition and operating results.

For these reasons, the solvency of Georgia-Pacific is extremely important to us and the value of our stock. In order to help you assess Georgia-Pacific’s financial strength, we have included detailed disclosure about Georgia-Pacific in “Annex A” to this prospectus.

The principal legal theory under which third parties might assert that we are responsible for Georgia-Pacific’s obligations is that the transfer of assets from Georgia-Pacific to us in the reorganization or the distribution of our stock to Georgia-Pacific’s shareholders was a “fraudulent conveyance”. Under applicable law, the transfer of assets in the reorganization or the distribution would constitute a “fraudulent conveyance” if:

•

Georgia-Pacific engaged in the reorganization or distribution to hinder, delay, or defraud creditors; or

•

Georgia-Pacific received less than reasonably equivalent value or fair consideration in connection with the reorganization or distribution and

—

Georgia-Pacific was insolvent at the effective time of the reorganization or distribution or was rendered insolvent by the reorganization or distribution;

—

Georgia-Pacific immediately prior to the reorganization or distribution intended, believed or reasonably should have believed that it would be unable to pay its debts as they became due;

—

the capital of Georgia-Pacific immediately after the reorganization or distribution was unreasonably small for the conduct of its business; or

—

Georgia-Pacific’s remaining assets immediately after the reorganization or distribution were unreasonably small in relation to its business.

The test for fraudulent conveyance, including the criteria for insolvency, will vary depending upon the law of the jurisdiction that is being applied. Generally, however, Georgia-Pacific would be considered to be insolvent if:

•

it was generally not paying its debts as they came due; or

•

the fair value of its assets was less than the sum of its actual and contingent liabilities, including contingencies for asbestos-related claims.

We will be controlled by Georgia-Pacific as long as it owns a majority of our common stock, and our other shareholders will be unable to affect the outcome of shareholder voting during that time.

Upon completion of this offering, Georgia-Pacific will own approximately % of our outstanding common stock, or approximately % if the underwriters exercise in full their option to purchase additional shares to cover over-allotments. As long as Georgia-Pacific owns a majority of our outstanding common stock, it will continue to be able to elect our entire board of directors and to remove any director, with or without cause, without calling a special meeting. If you purchase shares of our common stock in this offering, you will not be able to affect the outcome of any shareholder vote prior to the planned distribution of our common stock. As a result, Georgia-Pacific will effectively control:

•

any board decisions regarding our business direction and policies, including the appointment, compensation and removal of officers;

•

amendments to our articles of incorporation and bylaws;

•

the allocation of business opportunities that may be suitable for both us and Georgia-Pacific;

•

any decisions regarding mergers or other business combinations, including transactions involving a change of control;

•

our acquisition or disposition of assets;

•

further issuances of our common stock or other securities;

•

our capital structure;

•

changes to the agreements providing for our separation from Georgia-Pacific;

•

dividend payments on our common stock; and

•

determinations regarding our tax returns.

We have potential conflicts of interest with Georgia-Pacific with respect to our past and ongoing relationships, and we may not be able to resolve these conflicts on terms favorable to us.

Conflicts of interest may arise between Georgia-Pacific and us in a number of areas relating to our past and ongoing relationships, including:

•

how various tax and employee benefit matters are resolved or how responsibilities for such matters are allocated;

•

disputes over our and Georgia-Pacific’s respective indemnification obligations;

•

raw material procurement;

•

the timing and manner of sales or distributions by Georgia-Pacific of all or any portion of its equity ownership of us;

•

the nature, quality and pricing of transitional services that we have agreed to provide to Georgia-Pacific or it has agreed to provide to us; and

•

the allocation of business opportunities that may be attractive to both Georgia-Pacific and us.

Although certain of these areas are governed by contracts, we may not be able to resolve any conflicts under the contracts or otherwise, and even if we do, the resolution may be less favorable than if we were dealing at arms-length with an unaffiliated party. In addition, these contracts are being negotiated in the context of a parent-subsidiary relationship during the process of a separation. As long as Georgia-Pacific controls us, it may require us to enter into agreements on terms that may not be favorable to us.

Our directors and officers may have conflicts of interest because they own Georgia-Pacific common stock or hold options to purchase Georgia-Pacific common stock, and we may not be able to resolve these conflicts on terms favorable to us.

Many of our executive officers and directors hold shares of Georgia-Pacific stock and options to acquire shares of Georgia-Pacific stock and immediately following this offering may own common stock or hold options in both Georgia-Pacific and us. This ownership could create, or appear to create, conflicts of interest or questions regarding the loyalty of executive officers and directors with respect to the resolution of disputes arising out of the agreements governing the two entities following this offering and the distribution. We cannot assure you that our directors and executive officers will resolve potential conflicts in our best interest. Furthermore, the appearance of conflicts, even if such conflicts do not materialize, might adversely affect the public’s perception of us following this offering and the distribution and could cause a decline in the price of our common stock.

We have no operating history as an independent public company and may be unable to operate profitably as a stand-alone company.

We have no operating history as an independent public company. As business segments of Georgia-Pacific, we and Georgia-Pacific have been able to rely, to some degree, on the earnings, assets and cash flow of each other for capital resources. After the offering, we must rely solely on our own business for these requirements. We also have relied on Georgia-Pacific for financial, administrative and managerial expertise in conducting our operations. Following the offering, we will maintain our own credit and banking relationships and perform our own financial and investor relations functions. While virtually all of our employees following the offering will be former Georgia-Pacific employees, we cannot assure you that we will be able to develop and implement the infrastructure necessary to operate successfully as an independent public company or that developing such an infrastructure will not require a substantial amount of time and resources and divert our management’s attention away from our businesses.

Our historical financial information may not represent our actual results as an independent company.

Our financial statements have been created from the financial statements of Georgia-Pacific using the historical operating results and assets and liabilities of our consumer products, packaging, and paper and pulp businesses. In addition, certain shared expenses and centralized costs of Georgia-Pacific as a whole have been allocated to us. Accordingly, the historical financial information we have

included in this prospectus does not necessarily reflect what our financial position, operating results and cash flows would have been had we been a separate, stand-alone entity during the periods presented. Georgia-Pacific did not account for us, and we were not operated, as a separate, stand-alone entity for the periods presented. The historical financial information does not necessarily indicate what our operating results, financial position and cash flows will be in the future and does not reflect many significant changes that will occur in our capital structure, funding and operations as a result of our separation from Georgia-Pacific. For example, we may face increased costs for raw materials, distribution, corporate services and infrastructure, marketing, product development, supply agreements and financing as a stand-alone entity.

The sale or potential sale by Georgia-Pacific of our stock could materially adversely affect the market price of our stock.

After the offering, Georgia-Pacific will own over 80% of our outstanding common stock. Georgia-Pacific is not contractually prohibited from transferring our common stock to an unaffiliated third party following the 180-day lock-up period after the offering. Georgia-Pacific may also transfer its shares prior to the expiration of the 180-day lock-up period with the consent of Goldman, Sachs & Co. If Georgia-Pacific were to propose such a transfer or transfer a controlling interest in us to a third party, the third party would not have any obligation to dispose of its controlling interest in us, which may have a material adverse effect on the market price of our stock.

We may not be able to realize the entire book value of our goodwill and other intangible assets.

As of March 30, 2002, we had $7.5 billion of net goodwill and other intangible assets that were transferred to us from Georgia-Pacific. Pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 142, entitled “Goodwill and Other Intangible Assets”, Georgia-Pacific began assessing goodwill in 2002 for impairment at least annually rather than amortizing the goodwill. We are evaluating the effect of this statement. If we were to determine as a result of such assessments that our goodwill is impaired, we would be required to charge such impairment to our earnings, which could have a material adverse effect on our operating results.

Our separation from Georgia-Pacific may impair our goodwill and other intangible assets. One potential indicator of impairment is if the net book value of a company’s assets exceeds a company’s market capitalization for a period of time. As an independent public company, we will have our own market capitalization, which may be less than our net book value. In the event that our goodwill and other intangible assets are determined to be impaired, we would be required to charge such impairment to earnings.

We may be unable to obtain additional debt financing after we increase our indebtedness by assuming $8.25 billion of Georgia-Pacific’s debt, which may materially adversely affect our financial condition, operating results and future opportunities for growth.

As part of the reorganization transactions, we expect to assume approximately $8.25 billion of debt from Georgia-Pacific. As a stand-alone company, we will be unable to rely on Georgia-Pacific to repay any of our debt obligations. Our leverage and debt service requirements may limit our liquidity and our ability to obtain necessary funding for capital expenditures, acquisitions, research and development or other growth initiatives and may make us more vulnerable to economic downturns than our competitors. If we cannot service our debt, we may be forced to reduce capital expenditures, sell assets, restructure or refinance our debt or seek additional equity capital, which may not be available at attractive prices, if at all. If we are required to pursue these alternative strategies, our business, financial condition and operating results may suffer.

We may experience a downgrade in our credit ratings which may trigger defaults under certain of our credit facilities, increase our interest expense, restrict our liquidity and limit our ability to secure commercial paper or debt financing on satisfactory terms.

Certain credit rating agencies, such as Standard & Poor’s and Moody’s, analyze and publish credit ratings of our company and our debt based on their assessment of our ability to generate enough cash flow to meet our debt obligations. We are currently rated BBB by Standard & Poor’s, which is an investment grade rating, and Ba1 by Moody’s, which is not an investment grade rating. A rating reflects only the view of Moody’s or Standard & Poor’s and is not a recommendation to buy, sell or hold any of our securities. Because these published credit ratings are closely scrutinized, any downgrade in our credit ratings would signal an increase in our credit risk to the capital markets. We cannot assure you that we will maintain these ratings. A downgrade may trigger default provisions under certain of our credit facilities, increase our interest expense, restrict our liquidity and limit our ability to secure commercial paper or debt financing on reasonable or satisfactory terms. Any such credit rating downgrade may have a material adverse effect on our financial condition and operating results.

Following the distribution, our tax returns will not be consolidated with Georgia-Pacific, and our recognition of the benefits of any tax losses may be delayed.

Prior to the distribution, Georgia-Pacific will continue to file consolidated, combined and unitary tax returns for federal and many states’ income taxes that include our operating results. After the distribution, we will not be able to join with Georgia-Pacific in any consolidated, combined or unitary tax returns. As a result, for federal and state income tax purposes, we and Georgia-Pacific will not be able to offset our taxable income or losses against each other. Without these tax benefits, our operating results may be materially adversely affected.

Failure of the distribution to qualify as a tax-free transaction could result in substantial liability to us.

We and Georgia-Pacific intend for the distribution to be tax-free to Georgia-Pacific and its shareholders for U.S. federal income tax purposes, and Georgia-Pacific currently plans to consummate the distribution only after the Internal Revenue Service has issued a favorable private letter ruling to that effect. However, Georgia-Pacific’s board of directors may elect to consummate the distribution without a ruling from the Internal Revenue Service. In that event, Georgia-Pacific may choose to obtain an opinion of tax counsel, which would not be binding on the IRS or any court.

If the distribution does not qualify for tax-free treatment, a substantial corporate tax would be payable by the consolidated group of which Georgia-Pacific is the common parent. The corporate level tax would be payable by Georgia-Pacific. However, we have agreed to indemnify Georgia-Pacific, in certain circumstances, for all or a portion of this tax liability. This indemnification obligation, if triggered, could have a material adverse effect on our business, financial condition and operating results. In addition, under the applicable Treasury Regulations, each member of Georgia-Pacific’s consolidated group immediately before the distribution (including us) would be severally liable for such tax liability. Furthermore, if the distribution does not qualify as a tax-free transaction, each Georgia-Pacific shareholder who receives our shares in the distribution would be taxed as if he or she had received a cash dividend equal to the fair market value of our shares that he or she received on the date of distribution.

Even if the distribution qualifies as a tax-free transaction, Georgia-Pacific could nevertheless incur a substantial corporate tax liability under Section 355(e) of the Internal Revenue Code of 1986, as amended, if either we or Georgia-Pacific were to experience changes in ownership aggregating 50% or more of our or its, as the case may be, outstanding stock (by vote or by value), whether by acquisition, additional share issuance or otherwise, pursuant to a plan or series of related transactions that includes the distribution. Any transaction that occurs within the four-year period beginning two years

prior to the distribution is presumed to be part of such a plan unless Georgia-Pacific establishes otherwise. Under certain circumstances, we would be obligated to indemnify Georgia-Pacific for all or a portion of this substantial corporate tax liability under the tax sharing agreement. Fulfilling this indemnification obligation would have a material adverse effect on our business, financial condition and operating results. Due to the risks of incurring substantial tax liability under this provision, we may refrain from engaging in certain transactions involving our stock, such as additional public offerings, mergers or acquisitions, after the distribution.

If Georgia-Pacific does not complete the tax-free distribution of our common stock, we may not be able to operate outside of Georgia-Pacific’s control, and our stock price may decline.

Georgia-Pacific has announced that it intends to distribute to its shareholders all of our common stock that it owns approximately six months after completion of this offering, although Georgia-Pacific is not obligated to do so. This distribution is conditioned upon, among other things, the approval of the Georgia-Pacific board of directors and, as noted above, a ruling from the Internal Revenue Service or an opinion of tax counsel to the general effect that the distribution and certain related transactions will be tax-free to Georgia-Pacific and its shareholders for U.S. federal income tax purposes. Any of these conditions to the distribution may be waived by the Georgia-Pacific board. While Georgia-Pacific has filed for this tax ruling, we do not know how the Internal Revenue Service will rule. Until the distribution occurs, the risks discussed in this prospectus related to Georgia-Pacific’s control of us and the conflicts of interest between Georgia-Pacific and us will continue to be relevant. If the distribution is delayed or never completed, our stock price may decline as a result of the following additional risks:

•

the liquidity of our shares in the market will be severely constrained, unless and until Georgia-Pacific elects to divest some of its shares;

•

because of the limited liquidity, relatively small trades of our common stock will have a disproportionate effect on our stock price;

•

we may not be able to hire and retain key personnel, many of whom are attracted by the potential of operating our business independently; and

•

risks related to Georgia-Pacific’s control of us and potential business conflicts will continue to be relevant to our operations.

Risks Related to this Offering

Our common stock has no current trading market, our stock price may be volatile and you could lose all or part of your investment.

There is no current trading market for our common stock, although we expect that our shares will be listed on the New York Stock Exchange under the symbol “ ”. We cannot assure you that our shares will be actively traded, at what prices they will trade or whether such trading will be sustainable. The following factors could cause the price of our common stock to fluctuate significantly from the price you will pay in this offering:

•

variations in our quarterly operating results;

•

changes in analysts’ revenue or earnings estimates;

•

changes in market valuations of peer companies;

•

strategic initiatives by our competitors, such as new product offerings, acquisitions, joint ventures or restructurings;

•

the addition or departure of key personnel;

•

actions by institutional shareholders prior to the distribution;

•

fluctuations in stock trading volumes; and

•

domestic and international economic factors unrelated to our performance.

Our shareholders may be unable to effect a change of control due to anti-takeover provisions in our articles of incorporation and bylaws and Georgia corporate law, which could depress the market price of our common stock.

Our articles of incorporation and bylaws and Georgia corporate law contain provisions that could delay, defer or prevent a change in control of us or our management that could be in the best interest of our shareholders. These provisions also could discourage proxy contests and make it more difficult for you and other shareholders to elect directors and take other corporate actions. As a result, these provisions could limit the price that investors are willing to pay in the future for shares of our common stock. These provisions also may discourage a potential acquisition proposal or tender offer, including an acquisition proposal or tender offer that provides a premium price for our common stock. These anti-takeover provisions:

•

establish a board of directors with staggered terms of office;

•

establish a shareholder rights plan, or “poison pill”, that would cause substantial dilution to any person or group who attempts to acquire a significant interest in us without advance approval from our board;

•

restrict us from entering into certain business combinations with interested shareholders;

•

impose fair price and procedural requirements upon any potential business combination with any shareholder owning 10% or more of our common stock;

•

authorize our board of directors to issue “blank check” preferred stock and to determine the powers, preferences and privileges of those shares without prior shareholder approval; and

•

restrict the nomination, election and removal of directors and limit actions by our shareholders.

We also have entered into agreements with our executive officers that will provide these officers with monetary compensation and other benefits upon a change of control and the occurrence of one of several events specified in the agreements within three years of the change of control. These change of control payments also could delay, defer or prevent a change of control of us or our management that could be in the best interests of our shareholders.

Our stock price may decline if substantial sales of our common stock occur in connection with the distribution of our common stock by Georgia-Pacific.

Georgia-Pacific currently intends to distribute shares of our common stock to its shareholders approximately six months after this offering. Accordingly, following the distribution, substantially all of these shares will be eligible for immediate resale in the public market. Some Georgia-Pacific shareholders may choose to sell their shares of our common stock. These sales by existing shareholders could flood the trading market with our shares for a period of time following the distribution. If there is an insufficient number of buyers in the market at that time, our stock price may decline. Any sales of substantial amounts of our common stock, or even the perception that substantial sales may occur, could trigger declines in our stock price. Until the shares are fully distributed and an orderly market develops, our stock price may fluctuate significantly and may be lower than the price that would be expected for a widely held stock.

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “believes”, “expects”, “anticipates”, “plans”, “estimates” or similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, strategies, contingencies, financing plans, working capital needs, sources of liquidity, capital expenditures and contemplated transactions, as well as our expectations regarding the timing and structure of each of the reorganization transactions and Georgia-Pacific’s financial strength.

Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on beliefs and assumptions of our management, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, projected pricing, projected costs, Georgia-Pacific’s ability to indemnify us for any asbestos and environmental liabilities we might become subject to, growth opportunities, strategic benefits of the separation, competitive conditions and general economic conditions. These assumptions could prove inaccurate. The forward-looking statements also involve risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following:

•

we face intense competition in each of our businesses;

•

our business is subject to increases in raw material costs;

•

our investments in research and development may not generate new and improved consumer products;

•

we may not be able to sustain growth in our international markets or continue to generate significant revenues abroad;

•

we may not be able to successfully complete the integration of Fort James’ operations, achieve anticipated cost synergies and pursue new product opportunities;

•

we may experience a downgrade in our credit ratings;

•

energy costs may rise or we may fail to efficiently manage our energy use;

•

we may experience unionization drives or strikes, work slowdowns, or other labor disruptions;

•

the costs of complying with current and future environmental laws and regulations are significant;

•

we may not adequately protect our intellectual property rights;

•

we will be controlled by Georgia-Pacific as long as it owns a majority of our common stock and may have potential conflicts of interest with Georgia-Pacific;

•

we may be exposed to Georgia-Pacific’s environmental and asbestos-related liabilities;

•

changes in general economic and industry conditions may occur; and

•

other factors discussed under the heading “Risk Factors”.

You should not place undue reliance on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any of them publicly in light of new information or future events.

USE OF PROCEEDS

We estimate that our net proceeds from this offering will be approximately $ , based on an assumed initial public offering price of $ per share and after deducting an assumed underwriting discount and estimated offering expenses payable by us, or $ if the underwriters’ over-allotment option is exercised in full. We intend to use the net proceeds of this offering to repay short-term borrowings outstanding under the revolving credit facility of Georgia-Pacific that we will assume as part of the reorganization transactions. As of May 31, 2002, these borrowings accrued interest at a weighted average annual rate of 3.43%.

DIVIDEND POLICY

We currently expect to pay a quarterly dividend on our common stock, including the shares of common stock held by Georgia-Pacific, at an initial annual rate of $ per share after completion of this offering. However, no formal action has been taken by our board of directors regarding any dividends on our common stock, and any payments of dividends in the future will be at the discretion of our board of directors and will depend upon our operating results, earnings, capital and liquidity requirements, contractual restrictions contained in our bank credit facility or other agreements, and other factors deemed relevant by our board of directors. There can be no assurance that we will continue to pay dividends on our common stock at the expected initial rate.

CAPITALIZATION

The following table sets forth our capitalization as of March 30, 2002 (1) on an actual basis, and (2) as adjusted to give effect to the reorganization transactions. As described in Note 1 of our audited combined financial statements, certain assets and liabilities have been allocated to us based upon management’s intentions or expectations, and these assets and liabilities are reflected as such in our balance sheet as of March 30, 2002.

This table should be read in conjunction with “Selected Historical Financial Data”, our unaudited pro forma financial statements, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited combined financial statements and unaudited interim combined financial statements and the notes to those statements included elsewhere in this prospectus.

	As of March 30, 2002
	Actual		As Adjusted
	(in millions)
Short-term debt	$	2,090	$	1,196

Long-term debt	$	7,593	$	7,593
Senior deferrable notes		863		863
Equity		4,053		4,985

Total capitalization	$	12,509	$	13,441

SELECTED HISTORICAL FINANCIAL DATA

The following selected combined financial data for each of the three fiscal years in the period ended December 29, 2001 and the selected balance sheet data as of December 30, 2000 and December 29, 2001 are derived from our combined financial statements and the notes to these statements included elsewhere in this prospectus, which have been audited by Ernst & Young LLP, independent auditors. The selected financial data for each of the fiscal years ended December 31, 1997 and December 31, 1998 and the selected balance sheet data as of December 31, 1997, December 31, 1998 and January 1, 2000 are derived from our unaudited combined financial statements for those periods. The selected financial data for the fiscal quarters ended March 31, 2001 and March 30, 2002 and the selected balance sheet data as of March 30, 2002 are derived from our unaudited interim combined financial statements and the notes to those statements included elsewhere in this prospectus and, in our opinion, reflect all adjustments, consisting of normal accruals, necessary for a fair presentation of the data for those periods. Our financial data for the fiscal quarter ended March 30, 2002 may not be indicative of results that may be expected for the full year. The assets, liabilities and operating expenses in the historical financial statements reflect assets, liabilities and direct operating expenses of our businesses together with allocations of certain assets and liabilities based on management’s intentions or expectations and allocations of certain Georgia-Pacific corporate items that have been charged to us based on usage and other methodologies appropriate for such items. Our historical financial results reflect several significant acquisitions and dispositions, including Georgia-Pacific’s acquisition of Fort James Corporation in November 2000, its sale of tissue assets to Svenska Cellulosa Aktiebolaget SCA in March 2001 and its sale of paper and pulp assets to Domtar, Inc. in August 2001. Accordingly, the historical periods presented are not necessarily comparable. This financial data may not be indicative of our future performance and do not necessarily reflect what our financial position and results of operations would have been had we operated as a separate, stand-alone entity during the periods presented. You should read the table below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited combined financial statements and the notes related to those statements included elsewhere in this prospectus.

	Fiscal Year															First Quarter
	1997			1998			1999			2000			2001			2001			2002(2)
	(in millions, except per share data)
Statement of Income Data:
Net sales	$	5,886		$	6,018		$	6,443		$	7,949		$	12,427		$	3,300		$	2,862

Operating expenses		5,825			5,885			5,983			6,987			11,296			3,098			2,582
Interest		314			367			291			375			878			253			188
Other loss		—			5			—			204			63			—			—

Total costs and expenses		6,139			6,257			6,274			7,566			12,237			3,351			2,770

Income (loss) before income taxes, extraordinary item and accounting change		(253	)		(239	)		169			383			190			(51	)		92
(Provision) benefit for income taxes		85			76			(72	)		(148	)		(356	)		(2	)		(30	)

Income (loss) before extraordinary item and accounting change		(168	)		(163	)		97			235			(166	)		(53	)		62
Extraordinary loss from early retirement of debt, net of taxes		—			(9	)		—			—			(12	)		(12	)		—
Cumulative effect of accounting change, net of taxes		(47	)		—			—			—			11			11			—

Net income (loss)	$	(215	)	$	(172	)	$	97		$	235		$	(167	)	$	(54	)	$	62

Basic and diluted net income (loss) per share

Other Data:
EBITDA, as adjusted(1)	$	692		$	695		$	1,026		$	1,680		$	2,300		$	575		$	495
Capital expenditures								378			571			576			155			100
Weighted average basic and diluted shares

	Fiscal Year															First Quarter
	1997			1998			1999			2000			2001			2002
	(in millions)
Balance Sheet Data:
Working (deficit) capital	$	(857	)	$	(175	)	$	(179	)	$	(856	)	$	(1,068	)	$	(802	)
Total assets		7,487			7,410			8,345			22,215			19,400			19,300
Long-term debt		2,100			2,655			2,158			9,753			7,415			7,593
Senior deferable notes		—			—			863			863			863			863
Equity		2,032			2,194			2,412			4,296			4,041			4,053

(1)

(2)

Effective December 30, 2001, the Consumer Products Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” (“SFAS No. 141”), and SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). SFAS No. 141 requires that the purchase method of accounting be used for all 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. When the fair value is less than the related carrying value, entities are required to reduce the amount of goodwill. The Consumer Products Company has determined its reporting units to be the following: North American towel and tissue, Dixie, European consumer products, packaging and pulp and paper. Management is evaluating the effect of this statement on these reporting units. SFAS No. 142 also requires that entities discontinue amortization of all purchased goodwill, including amortization of goodwill recorded in past business combinations. Accordingly, the Consumer Products Company will no longer amortize goodwill beginning in 2002. In the first quarter of 2001, goodwill amortization expense aggregated $57 million, which included $43 million in the consumer products segment, $5 million in the packaging segment, and $9 million in the paper and pulp segment. Had the Consumer Products Company discontinued amortization of goodwill in the prior year, operating results for the first quarter of 2001 would have been as follows:

	First Quarter 2001
	(in millions)
Continuing operations:
Loss before income taxes, extraordinary item and accounting change, as reported	$	(51	)
Add back: goodwill amortization		57

Adjusted income before income taxes, extraordinary item and accounting change	$	6

Net loss as reported	$	(54	)
Add back: goodwill amortization		57

Adjusted net loss	$	3

Pro forma basic and diluted earnings per share:
Net income as reported	$
Add back: goodwill amortization

Adjusted net income	$

PRO FORMA FINANCIAL STATEMENTS

The unaudited pro forma financial statements set forth below have been prepared assuming that the reorganization transactions occurred on March 30, 2002, for purposes of the pro forma balance sheet and at the beginning of the periods presented for purposes of the pro forma statements of operations.

The transactions that we refer to as the “reorganization transactions” include:

•

Georgia-Pacific will contribute the assets and liabilities relating to its consumer products, packaging, and paper and pulp businesses to us;

•

Georgia-Pacific will sell up to $1 billion of senior subordinated notes and borrow approximately $ million under a new secured senior credit facility;

•

Unisource, a subsidiary of Georgia-Pacific, will borrow approximately $ million under a new secured senior credit facility;

•

We will assume approximately $2.6 billion of Georgia-Pacific’s indebtedness, including obligations relating to up to approximately $869 million of industrial revenue bonds;

•

We will borrow approximately $ million under a new unsecured senior credit facility;

•

We will sell common stock that will represent approximately % of our shares in this public offering that we expect to raise approximately $1 billion; and

•

We will use the proceeds from the borrowings under our new credit facility and the sale of our common stock to retire a portion of the debt we assume from Georgia-Pacific.

The unaudited pro forma financial statements do not purport to represent what our results of operations and financial condition would have been had the reorganization transactions occurred on the dates indicated or to predict our results of operations or financial condition in the future. The unaudited pro forma adjustments are described in the accompanying notes and are based upon available information and certain assumptions that management believes are reasonable. You should read the unaudited pro forma financial information in conjunction with our combined financial statements and the notes related to those statements included elsewhere in this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

PRO FORMA BALANCE SHEET AS OF MARCH 30, 2002

	Actual		Adjustments	Pro Forma
	(in millions)
Current assets:
Cash	$	28		$	28
Receivables, net of allowance		1,223			1,223
Inventories		1,416			1,416
Deferred income tax assets		128			128
Other current assets		194			194

Total current assets		2,989			2,989
Property, plant and equipment, net		7,387			7,387
Goodwill, net		7,525			7,525
Other assets		1,399	$38(c)		1,437

Total assets	$	19,300	$38	$	19,338

Current liabilities:
Short-term debt	$	2,090	$(894)(a)(b)(c)(e)	$	1,196
Accounts payable		891			891
Accrued compensation		158			158
Other current liabilities		652			652

Total current liabilities		3,791	(894)		2,897
Long-term debt, excluding current portion		7,593			7,593
Senior deferrable notes		863			863
Other long-term liabilities		1,755			1,755
Deferred income tax liabilities		1,245			1,245
Invested equity		4,053	932(a)(c)(e)		4,985

Total liabilities and invested equity	$	19,300	$38	$	19,338

PRO FORMA STATEMENT OF OPERATIONS FOR THE FISCAL

YEAR ENDED DECEMBER 29, 2001

	Actual			Adjustments			Pro Forma
				(in millions)
Net sales:
Third parties	$	11,768					$	11,768
Georgia-Pacific(1)		659						659

Total net sales		12,427						12,427

Costs and expenses:
Cost of sales, excluding depreciation and amortization shown below		8,698						8,698
Selling and distribution		865						865
Depreciation and amortization		1,086						1,086
General and administrative		647						647
Interest expense		878
Reduction of expense on retired debt					$(64)(a	)
Interest on exchanged and assumed debt					— (b	)
Amortization of debt issuance costs					10 (c	)		824
Other loss		63						63

Total costs and expenses		12,237			(54)			12,183

Income before income taxes		190			54			244
Provision for income taxes		356			20 (d	)		376

Loss before extraordinary item and accounting change	$	(166	)		$34		$	(132	)

Basic and diluted per share:
Loss before extraordinary item and accounting change	$			$			$

Shares used in computing pro forma per share data

(1)

Includes sales to Georgia-Pacific’s building products manufacturing and distribution businesses and Unisource.

PRO FORMA STATEMENT OF OPERATIONS FOR THE FISCAL

QUARTER ENDED MARCH 30, 2002

	Actual		Adjustments					Pro Forma
	(in millions)
Net sales:
Third parties	$	2,746						$	2,746
Georgia-Pacific(1)		116							116

Total net sales		2,862							2,862

Costs and expenses:
Cost of sales, excluding depreciation and amortization shown below		2,006							2,006
Selling and distribution		220							220
Depreciation and amortization		201							201
General and administrative		155							155
Interest		188
Reduction of expense on retired debt				(16	)	(a	)
Interest on exchange and assumed debt				—		(b)
Amortization of debt issuance cost				3		(c)			175

Total costs and expenses		2,770		(13	)				2,757

Income before income taxes		92		13					105
Provision for income taxes		30		5		(d)			35

Net income	$	62	$	8				$	70

Basic and diluted per share:
Net income	$		$					$

Shares used in computing pro forma net income per share

(1)

Includes sales to Georgia-Pacific’s building products manufacturing and distribution businesses and Unisource.

Notes to Unaudited Pro Forma Financial Statements

Represents the pro forma reduction of short-term debt from utilization of the net proceeds of this offering and the associated pro forma reduction of interest expense as follows:

Net proceeds from issuance of common stock used to pay down debt	$	950
Weighted average interest rate on retired debt	x	6.7	%

Reduction in interest expense for fiscal 2001	$	64

Reduction in interest expense for first quarter of 2002	$	16

In connection with the reorganization transactions, (i) Georgia-Pacific will contribute the assets and liabilities relating to its consumer products, packaging, and paper and pulp businesses to us; (ii) we will assume approximately $2.6 billion of Georgia-Pacific’s indebtedness, including obligations relating to up to approximately $869 million of industrial revenue bonds; (iii) we will offer to exchange 16 series of our new debt securities for 16 series of outstanding publicly held debt securities of Georgia-Pacific having an aggregate principal amount of approximately $5.65 billion, which we will have assumed from Georgia-Pacific subject to its right to cause us to assume an equal principal amount of other Georgia-Pacific debt in lieu of any outstanding debt securities that are withdrawn from or not validly tendered in the exchange offers; any such untendered or withdrawn debt securities will remain obligations of Georgia-Pacific, and we expect Georgia-Pacific to cause us to assume, and then we would refinance, an equal amount of other Georgia-Pacific debt; (iv) we will borrow approximately $ million under a new unsecured senior credit facility; and (v) we will use the proceeds from the borrowings under our new credit facility to retire a portion of the debt we assume from Georgia-Pacific. Accordingly, our debt level will be impacted by the results of the debt exchanges, transfers of assets and liabilities between us and Georgia-Pacific and the net cash flows of Georgia-Pacific until such time as this offering is completed. The effects of the changes in allocated debt from items not attributable to our cash flows will be reflected as an adjustment of invested equity in connection with this offering. The magnitude of such changes cannot be presently determined. As described in Note 1 to our audited combined financial statements, certain assets and liabilities (including the 16 series of outstanding publicly held debt securities of Georgia-Pacific) have been allocated to us based on management’s intentions or expectations, and are reflected as such in our balance sheet as of March 30, 2002. Accordingly, except for the pay down of debt described in footnote a and the payment of debt issuance costs described in footnote c there is no other pro forma adjustment to debt.

These pro forma financial statements have been prepared assuming the debt to be exchanged and assumed bears interest at our historical weighted average interest rate of 6.7%. Accordingly, there is no pro forma adjustment to interest expense related to the debt transactions. The actual interest rate on such debt may differ from 6.7% to the extent that the outstanding publicly held debt securities of Georgia-Pacific are not tendered in the exchange offers and are substituted with other indebtedness. Accordingly, for every 0.125% variance in the interest rate, interest expense will vary by approximately $10 million.

In connection with the debt transactions, we expect to incur debt issuance costs of $38 million. The pro forma adjustments for amortization of such deferred debt issuance costs is $10 million for fiscal 2001 and $3 million for the first quarter of 2002.

In connection with the debt transactions, we expect to pay call premiums to retire debt of approximately $16 million ($10 million after tax). This amount is not reflected in the pro forma statements of operations since it is a nonrecurring charge.

The tax effect of the pro forma adjustments to earnings before income taxes is based on an estimated incremental income tax rate of 37.5%.

In connection with the reorganization transactions, we expect to pay business separation costs of approximately $13 million ($8 million after tax). This amount is not reflected in the pro forma statements of operations since it is a nonrecurring charge.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

This discussion summarizes the significant factors affecting our results of operations and financial condition of our consumer products, packaging, and paper and pulp businesses, referred to as the “Consumer Products Company” in our combined financial statements, during the three fiscal years in the period ended December 29, 2001, and the first fiscal quarter of 2002. This discussion should be read in conjunction with the audited and unaudited combined financial statements, notes to combined financial statements, unaudited pro forma financial statements, notes to pro forma financial statements and “Selected Historical Financial Data” included in this prospectus.

The Consumer Products Company manufactures and sells a wide variety of products in North America and Europe, the majority of which are paper-based. This includes retail and commercial (or away-from-home) tissue products (primarily bathroom tissue, paper towels and paper napkins); retail and commercial disposable tableware products (primarily paper and plastic plates, cups, bowls and cutlery); paper-based packaging materials; and paper and pulp.

Our historical financial results reflect several significant acquisitions and dispositions, including Georgia-Pacific’s acquisition of Fort James Corporation in November 2000, its sale of tissue assets to Svenska Cellulosa Aktieboluget SCA in March 2001 and its sale of paper and pulp assets to Domtar, Inc. in August 2001. Accordingly, the historical periods presented are not necessarily comparable. The “Selected Combined Operating Segment Data” table below should be read in conjunction with the more detailed segment information set forth in Note 3 of the notes to combined financial statements for the three fiscal years in the period ended December 29, 2001 and in Note 11 for the first quarters of fiscal 2002 and fiscal 2001.

SELECTED COMBINED OPERATING SEGMENT DATA

The Consumer Products Company

	First Quarter						Fiscal Year
	2002			2001			2001			2000			1999
	(in millions)
Net sales:
Consumer products	$	1,754		$	1,827		$	7,138		$	2,119		$	1,234
Packaging		652			638			2,610			2,735			2,511
Paper and pulp		539			916			2,976			3,235			2,758
Other*		(83	)		(81	)		(297	)		(140	)		(60	)

Total net sales	$	2,862		$	3,300		$	12,427		$	7,949		$	6,443

Operating profits (losses):
Consumer products	$	261		$	94		$	792		$	(17	)	$	131
Packaging		84			88			384			512			324
Paper and pulp		5			44			21			351			103
Other**		(70	)		(24	)		(129	)		(88	)		(98	)

Operating profits		280			202			1,068			758			460
Interest expense		188			253			878			375			291

Income (loss) before income taxes, extraordinary item and accounting change		92			(51	)		190			383			169
Provision for income taxes		30			2			356			148			72

Income (loss) before extraordinary item and accounting change		62			(53	)		(166	)		235			97
Extraordinary item, net of taxes		—			(12	)		(12	)		—			—
Cumulative effect of accounting change, net of taxes		—			11			11			—			—

Net income (loss)	$	62		$	(54	)	$	(167	)	$	235		$	97

*Includes the elimination of intersegment sales.

**Includes railroads and other miscellaneous businesses, unallocated corporate operating expenses and the elimination of profit on intersegment sales.

First Quarter of 2002 Compared with First Quarter of 2001

The Consumer Products Company reported net sales of $2.9 billion for the first quarter of 2002, compared with net sales of $3.3 billion for the first quarter of 2001. Included in 2001 are approximately $300 million of net sales from divested and closed operations.

Interest expense decreased $65 million to $188 million in the first quarter of 2002 compared with $253 million in the first quarter of 2001, principally as a result of lower debt levels and lower interest rates.

The Consumer Products Company reported income before income taxes, extraordinary item and accounting change of $92 million and an income tax provision of $30 million for the first quarter of 2002, compared with a loss before income taxes, extraordinary item and accounting change of $51 million and an income tax provision of $2 million for the first quarter of 2001. The effective tax rate in 2002 was different from statutory rates primarily because of lower international income tax rates and state tax credits. The effective tax rate in 2001 was different from statutory rates primarily because of nondeductible goodwill amortization expense associated with business acquisitions.

Effective at the beginning of fiscal 2002, the Consumer Products Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). SFAS No. 142 requires that entities discontinue amortization of all purchased goodwill, including amortization of goodwill recorded in past business combinations. Accordingly, the Consumer Products Company no longer amortized goodwill beginning in 2002. In the first quarter of 2001, goodwill amortization expense aggregated $57 million, which included $43 million in the consumer products segment, $5 million in the packaging segment and $9 million in the paper and pulp segment.

On March 15, 2001, Georgia-Pacific redeemed $300 million of its 6.235% Senior Notes Due March 15, 2011. Georgia-Pacific recorded an after-tax extraordinary loss of approximately $12 million related to this redemption during the first quarter of 2001, all of which was allocated to the Consumer Products Company.

Effective December 31, 2000, Georgia-Pacific adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and, accordingly, recorded an after-tax cumulative effect of accounting change credit of $11 million, all of which was allocated to the Consumer Products Company.

2001 Compared with 2000

The Consumer Products Company reported net sales of $12.4 billion and a net loss of $167 million for 2001, compared with net sales of $7.9 billion and net income of $235 million in 2000. Included in the 2001 results are a full year of net sales and operating profits from the Fort James operations that were combined with the Consumer Products Company beginning in December 2000. Also included in 2001 results is a pre-tax loss of $63 million ($260 million after tax loss) on the sale of a portion of the Consumer Products Company’s paper and pulp assets to Domtar, Inc. in August 2001. See Note 4 of the Notes to Combined Financial Statements. Pursuant to a consent decree executed with the United States Department of Justice in connection with the Fort James acquisition, Georgia-Pacific sold substantially all of the assets of its commercial tissue business to Svenska Cellulosa Aktiebolaget SCA in March 2001. In the fourth quarter of 2000, the Consumer Products Company recorded a pre-tax loss of $204 million for the write-down of these assets to their net realizable value.

Interest expense was $878 million in 2001, compared with $375 million in 2000. The increase is the result of higher average allocated debt levels, primarily related to the acquisition of Fort James in November 2000, offset slightly by lower interest rates.

The Consumer Products Company reported income before income taxes, extraordinary item and accounting change of $190 million and an income tax provision of $356 million in 2001, compared with income before income taxes, extraordinary item and accounting change of $383 million and an income tax provision of $148 million in 2000. The effective rate in 2001 was different from the statutory rate primarily because of nondeductible goodwill amortization expense associated with business acquisitions and because of nondeductible goodwill applicable to the pulp and paper assets sold to Domtar, Inc. The effective tax rate in 2000 was different from the statutory rate due to the utilization of state tax credits and foreign sales corporation tax benefits that more than offset nondeductible goodwill amortization expense associated with acquisitions.

During 2001, Georgia-Pacific redeemed $300 million of its 6.234% Senior Notes Due March 15, 2011 and recorded an extraordinary loss on early retirement of debt of $12 million (net of taxes of $7 million), all of which was allocated to the Consumer Products Company. In addition, effective December 31, 2000, Georgia-Pacific adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and accordingly, recorded a cumulative effect of accounting change credit of $11 million (net of taxes of $6 million) in 2001, all of which was allocated to the Consumer Products Company.

2000 Compared with 1999

The Consumer Products Company reported combined net sales of $7.9 billion and net income of $235 million for 2000, compared with net sales of $6.4 billion and net income of $97 million in 1999. Included in 2000 are $528 million of net sales from the Fort James operations acquired during 2000.

Interest expense was $375 million in 2000, compared with $291 million in 1999. The increase is the result of higher allocated debt levels primarily related to the acquisition of Fort James in November 2000, and higher average interest rates.

The Consumer Products Company reported income before income taxes, extraordinary item and accounting change of $383 million and an income tax provision of $148 million in 2000, compared with income before income taxes, extraordinary item and accounting change of $169 million and an income tax provision of $72 million in 1999. The effective tax rate in 2000 was different from the statutory rate due to the utilization of state tax credits and foreign sales corporation tax benefits that offset nondeductible goodwill amortization expense associated with acquisitions. The effective tax rate in 1999 was different from the statutory tax rate due to nondeductible goodwill amortization expense that was somewhat offset by foreign sales corporation tax benefits.

Pro Forma Results of Operations

The following table represents pro forma segment data of the Consumer Products Company adjusted to reflect (i) the Fort James acquisition, (ii) the sale of substantially all of the assets of its commercial tissue business to Svenska Cellulosa Aktiebolaget SCA, and (iii) the sale of certain paper and pulp assets to Domtar, Inc., as if all of those transactions had occurred on January 1, 1999.

	First Quarter						Fiscal Year
	2002			2001			2001			2000			1999
	(in millions)
Pro forma net sales:
Consumer products	$	1,754		$	1,725		$	7,036		$	6,816		$	6,648
Packaging		652			638			2,610			2,735			2,511
Paper and pulp		539			527			2,453			2,800			2,391
Other*		(83	)		(81	)		(297	)		(140	)		(60	)

Total pro forma net sales	$	2,862		$	2,809		$	11,802		$	12,211		$	11,490

Pro forma operating costs and expenses before unusual items and goodwill amortization
Consumer products		1,479			1,508		$	5,994		$	5,987		$	5,774
Packaging		568			545			2,205			2,202			2,167
Paper and pulp		534			498			2,358			2,427			2,311
Other*		(13	)		(57	)		(168	)		(52	)		38

Total pro forma operating costs and expenses before unusual items and goodwill amortization	$	2,568		$	2,494		$	10,389		$	10,564		$	10,290

Pro forma operating profits (losses) before unusual items and goodwill amortization:
Consumer products		275			217		$	1,042		$	829		$	874
Packaging		84			93			405			533			344
Paper and pulp		5			29			95			373			80
Other*		(70	)		(24	)		(129	)		(88	)		(98	)

Total pro forma operating profits (losses) before unusual items and goodwill amortization		294			315			1,413			1,647			1,200
Pro forma goodwill amortization		—			50			201			47			32
Unusual items		(14	)		(83	)		(83	)		(204	)		—

Pro forma operating profit		280			182			1,129			1,396			1,168
Pro forma depreciation		194			191			758			748			747
Pro forma amortization of intangibles		7			7			29			29			29
Pro forma EBITDA**		495			513			2,200			2,424			1,976

*Includes the elimination of intersegment sales.

**Earnings before interest, taxes, depreciation, amortization and unusual items. The unusual items consist of a $14 million pre-tax loss from a fire at our Crossett, Arkansas, facility in fiscal 2002, the $63 million pre-tax loss on the sale of paper and pulp assets in fiscal 2001, the $83 million pre-tax loss on the closure of the Bellingham, Washington pulp and lignin operations in fiscal 2001, the $204 million pre-tax loss on write down of the Georgia-Pacific tissue assets in fiscal 2000, and the $57 million pre-tax charge in fiscal 2000 for the closure of the Kalamazoo, Michigan paper mill.

Operating Segment Data

The following tables and related discussion reflect the pro forma operating data of each of the consumer products and paper and pulp segments and the historical operating data of the packaging segment. The consumer products segment data reflects (i) the Fort James acquisition, and (ii) the sale of substantially all of the assets of its commercial tissue business to Svenska Cellulosa Aktiebolaget SCA, as if such transactions had occurred on January 1, 1999. The paper and pulp segment data reflects the sale of paper assets to Domtar, Inc. as if such transactions had occurred on January 1, 1999. The packaging segment data reflects actual combined operating data for the periods presented.

Consumer Products Segment

	First Quarter				Fiscal Year
	2002		2001		2001			2000			1999
	(in millions)
Pro forma net sales	$	1,754	$	1,725	$	7,036		$	6,816		$	6,648
Pro forma costs and expenses before unusual items and goodwill amortization		1,479		1,508		5,994			5,987			5,774
Pro forma operating profits before unusual items and goodwill amortization		275		217		1,042			829			874
Pro forma goodwill amortization		—		43		170			16			2
Unusual items		(14)		(83)		(83	)		(204	)		—

Pro forma operating profit		261		91		789			609			872
Pro forma depreciation		102		106		402			406			398
Pro forma amortization of intangibles		7		7		29			29			29
Pro forma EBITDA		384		330		1,473			1,264			1,301

First Quarter of 2002 Compared with Pro Forma First Quarter of 2001

Net sales in the consumer products segment increased 2% to $1.8 billion in the first quarter of 2002. Operating profits increased 27% to $275 million, and the return on sales (operating profit as a percentage of sales) increased from 13% to 16%, before unusual items and goodwill amortization. The improved results were due in part to strong volume growth in North America retail sales channels, particularly in the club channel, as our Quilted Northern and Angel Soft bathroom tissue continued their strong growth rates. Business results were positively impacted by lower fiber and energy costs, and by cost reduction synergies related to the Fort James acquisition. Selling prices were generally flat in North American retail channels and down modestly in North American commercial channels and in Europe.

Pro Forma 2001 Compared with Pro Forma 2000

Net sales in the consumer products segment increased 3% to $7.0 billion in 2001. Operating profits increased 26% to $1.0 billion, and the return on sales improved to 15% from 12%, before unusual items and goodwill amortization. The improved results were due in part to strong volume growth in North American retail sales channels, particularly the club and mass merchandise channels. Bathroom tissue volumes were very strong, lead by double-digit growth in the Quilted Northern and Angel Soft brands. The Sparkle towel brand also grew more than 10% year-over-year, while Brawny towel sales were down less than 1%. The increase in volume was accompanied by average selling prices that were generally flat in North American retail channels, and down modestly in North American commercial channels and in Europe. During 2001 advertising and promotional spending on the former Fort James brands were increased to normal historical levels. Business results in North America and Europe were also positively impacted by fiber and energy costs, which declined steadily during the

year from the cyclical peak levels reached in 2000. Europe experienced a strong recovery by maintaining pricing discipline while fiber and energy costs declined from 2000 levels. Manufacturing, distribution and administrative costs were also favorably impacted by synergies from the Fort James acquisition. Since the acquisition of Fort James in November 2000, we have combined the Fort James business with our consumer products business and have recognized approximately $200 million of cost savings, which were reflected in our 2001 financial results. We intend to continue to integrate Fort James’ operations with our own and expect to realize $300 million of additional cost savings by the end of fiscal 2003, for a cumulative total of over $500 million of savings through purchasing efficiencies, systems integration, SKU rationalization, overhead reduction, logistics savings and other initiatives.

During 2002, the Consumer Products Company expects further improvements in operating profits driven by modest sales growth and additional cost reduction synergies associated with the Fort James acquisition. Selling price increases have been announced for North American commercial tissue and plastic disposable tableware products, effective beginning in late second quarter of 2002, which should help to offset inflationary cost pressures in those businesses. Modest pricing pressures are expected in North American retail channels and in Europe, due to competitive market conditions.

Pro Forma 2000 Compared with Pro Forma 1999

Net sales in the consumer products segment increased 3% to $6.8 billion in 2000. Operating profits decreased 5% to $829 million, and the return on sales declined slightly from 13% to 12%, excluding unusual items and goodwill amortization. The declining results were due to a sharp fall-off in European profits, driven by several factors, such as rapidly escalating fiber costs in 2000 coupled with a strengthening U.S. dollar against European currencies. Also, European volumes were down almost 4% from 2000 due to highly competitive market conditions in the United Kingdom retail channels. The European decline was partially offset by modest improvements in operating profits in all North America businesses, despite higher fiber and energy costs. North America tissue results reflected solid volume growth in retail channels, offset by a slight fall-off in commercial volumes. Production improvements and manufacturing cost reductions also contributed to the positive trend. Prior to the Consumer Products Company’s ownership of Fort James, advertising and promotion spending was reduced in 2000 on former Fort James brands in North America and Europe.

Packaging Segment

	First Quarter				Fiscal Year
	2002		2001		2001		2000		1999
	(in millions)
Net sales	$	652	$	638	$	2,610	$	2,735	$	2,511
Costs and expenses before goodwill amortization		568		545		2,205		2,202		2,167
Operating profit before goodwill amortization		84		93		405		533		344
Goodwill amortization		—		5		21		21		20

Operating profit		84		88		384		512		324
Depreciation		40		37		153		151		153
EBITDA		124		130		558		684		497

First Quarter of 2002 Compared with First Quarter of 2001

The packaging segment reported net sales of $652 million and operating profits before goodwill amortization of $84 million in the first quarter of 2002, compared with net sales of $638 million and operating profits before goodwill amortization of $93 million in the first quarter of 2001. Return on sales (operating profit as a percentage of sales) decreased to 13% in 2002 compared to 15% in 2001. The decrease in year-over-year operating profit was due primarily to a 7% decline in packaging product prices compared to the prior year’s first quarter, offset somewhat by lower operating costs. During the first quarters of 2002 and 2001, the Consumer Products Company took market-related paper machine slowback and shut downs at its containerboard mills to avoid excess inventories, which lowered containerboard production by approximately 58,000 tons and 49,000 tons, respectively, below capacity.

2001 Compared with 2000

The packaging segment reported net sales of $2.6 billion and operating profits before goodwill amortization of $405 million in 2001, compared with net sales of $2.7 billion and operating profits before goodwill amortization of $533 million in 2000. Return on sales decreased to 16% in 2001 from 19% in 2000. Selling prices for packaging products were 12% lower in 2001, on 4% lower volume compared with the prior year; these decreases were offset by $36 million in cost savings year over year.

During 2001 and 2000, the Consumer Products Company took market-related paper machine slowback or downtime at its containerboard mills to avoid excess inventories, resulting in containerboard production which was approximately 274,000 tons and 271,000 tons, respectively, below capacity.

2000 Compared with 1999

The packaging segment reported net sales of $2.7 billion and operating profits before goodwill amortization of $533 million in 2000, compared with net sales of $2.5 billion and operating profits before goodwill amortization of $344 million in 1999. Return on sales increased to 19% from 14% in 1999. Average selling prices for packaging products were 12% higher in 2000.

During 2000 and 1999, the Consumer Products Company took market-related paper machine slowback or downtime at its containerboard mills to avoid excess inventories, resulting in containerboard production which was approximately 271,000 tons and 30,000 tons, respectively, below capacity.

Paper and Pulp Segment

	First Quarter				Fiscal Year
	2002		2001		2001		2000		1999
	(in millions)
Pro forma net sales	$	539	$	527	$	2,453	$	2,800	$	2,391
Pro forma costs and expenses before unusual items and goodwill amortization		534		498		2,358		2,427		2,311
Pro forma operating profits before unusual items and goodwill amortization		5		29		95		373		80
Pro forma goodwill amortization		—		2		10		10		10

Pro forma operating profit		5		27		85		363		70
Pro forma depreciation		49		45		190		182		185
Pro forma EBITDA		54		74		285		555		265

First Quarter of 2002 Compared with Pro Forma First Quarter of 2001

The paper and pulp segment reported net sales of $539 million and operating profits before goodwill amortization of $5 million in the first quarter of 2002. For the same period in 2001, the segment reported net sales of $527 million and operating profits before goodwill amortization of $29 million. The decrease in 2002 operating profits before goodwill amortization was due primarily to a 26% decline in average pulp selling prices and a 8% decline in paper selling prices, offset somewhat by lower operating costs.

Pro Forma 2001 Compared with Pro Forma 2000

The paper and pulp segment reported net sales of $2.5 billion and operating profits before unusual items and goodwill amortization of $95 million in 2001. In 2000, the segment reported pro forma net sales of $2.8 billion and operating profits before unusual items and goodwill amortization of $373 million. Return on sales decreased to 4% in 2001 compared with 13% for the same period a year ago. The decrease in net sales and operating profits in 2001 was due primarily to a decrease in average prices for all paper and pulp products, offset somewhat by lower fiber and production cost driven by costs reduction initiatives at the segment’s manufacturing facilities.

Selling prices for paper and pulp products continually decreased during 2001 and ended the year at levels lower than 2000. The average selling price for market pulp and fluff pulp decreased 27% and 13%, respectively, while paper prices decreased 2% compared to 2000 prices.

Pro Forma 2000 Compared with Pro Forma 1999

The paper and pulp segment reported pro forma net sales of $2.8 billion and operating profits before unusual items and goodwill amortization of $373 million in 2000, compared with pro forma net sales of $2.4 billion and operating profits before unusual items and goodwill amortization of $80 million in 1999. Return on sales increased to 13% in 2000 compared with 3% for 1999. The increase in net operating profits was due primarily to an increase in average selling prices for all paper and pulp products, offset somewhat by higher fiber and production costs. Selling prices for pulp and paper during 2000 were approximately 35% and 12%, respectively, above 1999 prices.

Other

The operating loss in the “Other” nonreportable segment, which includes some miscellaneous businesses, unallocated corporate operating expenses and the elimination of profit on intersegment sales, increased by $46 million to a loss of $70 million in the first quarter of 2002 from a loss of

$24 million in the first quarter of 2001. This increase was primarily a result of higher pension expense. The segment increased by $41 million to a loss of $129 million in 2001 from a loss of $88 million in 2000. This increase was primarily related to a higher allocation of general and administrative expenses resulting from the Fort James acquisition (see Allocation of Shared Services in Note 1 of the notes to the Consumer Products Company’s combined financial statements).

During 2001, the Consumer Products Company recorded pension income of $18 million and made pension contributions of $9 million for its solely administered plans. Because of lower than expected returns on pension plan assets and a lower discount rate used to value the pension liabilities, the Consumer Products Company estimates its pension expense and pension contributions for its solely administered plans will be approximately $90 million and $63 million, respectively, in 2002.

Liquidity and Capital Resources

During the first quarter of 2002, the Consumer Products Company’s debt increased by $11 million as cash generated from operations was used for investing activities. During the remainder of 2002, the Consumer Products Company expects its cash flow from operations and financing activities to be sufficient to fund planned capital investments, pay dividends and make scheduled debt repayments. If the Consumer Products Company’s 2002 cash flows are significantly less than expected, or if Georgia-Pacific is unsuccessful in remarketing the debt associated with Premium Equity Participating Security Units (“PEPS Units”), the Consumer Products Company could be required to draw down funds from Georgia-Pacific’s available credit facilities.

During 2001, the Consumer Products Company reduced allocated debt by approximately $2.4 billion primarily from asset sales. The Consumer Products Company also paid approximately $46 million for the acquisition of additional Fort James shares and $59 million for the remaining ownership in the Color-Box joint venture during 2001.

Operating Activities

The Consumer Products Company generated cash from operations of $160 million for the first quarter of 2002 compared with $217 million for the first quarter of 2001.

The Consumer Products Company generated cash from operations of $879 million during 2001 and $1.1 billion in 2000. The decrease in cash provided by operations in 2001 was primarily a result of a $92 million of payments against restructuring reserves, higher working capital requirements, increased interest costs and lower operating results in the packaging, and paper and pulp segments, offset somewhat by a full year of operating cash flows from the former Fort James operations.

Investing Activities

Capital expenditures for property, plant and equipment for the first quarter of 2002 were $100 million, which included $72 million in the consumer products segment, $12 million in the packaging segment, $15 million in the paper and pulp segment and $1 million in the other nonreportable segment. Capital expenditures for property, plant and equipment in the first quarter of 2001 were $155 million. The Consumer Products Company expects to make capital expenditures for property, plant and equipment of approximately $570 million in 2002.

Pursuant to a consent decree executed with the United States Department of Justice in connection with the 2000 acquisition of Fort James, the Consumer Products Company sold substantially all of the assets of Georgia-Pacific Tissue to Svenska Cellulosa Aktiebolaget SCA for approximately $850 million. The sale was completed on March 2, 2001, with net proceeds of approximately $581 million

($660 million after tax benefit) used to repay debt. In the fourth quarter of 2000, the Consumer Products Company recorded a pre-tax loss of $204 million in the consumer products segment for the write-down of these assets to their net realizable value; accordingly, no significant gain or loss was recognized upon completion of the sale in 2001.

During the first quarter of 2001, Georgia-Pacific paid approximately $41 million for untendered Fort James shares that were delivered to Georgia-Pacific’s exchange agent for cancellation in connection with the 2000 acquisition of Fort James.

During 2001, capital expenditures for property, plant and equipment were $576 million compared with $571 million in 2000. Expenditures in 2001 included $337 million in the consumer products segment, $78 million in the packaging segment, $131 million in the paper and pulp segment and $30 million of other and general corporate.

During 2001, the Consumer Products Company invested $81 million for pollution control and abatement facilities. The 2002 capital expenditure budget currently includes approximately $40 million for environment-related projects. Certain other capital projects being undertaken primarily for improving financial returns or safety will also include expenditures for pollution control.

On April 15, 1998, the United States Environmental Protection Agency promulgated a set of regulations known as the “Cluster Rule” that established new requirements for air emissions and wastewater discharges from pulp and paper mills. The Cluster Rule in effect requires pulp and paper mills to eliminate use of elemental chlorine in the pulp bleaching process. Air regulations under the Cluster Rules are called Maximum Achievable Control Technology, or “MACT” regulations, with MACT I regulations representing rules regarding pulping and bleaching and MACT II regulations representing rules regarding combustion sources. The Consumer Products Company estimates that it will make environmental-related capital expenditures of up to approximately $196 million from 2002 through April 2006, including expenditures to comply with the Cluster Rule’s requirements.

During 2001, the Consumer Products Company acquired the remaining 46% interest it did not previously own in Color-Box, LLC, a joint venture with Chesapeake Corporation, for approximately $59 million. The results of operations of this joint venture were consolidated with those of the Consumer Products Company beginning in July 2001. The Consumer Products Company has accounted for this acquisition using the purchase accounting method to record a new cost basis for the additional share of assets acquired and liabilities assumed. During the first quarter of 2000, the Consumer Products Company contributed certain packaging segment assets with a net book value of $34 million to this joint venture. In exchange for these assets, the Consumer Products Company received a 54% interest in the joint venture. This investment in the joint venture was accounted for under the equity method until July 2001 because the joint venture partner had substantive participating rights.

On August 7, 2001, the Consumer Products Company completed the sale of a portion of its paper and pulp assets to Domtar, Inc. for $1.65 billion in cash. The assets involved in this transaction were the Consumer Products Company’s stand-alone uncoated fine paper mills at Ashdown, Arkansas; Nekoosa and Port Edwards, Wisconsin; and Woodland, Maine, as well as associated pulp facilities. The Consumer Products Company used the net proceeds of approximately $1.53 billion ($1.14 billion after taxes) to reduce allocated debt. In connection with this sale, the Consumer Products Company recorded a pre-tax loss of $63 million in the paper and pulp segment. This loss was reflected in “Other loss” on the accompanying consolidated statements of income. In addition, the Consumer Products Company recorded a provision for income taxes of $197 million principally applicable to $630 million of non-deductible goodwill related to the assets sold.

Financing Activities

Georgia-Pacific’s practice has been to incur indebtedness for the consolidated group at the parent company level and at a limited number of subsidiaries, rather than at the operating company level. Accordingly, for purposes of the combined financial statements of the Consumer Products Company, Georgia-Pacific’s debt and senior deferrable notes were allocated to the Consumer Products Company based upon the amount of debt management believed we would assume in connection with the reorganization transactions. The debt allocation was based on aggregate debt balances at the end of 2001. The debt balances for prior periods were then determined based on the cash flows of the Consumer Products Company. Management also considered certain measures of creditworthiness, such as coverage ratios and various tests of liquidity. Interest expense has been allocated to the Consumer Products Company based on the ratio of the Consumer Products Company’s allocated debt to Georgia-Pacific’s total debt. Management believes the allocation methods for debt and interest expense are equitable and provide a reasonable estimate of the cost attributable to the Consumer Products Company. At December 29, 2001, $9.7 billion and $863 million of Georgia-Pacific’s debt and senior deferrable notes, respectively, was allocated to the Consumer Products Company for financial statement purposes. Management believes that such allocation is equitable and reasonable. The Consumer Products Company’s debt increases or decreases by the amount of any net cash generated by, or required to fund, the Consumer Products Company’s operating activities, investing activities and other financial activities. During 2001, the Consumer Products Company reduced its allocated debt by approximately $2.3 billion primarily from net proceeds from asset sales. During 2000, the Consumer Products Company increased its allocated debt by $5.5 billion primarily to fund the acquisition of Fort James. During first quarter 2002, the Consumer Products Company increased its allocated debt by approximately $11 million as cash generated from operations was used primarily for investing activities.

Georgia-Pacific had commitments totaling $1.3 billion and CN $95 million (approximately $60 million) under its United States and Canadian accounts receivable secured borrowing programs, respectively, of which $1.2 billion and CN $95 million was outstanding under these programs at the end of 2001. Of the $1.3 billion in the United States program, $400 million will expire in September 2002 and the remaining $900 million expires in December 2002. The Canadian program expires in May 2004. Georgia-Pacific expects to renew or renegotiate these agreements prior to expiration. At December 29, 2001, Georgia-Pacific had pledged an aggregate of $1.9 billion of gross receivables as collateral for the $1.3 billion of debt. All such programs are accounted for as secured borrowings. As collections reduce previously pledged interests, new receivables may be pledged. At the end of 2001 and 2000, $1.0 billion and $694 million, respectively, of receivables outstanding under these programs and corresponding debt were allocated to the Consumer Products Company. At March 30, 2002, $1.1 billion of receivables outstanding under these programs and corresponding debt were allocated to the Consumer Products Company. We will assume all allocated amounts outstanding under these programs as part of the reorganization transactions.

Georgia-Pacific consolidated a $10 million variable rate industrial revenue bond due September 1, 2021, in connection with acquiring ownership of Color-Box. On June 25, 2001, Georgia-Pacific also redeemed $42 million of its 7.9% fixed rate industrial revenue bonds, due October 1, 2005, and issued $42 million of 6.5% fixed rate industrial revenue bonds due June 1, 2031. We will assume these bonds as part of the reorganization transactions.

On March 15, 2001, Georgia-Pacific, redeemed $300 million of its 6.234% Senior Notes Due March 15, 2011 and recorded an extraordinary loss of approximately $12 million (net of taxes of $7 million). This debt, along with the corresponding extraordinary loss, has been allocated to the Consumer Products Company.

In connection with the acquisition of Fort James during 2000, Georgia-Pacific, assumed debt totaling $3.3 billion, including $927 million of short-term debt, $141 million (including premium) of capital leases, $197 million of industrial revenue bonds, $1.6 billion of notes, $218 million (net of discount) of Euro-denominated bonds and $156 million of European debt, all of which has been allocated to the Consumer Products Company. Shortly after the acquisition, all of the commercial paper was replaced by borrowings under Georgia-Pacific’s revolving credit facilities, which have been allocated to the Consumer Products Company. Georgia-Pacific subsequently fully and unconditionally guaranteed all of Fort James’ publicly held debt issued pursuant to an indenture with The Bank of New York, as trustee, dated as of November 1, 1991, as amended by a first supplemental indenture dated as of September 19, 1997 and second supplemental indenture dated as of February 19, 2001. At the date of reorganization, we and certain of our subsidiaries will assume this full and unconditional guarantee.

In July 1999, Georgia-Pacific issued 17,250,000 of 7.5% PEPS Units for $862.5 million. Each PEPS Unit consists of a purchase contract that obligates the holder to purchase shares of Georgia-Pacific common stock for $50 on or prior to August 16, 2002 and a senior deferrable note due August 16, 2004. Each purchase contract yields interest of 0.35% per year, paid quarterly, on the $50 stated amount of the PEPS Unit. Each senior deferrable note yields interest of 7.15% per year, paid quarterly, until August 16, 2002. The terms of the PEPS offering include a remarketing of the senior deferrable notes on August 16, 2002 that, if successfully completed, would generate $862.5 million for repayment of debt. The interest rate and such notes will be reset at a rate that will be equal to or greater than 7.15%. If the PEPS are not successfully remarketed, we will incur additional indebtedness as part of the reorganization transactions. The liability related to the PEPS Units has been allocated to the Consumer Products Company and is classified as “Senior deferrable notes” on the accompanying combined balance sheets.

Georgia-Pacific’s senior management establishes the parameters of Georgia-Pacific’s financial risk, which have been approved by Georgia-Pacific’s board of directors. Hedging interest rate exposure through the use of swaps and options and hedging foreign exchange exposure through the use of forward contracts are specifically contemplated to manage risk in keeping with management’s policy. Derivative instruments, such as swaps, forwards, options or futures, which are based directly or indirectly upon interest rates, currencies, equities and commodities, may be used by Georgia-Pacific to manage and reduce the risk inherent in price, currency and interest rate fluctuations. The Consumer Products Company is a party to these hedging agreements.

The Consumer Products Company does not utilize derivatives for speculative purposes. Derivatives are transaction specific so that a specific debt instrument, contract or invoice determines the amount, maturity and other specifics of the hedge. Counterparty risk is limited to institutions with long-term debt ratings of A or better.

The following table presents principal (or notional) amounts and related weighted average interest rates by year of expected maturity for Georgia-Pacific’s consolidated debt obligations and interest rate exchange agreements, some of which has been allocated to the Consumer Products Company as of December 29, 2001, and will be assumed as part of the reorganization transactions. For obligations with variable interest rates, the tables set forth payout amounts based on current rates and do not attempt to project future interest rates.

As of December 29, 2001

	2002			2003			2004			2005			2006			Thereafter			Total			Fair Value
	(in millions, except percentages)
Short-term notes		—			—			—			—			—		$	1,359		$	1,359		$	1,359
Average interest rates		—			—			—			—			—			2.5	%		2.5	%		2.5	%
Credit facilities	$	925			—			—		$	1,935			—			—		$	2,860		$	2,860
Average interest rates		3.9	%		—			—			3.6	%		—			—			3.7	%		3.7	%
Notes and debentures	$	462		$	580		$	336		$	4		$	600		$	4,700		$	6,682		$	6,679
Average interest rates		8.9	%		6.7	%		6.7	%		4.7	%		7.5	%		8.4	%		7.8	%		7.8	%
Euro-denominated bonds		—			—		$	266			—			—			—		$	266		$	257
Average interest rates		—			—			4.8	%		—			—			—			4.8	%		6.6	%
Revenue bonds	$	75		$	3		$	31		$	21			—		$	739		$	869		$	833
Average interest rates		1.9	%		5.2	%		2.0	%		5.6	%		—			5.6	%		5.2	%		5.8	%
Capital leases	$	5		$	5		$	6		$	7		$	7		$	96		$	126		$	148
Average interest rates		12.0	%		11.6	%		2.5	%		2.3	%		10.8	%		10.8	%		10.0	%		8.0	%
European debt	$	22		$	24		$	23		$	11		$	11		$	46		$	137		$	137
Average interest rates		6.8	%		6.7	%		6.2	%		4.9	%		4.7	%		3.6	%		6.1	%		6.7	%
Other loans	$	8			—			—			—			—			—		$	8		$	8
Average interest rates		4.6	%		—			—			—			—			—			4.6	%		3.7	%
Senior deferrable notes		—			—		$	863			—			—			—		$	863		$	889
Average interest rates		—			—			7.2	%		—			—			—			7.2	%		3.6	%
Notional amount of interest rate exchange agreements (fixed to variable)	$	1,657		$	300			—			—			—			—		$	1,957		$	(51	)
Average interest rate paid (fixed)		5.9	%		5.9	%		—			—			—			—			5.9	%		5.9	%
Average interest rate received (variable)		2.5	%		3.5	%		—			—			—			—			2.7	%		2.7	%
Notional amount of interest rate exchange agreements (rate collar)		—			—			—		$	47			—			—		$	47		$	2
Average interest rate cap		—			—			—			7.5	%		—			—			7.5	%		7.5	%
Average interest rate floor		—			—			—			5.5	%		—			—			5.5	%		5.5	%

At December 29, 2001, Georgia-Pacific did not have any commercial paper outstanding. Georgia-Pacific intends to refinance short-term notes as they mature. Therefore, maturities of these obligations are reflected as cash flows expected to be made after 2006.

At December 29, 2001, Georgia-Pacific had interest rate exchange agreements, a portion of which has been allocated to the Consumer Products Company, that effectively converted $1,957 million of floating rate obligations with a weighted average interest rate of 2.7% to fixed rate obligations with an average effective interest rate of approximately 5.9%. Of the $2.0 billion, Georgia-Pacific had $457 million of these floating rate obligations outstanding at December 30, 2000. These agreements increased interest expense by $29 million in 2001, and decreased interest expense by $1 million in 2000. The agreements had a weighted-average maturity of approximately seven months at December 29, 2001.

The Consumer Products Company’s allocated debt is sensitive to changes in interest rates. Interest rate changes would result in gains or losses in the market value of such debt, and a corresponding increase or decrease in the Consumer Products Company’s allocated interest expense, due to differences in market interest rates and the rates at inception of the debt agreements. Based on Georgia-Pacific’s indebtedness at December 29, 2001, a 100 basis point interest rate change would impact the fair value of debt allocated to us by $352 million.

The Consumer Products Company’s international operations create exposure to foreign currency exchange rate risks. At December 29, 2001, Georgia-Pacific had outstanding and we will assume approximately $238 million (net of discount) of Euro-denominated bonds which were designated as a hedge against its net investment in Europe. The use of this financial instrument allows us to reduce our overall exposure to exchange rate movements, since the gains and losses on this instrument substantially offsets losses and gains on the assets, liabilities and transactions being hedged.

Georgia-Pacific has entered into a commodity swap which has been allocated to the Consumer Products Company. The fair value of such swap was $9.5 million at December 29, 2001 (see Note 10 of the notes to combined financial statements).

At the end of November 2000, Georgia-Pacific acquired Fort James (as described above and in Note 4 of the notes to combined financial statements) and issued 21.5 million shares of Georgia-Pacific treasury stock and 32.2 million newly issued shares of Georgia-Pacific stock as part of that transaction. During 2001, an additional 190,000 shares of Georgia-Pacific stock were issued as part of this transaction. The issuance of this equity had been allocated to the Consumer Products Company and is reflected in the Consumer Products Company’s combined statements of invested equity.

The table below presents principal (or notional) amounts and related weighted average interest rates by year of expected maturity for Georgia-Pacific’s consolidated debt obligations as of March 30, 2002. For obligations with variable interest rates, the table sets forth payout amounts based on current rates and does not attempt to project future interest rates.

As of March 30, 2002

	2002			2003			2004			2005			2006			Thereafter			Total			Fair Value
	(in millions)
Short-term notes		—			—			—			—			—		$	1,330		$	1,330		$	1,330
Average interest rates		—			—			—			—			—			2.2	%		2.2	%		2.2	%
Credit facilities	$	875			—			—		$	2,015			—			—		$	2,890		$	2,890
Average interest rate		3.6	%		—			—			3.4	%		—			—			3.5	%		3.5	%
Notes and debentures	$	449		$	580		$	336		$	4		$	600		$	4,700		$	6,669		$	6,053
Average interest rates		8.9	%		6.7	%		6.7	%		4.7	%		7.5	%		8.4	%		8.1	%		8.9	%
Euro-denominated bonds		—			—		$	262			—			—			—		$	262		$	246
Average interest rates		—			—			4.8	%		—			—			—			4.8	%		7.8	%
Revenue bonds	$	2		$	3		$	31		$	21			—		$	812		$	869		$	799
Average interest rates		4.5	%		5.2	%		2.1	%		5.6	%		—			5.3	%		5.2	%		5.5	%
Capital leases	$	2		$	5		$	6		$	7		$	7		$	95		$	122		$	122
Average interest rates		8.7	%		9.1	%		2.5	%		2.3	%		8.8	%		8.6	%		8.0	%		8.7	%
European debt	$	18		$	24		$	22		$	11		$	8		$	27		$	110		$	110
Average interest rates		7.2	%		7.2	%		7.0	%		6.3	%		6.2	%		5.9	%		6.7	%		6.7	%
Other loans	$	3			—			—			—			—			—		$	3		$	3
Average interest rates		4.4	%		—			—			—			—			—			4.4	%		3.8	%
Senior deferrable notes		—			—		$	863			—			—			—		$	863		$	881
Average interest rates		—			—			7.2	%		—			—			—			7.2	%		3.8	%
Notional amount of interest rate exchange agreements (fixed to variable)	$	1,157		$	300			—			—			—			—		$	1,457		$	(34	)
Average interest rate paid (fixed)		5.9	%		5.9	%		—			—			—			—			5.9	%		5.9	%
Average interest rate received (variable)		1.9	%		2.1	%		—			—			—			—			2.0	%		2.0	%
Notional amount of interest rate exchange agreements (rate collar)		—			—			—		$	47			—			—		$	47		$	2
Average interest rate cap		—			—			—			7.5	%		—			—			7.5	%		7.5	%
Average interest rate floor		—			—			—			5.5	%		—						5.5	%		5.5	%

At March 30, 2002, Georgia-Pacific did not have any commercial paper or money market instruments outstanding.

At March 30, 2002, Georgia-Pacific had interest rate exchange agreements, a portion of which has been allocated to the Consumer Products Company, that effectively converted $1.5 billion of floating rate obligations with a weighted average interest rate of 1.9% to fixed rate obligations with an average effective interest rate of approximately 5.9%. These agreements increased interest expense by $15 million at March 30, 2002. The agreements had a weighted-average maturity of approximately seven months at March 30, 2002.

The estimated fair value of Georgia-Pacific’s interest rate exchange agreements, a portion of which has been allocated to the Consumer Products Company, was a $32 million liability at March 30, 2002 . The liability balance represents the estimated amount Georgia-Pacific could have paid to terminate these agreements. The fair value at March 30, 2002 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.

The Consumer Products Company uses interest rate swap agreements in the normal course of business to manage and reduce the risk inherent in interest rate fluctuations. The interest rate swap arrangements manage exposure to interest rate changes and are considered hedges of specific

borrowings, and differences paid and received under the swap arrangements are recognized as adjustments to interest expense. Under these agreements, the Consumer Products Company makes payments to counterparties at fixed interest rates and in turn receives payments at variable rates. The Consumer Products Company enters into interest rate swap arrangements to protect against the increased cost associated with a rise in interest rates. The Consumer Products Company may be exposed to losses in the event of nonperformance of counterparties under these arrangements but does not anticipate such nonperformance.

The Consumer Products Company’s senior management establishes the parameters of the financial policies with approval from the board of directors. These include balancing its debt and equity to keep its weighted average cost of capital low while retaining the flexibility needed to ensure that it can meet its financial obligations when or before they come due and to finance attractive business opportunities. The Consumer Products Company set debt targets based on its cash generating capability under various business scenarios. The Consumer Products Company’s variances in its cash flow from period to period and various statistical methods will reasonably estimate possible deviations in estimated future cash flows.

The Consumer Products Company maintains a high portion of its debt as long-term debt at fixed interest rates. The Consumer Products Company intends to manage the maturities of its long-term debt so that no more than $500 million matures in any one year and if it does then the sum of the maturities of any two consecutive years does not exceed $1 billion. Generally, the Consumer Products Company seeks to have 75% of its aggregate debt at fixed rates so as to minimize exposure to fluctuating interest rates. Short-term debt is used generally for seasonal working capital variations and/or financing some of its accounts receivable.

The Consumer Products Company intends to review its aggregate debt objective to achieve greater flexibility to finance growth and investment opportunities. The Consumer Products Company may determine that a lower debt target than its cash flow and its variances otherwise would justify, as appropriate.

On May 8, 2002, Moody’s Investor Service cut Georgia-Pacific’s unsecured debt rating to “Ba1” from “Baa3”, and its commercial paper rating to “Not-Prime” from “Prime-3”.

Other

On January 1, 1999, 11 of the 15 members of the European Union (the “Participating Countries”) established fixed conversion rates between their existing sovereign currencies (the “Legacy Currencies”) and a single new currency (the “Euro”). Effective January 1, 2002, all corporate transactions and records must legally be maintained in Euros. The Consumer Products Company has operations in seven of the Participating Countries, which adopted the Euro effective January 2001, and has product sales in ten of the Participating Countries. As of December 29, 2001, the Consumer Products Company’s core financial information technology systems were capable of processing Euro-denominated transactions. The impact of converting to the Euro was immaterial to the Consumer Products Company.

Georgia-Pacific has liabilities for personal injury and property damage as a result of the manufacture (which ended in 1977) by its gypsum division of an asbestos-containing joint compound and two other products. Under the terms of the reorganization transactions described in Note 16 of the notes to the combined financial statements, liabilities for such injuries or damages will be retained by Georgia-Pacific. In addition, Georgia-Pacific has agreed to indemnify CP&P for any losses which we may incur as a result of having to defend litigation claiming that we are responsible for such liabilities, or for any such liabilities which may actually be imposed upon us. As a result, management does not believe that any asbestos liabilities arising from Georgia-Pacific’s gypsum business will be liabilities of the Consumer Products Company after the distribution. See “Risk Factors—Risks Related to Our Separation from Georgia-Pacific—We may be exposed to Georgia-Pacific’s asbestos-related or other liabilities even after the distribution”.

Critical Accounting Policies

A summary of the Consumer Products Company’s significant accounting policies is included in Note 2 of the notes to combined financial statements. Management believes that the consistent application of these policies enables the Consumer Products Company to provide readers of the financial statements with useful and reliable information about its operating results and financial condition. The following are accounting policies that management believes are most important to the portrayal of the Consumer Products Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Judgments and assessments of uncertainties are required in applying the Consumer Products Company’s accounting policies in many areas. For example, key assumptions are particularly important when determining amounts allocated to identifiable intangible assets in a business combination. Other areas in which significant uncertainties exist include, but are not limited to, projected costs to be incurred in connection with environmental and legal matters. The Consumer Products Company recognizes a liability for environmental remediation and legal indemnification and defense costs when it believes it is probable a liability has been incurred and the amount can be reasonably estimated. The liabilities are developed based on currently available information and reflect the participation of other potentially responsible parties, depending on the parties’ financial condition and probable contribution. The accruals are recorded at undiscounted amounts and are reflected as liabilities on the accompanying combined balance sheets. The Consumer Products Company also has insurance that covers losses on certain environmental claims and records a receivable to the extent that the realization of such insurance is deemed probable. This receivable is recorded at undiscounted amounts and is reflected as assets in the accompanying combined balance sheets.

In addition, management uses judgment in assessing goodwill and other long-lived assets for impairment. Prior to the beginning of 2002, the Consumer Products Company amortized costs in excess of fair value of the net assets of businesses acquired using the straight-line method over a period not to exceed 40 years. The Consumer Products Company reviewed the recorded value of its goodwill annually, or sooner if events or changes in circumstances indicate that the carrying amount may exceed fair value. Recoverability is then determined by comparing the undiscounted net cash flows of the assets to which the goodwill applied to the net book value, including goodwill, of those assets. Goodwill, net of amortization, totaled $7.5 billion at December 29, 2001 and March 30, 2002 and represented 39% of total assets. Beginning in 2002, the Consumer Products Company no longer amortizes goodwill (see further discussion below). It assesses its long-lived assets (other than goodwill) for impairment whenever facts and circumstances indicate that the carrying amount may not

be fully recoverable. To analyze recoverability, the Consumer Products Company projects undiscounted net future cash flows over the remaining life of such assets. If these projected cash flows are less than the carrying amount, an impairment would be recognized, resulting in a write-down of assets with a corresponding charge to earnings. The impairment loss is measured based upon the difference between the carrying amount and the fair value of the assets.

Accounting Standards Changes

Effective December 30, 2001, the Consumer Products Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” (“SFAS No. 141”), and SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). SFAS No. 141 requires that the purchase method of accounting be used for all 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. When the fair value is less than the related carrying value, entities are required to reduce the amount of goodwill. The Consumer Products Company has determined its reporting units to be the following: North American towel and tissue, Dixie, European towel and tissue, packaging, and paper and pulp. Management is evaluating the effect of this statement on these reporting units. SFAS No. 142 also requires that entities discontinue amortization of all purchased goodwill, including amortization of goodwill recorded in past business combinations. Accordingly, the Consumer Products Company no longer amortized goodwill beginning in 2002. In the first quarter of 2001, goodwill amortization expense aggregated $57 million, which included $43 million in the consumer products segment, $5 million in the packaging segment and $9 million in the paper and pulp segment.

In July 2001, the FASB also issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS No. 143”). SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the entity either settles the obligation for the amount recorded or incurs a gain or loss. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. Management is evaluating the effect of this statement on the Consumer Products Company’s results of operations and financial position.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). SFAS No. 144 supersedes FASB statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” (“SFAS No. 121”), and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (“Opinion 30”) for the disposal of a segment of a business (as previously defined in Opinion 30). The FASB issued SFAS No. 144 to establish a single accounting model, based on the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale. SFAS No. 144 broadens the presentation of discontinued operations in the income statement to include a component of an entity (rather than a segment of a business). A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. SFAS No. 144 also requires that discontinued operations be measured at the lower of the carrying amount or fair value less cost to sell. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and should be applied prospectively.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No 13, and Technical Corrections” (“SFAS No. 145”). SFAS No. 145 rescinds FASB Statement No. 4, “Reporting Gains and Losses from Extinguishment of Debt (An Amendment of APB Opinion No. 30)”, which required all gains and losses from extinguishments of

debt to be classified as extraordinary items. As a result, the criteria in Opinion 30 will be used to classify those gains and losses. SFAS No. 145 also amends Statement No. 13, “Accounting for Leases”, to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. The provisions of SFAS No. 145 are effective for fiscal years beginning after May 15, 2002 and early adoption is encouraged. Any gains or losses previously classified as an extraordinary item must be reclassified. Management expects to reclassify previously reported extraordinary losses and is evaluating the other effects of this statement on the Consumer Products Company’s results of operations and financial position.

In the first quarter of 2002, the Consumer Products Company changed its method of computing LIFO inventory increments from year-to-date average cost to latest acquisition cost. The Consumer Products Company believes that the latest acquisition cost method more closely aligns the value of increases in inventory with physical quantities giving rise to the increases, and that this method more appropriately reflects the underlying substance of changes in inventory. In addition, the Consumer Products Company changed its method of pooling LIFO inventories from a statutory legal entity approach to an approach that allows the alignment by business segment. The Consumer Products Company believes that this approach results in better matching of costs to revenues in a manner that is more consistent with the way the businesses are managed. The cumulative effect of these changes on prior years was not determinable. These changes did not have a material effect on 2002 results of operations or financial position.

For a discussion of commitments and contingencies, see Note 15 of the notes to combined financial statements.

BUSINESS

Overview

We operate in three business segments—consumer products, packaging, and paper and pulp— and had $12.4 billion in revenue in fiscal 2001. Our consumer products business includes our North American and international bathroom tissue, paper towel and paper napkin businesses and our Dixie disposable tableware business. Our consumer products business had fiscal 2001 revenue of approximately $7.1 billion. We sell our consumer products in both retail and commercial (or away-from-home) markets, and we manufacture both branded and private label products. Our packaging business sells corrugated and other packaging products and had fiscal 2001 revenue of approximately $2.5 billion. Our paper and pulp business, which had fiscal 2001 revenue of approximately $2.8 billion, consists of our paper manufacturing assets that are located within our tissue manufacturing facilities, as well as our fluff pulp mill and two market pulp mills.

We have a unique balance of internally-produced pulp, purchased pulp and purchased wastepaper to supply our mills, which we believe gives us a more stable cost structure than many of our competitors. This mixture of fiber sources allows us to leverage our low cost integrated pulp production with competitively priced wastepaper and market pulp purchases. As a result, our mills have the advantage of being able to adjust the mix of fiber materials to minimize costs while maintaining product quality.

We are currently a wholly owned subsidiary of Georgia-Pacific Corporation. We were formed as part of a strategic separation of Georgia-Pacific into two independent, publicly traded companies—a consumer products, packaging, and paper and pulp company and a building products and distribution company. After completion of the reorganization transactions, which are more specifically described under “Relationship Between Us and Georgia-Pacific”, we will be an independent company owning and operating the consumer products, packaging, and paper and pulp businesses, while Georgia-Pacific will continue to own and operate its building products manufacturing and distribution businesses and Unisource.

Consumer Products

We are the largest North American producer of tissue-based consumer products, based on volume, with leading market shares in bathroom tissue, paper towels and paper napkins. Our Dixie business is the largest producer in the North American disposable tableware market. We are also a leading producer of tissue-based consumer products in many international markets, including France, the United Kingdom, Ireland, Finland, the Netherlands, Italy, Spain and Greece. We also have expanding tissue operations in other international markets, including China, Mexico, Russia and Turkey. Our portfolio of brands includes well-known consumer products with strong market positions created and supported by product development and innovation, advertising and marketing, strategic acquisitions, manufacturing scale and long-standing customer and distributor relationships.

We sell our products to both retail and commercial customers. Our retail customers include mass merchandisers, warehouse clubs, grocery stores, drug chains and dollar stores. We believe that we have a 40% dollar market share of the $5.2 billion U.S. bathroom tissue market, a 37% share of the $3.2 billion U.S. paper towel market and a 55% market share of the $700 million U.S. paper napkin market. In commercial tissue markets, we have long-standing relationships with distributors and end-users in the food service, healthcare, industrial, office building, education, government and lodging markets. We believe our market share in the commercial tissue markets we serve is approximately 40%.

Strengths

Number One Global Producer of Bathroom Tissue, Paper Towels and Paper Napkins. We are the world’s largest producer of bathroom tissue, paper towels and paper napkins, based on volume,

according to an independent industry survey. We sell branded and private label products in the retail and commercial markets in both North America and internationally. The manufacturing capabilities and geographic scope of our tissue business have enabled us to establish strategic relationships with major multinational retailers and the leading distributors in the commercial market.

Well-Known Brands in North America and Europe. We estimate that at least one of our bathroom tissue or paper towel brands is used by approximately 55% of North American households. Our leading retail brands are:

North America	Rank	Europe	Rank
Quilted Northern bathroom tissue	#2	Lotus bathroom tissue (France)	#1
Angel Soft bathroom tissue	#3	Lotus paper handkerchiefs (France)	#1
Brawny paper towels	#2	Okay kitchen towels (France)	#1
Sparkle paper towels	#3	Colhogar bathroom tissue (Spain)	#1
Vanity Fair premium napkins	#1	Colhogar paper towels (Spain)	#1
Mardi Gras paper napkins	#1	KittenSoft bathroom tissue (Ireland)	#1
Dixie disposable tableware	#1	KittenSoft paper towels (Ireland)	#1

Depth of Brand Portfolio in North America. We believe that we are the only North American company that offers retailers bathroom tissue, paper towel and paper napkin products in all of the following categories:

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the super-premium category, such as Quilted Northern Ultra bathroom tissue and Vanity Fair napkins;

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the premium category, such as Brawny paper towels and napkins and Quilted Northern bathroom tissue;

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the affordable quality category, such as Angel Soft bathroom tissue and Sparkle paper towels; and

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the value category, such as Soft ‘n Gentle bathroom tissue, So-Dri paper towels and Mardi Gras paper towels and napkins.

Our full range of leading brands in different price categories allows retailers to reduce their expenses through a single-source purchase that meets the broad quality and price spectrum of their customers’ demands.

Number One Private Label Manufacturer in North America and Number Two in Europe. We are the largest manufacturer of private label tissue products in North America and the second largest in Europe, in each case based on sales. The combination of our branded consumer product businesses and our private label business generates efficiencies in our manufacturing, supply chain logistics and purchasing operations. Offering both private label and branded products allows us to establish closer relationships with our retail customers and provides us with a greater share of shelf space in their stores.

Well-Positioned in Growing and Key Retail Channels. We believe that we have the largest market share in the fast-growing U.S. warehouse club channel, which includes Costco and Sam’s Club, and have well-established relationships with the leaders in the rapidly expanding mass merchandise channel, such as Wal-Mart and Target. We also have long-term relationships with major retailers in the grocery channel, including Ahold, Albertson’s, Kroger, Publix and Safeway. We believe that our positions in growing retail channels continue to provide us with superior growth prospects compared to the overall market.

Number One Position in the North American Commercial Market. According to the American Forest & Paper Association, we sold more tissue products in the commercial channel than any other company in North America in 2001 and have a 40% share, based on volume. Our North American commercial tissue business generated $1.5 billion in revenue in fiscal 2001. We believe our leading market position and scale allow us to meet the needs of our commercial customers by offering them higher quality service and a broad product line.

Number One Position in North American Disposable Tableware Market. Dixie is one of the most recognized consumer product brand names in North America. We believe that our Dixie business is the largest producer in the $12 billion North American disposable tableware market. Dixie derives approximately 54% of its annual revenue from retail sales and 46% from the commercial food service channel.

Continued Cost Savings Through Integration of Fort James. Since our acquisition of Fort James in November 2000, we have combined the Fort James business with our consumer products business and have recognized approximately $200 million of cost savings, which were reflected in our 2001 financial results. We intend to continue to integrate Fort James’ operations with our own operations and expect to realize $300 million of additional cost savings by the end of fiscal 2003, for a cumulative total of over $500 million of savings through purchasing efficiencies, systems integration, SKU rationalization, overhead reduction, logistics savings and other initiatives.

Industry-Leading, Integrated Manufacturing Facilities. Our industry-leading, low cost manufacturing capabilities provide us with scale and cost advantages over many of our competitors. According to industry statistics, our North American retail and commercial manufacturing cash cost position is the lowest among the leading competitors in our industry and is approximately 25% lower than our leading competitors. We believe our integrated manufacturing facilities in North America, which produce both pulp and tissue, allow us to better manage the manufacturing costs for our products and provide us with advantages in operating efficiency over our competitors.

Strategies

Our objectives in North America are to grow the dollar market share of our super-premium and premium brands and realize superior margins on all of our products. We intend to increase dollar market share of these brands by repositioning our brand portfolio through marketing support and product improvement. We will seek to continue to realize superior margins on all of our products by leveraging our position as a low cost manufacturer and through effective marketing and promotions. We also will enhance our growth over time by selective complementary acquisitions that expand the breadth of our consumer product portfolio. Internationally, our objective is to pursue a controlled growth strategy in both current and new markets. In countries where we have strong positions and attractive returns, we will seek to maintain and improve these businesses. In countries where there are opportunities to expand our geographic scope, we will seek to grow through acquisitions of established brands and facilities.

We intend to achieve our objectives through the following strategies:

Leverage the Depth of Our Product Offering. We intend to enhance and strengthen our established relationships with our retail customers. We will continue to leverage our branded product offerings in the bathroom tissue, towel, napkin and disposable tableware categories to sell additional categories of branded products to our existing customers.

Support Our Brands Through Advertising, Marketing and Promotions. We will continue to aggressively market our brands through advertising, innovative promotions and public relations

programs. We will invest in promotions that stimulate demand for our branded consumer products and develop long-term consumer loyalty.

Optimize Brand Positioning Within Our Portfolio. We will continue to refine the relative positioning of our brands within our broad portfolio of products by aligning product quality, pricing and promotion efforts with specific consumer segments. We believe this positioning will allow us to more discreetly target specific consumer preferences, reduce brand overlap and increase dollar market share.

Leverage Established Position in Growing Sales Channels. We have grown our retail tissue and Dixie businesses at a faster rate than the overall industry by focusing on high-growth sales channels, including wholesale clubs, mass merchandise stores and dollar stores. By expanding our position in these sales channels, we expect to build upon our competitive advantage and continue to outpace industry growth.

Continue to Expand Our International Operations. Historically, the majority of our international operations have been in Western Europe. More recently, we have expanded our operations into China, Mexico, Russia and Turkey. We intend to continue a controlled expansion into additional Asian, South American and other international markets.

Maximize Operating Efficiency to Lower Costs and Improve Margins. We continuously implement quality control, training, safety and maintenance initiatives through our mill improvement program. This program, together with selected capacity rationalization, has helped us to achieve our position as a low cost producer. We expect to continue to improve operating profitability by further reducing our manufacturing costs.

Continue to Innovate Through Research and Development. We will continue to strengthen the quality of our brand portfolio through research and the development of product innovations. We recently launched products such as Quilted Northern Moist Wipes, Brawny Shop Towels and Dixie Rinse & ReUse Disposable Stoneware plates. Our recent product innovations in the commercial tissue market include our en-Motion and EasyNap controlled dispensing products. Our goal is to achieve 20% of our annual consumer products revenue from products that have been introduced within the last three years.

North American Retail Tissue

Products. We produce both branded and private label products for the retail market, which accounted for approximately 67% of our North American consumer product tissue sales in fiscal 2001. Our principal retail brands are Quilted Northern, Quilted Northern Ultra and Angel Soft bathroom tissue, Brawny and Sparkle paper towels, and five of the seven leading paper napkin brands, including Vanity Fair premium dinner napkins and Mardi Gras napkins. Our other retail brands include Sparkle napkins, Soft ‘n Gentle bathroom and facial tissue, MD bathroom tissue, Mardi Gras towels, Zee towels and napkins and Green Forest towels and napkins (made from 100% recycled paper). Our products have attained the following leading North American market share positions, based on sales:

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Quilted Northern—the number two bathroom tissue brand;

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Brawny—the number two paper towel brand;

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Angel Soft—the number three bathroom tissue brand;

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Vanity Fair—the number one premium napkin brand;

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Mardi Gras—the number one paper napkin brand; and

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Sparkle—the number three paper towel and napkin brand.

In addition to our branded products, we believe that we are the leading supplier to the U.S. private label bathroom tissue, towel and napkin market, with a market share of 44%.

The North American retail tissue market benefits from stable demand driven by population growth, the widespread use of these products by consumers and the emergence of higher growth sales channels.

Customers. Our ten largest customers accounted for 56% of our fiscal 2001 North American retail tissue gross sales. These customers included Ahold, Albertson’s, Costco, Fleming Companies, Kroger, Safeway, Sam’s Club, Supervalu, Target and Wal-Mart.

Warehouse Clubs. We believe we are the leading supplier of bathroom tissue, paper towel and paper napkin products to the warehouse club channel, which includes Costco and Sam’s Club. The warehouse club channel is the fastest growing channel in the consumer products industry. These high volume retailers generally offer one branded product along with their private label product in each category. Our ability to provide both branded and private label products allows us to be a key supplier to our warehouse club channel customers in certain consumer product categories.

Mass Merchandisers. We supply both branded and private label products to most of the best-known mass merchandisers in the United States, including Wal-Mart and Target. We believe that our scale, capacity and geographic dispersion allow us to grow along with these mass merchandisers. Sales to these mass merchandisers are growing faster than the overall North American tissue market, which is mature and historically has been dominated by grocery chains.

Grocery Retailers. We have established strong relationships with grocery retailers. We sell our branded and private label products to many of the largest and fastest growing retailers in the grocery channel, including Ahold, Albertson’s, Kroger, Publix and Safeway.

Dollar Stores. Dollar stores, including Dollar General, Dollar Tree and Family Dollar, are an emerging sales growth channel for the consumer products industry. We believe that our affordable quality and value brands, as well as our private label products, have allowed us to establish the largest tissue market share in this channel. We have select product offerings that are tailored to the particular price points targeted by these retailers and offer some private label products carrying a retailer’s brand.

Sales and Marketing. We have established a successful portfolio strategy across the super premium, premium, affordable quality and value categories to maximize the depth of our branded product offerings. By identifying different consumer segments, in terms of demographics and attitude, we have been able to position brand offerings for different consumer groups. This strategy allows us to compete effectively within all category segments, build greater loyalty in each brand’s consumer franchise and simultaneously grow each brand’s equity.

We aggressively market our brands through creative advertising, consumer promotions and public relations, as well as appropriate levels of trade promotion. We spent over $78 million on advertising, marketing and promotional efforts in fiscal 2001 and expect to spend $102 million in fiscal 2002.

We strive to develop a distinctive voice for each of our brands, in part by utilizing celebrity sponsorships to form strong connections to the brand. We currently have celebrity sponsorship relationships with Richard Petty of Petty Enterprises and the NASCAR sponsorship for Brawny paper towels and napkins, Kelly Ripa, the television talk-show host, for the Angel Soft Angels in Action Program, and Lee Ann Womack, country music singer of the year 2001, for Sparkle paper towels.

We launched the Health Smart Institute in 1998, an organization comprised of leading medical and health care experts. The Institute researches and develops new ways for consumers to use tissue products to promote healthier home environments. We were the first consumer products company that utilized the health platform to market and promote tissue products. We branded the marketing platform HEALTH SMART and adopted a logo which appears on selected tissue and towel brand packaging.

North American Commercial Tissue

Products. With an estimated market share of approximately 40%, based on volume, we believe we are the largest seller of bathroom tissue, towel and napkin products in the $3.5 billion North American commercial (or away-from-home) tissue market. We have achieved this market leadership due in large part to the breadth of our product offering and our proprietary bathroom tissue, towel and napkin dispensing systems. We are the market leader in proprietary dispensers, which include differentiated products and products that meet the growing consumer concern for hygiene. We also are a leader in control products that dispense towels without being touched. These dispensers limit the quantity of tissue dispensed to the end-user, thereby reducing our customers’ costs from wasted tissue. By creating this value for our customers, we are able to realize higher margins. Our commercial products include Cormatic, Ultimatic and Towlmastr brand dispensers; Brawny Professional towels; Quilted Northern Professional bathroom tissue; Envision, the leading brand of 100% recycled tissue, towel and napkin products; and Preference Ultra premium and Acclaim economy bathroom tissue, towel and napkin products. The commercial tissue market benefits from attractive long-term fundamentals, including unit volume growth due to increased dining and entertaining outside of the home.

We have long-standing relationships with distributors and our end-user customers in the food service, health care, industrial, office building, education, government and lodging markets. We are able to offer our commercial customers a wide variety of products, including bathroom tissue, hand towels, napkins and seat covers, which creates supply and sourcing efficiencies for our customers and offers opportunities to increase our sales volume. We believe that commercial customers and distributors are beginning to rationalize their supplier networks and are gravitating toward suppliers, like us, who have broad product offerings that enable them to fulfill all of their tissue purchasing needs.

We believe that we have the largest market share in the fastest growing end-use markets for commercial tissue products with a 44% share in the food service industry and a 45% share in the health care industry. We also have leading market positions in the paper distribution, janitorial supply and manufacturing end-use markets.

Customers. Our North American commercial tissue business sells products to distributors who serve the food service, health care, industrial, office building, education, government, lodging and other away-from-home markets. Our ten largest commercial tissue customers accounted for 78% of our fiscal 2001 commercial tissue gross sales. These customers included Perseco (the purchasing affiliate for McDonald’s Corporation), Sysco Corporation and U.S. Foodservice.

Sales and Marketing. Our sales and marketing programs are designed to promote our products both to the distributors that buy directly from us and to the end-use customers that ultimately purchase our products from those distributors. We accomplish this two-tiered objective by developing targeted marketing materials, and in some cases, specially designed products, that meet the differing needs of various key end-use customer segments. We also create distributor sales force training programs that are tailored to the differing needs of food service providers, office building owners and managers, health care providers, manufacturers and lodging owners and managers. These programs enable our distributors’ sales forces to more effectively market the segment-specific benefits of our higher margin products, which increases our earnings, as well as those of our distributors.

Retail and Commercial Manufacturing and Facilities. We have 14 tissue production facilities that turn pulp, wastepaper and other raw materials into large tissue rolls. We then convert these rolls into bathroom tissue, towels and napkins at our 15 tissue converting facilities. We have approximately 2.9 million tons of domestic tissue production capacity and approximately 3.0 million tons of domestic tissue converting capacity.

Dixie

Products. Our Dixie business has the number one market share in the $12 billion North American disposable tableware market and is the best known brand name in disposable cups, plates and cutlery. Dixie offers a full range of products for both the retail and food service channels. We sell our Dixie products and North American tissue products to many of the same retail and commercial customers. In addition, our food service customers include many of the distributors, restaurants, hotels, office buildings and institutions to whom we sell our commercial tissue products. Approximately 54% of our Dixie sales are into retail distribution channels, and the remaining 46% are into food service distribution channels. We believe that we are also the leading supplier of disposable tableware to the warehouse club channel. The disposable tableware market benefits from attractive long-term fundamentals due to growing consumer focus on convenience and the shift from seasonal to year-round usage of disposable tableware.

The channel penetration and innovative products within our Dixie brand allow us to tailor our Dixie products by customer or channel. We sell unique, customer-specific products to such customers as Wal-Mart, Costco and Target. We also produce a wide range of private label disposable tableware, which helps us to achieve our goal of becoming a key supplier to our customers.

We will continue to leverage our market leadership by bringing proprietary disposable tableware products to market, like Rinse & ReUse Disposable Stoneware plates and PerfecTouch cups. We are able to manufacture creative licensed and promotional products, including a printed clear cup, due to our high quality printing capabilities.

Customers. Our Dixie disposable tableware business sells to retail and food service customers. Dixie’s ten largest disposable tableware customers accounted for approximately 56% of its 2001 gross sales. These customers included Costco, Bunzl, Perseco, Sam’s Club, Sysco, U.S. Foodservice and Wal-Mart.

Sales and Marketing. Our marketing strategy for our Dixie products is to expand our disposable tableware category through innovative marketing that persuades consumers to forego washing dishes in favor of using disposable tableware. Historically, disposable tableware was treated as a seasonal item by many of our customers. We are promoting year-round use of disposable tableware, while simultaneously expanding distribution to new channels and customers in the United States and Canada.

Our Dixie plates, cups and cutlery are virtually synonymous with the category it created over 80 years ago. Dixie advertisements have consistently scored in the top 10% of all spots ever tested by ASI, an advertising research company. According to Ad Age, Dixie Rinse & ReUse Disposable Stoneware plates registered the highest ever combined “recall and persuasion” score with consumers, from among more than 15,000 advertisements screened by ASI over the past eight years.

Manufacturing and Facilities. Our Dixie products are manufactured and converted in 12 disposable tableware plants in the United States and Canada. Our annual converting capacity for Dixie is 58 million cases.

European Consumer Products

Products. In fiscal 2001, European tissue product sales were approximately $1.6 billion, or 26% of our aggregate consumer product sales. Our product lines in both the European retail and commercial markets include primarily bathroom and facial tissue, paper towels and paper napkins. Bathroom tissue, towels and napkins accounted for approximately 87% of European annual sales with the balance comprised of feminine hygiene products, ancillary products, such as health care and pharmacy items, and unconverted tissue rolls.

We are a leading producer of retail tissue products in France, the United Kingdom, Ireland, Finland, the Netherlands, Italy, Spain, Russia, Greece and Turkey. Our European retail sales include both branded and private label products. In fiscal 2001, approximately 75% of European bathroom tissue, towel and napkin sales were into retail distribution channels and 25% were into commercial and other channels, which are less prominent in Europe. Aggregating retail branded and private label and commercial production, we believe we are the largest producer of tissue products in France, Finland, Ireland and Turkey and the second largest producer in Greece and the United Kingdom.

Our largest European operations are in France and the United Kingdom, which together accounted for approximately 65% of our European tissue product sales in fiscal 2001. Our sales in the United Kingdom are predominantly private label products. Our principal European brands include:

Ireland		Rank
KittenSoft kitchen towels		#1
KittenSoft bathroom tissue		#1

Finland
Embo bathroom tissue		#1

Greece
Delica kitchen towels		#1
Delica napkins		#1

France		Rank
Lotus bathroom tissue		#1
Lotus paper handkerchiefs		#1
Okay kitchen towels		#1
Moltonel bathroom tissue		#2
Vania feminine hygiene products		#2

Turkey
Selpak premium tissue products		#1

Netherlands
Lotus kitchen towels		#1

The European tissue market is highly fragmented and characterized by a greater percentage of private label products and more well established local producers than the North American market. Despite the local focus of the European tissue product market, we believe we are one of the lowest-cost producers due to our manufacturing presence throughout Western Europe, flexible raw materials sourcing, a new or well-maintained asset base and our ability to leverage technology, processes and manufacturing best practices developed in both our North American and our European operations.

Customers. Our European consumer products business sells to mass merchandisers, grocery retailers and other retail outlets. Our ten largest European consumer products customers accounted for approximately 53% of our European consumer products net sales in fiscal 2001. These customers included Carrefour (France, Spain, Portugal, Italy, Belgium, Greece and Turkey), Ahold (the Netherlands, Spain, Sweden and Norway) and Tesco (the United Kingdom and Ireland).

Sales and Marketing. Our European sales and marketing operations are organized by country, with local sales and marketing professionals focusing on their respective markets. A small, experienced sales and marketing group based in London, England directs the broad sales and marketing strategy and ensures a rapid transfer of knowledge and programs across the various countries in which we sell our products, as well as between Europe and North America. Our

commercial product sales strategy is to supply end-users, including hotels, restaurants and janitorial companies, through distributors.

We support our branded products with significant consumer marketing investments. In fiscal 2001, we spent over $53 million on consumer marketing support. In each country, consumer marketing support is based on a combination of targeted creative advertising and promotional activity. Our award-winning European television advertising campaigns for both kitchen towels and bathroom tissue have helped us attain our leading positions in European kitchen towels and bathroom tissue.

Manufacturing and Facilities. We have a manufacturing and production network that provides significant and cost-effective market reach given relatively high shipping and distribution costs. Our European tissue manufacturing operations purchase pulp from third-party suppliers.

Our production and converting facilities are located primarily in Western Europe, but we also have facilities in China, Russia and Turkey. We have 13 tissue production facilities that turn pulp, wastepaper and other raw materials into large tissue rolls. We occasionally purchase tissue rolls from third parties to meet demand. We then convert these rolls into bathroom tissue, towels and napkins at our 20 tissue converting facilities, seven of which are stand-alone facilities strategically located throughout Europe to supplement the converting operations at our production mills. Internationally, we have approximately 850,000 tons of tissue production capacity and approximately 1.2 million tons of tissue converting capacity.

Consumer Products Distribution and Operations

Our logistics network is an important part of our sales and customer service performance. Our objective is to meet the needs of our customers by providing them with desired inventory levels and delivery times. We have developed a network of distribution centers, regional depots and facility warehouses located throughout the United States and internationally to meet the demands of our customers and our own objectives. We use a combination of common and contract carriers to deliver our products from our distribution points to our customers.

We have 27 North American distribution centers, all of which support our direct store-delivery systems. Outside North America, we have 21 distribution centers and depots in 13 countries. Our European distribution centers and depots are smaller and more geographically dispersed to minimize transportation costs, which tend to be higher than in North America.

We also have implemented vendor managed inventory systems to meet our customers’ needs. These systems employ an electronic data interface with some of our retail customers to track their sales of our products and, consequently, their inventory requirements. We then ship the customer’s requirements directly to the appropriate warehouse, thereby reducing the retailer’s potential for excess inventory or out-of-stock products.

Consumer Product Development

We currently operate product development and engineering facilities located in Appleton, Wisconsin and Kunheim, France, which service our North American and international markets. At each of our product development facilities, we focus on new product concepts that we can bring to market quickly and that will have a significant impact on revenue. In fiscal 2001, we spent approximately $80 million on research and development of new products. New product innovations, such as our en-Motion no-touch public washroom facilities, will continue to improve our product portfolio. Our goal is to achieve 20% of our annual revenue from consumer products that have been introduced within the last three years.

Packaging

Our packaging business is a leading producer of value-added corrugated packaging products. We work with our customers to design packaging products that improve their sales, reduce waste and lower handling and transportation costs throughout the supply chain. We design and produce packaging that meets our customers’ strength requirements and supports our customers’ brand sales through high quality graphics and innovative designs. We also work with major retailers to increase product sales utilizing graphic packaging designs and supply chain management.

Strengths

Manufacturing Expertise and Industry-Best Facilities. Our facilities provide us with significant competitive advantages through economies of scale because on average they are larger than our competitors’ facilities. We also have adopted a disciplined program to manage our production to meet our customers’ demand, as opposed to simply maximizing production. We have developed a comprehensive mill slowback process, which is the ability to adjust production to meet daily demand at lower manufacturing cost levels than most industry mills running at full capacity. Producing to meet demand requires adherence to strict inventory targets, which when exceeded trigger mill production slowback.

Industry-Leading Returns. Based on publicly available information, we believe that our packaging business has the highest return on assets among the major companies in our industry segment.

Strategic Relationships with Large National Customers. Our large national customers represent 43% of our corrugated container sales, and the consumer food channel accounts for 72% of this volume. We have established key supplier relationships with large national food companies such as Unilever, Kellogg, Kraft, General Mills, ConAgra, Sara Lee, M & M/Mars, Coca-Cola and Pepsi, as well as to regional and local customers, many of whom are in the produce business. We also work with mass merchandisers and grocery retailers such as Wal-Mart, Albertson’s, Kroger and Meijer to develop packaging products that we sell to their vendors and suppliers.

Strategies

Emphasize Demand-Driven Production. All of our facilities follow a manufacturing strategy built on demand-driven production planning, operating efficiency and safe, low cost production.

Aggressive Cost Management and Disciplined Capital Investment. Our managers are focused on aggressively managing operating and overhead costs, and we will be selective in our packaging capital investments.

Focus on the Entire Supply Chain. We work closely with our customers to design and manufacture packaging that helps consumer products manufacturers and retailers more efficiently manage their supply chains, which we believe produces attractive growth prospects and returns for us. We seek to use our relationships with large grocers, warehouse club stores and mass merchandisers and our knowledge of their supply chains gained through our consumer products business to develop new packaging products to better serve our customers.

Expand Product Offering Through Research and Development. We have a state-of-the-art technology center that designs and tests packaging products and solutions. We will continue to develop and bring to market value-added products that differentiate us from our competitors.

Products

Our packaging products include:

•

Corrugated Boxes and Sheets—We offer a wide variety of corrugated containers, or brown boxes, including single-, double- and triple-wall boxes in the various sizes, strengths and styles required by our customers.

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Produce Boxes—We manufacture produce boxes for produce grown throughout North America, with designs that withstand high humidity and maintain structural integrity during shipping and storage, and while on retail store shelves. We also provide our produce customers with state-of-the-art graphics and displayable point-of-sale applications.

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Graphic Packaging—We provide state-of-the-art graphic packaging solutions to our retail customers. We operate nine specialty printing, coating and converting facilities. Our Color-Box subsidiary is the largest litho-laminate corrugated manufacturer in North America and the only graphic corrugated packaging producer with a national presence and platform. In addition, all of our box and sheet plants have the ability to provide two- to four-color graphics products.

•

Containerboard—Containerboard is the basic material used to manufacture corrugated containers. The two types of containerboard are linerboard, which is used for the two flat outer facings of the corrugated sheet, and medium, which is used to form the fluted middle layer. We use about 70% of the containerboard we produce in our own converting facilities and sell our remaining production to third parties.

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Bulk Packaging and Containers—We manufacture an extensive array of heavy-duty containers designed for our customers’ rigid shipping and storage requirements for industrial and agricultural applications. Our bulk packaging products are used for thermoplastic resins and compounds, synthetic rubber, chemicals, food products, produce and other dry flowable materials.

•

Reusable Plastic Containers—We offer our customers patent pending reusable plastic containers for produce and other shipping and display needs. These types of containers have been successfully used in Europe for many years, have begun to be accepted in North America as large retailers, such as Wal-Mart, have started to specify the types of packaging that their suppliers must use in order to improve the retailers’ efficiency.

Facilities

Our four containerboard mills have the capacity to produce 3.8 million tons of unbleached containerboard. Our packaging business has 33 corrugated box plants in the United States with annual production capacity of approximately 2.8 million tons. Additionally, we have 11 corrugated sheet and sheet feeder plants in the United States with an annual capacity of approximately 600,000 tons. Our nine specialty printing, coating and converting facilities have annual capacity of approximately 330,000 tons. The integration of our packaging business provides us with many advantages, including cost and cash flow stability and better management of capital.

Our four containerboard mills produce unbleached linerboard and medium in roll form that we ship to our converting facilities. We have three principal types of converting facilities: corrugated box plants, which fabricate corrugated sheets from containerboard and print, cut, fold and join them to create finished boxes; sheet feeders, which also fabricate corrugated sheets and then deliver them to other converters who complete the finished box; and graphic packaging facilities, which fabricate corrugated sheets and utilize high graphic capabilities and design techniques to meet specialized customer requirements.

Our packaging business is driven by the cost advantage our containerboard mills have established. These mills on average produce 91% more output per facility than our top nine competitors, which represent over 68% of the industry capacity and 122% more output per facility than the industry average, according to a 2001 Jacobs Consultancy study. We also believe we have cost advantages in our converting facilities, because they are 48% more productive per operating hour than the average packaging industry facility, according to the 2000 Fiber Box Association Key Performance Indicator Study.

Our packaging logistics system efficiently moves our products to our end customers. We utilize optimization tools to manage our entire supply chain to ensure we meet our customers’ needs in the most cost-effective manner possible. Our wide range of manufacturing locations throughout the United States provides us with great flexibility to provide basic and value-added supply chain options to our customers such as just-in-time shipments, vendor managed inventory and other custom logistics solutions. We view our integrated structure as a competitive advantage that allows us to give our customers made-to-order products, while minimizing total manufacturing and logistics costs.

Customers

Our packaging business sells finished products primarily to consumer products companies and also sells unconverted containerboard to independent converters. Our ten largest packaging customers accounted for 17% of our 2001 packaging gross sales. These customers include E. & J. Gallo Winery, Kellogg’s, Kimberly-Clark, Kraft, Procter & Gamble and Unilever. We also provide packaging consulting services to many of the same retailers that are customers of our consumer products business, such as Wal-Mart, Albertson’s and Kroger. These relationships assist us in selling packaging products to their suppliers.

Sales and Marketing

We focus on marketing and selling our products to consumer products manufacturers by working with distributors and retailers to manufacture products that cut distribution and transportation costs and benefit end-use consumers. Each packaging plant has its own sales force targeting local manufacturers and distributors, which depend on us to help them comply with the distribution practices of their customers. We also have a national account sales force that targets large national accounts, which we believe value our supply chain-based approach.

Paper and Pulp

Our paper business produces office and printing paper, kraft paper and bleached board products at six of our tissue manufacturing facilities in North America. Our paper-making facilities are among the industry’s lowest-cost producers and are geographically dispersed, enabling us to cost-effectively sell our products nationwide. We focus on many of the same retail and commercial customers to which we sell tissue and Dixie disposable tableware products, including Wal-Mart, Costco and Sam’s Club.

Our pulp business produces fluff pulp and other specialty pulps in our Brunswick mill. Fluff pulp is valued for its absorbency, consistency and product-specific characteristics. It is used primarily in products such as disposable diapers, feminine hygiene products, adult incontinence products and baby wipes. We also produce Southern softwood market pulp in our Leaf River mill and Northern hardwood market pulp in our Old Town mill.

Strengths

Low Cost Paper Manufacturing Facilities. Our office and printing paper manufacturing facilities are located within our tissue manufacturing facilities, which helps us to reduce our unit costs and improve our return on assets in both our consumer products and paper businesses.

Leading Supplier of Fluff Pulp. We are the world’s second largest supplier of fluff pulp and other specialty pulp in the world, and our fluff pulp mill is one of the lowest-cost facilities in the industry, according to NLK Consultants.

Strategies

Sell Paper in the Fastest Growing Sales Channels and to the Largest Retailers. We sell our printing and imaging papers through diverse distribution channels and intend to continue to focus our paper sales on the wholesale club, specialty office retailer, mass merchandise and dollar store sales channels. In order to differentiate ourselves from our competitors, we use a distribution model that allows us to combine shipments of our office and printing paper products with our consumer bath tissue, towel and napkin products to customers in these channels. We also target OfficeMax, Staples, Wal-Mart, Costco and other major retailers.

Focus on Customer Needs. We focus on our paper and pulp customers in each of our distribution channels. For example, each roll of fluff pulp we produce is made to our customers’ specifications and tailored to their specific end products. This customer-specific production process, together with technical support for our customers, allows us to form close relationships with our customers.

Maximize Return on Existing Market Pulp Investment. We intend to maximize the returns on our two market pulp mills by improving efficiency and reducing costs. We intend to make only small capital investments that are necessary to maintain the facilities or that will provide us with a long-term benefit.

Products

Office and Printing Paper. Office and printing paper is used in copy machines and printers, commercial printing, business forms, stationery, tablets, books and envelopes. We own the sole U.S. and Canadian license for, and sourcing rights to, Xerox brand copier paper, one of the most recognized brand names in office papers. Xerox copier paper is preferred by consumers and commands a premium price over comparable manufacturers’ brands and store brands. We also sell our paper products under brand names such as Spectrum printing and imaging paper and Eureka and Geocycle recycled paper. We sell these products through various distribution channels, including retailers, major paper distributors, office product distributors, printing equipment manufacturers and converters. We are the sole supplier of paper to Sam’s Club, the largest supplier to Wal-Mart, Costco and Office Max, and one of the largest suppliers to Staples. Approximately 28% of our office and printing paper is sold through leading mass merchandisers and office supply retailers.

Kraft Paper. We produce approximately 300,000 tons of bleached and natural kraft paper products annually at two facilities. We sell our branded Krafted Solutions products to converters who make multiwall bags. Multiwall bags are shipping sacks that are used for industrial and consumer goods, such as fertilizer and seed, chemicals, cement, dog food, flour, sugar and other products. We

also sell our kraft paper to other manufacturers of products like bleached butcher paper and brown bags. Brown bags are used by retail outlets, including grocery stores, fast food operators and mass merchandisers.

Bleached Board. We produce approximately 600,000 tons of bleached board annually. Our two bleached board facilities are among the lowest-cost facilities in the industry, according to Fisher Pulp and Paper, an industry data service. Most of our outside bleached board sales are to folding carton manufacturers and other carton producers who use it to produce ice cream containers, frozen food containers and other food service cartons. Approximately 200,000 tons of our bleached board is used by Dixie in the manufacture of its products, including PerfecTouch cups, Ultrastrong plates and other paper products. This integration with our other consumer products businesses allows us to reduce costs and better manage raw material requirements.

Fluff Pulp. We are the second largest supplier of fluff pulp and other specialty pulps in the world, according to NLK Consultants. Each roll of fluff pulp we produce is made to our customers’ specifications and is placed directly in our customer’s end product. This customer-specific production process allows us to form close relationships with our customers and achieve our strategy of delivering the best customer service in the industry. Our Brunswick mill is the largest fluff pulp production facility in the world, with annual capacity of approximately 800,000 tons. Fluff pulp generally sells at a premium to market pulp. Thus, we plan to make a small capital investment over the next two years at our Leaf River market pulp facility that will enable us to produce fluff pulp at that facility, reducing our exposure to the volatility of market pulp.

Market Pulp. We have one market pulp mill that produces Southern softwood market pulp and another mill that produces Northern hardwood market pulp, with a combined annual capacity of 800,000 tons. We utilize 200,000 tons of this production and sell the remainder primarily to manufacturers of specialty paper and office and printing paper that are located near our mills.

Fiber Balance and Procurement

Fiber Balance. Our integrated pulp production combined with the volume of pulp and wastepaper we purchase gives us a unique balance of low cost manufacturing and market leverage. Our combined consumer products and containerboard mill system uses approximately 11.8 million tons of fiber per year to manufacture our finished products. This fiber is comprised of approximately 7.5 million tons of bleached and unbleached wood pulp we make in our integrated mills. Our integrated approach provides a more stable cost structure than that of our competitors, because wood fiber prices, the raw materials for our integrated pulp operations, are significantly less volatile than wastepaper and market pulp prices.

We also purchase 3.5 million tons of wastepaper and 900,000 tons of market pulp from independent suppliers. This unique mixture of produced and purchased fiber allows us to leverage our low cost integrated pulp production with competitively priced wastepaper and market pulp purchases. As a result, our mills have the advantage of being able to adjust their mix of fiber to minimize costs while maintaining product quality.

We have become a net purchaser of market pulp following the Fort James acquisition, and currently purchase approximately 220,000 tons of market pulp in excess of our own production. We anticipate that this amount will grow in 2002 and future years.

Our fluff pulp sales to disposable diaper and other absorbent hygiene product manufacturers total approximately 800,000 tons annually.

Wood and Fiber Procurement. As part of the reorganization transactions, we and Georgia-Pacific will enter into a joint venture, which we refer to as the procurement JV, that will procure wood and

virgin fiber on behalf of both companies. Certain terms of the procurement JV are described under “Arrangements between Us and Georgia-Pacific—Wood Procurement Joint Venture Agreement”.

The procurement JV will utilize an operating basin strategy and will divide the United States into 15 fiber basins, each of which contains multiple mills, to enable it to utilize all of the forest products derived from a stand of timber. The largest such basins are in the southeastern United States, where more than 65% of the land is owned by non-industrial private landowners. This fragmented ownership pattern creates a favorable market for procuring timber because there is greater timber supply than in areas with large federal or industrial landholdings to which access is more limited.

Wastepaper. Our wastepaper purchases are handled by our Harmon group, a division of our Fort James subsidiary, one of the largest wastepaper traders in the industry. Harmon purchases wastepaper of various grades, including old corrugated cartons, newsprint, office waste and mixed grades, pursuant to contracts and on the “spot” market, for use by our consumer products and packaging businesses. Wastepaper is typically purchased from pre- and post-consumer suppliers, such as retail grocery chains, printers, local recycling companies and other industrial users. We also purchase wastepaper from local, state and federal governmental sources. We ship wastepaper directly from suppliers to our manufacturing facilities or to third party buyers and do not warehouse it.

In addition to supplying our facilities, Harmon sells in excess of 1.2 million tons of wastepaper on the open market. Harmon operates throughout the United States and Canada, and has recently entered the European market through an affiliate located in England.

Intellectual Property

Our trademark and copyright portfolio is of material importance to our business. We protect our intellectual property rights by registering trademarks and copyrights in the United States, Europe and other markets where our branded products are sold. We have from time to time granted various parties exclusive and non-exclusive licenses to use our trademarks for particular products. We do not believe that these licensing arrangements have had a material effect on the conduct of our business or operating results.

Similarly, we own hundreds of patents worldwide, and our patent portfolio as a whole is material to our business; however, no one patent or group of related patents is material to us. We also have non-registered intellectual property rights, including trade secrets, proprietary technology, know-how and processes.

Competition

We are subject to highly competitive conditions in all aspects of our business. Our competitors are large domestic and international diversified consumer products and paper companies, including Procter & Gamble, Kimberly-Clark and Svenska Cellulosa Aktiebolaget SCA, manufacturers of private label and generic products, and national and regional packaging companies. Some of our competitors have greater financial and other resources than we do. Some of our local competitors in international markets are less susceptible to changes in currency exchange rates than we are and also benefit from government subsidies. We compete primarily on the basis of product quality and performance, brand recognition, brand loyalty, customer service, marketing, advertising, price, product development and distribution efficiencies. We incur substantial advertising, marketing and promotional costs in order to maintain or improve our brands’ market positions or introduce new products.

Environmental Matters

As part of the reorganization transactions, we have agreed to assume all environmental liabilities that primarily relate to Georgia-Pacific’s on-going consumer products, packaging, and paper businesses and related assets that are transferred to us in the reorganization, whether such liabilities arise before, on or after the closing date of this offering. As a result, we are responsible for a number of environmental matters described below.

As of March 30, 2002, we were involved in environmental investigation, remediation or monitoring activities at approximately 100 sites, both owned by us and owned by others, for which we may have liability, including, but not limited to, liability as a potentially responsible party under the United States Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA. This number is subject to change as known sites are remediated and new sites or new conditions at existing facilities are identified. Of the known sites in which we are involved, as of March 30, 2002, we estimate that approximately 50% are being investigated, approximately 15% are being remediated and approximately 35% are being monitored (an activity that occurs after either site investigation or remediation has been completed). While we cannot predict with certainty the ultimate costs for each of these sites, we have established reserves for the costs that we believe are probable and can be reasonably estimated. Based on currently available information and previous experience with the cleanup of hazardous substances, we believe that costs associated with these sites as of March 30, 2002 may exceed current reserves by amounts that could range, in the aggregate, up to approximately $105 million.

Kalamazoo River Superfund Site. We are one of three named potentially responsible parties, or PRPs, in an investigation by the Michigan Department of Natural Resources and the U.S. Environmental Protection Agency, or EPA, concerning contamination of river sediments and residuals in the landfills and waste disposal areas of the Kalamazoo River Superfund Site. Georgia-Pacific, along with the two other PRPs, submitted a draft remedial investigation/feasibility study to the State of Michigan on October 30, 2000 that evaluated remedial options for the river ranging in cost from $0 to $2.5 billion. In the study, Georgia-Pacific recommended a remedy with a total cost of approximately $73 million. The State of Michigan has asked Georgia-Pacific for additional possible remedies, and the EPA recently has taken over management of the investigation and is evaluating the proposed remedy. Although we cannot predict what impact or change will result from the EPA’s takeover of the site, the EPA could require additional remedial measures. Based on an interim allocation, we currently pay 50% of the costs for the river portion of the investigation. We do not know the amount of the cleanup or the time frame over which these costs would be paid. We are currently engaged in and will continue to seek cost recovery against other parties that we believe share liability for the river portion of the investigation.

In addition to the river, we are responsible for the closure of two adjacent disposal areas at the superfund site that are contaminated. The cost to remediate the first of the disposal areas, the King Highway Landfill, was approximately $9 million. The remediation of that area is essentially complete, and we anticipate final state approval of the closure. A 30-year post-closure care period will begin upon receipt of closure approval, and expenditures accrued for post-closure care will be made over that period. We are solely responsible for closure and post-closure care of the King Highway Landfill.

We anticipate that the cost for closure of the second disposal area, the Willow Boulevard/A Site landfill, will be approximately $8 million. Although we are still negotiating the final closure agreement with the State of Michigan, we anticipate that these costs will be paid over the next five years and that post-closure costs will be paid over 30 years following certification of the closure. While we are solely responsible for closure and post-closure care of the Willow Boulevard portion of the landfill, we share investigation costs for the A Site portion of the landfill equally with Millennium Holdings. We anticipate that our share of the remediation costs at the A Site will not exceed 50%.

Georgia-Pacific has spent approximately $27 million on the Kalamazoo River Superfund Site through December 29, 2001.

Fox River Superfund Site. We are one of seven named PRPs at the Fox River Superfund Site. Although the Wisconsin Department of Natural Resources (“WDNR”) and the EPA released for comment a draft study and proposed remedial action plan for this site with an estimated total cost of $308 million, we will not know the final remedy, its cost and our share of such cost until the remedial action plan is finalized. Under an interim allocation, we currently pay 30% of the costs of analyzing and responding to the various agency reports, including the study and action plan. We do not know our ultimate share of the liability and the time frame over which these costs will be paid at this time. Georgia-Pacific spent approximately $27.9 million from 1995 to December 29, 2001 on this site.

In addition, Fort James, our wholly owned subsidiary, has entered into an agreement with the WDNR, the U.S. Fish and Wildlife Service and other parties that settles claims for natural resource damages at this site under CERCLA, the Federal Water Pollution Control Act and state law. The settlement costs are approximately $14 million, and are in addition to any costs related to remediation of the Fox River Superfund Site.

Whatcom Waterway Superfund Site. In March 1995, Georgia-Pacific was named a PRP for the Whatcom Waterway Superfund Site in Bellingham, Washington. Other PRPs in the case have not yet been named. We completed an investigation and study which identified a preferred remedial alternative with a total estimated cost of $23 million. We anticipate these costs will be paid out over the next five to ten years. We have completed construction requirements for a combined interim remedial action and habitat restoration of a portion of the site, and environmental monitoring of this portion of the site is ongoing. Georgia-Pacific has spent approximately $1.3 million through December 29, 2001 on the Whatcom Waterway site.

Over the past several years, the EPA has been developing and promulgating environmental air pollution control regulations, collectively known as Maximum Achievable Control Technology Standards, or MACT standards. These standards affect a number of different industry groups in the United States. One of the MACT standards that affects the paper and pulp industry, referred to as the “Cluster Rules”, was promulgated in April 1998. The first phase of the Cluster Rules required Georgia-Pacific to make changes to some of its process operations and install new pollution control equipment by April 2001. The second phase of the Cluster Rules will require additional changes to other process operations and installation of additional pollution control equipment by April 2006. We are currently conducting preliminary engineering assessments to determine what the costs for compliance for us will be for the second phase of Cluster Rule compliance. There are still other MACT standards being developed at this time, such as the “Boiler MACT” and the “Paper Coating MACT”, that will have some effect on and will increase costs for some of our operations. Until the final MACT standards are promulgated, we cannot reasonably estimate the total capital expenditures necessary for compliance. Compliance with future laws or regulations, or other circumstances or developments with respect to environmental contamination, could require significant additional expenditures or otherwise have a material adverse effect on our business, operating results, cash flow and liquidity.

We believe that the ultimate outcome of these and other environmental matters could be material to operating results in any given quarter or year but will not have a material adverse effect on our long-term operating results, liquidity or consolidated financial position. See “Risk Factors—Risks Related to Our Business—Compliance with environmental rules and regulations and potential liabilities arising from related environmental liabilities may increase our operating costs and require us to incur additional substantial costs”.

Employees

Our businesses employ approximately 41,000 employees, of which approximately 33,900 are in North America and approximately 7,100 are in Europe. Approximately 25,000 of our employees work for our consumer products business, 9,100 work for our packaging business, 5,500 work for our paper

and pulp business and 1,400 are responsible for corporate administration. Our future performance depends, in significant part, upon our ability to attract new personnel and retain existing personnel in key areas including marketing, engineering, technical support and sales. Competition for personnel is intense, and we cannot be sure that we will be successful in attracting or retaining personnel in the future.

Approximately 45% of our U.S. employees are represented by labor unions pursuant to collective bargaining agreements that expire at various intervals over the next several years. We consider our relationships with our employees and their representative organizations to be good.

Legal Proceedings

Retirement Plan Litigation. On April 14, 1997, former employees who took lump sum distributions from the Georgia-Pacific Corporation Salaried Employees Retirement Plan (the “Plan”) filed a class action lawsuit against Georgia-Pacific and the Plan in the United States District Court for the Northern District of Georgia. The lawsuit asserts claims under the Employee Retirement Income Security Act of 1974 and seeks recovery of alleged underpayments of retirement benefits on behalf of the class. After the defendants won summary judgment in the District Court, the United States Court of Appeals for the Eleventh Circuit reversed and remanded the case and divided the original class into two. On remand the District Court in March 2002 issued an Order partially granting the summary judgment motions of both the defendants and one of the plaintiff classes, remanding some issues to the Plan administrator for interpretation, and ordering the parties to file a proposed order implementing the rulings.

As part of the reorganization transactions, we will agree to divide any liability from this litigation on an equitable basis according to the business for which each former employee worked. We have determined that damages will likely be awarded to one of the plaintiff classes, but we cannot determine with certainty the amount we will be required to pay. Although we believe that the damages that are likely to be awarded will not result in a material impact on our obligation to fund our plan or our results of operations, damages above this amount could have a material effect on our net periodic pension cost and future funding obligations.

Crown Vantage Litigation. Various creditors of Crown Vantage, Inc., formerly a wholly-owned subsidiary of Fort James (“CV”), and CV’s subsidiary Crown Paper Co. (“CP”), which both filed for bankruptcy in March 2001, have asserted that transactions in 1995 among Fort James, CP and CV constituted fraudulent conveyances. 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 a fraudulent conveyance or cause CP or CV to become insolvent. In September 2001, CV filed suit against Fort James asserting, among other claims, that the transactions constituted fraudulent conveyances and seeking unspecified damages. We do not believe that any of Fort James’ transactions with CV or CP involved a fraudulent conveyance or caused the bankruptcy of those companies, and Fort James intends to defend itself vigorously.

We are also a defendant in various other legal proceedings arising in the ordinary course of our business. Among these are approximately 900 asbestos premises cases in which employees of contractors or other third parties allege they worked at or visited Fort James facilities and claim injury from exposure to asbestos present at the facility. We do not believe these claims have merit, and intend to defend ourselves vigorously. We further believe that while the ultimate outcome of these legal proceedings could be material to operating results in any given quarter or year, they will not have a material adverse effect on our long-term operating results, liquidity or consolidated financial position.

MANAGEMENT

Directors, Executive Officers and Key Employees

Set forth below is information concerning our directors, executive officers and key employees, and those individuals, denoted with an asterisk, who are expected to become directors upon completion of this offering.

Name	Age	Position
Executive Officers and Directors:
Alston D. Correll	61	Chairman of the Board, Chief Executive Officer and President
Patricia A. Barnard	53	Executive Vice President—Human Resources
James E. Bostic, Jr	54	Executive Vice President—Environmental, Government Affairs and Communications
Michael C. Burandt	57	President—North American Consumer Products
Danny W. Huff	51	Executive Vice President—Finance and Chief Financial Officer and Director
Kenneth F. Khoury	50	Executive Vice President, General Counsel and Secretary
John F. Lundgren	50	President—European Consumer Products
David J. Paterson	47	Executive Vice President—Pulp and Paperboard
George W. Wurtz III	45	President—Paper and Bleached Board
James S. Balloun	64	Director*
Barbara L. Bowles	54	Director*
Richard V. Giordano	68	Director*
Lee M. Thomas	57	Director
John D. Zeglis	55	Director*

Key Employees:
Phillip M. Johnson	62	Vice President and Treasurer
Robert P. Nelson	45	Vice President and Controller
Sheila M. Weidman-Farley	40	Vice President—Corporate Communications and Marketing
Charles F. Williams	50	Vice President—Information Resources and Chief Information Officer

Alston D. Correll became our Chairman, Chief Executive Officer and President effective June 6, 2002. He has served as Chief Executive Officer of Georgia-Pacific since May 1993, President since July 1991 and Chairman since December 1993. Mr. Correll has been a director of Georgia-Pacific since May 1992. Mr. Correll is also a director of Norfolk Southern Corporation, Mirant Corporation and SunTrust Banks, Inc. Mr. Correll is expected to resign from the Georgia-Pacific board upon completion of the distribution.

Patricia A. Barnard became our Executive Vice President—Human Resources effective June 6, 2002. She has held the same position at Georgia-Pacific since January 2001. Prior to that time, she served in a number of management positions with Georgia-Pacific, most recently as Senior Vice President—Human Resources from March 1999 until January 2001, and Vice President—Compensation and Benefits from February 1998 until March 1999. She also served as Group Director—Human Resources, Paper & Chemicals from March 1997 to March 1998, and Group Director—Human Resources, Paper from January 1995 until March 1997.

James E. Bostic, Jr. became our Executive Vice President-Environmental, Government Affairs and Communications effective June 6, 2002. He has held the same position at Georgia-Pacific since January 2001. Prior to that time, he served in a number of management positions with Georgia-Pacific,

most recently as Senior Vice President-Environmental, Government Affairs and Communications from February 1995 until January 2001, and Group Vice President—Paper from April 1992 until January 1995.

Michael C. Burandt became our President—North American Consumer Products effective June 6, 2002. He has held the same position at Georgia-Pacific since November 2000. Prior to that time, he served as Senior Vice President—Packaged Products from May 1998 until November 2000, and Vice President—Packaged Products from December 1994 until May 1998.

Danny W. Huff became our Executive Vice President—Finance and Chief Financial Officer and a director effective June 6, 2002. He has held the same position at Georgia-Pacific since November 1, 1999. Prior to that time, he served in a number of management positions with Georgia-Pacific, most recently as Vice President and Treasurer from February 1996 to November 1999. Mr. Huff is expected to resign from our board upon completion of the offering.

Kenneth F. Khoury became our Executive Vice President and General Counsel effective June 6, 2002. He has served as Vice President, Deputy General Counsel and Secretary of Georgia-Pacific since February 1998. Prior to that time, he served in a number of management positions with Georgia-Pacific, most recently as Vice President and Secretary from February 1996 until February 1998.

John F. Lundgren became our President—European Consumer Products effective June 6, 2002. He has held the same position at Georgia-Pacific since January 2001. From 1995 until January 2001, he served in the same position for Fort James.

David J. Paterson became our Executive Vice President—Pulp and Paperboard effective June 6, 2002. He has held the same position at Georgia-Pacific since August 2001. Prior to that time, he served in a number of management positions at Georgia-Pacific, most recently as President—Paper from January 2001 until August 2001, Senior Vice President—Communication Papers from August 2000 until January 2001, and Vice President—Sales and Marketing Pulp and Bleached Board from May 1994 until August 2000.

George W. Wurtz III became our President—Paper, Bleached Board and Kraft effective June 6, 2002. He has held the same position at Georgia-Pacific since August 2001. Prior to that time, he served as Senior Vice President—Consumer Products Manufacturing Central from November 2000 until August 2001. From 1987 until November 2000, he served in a number of management positions with Fort James, most recently as Senior Vice President—Manufacturing for North America.

James S. Balloun is a director of Georgia-Pacific and, upon completion of the offering, is expected to resign from the Georgia-Pacific board and be named as a director of our company. He has been Chairman, Chief Executive Officer and President of Acuity Brands, Inc., a manufacturer of lighting equipment and chemicals, since November 2001. Mr. Balloun served as Chairman, Chief Executive Officer and President of National Service Industries, Inc., formerly, a diversified manufacturer and distributor of lighting equipment, chemicals, textiles and envelopes, from 1996 until October 2001, when it spun off Acuity Brands in a tax-free distribution to its stockholders. Mr. Balloun served as a director of McKinsey & Company, Inc. from 1976 until 1996. Mr. Balloun is also a director of Acuity Brands, Inc., Radiant Systems, Inc. and Wachovia Corporation.

Barbara L. Bowles is a director of Georgia-Pacific and, upon completion of the offering, is expected to resign from the Georgia-Pacific board and be named as a director of our company. She has been Chairman, Chief Investment Officer and Chief Executive Officer of Kenwood Group, Inc., an investment advisory firm, since 1989. Ms. Bowles served as a director of Fort James from 1997 until the acquisition of Fort James by Georgia-Pacific in November 2000. Ms. Bowles is also a director of The Black & Decker Corporation, Wisconsin Energy Corporation, Dollar General Corporation, The Chicago Urban League and Children’s Memorial Hospital of Chicago.

Richard V. Giordano is a director of Georgia-Pacific and, upon completion of the offering, is expected to resign from the Georgia-Pacific board and be named as a director of our company. He has been Chairman of BG Group plc, a purchaser, distributor and seller of gas and gas-supported services, since January 1994. Mr. Giordano served as Chairman of BOC Group plc, a manufacturer of industrial gases and other products, from January 1994 until January 1996. Mr. Giordano is also a director of Rio Tinto plc.

Lee M. Thomas became a director effective June 6, 2002. He has been President of the Georgia-Pacific building products and distribution businesses since March 2002. Mr. Thomas served as Executive Vice President—Consumer Products of Georgia-Pacific from November 2000 until March 2002. Prior to that time, he served in a number of management positions with Georgia-Pacific, including Executive Vice President—Paper and Chemicals, from December 1997 until November 2000, Executive Vice President—Paper from January 1997 until December 1997, Senior Vice President—Paper, from February 1995 until December 1996 and, Senior Vice President—Environmental, Government Affairs and Communications from February 1994 through January 1995. Mr. Thomas is expected to resign from our board upon completion of the distribution.

John D. Zeglis is a director of Georgia-Pacific and, upon completion of the offering, is expected to resign from the Georgia-Pacific board and be named as a director of our company. He has been Chief Executive Officer and Chairman of AT&T Wireless Services since December 1999, and President since 1997. Mr. Zeglis served as Vice Chairman of AT&T Wireless from June 1997 to November of 1997, General Counsel and Senior Executive Vice President from 1996 to 1997, and Senior Vice President and General Counsel from 1986 to 1996. Mr. Zeglis is also a director of Helmerich and Payne Corporation and Sara Lee Corporation.

Phillip M. Johnson became our Vice President and Treasurer effective June 6, 2002. He has held the same position at Georgia-Pacific since November 1999. Prior to that time, he served as Senior Director, International Development from August 1995 until November 1999. From 1989 until August 1995, he served as Senior Vice President, Corporate Finance for Mitsui Trust Bank.

Robert P. Nelson became our Vice President and Controller effective June 6, 2002. He has served as Vice President Finance—Consumer Products at Georgia-Pacific since January 2001. Prior to that time, he served in a number of management positions at Georgia-Pacific, most recently as Senior Director Planning and Analysis for the Packaged Products Division from July 1999 to December 2000, and Division Controller for Packaged Products from October 1995 to June 1999.

Sheila M. Weidman-Farley became our Vice President—Corporate Communications and Marketing effective June 6, 2002. She has served as Vice President—Corporate Marketing at Georgia-Pacific since February 2001. Prior to that time, she served in a number of management positions at Georgia-Pacific, most recently as Senior Director of Corporate Marketing and Sales Excellence from January 2000 until February 2001, Director and Special Assistant to the Chairman and CEO from January 1998 to January 2000, and Corporate Director, External Communications from 1995 until January 1998.

Charles F. Williams became our Vice President—Information Resources and Chief Information Officer effective June 6, 2002. He has served as Vice President—Information Resources for Georgia-Pacific since May 1997. Prior to that time, he served in a number of management positions with Georgia-Pacific, most recently as Group Director, Information Resources Utility Services from December 1996 until May 1997.

Composition of the Board of Directors

When we complete this offering, our board of directors will consist of six persons. It will be divided into three classes serving staggered three-year terms. Mr. Correll’s and Mr. Giordano’s initial terms will expire in 2003. Mr. Balloun’s and Mr. Thomas’s initial terms will expire in 2004. Ms. Bowles’s and Mr. Zeglis’s initial terms will expire in 2005. Mr. Huff is expected to resign from our board upon the completion of this offering, and Mr. Thomas is expected to resign from our board upon completion of the distribution.

Committees of the Board of Directors

Executive and Governance Committee

If necessary, our Executive and Governance Committee will exercise the power of our full board of directors between meetings, except for certain fundamental transactions and matters of corporate governance. The Executive and Governance Committee will also perform the following functions:

•

review corporate governance issues, including the composition, work, organization and compensation of the board and its committees;

•

conduct an annual evaluation of the board’s activities as a whole; and

•

consider and recommend nominees for election as directors, but will accept and consider recommendations from shareholders subject to certain requirements.

Audit Committee

Our Audit Committee will consist of at least three members who are independent, as defined by The New York Stock Exchange listing standards. Our Audit Committee will perform the following functions:

•

review financial statements and periodic filings with the SEC and discuss them with management;

•

review the scope and results of the audit of our financial statements by our independent accountants, including significant changes in accounting principles and practices, significant proposed adjustments and disagreements with management, if any;

•

review policies and meet with management to assess whether we are in material compliance with applicable laws and regulations;

•

review controls to prevent and detect employee conflicts of interest, misconduct and fraud;

•

review the scope and adequacy of internal controls and the results of certain examinations performed by the internal audit department; and

•

recommend independent accountants and review their services, independence and fees.

Compensation Committee

Our Compensation Committee will consist of independent directors and will be responsible for evaluating the annual performance of our executive officers, determining officer salaries and administering compensation programs, including designing officer and other employee compensation plans, making stock grants and awards to officers and other employees and setting performance targets for officers and other employees.

Compensation Committee Interlocks and Insider Participation

Prior to this offering, we did not have a compensation committee or any other committee serving a similar function. Decisions regarding compensation of those who currently serve as our executive officers were made by Georgia-Pacific. As described in our discussion of the committees of our board of directors, our Compensation Committee will be responsible for evaluating the annual performance of our executive officers, determining officer salaries and administering compensation programs.

Director Compensation

After the closing of this offering, we expect to initially compensate our directors as described below. We will review our compensation arrangements for directors from time to time and may alter these arrangements after the closing of this offering or a future distribution of our shares by Georgia-Pacific.

Directors who are salaried employees will receive no additional compensation for services as a director or as a member of a committee of our board. Following the closing of this offering, all non-employee directors are expected to receive an annual retainer of $40,000, options to purchase our stock worth $40,000 on the date of grant that vest in substantially equal increments over a three year period, restricted shares of our stock worth $40,000 on the date of grant, which restrictions lapse six months after such person’s status as a director terminates or upon death, and group term life insurance in the amount of $50,000. The chairperson of each committee of our board is expected to receive an additional annual fee of $5,000. We will also reimburse all of our directors for out-of-pocket expenses incurred in connection with attendance at board and committee meetings.

Directors will have the option to defer all or part of the cash compensation payable to them so long as they defer at least $10,000 in each calendar year. This deferral also gives a director the opportunity to have deferred amounts treated as though they were invested in several investment options. The deferred compensation, adjusted for hypothetical investment gains or losses, will be paid in a lump sum or in annual payments, commencing on the last business day of the calendar quarter in which the director ceases to be a member of the board.

Executive Compensation

During the fiscal years ended December 29, 2001, December 30, 2000 and January 1, 2000, our executive officers were compensated in accordance with Georgia-Pacific’s plans and policies. The following table sets forth certain information with respect to the annual and long-term compensation for services rendered to Georgia-Pacific for our chief executive officer and our other four most highly compensated executives based on compensation paid in fiscal year 2001 by Georgia-Pacific, who we refer to as our “named executive officers’’. All references in the following tables to stock and stock options relate to awards of stock and stock options granted by Georgia-Pacific. Such amounts do not reflect the compensation such persons will receive following this offering.

Summary Compensation Table

	Annual Compensation				Long-Term Compensation Awards
Name and Principal Position	Year	Salary($)	Bonus ($)(1)	Other Annual Compensation ($)(2)	Securities Underlying G-P Group Options(#)(3)	Securities Underlying Timber Options(#)(3)	All Other Compensation ($)(4)

Alston D. Correll	2001	1,236,000	—	77,060	223,050	—	13,830
Chairman, Chief Executive Officer and President	2000 1999	1,200,000 1,050,000	1,800,000 2,100,000	61,026 611,437	96,700 155,400	129,300 —	3,723 6,723

Danny W. Huff	2001	460,000	—	24,375	57,400	—	418,920
Executive Vice President and Chief Financial Officer	2000 1999	400,000 342,000	382,000 268,000	24,990 4,090	27,600 10,800	36,900 —	3,143 2,349

Michael C. Burandt	2001	380,000	300,000	3,631	32,050	—	14,724
President, North American Consumer Products	2000 1999	320,000 264,700	264,500 209,100	— —	19,300 22,000		11,641 17,192

James E. Bostic	2001	370,000	200,000	7,292	32,050	—	13,635
Executive Vice President, Environmental Government Affairs and Communications	2000 1999	360,000 338,000	250,000 270,000	5,561 3,658	23,300 31,800		12,619 15,998

John F. Lundgren(5)	2001	500,000	537,192	—	26,300	—	1,483,258
President, European Consumer Products

(1)

Reflects bonuses paid under the Economic Value Incentive Plan (“EVIP”). Based on Georgia-Pacific’s financial performance in 2001, Messrs. Correll and Huff were each eligible to receive a cash bonus under EVIP, however, Georgia-Pacific’s Compensation Committee determined that no such bonuses should be paid.

(2)

Other annual compensation consists of annual compensation not properly categorized as salary or bonus. Other annual compensation in 2001 and 2000 for Mr. Correll includes accounting and tax preparation fees of $25,000. Other annual compensation in 1999 for Mr. Correll includes a tax gross-up of $515,644 pursuant to Georgia-Pacific’s 1990 Long Term Incentive Plan.

(3)

In October 2001, Georgia-Pacific completed the spin off of The Timber Company, its timber and timberlands business, and the merger of The Timber Company with and into Plum Creek Timber Company. In connection with the merger, outstanding options to purchase shares of Timber Company common stock became fully vested and were converted into options to purchase shares

of Plum Creek common stock. Both the number of shares subject to such outstanding options and the exercise prices of such outstanding options were adjusted in the conversion based on the exchange ratio of 1.37 shares of Plum Creek common stock for each share of Timber Company common stock.

(4)

Includes the value of stock option grants for 41,850 shares made by the Compensation Committee in 2002 to Mr. Huff in lieu of cash bonus awards under EVIP. The $409,000 value of these stock options was based on the Black-Scholes method of valuation. Also includes Georgia-Pacific contributions in 2001 to Georgia-Pacific’s Salaried 401(k) Plan and premiums for term life insurance as follows: Mr. Correll—$0 for the 401(k) plan and $13,830 for term life insurance; Mr. Huff—$5,100 for the 401(k) plan and $4,820 for term life insurance; Mr. Burandt—$5,950 for the 401(k) plan and $8,774 for term life insurance; Mr. Bostic—$7,800 for the 401(k) plan and $5,835 for term life insurance; and Mr. Lundgren—$0 for the 401(k) plan and $1,720 for term life insurance. Also includes a signing bonus of $1,481,538 paid to Mr. Lundgren in 2001 in connection with his employment agreement.

(5)

During 1999 and 2000, and prior to Georgia-Pacific’s acquisition of Fort James Corporation, Mr. Lundgren was compensated as an executive officer of Fort James. He became an executive officer of Georgia-Pacific effective January 1, 2001.

Option Grants in Last Fiscal Year(1)

The following table sets forth information concerning Georgia-Pacific stock options that were granted to the named executive officers during the fiscal year ended December 31, 2001.

Name	Number of Securities Underlying Options Granted (#)(2)	Percent of Total Options Granted to Employees in Fiscal Year(%)(3)	Exercise or Base Price ($/Share)	Expiration Date	Grant Date Present Value ($)(4)
Alston D. Correll	223,050	11.49	29.47	01/29/11	2,894,481
Danny W. Huff	57,400	2.83	29.47	01/29/11	712,908
Michael C. Burandt	32,050	1.58	29.47	01/29/11	398,061
James E. Bostic	32,050	1.58	29.47	01/29/11	398,061
John F. Lundgren	26,300	1.30	29.47	01/29/11	326,646

(1)

All stock option grants during fiscal year 2001 were stock options to acquire shares of Georgia-Pacific common stock.

(2)

These stock option grants were made on January 29, 2001 and vest annually over three years at rates of 34%, 33% and 33% on the anniversary date of the grant. In the event of a change of control, these options become fully vested and are immediately exercisable for the remainder of their term.

(3)

Georgia-Pacific granted a total of 2,027,800 stock options in 2001.

(4)

Present value was established by using the Black-Scholes valuation model and is for illustrative purposes only. The actual value, if any, depends on the market value of the underlying stock at a future date. Significant assumptions used for this calculation are shown below:

Expected Volatility		Risk Free Rate of Return			Dividend Yield			Term		Discount for Forfeiture Risk Before Vesting			Discount for Forfeiture Risk After Vesting and Prior to Option Expiration Date
47.04%		5.16	%		1.70	%		10 years		7.75	%		11.73	%

Aggregated Option Exercises in Last Fiscal Year

and Fiscal Year-End Option Values

The following table sets forth information concerning the exercise of Georgia-Pacific and Timber Company stock options during the fiscal year ended December 31, 2001 by the named executive officers and the aggregate value of unexercised Georgia-Pacific stock options held by the named executive officers as of December 31, 2001.

Name	Shares Acquired On Exercise (#)(1)	Value Realized ($)(1)	Number of Securities Underlying Unexercised Options at Fiscal Year-End		Value of Unexercised In-the-Money Options at Fiscal Year-End ($)(2)
Name	Shares Acquired On Exercise (#)(1)	Value Realized ($)(1)	Exercisable	Unexercisable	Exercisable	Unexercisable
Alston D. Correll	—	—	1,086,796	338,154	722,138	—
Danny W. Huff	—	—	45,820	79,180	18,564	—
Michael C. Burandt	—	—	48,782	52,048	18,564	—
James E. Bostic	48,300	732,634	136,028	57,922	73,962	—
John F. Lundgren	—	—	236,337	26,300	351,849	—

(1)

In connection with the merger of The Timber Company and Plum Creek Timber Company, outstanding options to purchase shares of Timber Company common stock were converted into options to purchase shares of Plum Creek common stock. Accordingly, at fiscal year-end, there were no longer any outstanding options to acquire shares of Timber Company common stock. See Note 3 to the Summary Compensation Table. This table does not reflect any exercises of options to acquire shares of Plum Creek common stock that may have occurred following the merger.

(2)

Represents the amount by which the closing price on December 31, 2001 ($27.61) exceeded the exercise prices of unexercised options.

Long-Term Incentive Plans—Awards in Last Fiscal Year

The following table sets forth information concerning Georgia-Pacific performance-based restricted share awards during the fiscal year ended December 31, 2001 to the named executive officers.

Name	Number of G-P Shares (1)	Performance or Other Period Until Maturation or Payout (2)	Estimated Future Payouts Under Non-Stock Price-Based Plans (#)(3)
Name	Number of G-P Shares (1)		Threshold	Target	Maximum
Alston D. Correll	112,700	12/31/03	56,350	112,700	225,400
Danny W. Huff	29,000	12/31/03	19,275	29,000	58,000
Michael C. Burandt	16,200	12/31/03	8,100	16,200	32,400
James E. Bostic	16,200	12/31/03	8,100	16,200	32,400
John F. Lundgren	13,300	12/31/03	6,650	13,300	26,600

(1)

Performance-based share award grants pursuant to the Georgia-Pacific LTIP in January 2001.

(2)

The period for each grant began on January 1, 2001 and ends on the date indicated in the above chart.

(3)

If the performance goals are met, awards are made in stock at the end of the performance period. The actual amount of any award of stock is determined by Georgia-Pacific’s percentile total shareholder return as compared to selected companies in the Standard & Poor’s Paper and Forest Products Index (except Georgia-Pacific) and the Standard and Poor’s Household Products (nondurables) Index. For the above grant, those percentile performance targets are:

•	Threshold	30th percentile
•	Target	54th percentile
•	Maximum	100th percentile

Pension Plans

Retirement Agreements

We will have separate but substantially similar retirement agreements with each executive officer. Post-retirement payments will be made as follows at the executive officer’s election:

Alternative 1

•

annually for life, 50% of the greater of the average of the last four years’ salary and bonus or the highest compensation paid in four consecutive calendar years during the last 10 calendar years of employment; and

•

annually for surviving spouse’s life, 50% of amount payable to officer.

Alternative 2

•

an amount equal to the actuarial equivalent of Alternative 1 made in equal monthly payments:

•

for officer’s and surviving spouse’s life; or

•

for 120 months.

Benefits under either alternative are generally payable as follows:

Retirement Age	Minimum Years of Service	Payments Begin at	Proportionately Reduced for Retirement Below
55 to 64	15	retirement	age 62
any age to 64	3-14	age 62	*
65+	—	retirement	—

Benefits reduced proportionally for service under 15 years

Retirement agreement benefits are subject to offset for amounts contributed by us under our pension plan and, to the extent accrued before December 31, 2001, the 401(k) plan by deducting the actuarial equivalent of such benefits from the amounts payable under the retirement agreement. Death and disability benefits are also provided under the retirement agreement. Benefits under the retirement agreement terminate if an officer competes with or solicits customers or employees, or discloses our trade secrets or confidential information.

The following table shows the maximum estimated annual benefit payable upon retirement under the retirement agreements before reduction for offsets under our salaried pension plan and our salaried 401(k) plan:

Estimated Annual Retirement Benefits Based on Final Average Compensation(1)

Final Average Compensation		Years of Service
Final Average Compensation		5		10		15		20		25
$	400,000	$	66,667	$	133,333	$	200,000	$	200,000	$	200,000
	600,000		100,000		200,000		300,000		300,000		300,000
	800,000		133,333		266,666		400,000		400,000		400,000
	1,000,000		166,666		333,333		500,000		500,000		500,000
	1,500,000		250,000		500,000		750,000		750,000		750,000
	2,000,000		333,333		666,666		1,000,000		1,000,000		1,000,000
	2,500,000		416,666		833,333		1,250,000		1,250,000		1,250,000

(1)

“Compensation” for these purposes means only base salary (including salary deferred as before-tax contributions to the 401(k) plan) and annual incentive bonuses, if any, and excludes any other cash or non-cash compensation items. Data in the table represents the formula benefit at the normal retirement age of 65 under the retirement plan, based on average annual compensation during the period 1998–2001, including employment periods with Georgia-Pacific.

At January 1, 2002, the number of creditable years of service and final average compensation for the named executive officers was:

Name	Years of Service	Final Average Compensation
Mr. Correll	13	$	2,208,900
Mr. Huff	22		601,409
Mr. Burandt	13		515,730
Mr. Bostic	24		563,500
Mr. Lundgren	1		756,746

The following table shows the maximum estimated annual benefits under the retirement agreements for the named executive officers (a) assuming retirement as of January 1, 2002, and (b) assuming retirement at age 65, using projected years of credited service at age 65 and final average compensation as of December 31, 2001, without reduction for offsets provided for in such agreement. Because such maximum benefits exceed the total of such offsetting payments, the amounts disclosed in the table below represent the estimated maximum aggregate benefit payable to the named executive officers under all pension and other defined benefit or actuarial plans.

Estimated Annual Retirement Benefits of Named Executive Officers Based on

50% of Final Average Compensation(1)

	Retirement on January 1, 2002			Retirement at Age 65
	Annual Benefits		Years of Service	Annual Benefit (2)
Mr. Correll	$	957,190	13	$	1,104,450
Mr. Huff		300,705	22		300,705
Mr. Burandt		223,483	13		257,865
Mr. Bostic		281,750	24		281,750
Mr. Lundgren		25,225	1		378,373

(1)

(2)

Represents the formula benefit at the normal retirement age of 65 under the retirement agreement, based on average annual compensation during the period 1998-2001, including employment periods with Georgia-Pacific.

Treatment of Georgia-Pacific Stock Options and Restricted Stock

Treatment of Georgia-Pacific Stock Options

We intend to assume any Georgia-Pacific stock options held by our employees and directors on the date of the distribution of our common stock by Georgia-Pacific and will convert them into equivalent options to purchase shares of our common stock. The conversion ratio will be determined at the time of the distribution and will be based on the relative trading prices of our common stock and Georgia-Pacific common stock. The conversion ratio will adjust the number of shares purchasable under each converted stock option and the exercise price per share. The other terms of the converted stock options will generally remain the same as those in effect immediately prior to the distribution. As of , 2002, our employees held options to purchase shares of Georgia-Pacific common stock.

Treatment of Restricted Stock and Performance Shares

We intend that each of our employees and directors who holds restricted stock of Georgia-Pacific on the date of the distribution will receive for each such Georgia-Pacific share a distribution of a share of our common stock that contains an identical restriction. Upon such distribution, the restrictions on the shares of Georgia-Pacific common stock held by such employees and directors will lapse.

We also intend that, with respect to any performance period that has not been completed at the time of the distribution, each of our employees with then-outstanding performance shares will receive restricted shares of our common stock equal to the value of the target grant of performance shares at the date of distribution. These restricted shares will be subject to a two-year vesting period.

Employment Contract and Change of Control Arrangements

Employment Contract

After the acquisition of Fort James Corporation, Georgia-Pacific entered into an employment agreement with former Fort James executive officer Mr. Lundgren. Mr. Lundgren’s agreement provides for an initial base salary of $500,000 and an annual bonus through 2003 of $537,192, with subsequent bonuses paid according to the bonus program in effect for similarly situated officers. Mr. Lundgren also received stock options and performance shares under the Georgia-Pacific Group Long-Term Incentive Plan (LTIP) and retirement, health and other benefits consistent with similarly situated salaried employees. In addition, Mr. Lundgren received a signing bonus of approximately $1.5 million in 2001 and a retention bonus of approximately $1.5 million in January 2002. The agreement also contains certain nonexclusivity and noncompetition provisions and provides for Mr. Lundgren’s participation in Georgia-Pacific’s tax equalization policy.

Change of Control Agreements

We will have change of control agreements with each of our executive officers which are summarized as follows:

if an officer’s employment is terminated during the three year period following a change of control:

•

involuntarily for other than cause, death or disability;

•

voluntarily following an adverse change in such officer’s position, authority, duties or responsibilities; or

•

voluntarily following specified changes in the place of such officer’s employment;

then the officer will receive a lump sum payment equal to:

•

a multiple (not to exceed three) of the sum of the annual salary and the greater of the target bonus under the EVIP for the year in which the change of control occurs or the highest bonus paid for the last three full calendar years;

•

any federal excise and related income tax payments payable by the officer as a result of the agreement; and

•

employer contributions, and interest thereon, that would have been made under any qualified or non-qualified pension and 401(k) plans (other than the retirement agreements).

The officer also will receive medical and welfare benefits for a maximum of three years and up to three years of age and service credit under his or her retirement agreement.

Also, the terms of most restricted stock and stock option grants to officers provide for immediate vesting of such grants in the event of a change of control. In such an event, we will transfer the funds required to be paid under these agreements and under each retirement agreement to a trustee.

Change of control is defined as:

•

the acquisition of beneficial ownership of 20% or more of the combined voting power of our outstanding voting securities except for:

•

an acquisition by an individual, entity or group who beneficially owned 20% or more of our voting securities on the date of the agreement;

•

an acquisition directly from us or by us, including a public offering; or

•

an acquisition by an employee benefit plan sponsored or maintained by us;

•

the alteration of membership on our board of directors such that the incumbent board as of the date of the agreement ceases to constitute at least a majority of our board, provided that any subsequently elected director is considered a member of the incumbent board if nominated or elected by a majority of the incumbent directors and that any individual is not considered a member of the incumbent board if he or she assumes a director position in connection with a proxy or election contest by or on behalf of a person other than the board;

•

a reorganization, merger or other business combination involving the sale or transfer of all or substantially all of our assets, unless:

•

the beneficial owners immediately before the business combination retain 50% voting control of the successor entity;

•

no individual or entity becomes the beneficial owner of 20% or more of our outstanding voting securities (unless ownership existed prior to the business combination); and

•

at least a majority of the directors of the successor entity were members of the incumbent board before the business combination; or

•

shareholder approval of a complete liquidation or dissolution of our company.

A change of control specifically excludes the transfer of substantially all of our assets to an affiliated company (defined as a company controlled by, controlling, or under common control with us), an initial public offering of common stock of an affiliated company or the distribution or dividend of the affiliated company’s common stock to our shareholders.

2002 Incentive Compensation Plan

Our 2002 Incentive Compensation Plan provides nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and cash-based awards to our employees and employees of our subsidiaries.

A total of shares of our common stock are reserved for issuance to participants under the plan.

Administration

Our board of directors will administer the incentive compensation plan, or the board will appoint a committee to administer the plan. The board will have full power to determine eligibility for awards and to adopt such rules, regulations and guidelines for administering the plan, as the board may deem necessary. This authority will include selecting award recipients, establishing all award terms and conditions and adopting modifications and amendments to the plan or any award agreement.

Stock Options

The board may grant both incentive stock options and nonqualified stock options to purchase shares of common stock. Incentive stock options may not be granted following the ten-year anniversary of the adoption of the plan. The option price shall be determined by the board, provided that for options issued to participants in the United States, the option price shall not be less than 100% of the fair market value of the shares on the date the option is granted, and no option shall be exercisable later than the 10th anniversary date of its grant. For options granted to participants outside the United States, the board has the authority to grant options at a price that is less than the fair market value of the stock on the date of grant and with a term greater than 10 years. The maximum number of options that may be granted in any fiscal year to participants is .

Stock Appreciation Rights

Our incentive compensation plan also permits the board to grant freestanding or tandem stock appreciation rights. The grant price of a freestanding stock appreciation right shall be no less than the fair market value of a share on the date of grant of the stock appreciation right. The grant price of a tandem stock appreciation right shall be equal to the stock option price of the related stock option. No stock appreciation right shall be exercisable later than the 10th anniversary of its grant. For stock appreciation rights granted to participants outside the United States, the board has the authority to grant stock appreciation rights with an exercise price that is less than the fair market value of the stock on the date of grant and with a term that is more than ten years. Upon the exercise of a stock appreciation right, a participant shall be entitled to receive payment in an amount determined by multiplying: (a) the difference between the fair market value of a share on the date of exercise over the grant price by (b) the number of shares with respect to which the stock appreciation right is exercised. The maximum number of stock appreciation rights that may be granted in any fiscal year to participants is .

Restricted Stock and Restricted Stock Units

The incentive compensation plan further provides for the granting of restricted stock awards, which are awards of restricted common stock and restricted stock units. The board determines the period(s) of restriction, the number of shares of restricted stock and units granted and other such provisions. The maximum aggregate number of shares of restricted stock or restricted stock units that may be granted in any fiscal year to any participant is .

Performance Shares and Performance Units

Performance share awards and performance unit awards may be granted under the plan. Such awards will be earned only if performance goals established for performance periods are achieved. The performance goal may vary from participant to participant, group to group and period to period. Each performance unit shall have an initial value that is established by the board at the time of grant. Each performance share shall have an initial value equal to the fair market value of a share of common stock on the date of grant. The maximum aggregate number of performance shares and performance units that may be granted in any fiscal year to any participant is an amount equal to the value of shares.

Cash-Based Awards

Subject to the terms of the plan, cash-based awards also may be granted to participants in such amounts and upon such terms as determined by the board. Each cash-based award shall have a value determined by the board, and the board may set performance goals that will determine the number and/or value of cash-based awards that will be paid out to the participant. The board may pay earned cash-based awards in the form of cash, in shares of common stock or in a combination thereof. The maximum aggregate amount awarded or credited with respect to cash-based awards to any participant in any fiscal year may not exceed the value of shares.

Annual Incentive Awards

The board may designate certain members of our executive management who are eligible to receive a monetary payment in any fiscal year based on a percentage of an incentive pool equal to the greater of 5% of our consolidated operating earnings or cash flow for that fiscal year. The board may allocate an incentive pool percentage to each designated participant for each fiscal year. The incentive pool percentage for any one participant may not exceed 30%.

Transferability

Unless otherwise determined by the board, awards granted under the incentive compensation plan are not transferable other than by will or by the laws of descent and distribution.

Change of Control

The incentive compensation plan provides that, except as set forth in an individual award agreement, upon the occurrence of a change of control: (a) all options and stock appreciation rights would become immediately exercisable and, if a participant’s employment is terminated for any reason other than cause, remain exercisable for one year after termination of employment; (b) restrictions imposed on restricted stock or restricted stock units would lapse; (c) annual incentive awards would be paid out based on the higher of current year target awards or actual awards for the fiscal year immediately preceding the year of termination of employment or such other method of payment as may be determined by the board at the time of the award or thereafter but prior to the change of control; and (d) the maximum payout opportunities attainable under all outstanding performance-based restricted stock, restricted stock units, performance shares, performance units and cash-based awards shall be deemed to have been fully earned as of the effective date of the change of control.

Amendment and Termination

The board may alter, amend or terminate the incentive compensation plan in any respect at any time, but no alteration, amendment or termination will adversely affect in any material way any award previously granted under the plan, without the written consent of the participant holding such award. Options may not be repriced, replaced or regranted through cancellation, or by lowering the exercise price of a previously granted option.

Certain Tax Consequences

When a nonqualified stock option is granted, there are no income tax consequences for us. When a nonqualified stock option is exercised, the option holder will recognize ordinary income in an amount equal to the excess of fair market value on the date of exercise of the shares acquired over the aggregate exercise price, and we are entitled to a deduction equal to the amount of ordinary income recognized by the option holder.

When an incentive stock option is granted, there are no income tax consequences for us. When an incentive stock option is exercised, the option holder does not recognize income, and we do not receive a deduction. In the event of a “disqualifying disposition” by the option holder, we are entitled to a deduction equal to the compensation recognized by the option holder. When a stock appreciation right is granted, there are no income tax consequences for us. When a stock appreciation right is exercised, we are entitled to a deduction equal to the compensation recognized by the participant. When restricted stock is granted, there may be income tax consequences for us. We are entitled to a deduction equal to the compensation recognized by the participant. Generally, the participant recognizes the compensation at the time any restrictions on the restricted stock lapse and the stock becomes fully vested.

STOCK OWNERSHIP OF PRINCIPAL SHAREHOLDER AND MANAGEMENT

Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Except as indicated by footnote, and subject to applicable community property laws, the persons named in the tables below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. The number of shares of common stock outstanding used in calculating the percentage for each listed person includes the shares of common stock underlying options held by that person that are exercisable within 60 days of June 1, 2002, but excludes shares of common stock underlying options held by any other person.

Principal Shareholder

The following table sets forth information with respect to beneficial ownership of common stock by Georgia-Pacific immediately prior to this offering and as adjusted to reflect the sale of the shares of our common stock in this offering. Georgia-Pacific is the only person or entity that owns beneficially more than 5% of the outstanding shares of our common stock. The address of Georgia-Pacific is 133 Peachtree Street, N.E., Atlanta, Georgia 30303.

	Number of Shares Beneficially Owned		Percentage of Shares Beneficially Owned
Name of Beneficial Owner	Before Offering	After Offering	Before Offering		After Offering
Georgia-Pacific			100	%	%	(1)

(1)

Assuming the underwriters exercise in full their option to acquire additional shares, as described in “Underwriting”. If they do not exercise their option to acquire additional shares, Georgia-Pacific will own approximately % of our outstanding shares of common stock after this offering.

Management

All of our common stock is currently owned by Georgia-Pacific, and thus none of our officers or directors own any of our common stock. To the extent our officers and directors own shares of Georgia-Pacific common stock at the time Georgia-Pacific effects the distribution of our common stock, our officers and directors will participate in the distribution on the same terms as other holders of Georgia-Pacific common stock.

The following table sets forth the number of shares of Georgia-Pacific common stock beneficially owned on June 1, 2002 by each of our directors and individuals who will become directors upon completion of this offering, each named executive officer and all of our directors and executive officers as a group. Except as otherwise noted, the individual director or executive officer or their family members had sole voting and investment power with respect to such securities and the address of such beneficial owner is c/o CP&P, Inc., 133 Peachtree Street, N.E., Atlanta, Georgia 30303. The total number of shares of Georgia-Pacific common stock outstanding as of June 1, 2002 was 230,322,453.

Name of Beneficial Owner	Number of Georgia-Pacific Shares Owned	Number of Georgia-Pacific Options(1)		Percentage of Shares of Georgia-Pacific Beneficially Owned(1)
Executive Officers and Directors:
Alston D. Correll	240,744	1,245,826		*
Patricia A. Barnard	2,202	39,669		*
James E. Bostic, Jr.	40,575	165,108		*
Michael C. Burandt	4,128	73,308		*
Danny W. Huff	6,485	78,008		*
Kenneth F. Khoury	2,208	45,913		*
John F. Lundgren	25,553	245,279		*
David J. Paterson	21,941	37,787		*
George W. Wurtz III	570	39,451		*
James S. Balloun	8,547	—		*
Barbara L. Bowles	3,769	8,393	(2)	*
Richard V. Giordano	17,835	—		*
Lee M. Thomas	19,828	285,366		*
John D. Zeglis	3,682	—		*
All executive officers and directors as a group (14 persons)	398,067	2,264,108		1.16	%

Denotes less than 1% of outstanding common stock.

(1)

Shares which the person has the right to acquire ownership under options exercisable within 60 days of June 1, 2002.

(2)

Shares that Ms. Bowles has the right to acquire beneficial ownership of through the exercise of stock options granted under the Fort James Corporation Stock Option Plan for Outside Directors, which were converted into options to acquire Georgia-Pacific common stock upon the completion of the Fort James acquisition.

RELATIONSHIP BETWEEN US AND GEORGIA-PACIFIC

•

Georgia-Pacific will contribute the assets and liabilities relating to its consumer products, packaging, and paper and pulp businesses to us;

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Georgia-Pacific will sell up to $1 billion of senior subordinated notes and borrow approximately $ million under a new secured senior credit facility;

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Unisource, a subsidiary of Georgia-Pacific, will borrow approximately $ million under a new secured senior credit facility;

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We will assume approximately $2.6 billion of Georgia-Pacific’s indebtedness, including obligations relating to up to approximately $869 million of industrial revenue bonds;

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We will borrow approximately $ million under a new unsecured senior credit facility;

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We will sell common stock that will represent approximately % of our shares in this public offering that we expect to raise approximately $1 billion;

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We will use the proceeds from the borrowings under our new credit facility and the sale of our common stock to retire a portion of the debt we assume from Georgia-Pacific; and

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Approximately six months after completion of the public offering of our common stock, Georgia-Pacific will distribute the remaining shares of common stock it holds in our company to Georgia-Pacific’s shareholders.

Distribution by Georgia-Pacific of Our Common Stock

private letter ruling from the Internal Revenue Service that certain reorganization transactions and the distribution will be tax-free to Georgia-Pacific and its shareholders for U.S. federal income tax purposes. Georgia-Pacific’s board of directors may elect to consummate the distribution without a ruling from the Internal Revenue Service, in which case Georgia-Pacific may choose to obtain an opinion of tax counsel, which would not be binding on the IRS or any court. Any of the conditions to the distribution may be waived by the Georgia-Pacific board. If Georgia-Pacific makes this distribution, we will become an independent, publicly-owned company and will no longer be a subsidiary of Georgia-Pacific. Georgia-Pacific may use a method other than the contemplated distribution to convert us into an independent, publicly-owned company, and Georgia-Pacific may decide to retain its ownership of us indefinitely.

After completion of all of the reorganization transactions, Georgia-Pacific will continue to own all of the assets related to its building products manufacturing and distribution businesses and Unisource, its paper and industrial supplies distribution business, together with the liabilities relating to those businesses. These liabilities will include liabilities related to pending and future litigation involving personal injury and property damage as a result of alleged exposure to an asbestos-containing product previously manufactured by Georgia-Pacific’s gypsum division, which is part of its building products manufacturing business. See “Risk Factors—Risks Related to Our Separation from Georgia-Pacific—We may be exposed to Georgia-Pacific’s asbestos-related or other liabilities even after the distribution”.

Benefits of the Separation

We believe that we will realize substantial benefits from the reorganization transactions, including this offering and our separation from Georgia-Pacific. These benefits include:

Greater Strategic Focus. Our businesses are distinct from those of Georgia-Pacific in their financial and operating characteristics, capital needs, business cycles, growth potential and competitive conditions. Our separation from Georgia-Pacific will allow us independently to pursue our strategies to deliver value to our shareholders. This effort will be supported by our own board of directors, management team and employees.

Improved Financial Performance and Returns. The greater predictability of financial performance and higher returns that are characteristic of our businesses will be more clearly evident to investors after we are separated from Georgia-Pacific.

As long as Georgia-Pacific owns a majority of our outstanding common stock, it will be able to elect our entire board of directors and to remove any director, with or without cause, without calling a special meeting. If you purchase shares of our common stock in this offering, you will not be able to affect the outcome of any shareholder vote prior to the planned distribution of our common stock. As a result, Georgia-Pacific will effectively control:

•

any board decisions regarding our business direction and policies, including the appointment, compensation and removal of officers;

•

amendments to our articles of incorporation and bylaws;

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the allocation of business opportunities that may be suitable for both us and Georgia-Pacific;

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any decisions regarding mergers or other business combinations, including transactions involving a change of control;

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our acquisition or disposition of assets;

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further issuances of our common stock or other securities;

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our capital structure;

•

changes to the agreements providing for our separation from Georgia-Pacific;

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dividend payments on our common stock; and

•

determinations regarding our tax returns.

Certain Transactions with Georgia-Pacific

We purchase wood fiber from Georgia-Pacific and sell packaging and tissue products to Georgia-Pacific. Purchases from Georgia-Pacific were $875 million, $863 million and $887 million in 2001, 2000 and 1999, respectively. Sales to Georgia-Pacific were $659 million, $719 million and $284 million in 2001, 2000 and 1999, respectively.

For additional information about our relationship with Georgia-Pacific, see Note 16 to our audited combined financial statements included elsewhere in this prospectus.

ARRANGEMENTS BETWEEN US AND GEORGIA-PACIFIC

We have provided below a summary description of the separation and distribution agreement and the other related agreements. This description, which summarizes the material terms of these agreements, is not complete. You should read the full text of these agreements, which will be filed with the SEC as exhibits to the registration statement of which this prospectus is a part. Although we believe that these agreements have terms that are consistent with arm’s-length arrangements, we will enter into these agreements with Georgia-Pacific prior to the completion of this offering in the context of our relationship as a wholly owned subsidiary of Georgia-Pacific during our separation from Georgia-Pacific. The prices and other terms of these agreements may be less favorable to us than if they had been negotiated with unaffiliated third parties.

Separation and Distribution Agreement

The separation and distribution agreement contains the key provisions relating to the separation of our business from Georgia-Pacific, this offering and Georgia-Pacific’s planned distribution of our common stock. The separation and distribution agreement identifies the assets to be transferred to us by Georgia-Pacific and the liabilities to be assumed by us from Georgia-Pacific. The separation and distribution agreement also describes when and how these transfers and assumptions will occur. In addition, we will enter into ancillary agreements with Georgia-Pacific governing various interim and ongoing relationships between us and Georgia-Pacific. These ancillary agreements include:

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a tax sharing agreement;

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an employee matters agreement;

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an information technology support services agreement;

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a railroad services agreement;

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shared services agreements;

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a transition services agreement;

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a reimbursement and guarantee agreement; and

•

a wood procurement joint venture agreement.

To the extent that the terms of any of these ancillary agreements conflict with the separation and distribution agreement, the terms of these ancillary agreements will govern. We describe these agreements more fully below. The separation and distribution agreement also provides that for a period of one year following this offering, we and Georgia-Pacific will negotiate in good faith to provide for any services needed to ensure an orderly transition of the businesses in connection with the reorganization transactions that are not otherwise governed by the separation and distribution agreement or the ancillary agreements.

Transfer of Assets

Pursuant to the separation and distribution agreement, Georgia-Pacific will transfer to us all assets that primarily relate to our business, as well as certain other specified assets. Without limiting the foregoing, Georgia-Pacific will transfer the following assets to us:

•

the assets reflected on our combined balance sheet included in this prospectus;

•

the owned and leased real property, together with all buildings, structures and other improvements, primarily related to our business;

•

the intellectual property rights primarily related to our business;

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the software programs, computers, furniture, machinery, equipment, tools and other assets primarily related to our business;

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the capital stock of the subsidiaries, partnerships, joint ventures and other equity interests primarily related to our business;

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the government approvals, to the extent such approvals are transferable without consent, necessary to carry on our business;

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the contracts, licenses and other agreements that are primarily related to our business; and

•

other specific assets agreed upon by us and Georgia-Pacific.

Assumption of Liabilities

Pursuant to the separation and distribution agreement, we will assume from Georgia-Pacific all liabilities that primarily relate to our on-going business or any asset that is transferred to us in the separation, as well as certain other specified liabilities, in each case, whether arising before, on or after the closing date of this offering and whether known or unknown as of the closing date of this offering. Without limiting the foregoing, we will assume the following liabilities from Georgia-Pacific:

•

liabilities reflected on our combined balance sheet included in this prospectus;

•

liabilities for environmental matters primarily related to our on-going business or any of the real property transferred to us, as well as certain other environmental matters;

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liabilities arising under contracts, licenses and other agreements that are primarily related to our business;

•

liabilities for certain director and officer severance obligations;

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liabilities for certain debt and financing arrangements;

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liabilities for lawsuits and other disputes that are primarily related to our business or any assets that are transferred to us;

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a percentage of certain liabilities related to pending litigation that will be shared between us and Georgia-Pacific based on pre-determined arrangements;

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all liabilities assumed by us under an express provision of the separation and distribution agreement or any ancillary agreement; and

•

other specific liabilities agreed upon by us and Georgia-Pacific.

The liabilities that we will assume from Georgia-Pacific include its obligations under the 16 series of outstanding publicly held debt securities that have an aggregate principal amount of approximately $5.65 billion. For each outstanding publicly held debt security that is not validly tendered and accepted by us in the exchange offers, however, Georgia-Pacific will have the right to substitute its obligations under other indebtedness having an equal principal amount. If Georgia-Pacific exercises this substitution right, any outstanding publicly held debt securities that are not validly tendered and accepted by us in the exchange offers would remain obligations of Georgia Pacific, and we would instead assume Georgia-Pacific’s obligations under an equivalent principal amount of other Georgia-Pacific debt.

Governmental Approvals and Consents

To the extent the transactions contemplated by the separation and distribution agreement require any governmental approval or consents, Georgia-Pacific and we will use commercially reasonable efforts to obtain any such governmental approvals and consents.

Further Assurances

The separation and distribution agreement provides that Georgia-Pacific and we will cooperate to effect, as promptly as practicable, any transfers of assets and liabilities that are not completed prior to this offering. Until these transfers can be completed, the party retaining the assets or liabilities to be transferred will act as a custodian on behalf of the other party with respect to those assets or liabilities. In an effort to place each party, insofar as reasonably possible, in the same position as that party would have been had the transfers occurred at the time contemplated by the separation and distribution agreement, the agreement provides that the benefits derived or expenses incurred from those assets or liabilities will be passed on to the party that would have received the assets or liabilities if the transfers had occurred as contemplated.

No Representations and Warranties

In connection with the separation, neither Georgia-Pacific nor its subsidiaries will make any representations or warranties to us as to the assets transferred to us, our business or the liabilities assumed by us. We will take all assets “as is, where is” and will bear the economic and legal risk relating to conveyance of, and title to, the assets.

Conditions to this Offering

The separation and distribution agreement provides that the completion of this offering is subject to several conditions that must be satisfied, or waived by Georgia-Pacific, including the following:

•

we have entered into the underwriting agreement regarding this offering, and the conditions to this offering listed in the underwriting agreement are satisfied or waived;

•

after completion of this offering, Georgia-Pacific will own at least 80.1% of the voting power of our stock;

•

all conditions necessary to permit the distribution to qualify as a tax-free distribution, to the extent applicable as of the time of the offering, are satisfied;

•

all material third party consents have been obtained, and no governmental order or other legal restraint preventing completion of the separation, this offering or the distribution is in effect;

•

the separation and distribution agreement has not been terminated; and

•

the board of directors of Georgia-Pacific, in its sole discretion, has determined that the terms of the offering are acceptable to it.

Conditions to the Distribution

Georgia-Pacific currently intends to effect the distribution within approximately six months after this offering. The board of directors of Georgia-Pacific will, in its sole discretion, determine the terms of the distribution, including without limitation, the form, structure and all other terms of any transaction necessary to effect the distribution. In addition, the separation and distribution agreement provides that the distribution will be subject to several conditions that must be satisfied, or waived by Georgia-Pacific, including the following:

•

Georgia-Pacific has received a favorable private letter ruling from the IRS, or an opinion of tax counsel, which would not be binding on the IRS or any court, as to the tax-free nature of the distribution for U.S. federal income tax purposes;

•

all material third party consents have been obtained, and no governmental order or other legal restraint preventing completion of the distribution is in effect; and

•

the separation and distribution agreement has not been terminated.

Indemnification

In general, under the separation and distribution agreement, we will indemnify Georgia-Pacific and its affiliates from all liabilities that we assume under the separation and distribution agreement and any losses suffered by Georgia-Pacific or its affiliates arising out of (a) our failure to pay or perform these liabilities in due course, (b) our business, or (c) our breach of the separation and distribution agreement or any ancillary agreement.

In general, Georgia-Pacific will indemnify us and our affiliates from all liabilities that Georgia-Pacific retains under the separation and distribution agreement and any losses suffered by us or our affiliates arising out of (a) Georgia-Pacific’s failure to pay or perform those liabilities that it retains, (b) the business of Georgia-Pacific, or (c) its breach of the separation and distribution agreement or any ancillary agreement.

The indemnity provisions of the separation and distribution agreement do not apply to taxes or employment-related liabilities, which are covered by the tax sharing agreement and the employee matters agreement discussed below. In addition, with respect to liabilities arising out of certain specified litigation, Georgia-Pacific and we will share the responsibility for any losses suffered in accordance with agreed upon allocations of the total losses. In connection with such matters, the party with the greater percentage of responsibility will be entitled to assume and control the defense of any third party proceedings.

As discussed more fully in Annex A, Georgia-Pacific has agreed to retain liabilities related to pending and future litigation involving personal injury and property damage as a result of alleged exposure to an asbestos-containing product previously manufactured by Georgia-Pacific’s gypsum division. None of the products which allegedly caused such injury or damage were ever manufactured by, or associated with, the businesses we will conduct. There are well-established legal principles that permit Georgia-Pacific to contribute specific assets and liabilities to a subsidiary, such as ours, and retain other liabilities, such as its liability for asbestos injury and property damage, which derive from its ongoing business. In addition, Georgia-Pacific has agreed to indemnify us for any losses that we may incur as a result of having to defend litigation claiming that we are responsible for such liabilities, or for any such liabilities that may actually be imposed upon us. As a result, we do not believe that any of the asbestos liabilities that arise from Georgia-Pacific’s gypsum business will be liabilities of ours after the distribution.

Insurance

Pursuant to the separation and distribution agreement, we will cooperate with Georgia-Pacific to provide for an orderly transition of insurance coverage and for the treatment of any insurance policies that will remain in effect following this offering on a mutually agreeable basis. In general, Georgia-Pacific and we intend for us to have access to all rights that we may have as a subsidiary of Georgia-Pacific prior to this offering under any insurance policy issued to Georgia-Pacific or its subsidiaries, including any rights we may have as an insured or an additional named insured, or to avail ourselves of any such insurance policy as in effect prior to this offering. With respect to product liability insurance maintained by Georgia-Pacific or its subsidiaries that does not contain any exclusion for asbestos coverage, we will have access to such policies only at the sole discretion of Georgia-Pacific.

Access to Information

Under the separation and distribution agreement, subject to applicable confidentiality provisions and other restrictions, Georgia-Pacific and we will each grant the other party access to any information within that party’s possession or control that the requesting party reasonably needs (a) to comply with requirements imposed by a governmental authority, (b) for use in any judicial, regulatory or similar proceeding or to satisfy audit, accounting, tax or similar requirements, (c) to conduct its business, or (d) to comply with its obligations under the separation and distribution agreement or the ancillary agreements. To facilitate the exchange of information, Georgia-Pacific and we will maintain adequate systems and controls to allow the other party to satisfy its own reporting, accounting, audit and other obligations and will use reasonable commercial efforts to retain information in each party’s respective possession or control. In addition, except for in adversarial actions between the parties, we and Georgia-Pacific will each use reasonable best efforts to provide assistance to the other party for

litigation and to make available to the other party directors, officers, employees and agents as witnesses in legal, administrative or other proceedings and will cooperate and consult to the extent reasonably necessary with respect to any litigation.

Termination

Georgia-Pacific may terminate the separation and distribution agreement, in its sole discretion, at any time prior to the closing date of this offering and may decide not to consummate the distribution if at any time the Georgia-Pacific board of directors, in its sole discretion, determines that the distribution is not in the best interests of Georgia-Pacific or its shareholders. If the separation and distribution agreement is terminated after this offering but prior to the distribution, only the obligations of Georgia-Pacific and us regarding the distribution will terminate, and the other provisions of the separation and distribution agreement will remain in effect.

Expenses

In general, Georgia-Pacific and we will share the costs and expenses incurred in connection with the transactions contemplated by the separation and distribution agreement. However, with regard to this offering, we are responsible for all third-party costs, including costs related to the registration statement of which this prospectus is a part. Georgia-Pacific will be responsible for all third-party costs associated with the distribution.

Tax Sharing Agreement

We will enter into a tax sharing agreement with Georgia-Pacific that will allocate responsibility between our companies for tax returns for any tax period prior to the distribution in which we or any of our subsidiaries are included in Georgia-Pacific’s consolidated group for U.S. federal income tax purposes (the “Georgia-Pacific Federal Group”). Georgia-Pacific will prepare pro forma tax returns for us and our subsidiaries, as if we had filed our own consolidated tax return, in order to determine our portion of the tax liability due under any Georgia-Pacific Federal Group tax return, and we will pay our tax liabilities with respect to these returns.

Georgia-Pacific will be responsible for preparing and filing any tax return with respect to the Georgia-Pacific Federal Group for tax periods prior to the distribution, and we will be responsible for preparing and filing any tax returns that include only us and our subsidiaries for tax periods subsequent to the distribution. We will generally be responsible for any taxes with respect to tax returns that include only us and our subsidiaries for tax periods subsequent to the distribution. Georgia-Pacific will primarily be responsible for controlling and contesting any audit or other tax proceeding with respect to the Georgia-Pacific Federal Group.

We have been and will be included in the Georgia-Pacific Federal Group for periods in which Georgia-Pacific beneficially owns at least 80% of the total voting power and value of our outstanding common stock. Each member of a consolidated group for U.S. federal income tax purposes is severally liable for the U.S. federal income tax liability of each other member of the consolidated group. Accordingly, although the tax sharing agreement will allocate tax liabilities between us and Georgia-Pacific for any tax period in which we were included in the Georgia-Pacific Federal Group prior to the distribution, we could be liable in the event that any U.S. federal income tax liability was incurred, but not discharged, by any other member of the Georgia-Pacific Federal Group.

The tax sharing agreement will place certain restrictions upon us regarding our entry into some types of corporate transactions during a restriction period that continues for 24 months after the distribution. Among other matters, the tax sharing agreement will restrict us during the restriction period from:

•

redeeming, purchasing or otherwise reacquiring shares of our capital stock;

•

undertaking a liquidation or reorganization; and

•

entering into any other corporate transaction that would result in the distribution being disqualified for U.S. federal income tax purposes.

The tax sharing agreement will permit us to take certain of these actions if we seek and obtain a written opinion of nationally recognized legal counsel or an acceptable supplemental ruling from the IRS to the effect that such actions will not cause the distribution or certain other internal restructuring transactions to be taxable.

The tax sharing agreement will also assign responsibilities for administrative matters, such as the filing of returns, payment of taxes due, retention of records, examinations or similar proceedings.

Employee Matters Agreement

We will enter into an employee matters agreement with Georgia-Pacific that will allocate responsibility and liability for certain employee-related matters, including the compensation and benefits for our active employees, retirees and certain other terminated employees whose employment-related obligations we have agreed to assume in whole or in part. This agreement will provide for the transfer of the assets and liabilities of various existing Georgia-Pacific pension and other employee benefit plans covering our employees. Generally, following the distribution, Georgia-Pacific’s benefit plans will cease to have any liability or obligation (a) to our employees who retire or terminate employment after the distribution, (b) to their beneficiaries, or (c) to former employees with respect to whom assets and liabilities were transferred to our employee benefit plans. Our benefit plans will assume and be responsible for liabilities and obligations related to those employees and former employees under such plans or programs as we may adopt. Except as specifically set forth therein, the employee matters agreement will not preclude us from discontinuing or changing such plans at any time.

Employee Transfers

Prior to the distribution, we will employ all those employees who work primarily in our consumer products, packaging, and paper and pulp businesses, along with certain employees who are currently members of the Georgia-Pacific corporate staff. The employee matters agreement will provide that, for a specified period following the distribution, neither we nor Georgia-Pacific will solicit for employment the employees of the other.

Retirement Plans

We will assume certain pension plans currently sponsored by Georgia-Pacific that cover only our employees. In addition, we will establish pension plans that are substantially similar to the existing Georgia-Pacific plans for those employees who currently participate in a plan that covers both our employees and Georgia-Pacific’s employees. Georgia-Pacific has agreed to transfer plan assets and liabilities from the Georgia-Pacific defined benefit plan trust to our defined benefit plan trust in accordance with the specific provisions of the employee matters agreement. Our plans will provide that each of our eligible employees will receive credit for service and for benefit accruals earned under the terms of the Georgia-Pacific plans.

401(k) Plans

We will establish defined contribution/401(k) plans for our salaried and hourly employees that initially will mirror the material terms of the 401(k) plans maintained by Georgia-Pacific for its salaried and hourly employees. Georgia-Pacific will transfer the account balances for our employees from its 401(k) plan trusts to our 401(k) plan trusts. Our eligible employees will receive credit for prior service with Georgia-Pacific for all purposes under our 401(k) plans.

Welfare Plans

We will adopt health and welfare plans that will be substantially similar to the health and welfare plans maintained by Georgia-Pacific through December 31, 2003. To the extent set forth in the employee matters agreement, the assets funding various liabilities under some of the current Georgia-Pacific plans will be transferred from Georgia-Pacific’s trust to a trust that we will establish.

Information Technology Support Services Agreement

Under the separation and distribution agreement, all software and computer systems historically operated and supported by the corporate headquarters of Georgia-Pacific will be transferred to us prior to this offering, and all software and computer systems that were operated at divisional levels of Georgia-Pacific or that were operated across several different divisions of Georgia-Pacific will be allocated between us and Georgia-Pacific based on our respective resources and expertise. Pursuant to the information technology support services agreement, we will have an obligation to provide certain information technology services to Georgia-Pacific, and Georgia-Pacific will have an obligation to provide us with certain information technology services for transitional periods. Each party will reimburse the other for its costs incurred in providing such services.

Railroad Services Agreement

Under the separation and distribution agreement, substantially all of the railroad assets of Georgia-Pacific will be transferred to us prior to this offering. We will enter into a railroad services agreement with Georgia-Pacific that will obligate us to provide Georgia-Pacific and certain of its subsidiaries with railroad transportation services and access to certain railroad systems located in Arkansas, Georgia and Mississippi for a term of 20 years. Georgia-Pacific will pay us a portion of the costs of maintaining and repairing the railroad assets based on its usage of such assets. The railroad services agreement will also allocate responsibility for railroad cars and equipment that were leased by Georgia-Pacific under long-term lease arrangements.

Shared Services Agreements

We will enter into shared services agreements with Georgia-Pacific that will obligate us to provide Georgia-Pacific with certain specified services, including effluent processing and electricity and steam, for its Leaf River and Crossett facilities. The fees for these services will generally be equal to the costs incurred by us to provide the services.

Transition Services Agreement

The transition services agreement will govern the provision by Georgia-Pacific to us of specified support services, including administration of lease obligations, and the provision by us to Georgia-Pacific of specified support services, including relocation assistance, travel and child care facilities. The fees for these services will generally be equal to the costs incurred by the party providing the service. The terms of these services will generally expire between six to 18 months following the distribution.

Reimbursement and Guarantee Agreement

Georgia-Pacific is currently a party to various retirement agreements for its active and retired officers. We will enter into a reimbursement and guarantee agreement with Georgia-Pacific that will obligate us to reimburse Georgia-Pacific for the payments made to retired officers who were employed by businesses immediately before their retirement that are being transferred to us through the

reorganization transactions and for a portion of the payments made to retired officers who performed general corporate services for Georgia-Pacific immediately before their retirement. In addition, we will guarantee the payments to all retired officers of Georgia-Pacific, including those described above and to active officers of Georgia-Pacific with respect to retirement benefits earned prior to the separation, in the event that Georgia-Pacific is prohibited from making such payments. The retirement agreement obligations for active officers of Georgia-Pacific will be assigned to the respective company that employs each such officer following the separation.

Wood Procurement Joint Venture Agreement

We and Georgia-Pacific will form a procurement joint venture that will purchase wood and wood fiber supply for each of our respective companies. We and Georgia-Pacific will each contribute cash as well as certain wood procurement assets that are related to the procurement JV. We will receive a 19.9% ownership interest in the procurement JV, and we will participate with Georgia-Pacific in the governance of the procurement JV. In addition, the parties will be responsible for certain costs of the procurement JV based on relative usage. The procurement JV may be terminated at any time by mutual consent, and we and Georgia-Pacific will each have the right to unilaterally terminate the procurement JV upon prior written notice to the other party and upon the payment of certain costs.

DESCRIPTION OF CAPITAL STOCK

General

Under our articles of incorporation, we are authorized to issue 770,000,000 shares of capital stock, which consist of 735,000,000 shares of common stock, par value $.01 per share, and 35,000,000 shares of preferred stock, par value $.01 per share. Immediately following this offering there will be shares of common stock, or shares if the underwriters exercise their over-allotment option in full, outstanding.

The following description of our capital stock is subject to our articles of incorporation and bylaws, which are included as exhibits to the registration statement of which this prospectus is a part, and by the provisions of applicable Georgia law.

Common Stock

Holders of shares of common stock are entitled to one vote for each share held of record on all matters on which shareholders are entitled or permitted to vote. There is no cumulative voting for the election of directors. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of common stock are entitled to receive dividends when and as declared by the board of directors out of legally available funds. In the event of our liquidation, dissolution or winding up, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive rights or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable.

The transfer agent and registrar for the common stock will be EquiServe, N.A.

Preferred Stock

We are authorized to issue up to 35,000,000 shares of preferred stock, of which 735,000 shares have been designated as Series A Junior Participating Preferred Stock and reserved for issuance in connection with our shareholder rights plan described under “—Shareholder Rights Plan”. As of the date of this prospectus, we have no preferred stock outstanding.

Our articles of incorporation authorize our board of directors to provide for the issuance of preferred stock in one or more series, without shareholder action. Our board of directors is authorized to fix the designation, powers, preferences and rights, and the qualifications, limitations and restrictions of the shares of each series of preferred stock we issue. For each series of preferred stock our board is able to specify the following:

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the designation of each series;

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the number of shares of each series;

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the rate of any dividends;

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whether any dividends shall be cumulative or non-cumulative;

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the terms of any redemption right;

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the amount payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of our company;

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the terms of any conversion or exchange right;

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any restrictions on the issuance of shares of the same series or any other series; and

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any voting rights, in addition to voting rights provided by law.

Although no shares of preferred stock are currently outstanding and we have no current plans to issue preferred stock, except for such shares of Series A Junior Participating Preferred Stock issuable upon exercise of the rights under our shareholder rights plan, the issuance of shares of our preferred stock, or the issuance of rights to purchase shares of our preferred stock, could be used to discourage an unsolicited acquisition proposal. For example, we could impede a business combination by issuing a series of our preferred stock containing class voting rights that would enable the holder or holders of this series to block that transaction. Alternatively, we could facilitate a business combination by issuing a series of our preferred stock having sufficient voting rights to provide a required percentage vote of the shareholders. In addition, under some circumstances, the issuance of preferred stock could adversely affect the voting power and other rights of the holders of our common stock. Although our board is required to make any determination to issue any preferred stock based on its judgment as to the best interests of our shareholders, it could act in a manner that would discourage an acquisition attempt or other transaction that some, or a majority, of our shareholders might believe to be in their best interests or in which shareholders might receive a premium for their stock over prevailing market prices of the stock. Our board does not at present intend to seek shareholder approval prior to any issuance of currently authorized stock unless otherwise required by law or applicable stock exchange requirements.

Shareholder Rights Plan

The following description of our shareholder rights plan and the articles of amendment to our articles of incorporation designating the terms and conditions of the Series A Junior Participating Preferred Stock are intended as summaries only and are qualified in their entirety by reference to the form of shareholder rights plan and articles of amendment to the articles of incorporation filed as exhibits to the registration statement of which this prospectus is a part.

We have adopted a shareholder rights plan pursuant to which one right will be issued and attached to each outstanding share of common stock.

Until a distribution date occurs, the rights can be transferred only with the common stock. On the occurrence of a distribution date, the rights will separate from the common stock and become exercisable as described below.

A “distribution date” will occur upon the earlier of:

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the tenth day after a public announcement that a person or group of affiliated or associated persons other than us and certain exempt persons (an “acquiring person”) has acquired beneficial ownership of 15% or more of the total voting rights of the then outstanding shares of our common stock; or

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the tenth business day following the commencement of a tender or exchange offer that would result in such person or group becoming an acquiring person.

The total voting rights of the common stock will be determined based upon the voting rights of holders of outstanding shares of our common stock at the time of any determination.

Following the distribution date, holders of rights will be entitled to purchase from us one one-thousandth (1/1000th) of a share of Series A Junior Preferred Participating Stock at a purchase price of $ , subject to adjustment.

In the event that any person or group becomes an acquiring person, proper provision shall be made so that each holder of a right, other than rights beneficially owned by the acquiring person, will thereafter have the right to receive upon payment of the purchase price, that number of shares of common stock having a market value equal to two times the purchase price. If, following the date of a public announcement that an acquiring person has become such, (1) we are acquired in a merger or other business combination transaction and we are not the surviving corporation, (2) any person consolidates or merges with us and all or part of the common stock is converted or exchanged for securities, cash or property or any other person, or (3) 50% or more of our assets or earning power is sold or transferred, then the rights will “flip-over”. At that time, each right will entitle its holder to purchase, for the purchase price, a number of shares of common stock of the surviving entity in any such merger, consolidation or other business combination or the purchaser in any such sale or transfer with a market value equal to twice the purchase price.

The rights will expire on 2012, unless we terminate them before that time. Our board of directors may redeem all of the rights upon payment of $.001 per right until the earlier of:

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the tenth day following a public announcement that an acquiring person has become such; or

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, 2012.

Once our board acts to redeem the rights, the right to exercise the rights will terminate and each right will become null and void.

A holder of a right will not have any rights as a shareholder of CP&P, including the right to vote or to receive dividends, until a right is exercised.

At any time prior to the occurrence of a distribution date, we may, without the approval of any holders of rights, supplement or amend any provision of our shareholder rights plan in any manner, whether or not such supplement or amendment is adverse to any holders of the rights. From and after the occurrence of a distribution date, we may, without the approval of any holder of rights, supplement or amend our shareholder rights plan to:

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cure any ambiguity;

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correct or supplement any provision that may be defective or inconsistent; or

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change or supplement the provisions of the shareholder rights plan in any manner we deem desirable.

CP&P INC S-1/A