Edgar Filing: RIVERWOOD HOLDING INC

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

FORM 10-K

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

FOR THE FISCAL PERIOD ENDED DECEMBER 31, 2001

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 1-11113

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

RIVERWOOD HOLDING, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 58-2205241
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)

1105 NORTH MARKET STREET
SUITE 1300
WILMINGTON, DELAWARE 19801
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code:
c/o Riverwood International Corporation (770) 644-3000

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [X] No [ ]

As of March 1, 2002, there were 7,066,180 shares and 500,000 shares of the
registrant's Class A Common Stock, par value $0.01 per share (the "Class A
Common Stock"), and Class B Common Stock, par value $0.01 per share (the "Class
B Common Stock," and together with the Class A Common Stock, "Holding Common
Stock"), respectively, outstanding.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

TABLE OF CONTENTS TO FORM 10-K

PAGE
----

PART I........................................................................... 1
ITEM 1. BUSINESS.................................................... 1
ITEM 2. PROPERTIES.................................................. 8
ITEM 3. LEGAL PROCEEDINGS........................................... 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 9
PART II.......................................................................... 9
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 9
ITEM 6. SELECTED FIVE-YEAR FINANCIAL DATA........................... 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 11
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK... 32
ITEM 8. FINANCIAL STATEMENTS........................................ 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 71
PART III......................................................................... 71
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 71
ITEM 11. EXECUTIVE COMPENSATION...................................... 75
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 79
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 80
PART IV.......................................................................... 82
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K......................................................... 82

As used in this Form 10-K, unless the context otherwise requires: "RIC"
refers to the corporation formerly named Riverwood International Corporation;
the "Predecessor" or the "Predecessor Company" refers to RIC and its
subsidiaries in respect of periods prior to the Merger (as defined herein); the
"Company" refers to the registrant, Riverwood Holding, Inc., a Delaware
corporation ("Holding") and its subsidiaries; "RIC Holding" refers to RIC
Holding, Inc., a Delaware corporation, successor by merger to RIC and a
wholly-owned subsidiary of Holding; and "Riverwood" refers to Riverwood
International Corporation, a Delaware corporation formerly named Riverwood
International USA, Inc. and a wholly-owned subsidiary of RIC Holding.
ii

PART I

ITEM 1. BUSINESS

OVERVIEW

The Company is a leading provider of paperboard packaging solutions and
paperboard, either directly or through independent converters, to multinational
beverage and consumer products companies, such as Anheuser-Busch Companies,
Inc., Miller Brewing Company, numerous Coca-Cola and Pepsi bottling companies,
Kraft Foods, Nestle, Unilever, and Mattel, Inc. In the United States, the
Company is one of only two major manufacturers of coated unbleached kraft
paperboard ("CUK Board"), which, together with white lined chip board production
and our packaging machinery business, comprise our Coated Board business
segment. CUK Board, which serves as the principal raw material for the Company's
packaging products, is a specialized high-quality grade of paperboard with
superior strength characteristics and printability for high-resolution graphics
that make it particularly well suited for a variety of packaging applications.
The Company's Coated Board business segment accounted for approximately 93% of
the Company's net sales for the year ended December 31, 2001. The Company also
manufactures and sells linerboard, corrugating medium and kraft paper
(collectively, "containerboard") through its Containerboard business segment.

Holding, its wholly-owned subsidiary RIC Holding and the corporation
formerly named CDRO Acquisition Corporation ("Acquisition Corp.") were organized
to acquire RIC. Holding, RIC Holding and Acquisition Corp. were incorporated in
1995 under the laws of the State of Delaware. On March 27, 1996, Holding,
through its wholly-owned subsidiaries, acquired all of the outstanding shares of
common stock of RIC. On such date, Acquisition Corp. was merged (the "Merger")
into RIC. RIC, as the surviving corporation in the Merger, became a wholly-owned
subsidiary of RIC Holding. On March 28, 1996, RIC transferred substantially all
of its properties and assets to Riverwood, other than the capital stock of
Riverwood, and RIC was merged (the "Subsequent Merger") into RIC Holding.
Thereupon, Riverwood was renamed "Riverwood International Corporation."

COATED BOARD

Overview

The Company's primary focus is the production and sale of CUK Board for use
as multiple packaging beverage cartons ("carrierboard") for beer, soft drinks
and other beverages, and as consumer products packaging ("folding cartonboard")
for confectionary, frozen and dry foods, toys and other consumer products. The
Company sells carrierboard under the brand name Aqua-Kote(R) and folding
cartonboard under the brand names Pearl-Kote(R), Omni-Kote(R), Z-Flute(R) and
Multiboard(TM). In 2001, carrierboard accounted for approximately 65% of the
Company's total CUK Board shipments.

The Company utilizes almost 90 percent of its carrierboard production in
its integrated beverage business and sells the remainder in the open market to
independent converters, including licensees of the Company's proprietary carton
designs, principally for use in the beverage packaging market. In its integrated
beverage business, the Company provides integrated beverage packaging solutions
that generally include each of the following elements: (i) the production of
carrierboard, (ii) the printing and cutting, or conversion, of carrierboard into
beverage cartons for use on packaging machines and (iii) the sale to customers
of converted beverage cartons for use on proprietary packaging machines
designed, manufactured and installed by the Company. As part of the Company's
integrated beverage business, particularly in its international operations, the
Company's carrierboard may be sold to and converted by joint ventures and
licensees of the Company's beverage carton designs who, in turn, sell converted
beverage cartons to end-users for use on the Company's proprietary packaging
machines. The Company's integrated beverage business also includes sales of
Company produced and converted carrierboard to customers for use on third party
packaging machines.

The Company produces and sells folding cartonboard principally in the open
market to independent converters for use in folding cartons for packaging a
variety of consumer products. The Company focuses on folding cartonboard
applications for consumer products companies seeking the strength and
printability of

CUK Board. The Company's ability to produce either carrierboard or folding
cartonboard on its CUK Board paper machines enables the Company to respond to
changes in supply and demand in these businesses.

Additionally, at its paper mill in Norrkoping, Sweden (the "Swedish Mill"),
the Company manufactures white lined chip board ("WLC"), a coated 100% recycled
paperboard grade used principally in European folding carton applications.

CUK Board Production

The Company produces CUK Board at its West Monroe, Louisiana paper mill
(the "West Monroe Mill") and its Macon, Georgia paper mill (the "Macon Mill").
These mills have a current total combined annual production capacity of
approximately 1.2 million tons of CUK Board.

The Company's total CUK Board production at its West Monroe Mill was
approximately 657,000 tons during the year ended December 31, 2001. Total CUK
Board production at its Macon Mill was approximately 454,000 tons of CUK Board
during the year ended December 31, 2001.

CUK Board is manufactured from pine and hardwood fibers and, in some cases,
recycled fibers, such as old corrugated containers ("OCC") and clippings from
the Company's converting operations. Virgin fiber is obtained in the form of
wood chips or pulp wood acquired through open market purchases. These chips are
chemically treated to form softwood and hardwood pulp, which are then blended
(together, in some cases, with recycled fibers). In the case of carrierboard, a
chemical is added to increase moisture resistance. The pulp is then processed
through the mill's paper machines, which consist of a paper-forming section, a
press section (where water is removed by pressing the wet paperboard between
rolls), a drying section and the coating section. Coating on CUK Board,
principally a mixture of pigments, binding agents and water, provides a white,
smooth finish, and is applied in multiple steps to achieve desired levels of
brightness, smoothness and shade. After the CUK Board is coated, it is wound
into rolls, which are then shipped to the Company's converting plants or to
outside converters.

Converting Operations

The Company converts CUK Board as well as other grades of paperboard into
cartons at eleven carton converting plants at ten sites that it operates in the
United States, the United Kingdom, Spain, France and Brazil, as well as through
converting plants associated with its joint ventures in Japan and Denmark and
licensees in other markets outside the United States. The converting plants
print, cut and glue paperboard on multi-color printing presses, cutting lines
and gluing lines into cartons designed to meet customer specifications.

The Company's U.S. converting plants are dedicated to converting
carrierboard produced by the Company into beverage cartons. The Company
continues to invest in its converting plants in order to improve their process
capabilities. The Company's international converting plants convert carrierboard
and folding cartonboard produced by the Company, as well as paperboard supplied
by outside producers, into cartons.

Proprietary Packaging Machinery and Carton Designs

The Company employs a "pull through" marketing strategy in its integrated
beverage business, the key elements of which are (i) the design and manufacture
of proprietary packaging machines, (ii) the installation of the machines at
beverage customer locations under multi-year machinery use arrangements and
(iii) the development of proprietary beverage cartons with high-resolution
graphics for use on those machines. The Company leases substantially all of its
packaging machines to customers, typically under machinery use agreements with
original terms of three to six years. Packaging machinery placements during 2001
decreased approximately 24 percent when compared to 2000. The Company expects
packaging machinery placements for 2002 to be higher when compared to 2001 and
be comparable to 2000 as a result of a 16 percent increase in packaging
machinery orders in 2001 when compared to 2000. The Company has been and will
continue to be selective in future packaging machinery placements to ensure
appropriate returns.

The Company's packaging machines are designed to package Polyethylene
Terephthalate ("PET") bottles and glass bottles, cans and other primary
containers, using beverage cartons designed by the Company, made from the
Company's CUK Board and converted into beverage cartons by the Company, its
joint venture partners or its licensees. In order to meet customer requirements,
the Company has developed an extensive portfolio of packaging machines
consisting of several principal machinery lines. The Company's machines package
cans and PET or glass bottles in a number of formats including baskets, clips,
trays, wraps and fully enclosed cartons. These machines have packaging ranges
from 2 to 36 cans per package and have the ability to package cans at speeds of
up to 3,000 cans per minute. The Company also manufactures ancillary equipment,
such as machines for dividing or turning packages and placing coupons in
cartons.

The Company designs cartons and designs, tests and manufactures prototype
packaging machinery at its Product Development Center (the "PDC") in Marietta,
Georgia. At the PDC, the Company integrates carton and packaging machinery
designs to create packaging solutions to meet customer needs. The Company
manufactures and also designs packaging machinery at its principal U.S.
manufacturing facility in Crosby, Minnesota and at a facility near Barcelona,
Spain. By manufacturing packaging machinery in one U.S. and one European
location, the Company expects to improve customer service, simplify its work
processes and reduce costs.

Marketing and Distribution

The Company markets its CUK Board and CUK Board-based products principally
to multinational brewers, soft drink bottlers, food companies and other consumer
products companies that use printed packaging for retail display, multiple
packaging and shipment of their products. The Company also sells CUK Board in
the open market to carrierboard and cartonboard converters. The Company markets
CUK Board under the names Aqua-Kote(R), Pearl-Kote(R) and Omni-Kote(R).

Beverage. In its beverage operations, the Company's major customers for
beverage cartons include Anheuser-Busch Companies, Inc., Miller Brewing Company,
and numerous Coca-Cola and Pepsi bottling companies. The Company also sells
carrierboard in the open market to independent converters, including licensees
of the Company's proprietary carton designs, for the manufacture of beverage
cartons. During 2001, the Company had two customers, Anheuser-Busch Companies,
Inc. and Miller Brewing Company, who represented approximately 13 percent and 11
percent respectively, of the Company's net sales.

Consumer Products Packaging. In its consumer products packaging
operations, the Company sells substantially all of its folding cartonboard to
numerous independent converters that convert the folding cartonboard into
cartons for consumer products. The Company has established account relationships
with a number of major independent converters. The terms of these arrangements
may include certain limitations on the Company's ability to raise the selling
prices of its folding cartonboard.

Distribution and Sales. Distribution of carrierboard and folding
cartonboard is primarily accomplished through direct sales offices in the United
States, Argentina, Australia, Brazil, Denmark, Germany, Hong Kong, Italy, Japan,
Mexico, Singapore, Spain, Sweden, and the United Kingdom.

Joint Ventures. The Company is a party to joint ventures with Rengo
Company Limited and Danapak Holding A/S to market machinery-based packaging
systems in Japan and Scandinavia, respectively. The joint ventures cover CUK
Board supply, use of proprietary carton designs and marketing and distribution
of packaging systems. Effective January 1, 2001, the Company consolidated into
its financial statements the accounts of Rengo Riverwood Packaging, Ltd.
("Rengo"), the Company's Japanese joint venture with Rengo Company Limited,
since the Company has the ability to exercise control over Rengo's operating and
financial policies. The consolidation of Rengo contributed approximately $47
million in Net Sales and $4 million in EBITDA in 2001.

Energy and Raw Materials

Energy, including natural gas, fuel oil and electricity, represents a
significant portion of the Company's manufacturing costs. Until recently, the
Company's results had not been significantly affected by the volatility

of energy costs. The Company has entered into fixed price contracts designed to
mitigate the impact of future energy cost increases through 2002, and will
continue to evaluate its hedge position. The Company believes that higher energy
costs will continue to negatively impact its results for 2002 but the negative
impact is expected to be lower than in 2001. Since negotiated contracts and the
market largely determine the pricing for the Company's products, the Company is
limited in its ability to pass through to its customers any energy or other cost
increases that the Company may incur in the future.

Pine pulpwood, hardwood and recycled fibers, including old corrugated
containers, used in the manufacture of paperboard, and various chemicals used in
the coating of CUK board, represent the largest components of the Company's
variable costs of CUK board and containerboard production. The cost of these
materials is subject to market fluctuations caused by factors beyond the
Company's control. Old corrugated container pricing tends to be very volatile.
With the October 1996 sale of the Company's timberlands, the Company now relies
on private landowners and the open market for all of its virgin and recycled
fiber requirements, except for CUK board clippings from the Company's converting
operations. Under the terms of the sale of those timberlands, the Company and
the buyer, Plum Creek Timber Company, L.P., entered into a 20-year supply
agreement, with a 10-year renewal option, for the purchase by the Company, at
market-based prices, of a majority of the West Monroe Mill's requirements for
pine pulpwood and residual chips, as well as a portion of the Company's needs
for hardwood pulpwood at the West Monroe Mill. An assignee of Plum Creek
supplies residual chips to the Company pursuant to such supply agreement. The
Company purchases the remainder of the wood fiber used in CUK Board production
at the West Monroe Mill from other private landowners in this region. The
Company believes that adequate supplies of open market timber currently are
available to meet its fiber needs at the West Monroe Mill.

The Macon Mill purchases most of its fiber requirements on the open market,
and is a significant consumer of recycled fiber, primarily in the form of
clippings from the Company's domestic converting plants as well as OCC and other
recycled fibers. The Company has not experienced any significant difficulties
obtaining sufficient OCC or other recycled fibers for its Macon Mill operations,
which it purchases in part from brokers located in the eastern United States.
OCC pricing, however, tends to be very volatile since it is based largely on the
demand for this fiber from recycled paper and containerboard mills. The Macon
Mill purchases substantially all of its virgin pine and hardwood requirements
from private landowners in central and southern Georgia. Because of the adequate
supply and large concentration of private landowners in this area, the Company
believes that adequate supplies of pine and hardwood timber currently are
available to meet its fiber needs at the Macon Mill.

The Company purchases a variety of other raw materials for the manufacture
of its paperboard, primarily process chemicals and coating chemicals such as
kaolin and titanium dioxide. All such raw materials are readily available, and
the Company is not dependent upon any one source of such raw materials.

White Lined Chip Production

The Company produces WLC at its Swedish Mill, which shipped approximately
150,000 tons of such board during 2001. WLC is used for a variety of folding
carton applications principally throughout Europe.

Competition

There are only two major producers in the United States of CUK Board, the
Company and MeadWestvaco Corporation ("MeadWestvaco"). The Company faces
significant competition in its CUK Board business segment from MeadWestvaco.
Like the Company, MeadWestvaco produces and converts CUK Board, designs and
places packaging machinery with customers and sells CUK Board in the open
market. The Company also faces competition from other manufacturers of packaging
machinery.

In the beverage packaging industry, cartons made from CUK Board compete
with plastics and corrugated packaging for packaging glass or plastic bottles,
cans and other primary containers. Although plastics and corrugated packaging
generally provide lower cost packaging solutions, the Company believes that
cartons made from CUK Board offer advantages over these materials, in areas such
as distribution, high quality graphics, carton designs, package performance,
environmental friendliness and design flexibility.
4

In the consumer product markets, the Company's CUK Board competes
principally with MeadWestvaco's CUK Board, recycled clay-coated news ("CCN") and
solid bleached sulphate board ("SBS") and, internationally, WLC and folding
boxboard ("FBB"). Folding cartonboard grades compete based on price, strength
and printability. CUK Board has generally been priced in a range that is higher
than CCN and lower than SBS. CUK Board has slightly better tear strength
characteristics than SBS and significantly better printability, tear strength
and cross-direction stiffness than CCN. There are a large number of producers of
paperboard for the folding cartonboard markets, which are subject to significant
competitive and other business pressures.

CONTAINERBOARD

In the United States, the Company manufactures
containerboard -- linerboard, corrugating medium and kraft paper -- which is
sold in the open market. Corrugating medium is combined with linerboard to make
corrugated containers. Kraft paper is used primarily to make grocery bags and
sacks. The Company's principal paper machines have the capacity to produce both
linerboard and CUK Board. The Company has in the past used its CUK Board
machines to produce linerboard and expects to continue to produce and sell
linerboard to respond to changes in supply and demand in its businesses. The
Company also continues to operate paper machines at the West Monroe Mill
dedicated to the production of corrugating medium and kraft paper.

In 2001, the Company shipped approximately 38,000 tons of linerboard from
the Macon Mill and approximately 113,000 tons of corrugating medium, 36,000 tons
of kraft bag paper and 52,000 tons of linerboard from its West Monroe Mill. In
2001, the Company also shipped approximately 16,000 tons of various other
paperboard products reported as part of the Containerboard segment.

The primary customers for the Company's U.S. containerboard production are
independent and integrated corrugated converters. The Company sells corrugating
medium and linerboard through direct sales offices and agents in the United
States. Outside of the United States, linerboard is primarily distributed
through independent sales representatives.

The Company's Containerboard business segment operates within a highly
fragmented industry. Most products within this industry are viewed as
commodities; consequently, selling prices tend to be cyclical, being affected by
economic activity and industry capacity.

In addition to the Company's U.S. Containerboard operations, the Company
owned 50% of Igaras Papeis e Embalagens S.A. ("Igaras"), an integrated
containerboard producer located in Brazil. On July 1, 2000, Igaras spun off the
multiple packaging portion of its business into a newly formed company, of which
the Company owned 50 percent. On October 3, 2000, the Company, along with its
joint venture partner, Cia Suzano de Papel e Celulose, completed the sale of the
jointly-held subsidiary Igaras for approximately $510 million, including the
assumption of $112 million of debt. The Company recognized a gain of $70.9
million in connection with the sale, and applied the sale proceeds to pay down
debt. On October 12, 2000, the Company purchased the remaining 50 percent of the
newly formed company for $12.5 million.

PATENTS, TRADEMARKS AND LICENSES

The Company has a large patent portfolio, presently owning, controlling or
holding rights to approximately 2,100 U.S. and foreign patents, with
approximately 1,200 patent applications currently pending. The Company's patents
fall into two principal categories: packaging machinery and structural carton
designs.

The Company has been a plaintiff in actions against MeadWestvaco, successor
by merger to The Mead Corporation ("Mead"), and the R.A. Jones Co. Inc. ("R.A.
Jones") claiming infringement of the Company's patents for its packaging
machines. The patents in suit were found infringed but invalid by a jury in a
trial against R.A. Jones in August 2001. This finding of invalidity has been
appealed to the Court of Appeals for The Federal Circuit. The suit against
MeadWestvaco was dismissed by mutual agreement pending the outcome of the appeal
of the decision in the case against R.A. Jones.

EMPLOYEES AND LABOR RELATIONS

As of December 31, 2001, the Company had approximately 4,100 employees
worldwide (excluding employees of joint ventures), approximately 3,000 of whom
were members of unions and covered by collective bargaining agreements.

There are four unions representing the Company's U.S. employees, one of
which, the Paper, Allied-Industrial, Chemical & Energy Workers International
Union -- AFL-CIO, CLC, is associated with the West Monroe Mill and converting
facility where it represents approximately 1,300 employees, and the Macon Mill
where it represents approximately 300 of the 400 union employees.

At the Company's Macon Mill, the current union contract was negotiated and
ratified by the union in the second quarter of 1998 and runs through December
31, 2003. Also at the Macon Mill, the International Association of Machinists
and Aerospace Workers, and the Brotherhood of Electrical Workers represent
certain maintenance employees.

The current union contract covering the West Monroe Mill was negotiated and
ratified by the union in February 1997 and covers the six-year period from March
1, 1997 to February 28, 2003. The contract covering employees at the adjacent
converting plants was negotiated and ratified by the union in 2000 and covers
the five-year period from September 1, 2000 through August 31, 2005.

The Company's other U.S. converting plants, other than its converting
facility in Perry, Georgia, are represented by unions. The Clinton, Mississippi
converting plant contract was negotiated and ratified by the union in January
1997 and covers the six-year period from February 1, 1997 through January 31,
2003. The Cincinnati, Ohio converting plant completed negotiations for a new
five year labor agreement effective from February 1, 2001 through January 31,
2006. The Fort Atkinson, Wisconsin converting plant four year labor agreement
was negotiated in 1998 with the Graphic Communication Workers and the
International Association of Machinists for the period of September 9, 1998
through September 9, 2002 and September 30, 1998 through September 30, 2002,
respectively.

The Company's international employees are represented by unions in Brazil,
France, Spain, Sweden and the United Kingdom.

ENVIRONMENTAL MATTERS

The Company is committed to compliance with all applicable foreign,
federal, state and local environmental laws and regulations. Environmental law
is, however, dynamic rather than static. As a result, costs, which are
unforeseeable at this time, may be incurred when new laws are enacted, and when
environmental agencies adopt or revise rules and regulations.

In 1998, the U.S. Environmental Protection Agency adopted regulations
(generally referred to as the "cluster rules") that mandate more stringent
controls on air and water discharges from the United States pulp and paper
mills. The Company estimates that the capital spending that may be required to
comply with the cluster rules could reach $55 million to be spent at its two
U.S. paper mills over a seven-year period that began in 2000. The Company
estimates that it has spent approximately one-third of that amount for such
compliance.

the Cooperative Agreement, the Company will develop the remedial design and
carry out the specified remediation at the site. The Company has engaged a
qualified contractor and expects completion of the work by the end of 2002. In
September 1996, the Company received a Special Demand Letter from DEQ to
remediate the site in Caddo Parish. The Company performed a waste inventory and
treatability study at the site and subsequently met with DEQ in October 1999. On
July 6, 2000, the Company and DEQ entered into a Settlement Agreement that
describes in detail the remedial actions necessary for the Company to obtain
full release of all future liability at this site. The Company has contracted
with a vendor to perform the remedial actions as outlined in the Settlement
Agreement and the work is currently proceeding. The Company no longer owns the
site since transferring the property to another entity on October 22, 2000. The
Company anticipates the remedial actions outlined in the Settlement Agreement
will be completed during the second quarter of 2002 and, at that time, expects
to be relieved of any future liability.

The Company is involved in environmental remediation projects for certain
properties currently or formerly owned or operated by the Company, and at
certain waste disposal sites. Some of these projects are being addressed under
federal and state statutes, such as the Comprehensive Environmental Response,
Compensation and Liability Act and analogous state laws. The Company's costs in
certain instances cannot be reliably estimated until the remediation process is
substantially underway or liability has been addressed. To address these
contingent environmental costs, the Company has accrued reserves when such costs
are probable and can be reasonably estimated. The Company believes that, based
on current information and regulatory requirements, the accruals established by
the Company for environmental expenditures are adequate. Based on current
knowledge, to the extent that additional costs may be incurred that exceed the
accrued reserves, such amounts are not expected to have a material impact on the
results of operations, cash flows or financial condition of the Company,
although no assurance can be given that significant costs will not be incurred
in connection with clean-up activities at these properties, including the
Shreveport and Caddo Parish sites referred to above.

ITEM 2. PROPERTIES

HEADQUARTERS

Holding and RIC Holding are headquartered in Delaware. Riverwood is
headquartered and currently leases approximately 70,000 square feet of office
space in Atlanta, Georgia.

MANUFACTURING FACILITIES

A listing of the major plants and properties owned, or leased, and operated
by the Company is set forth below. The Company's buildings are adequate and
suitable for the business of the Company. The Company also leases certain
facilities, warehouses and office space throughout the United States and in
foreign countries.

APPROX. NO. OF
SQ. FEET OF PRINCIPAL PRODUCTS MANUFACTURED
TYPE OF FACILITY AND LOCATION(1) FLOOR SPACE OR USE OF FACILITY
-------------------------------- -------------- -------------------------------------------

PAPERBOARD MILLS:
West Monroe, LA............................ 1,535,000 CUK Board; linerboard; corrugating medium;
kraft paper
Macon, GA.................................. 756,000 CUK Board; linerboard
Norrkoping, Sweden......................... 417,000 White lined chip board

CONVERTING PLANTS:
West Monroe, LA (2 plants)................. 621,000 Beverage carriers
Cincinnati, OH............................. 241,800 Beverage carriers
Clinton, MS................................ 210,000 Beverage carriers
Perry, GA(2)............................... 130,000 Beverage carriers
Ft. Atkinson, WI........................... 120,000 Beverage carriers
Bristol, Avon, United Kingdom.............. 428,000 Beverage carriers; folding cartons
Igualada, Barcelona, Spain................. 131,000 Beverage carriers; folding cartons
Beauvois en Cambresis, France.............. 70,000 Folding cartons
Le Pont de Claix, France................... 120,000 Folding cartons
Jundiai, Sao Paulo, Brazil................. 95,216 Beverage carriers; folding cartons

PACKAGING MACHINERY/OTHER:
Crosby, MN................................. 188,000 Packaging machinery engineering design and
manufacturing
Marietta, GA............................... 64,000 PDC -- Research and development; packaging
machinery engineering design and carton
engineering design
Igualada, Barcelona, Spain................. 22,400 Packaging machinery engineering design and
manufacturing
Kennesaw, GA............................... 62,500 Development and small scale manufacturing
facility for Z-Flute(R) product

---------------
(1) The Company leases the facilities in Marietta, Georgia; Kennesaw, Georgia;
Clinton, Mississippi (part only); Beauvois en Cambresis, France; Le Pont De
Claix, France; and Igualada, Barcelona, Spain (packaging machinery
facility). All other facilities listed are owned by the Company.

(2) The facility located in Perry, Georgia is leased from the Middle Georgia
Regional Development Authority in consideration of the issuance of
industrial development bonds by such entity.

ITEM 3. LEGAL PROCEEDINGS

The Company is a party to a number of lawsuits arising out of the ordinary
conduct of its business. While there can be no assurance as to their ultimate
outcome, the Company does not believe that these lawsuits will have a material
impact on the results of operations, cash flows or financial condition of the
Company.

were found infringed but invalid by a jury in a trial against R.A. Jones in
August 2001. This finding of invalidity has been appealed to the Court of
Appeals for The Federal Circuit. The suit against MeadWestvaco was dismissed by
mutual agreement pending the outcome of the appeal of the decision in the case
against R.A. Jones.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of 2001, there were no matters submitted to a
vote of security holders.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

There is no established public trading market for the Class A Common Stock
or Class B Common Stock of the Company. The shares of Class A Common Stock and
Class B Common Stock were held of record by 52 stockholders and one stockholder,
respectively, at December 31, 2001. The Company did not pay any dividends on
either class of Common Stock during 2001, 2000, 1999, 1998 or 1997. The
Company's debt instruments restrict the ability of the Company to pay dividends.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition, Liquidity and Capital Resources -- Covenant
Restrictions."

ITEM 6. SELECTED FIVE-YEAR FINANCIAL DATA

YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 2001 2000 1999 1998 1997
------------------------- ------------ ------------ ------------ ------------ ------------

OPERATIONS
Net Sales(a).............................. $1,249,886 $1,192,362 $1,174,665 $1,196,221 $1,207,615
Income from Operations.................... 98,052 220,489 120,463 27,678 6,912
(Loss) Income from Continuing
Operations.............................. (68,673) 40,399 (54,671) (140,304) (146,957)
Net (Loss) Income(b)(c)(d)(g)(h).......... (77,896) 38,282 (54,671) (140,304) (152,473)
FINANCIAL POSITION
(as of period end)
Total Assets(g)........................... $2,057,592 $2,121,357 $2,363,142 $2,417,601 $2,606,185
Long-Term Debt, less current portion(g)... 1,523,082 1,516,881 1,730,898 1,680,415 1,712,944
Redeemable Common Stock................... 8,061 8,061 7,202 6,205 6,045
Shareholders' Equity...................... 215,865 303,962 279,648 336,769 479,434
ADDITIONAL DATA
Additions to Property, Plant and
Equipment(e)............................ $ 57,670 $ 62,062 $ 66,018 $ 48,551 $ 142,314
Research, Development and Engineering
Expense................................. 5,111 4,554 4,078 5,570 5,171
EBITDA(f)................................. 268,234 300,034 273,475 203,458 165,927

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

Notes:

(a) The Company has reclassified the presentation of prior period Net Sales and
Cost of Sales information to conform with the current presentation format
and Emerging Issues Task Force 00-10, "Accounting for Shipping and Handling
Fees and Costs". Shipping and handling costs totaled $64.9 million in 2001,
$63.7 million in 2000, $62.0 million in 1999, $60.7 million in 1998 and
$68.8 million in 1997. See Note 2 in Notes to Consolidated Financial
Statements.

(b) Net (Loss) Income for the years ended December 31, 2001, 2000 and 1997
included an Extraordinary Loss on Early Extinguishment of Debt of $8.7
million, $2.1 million, and $2.5 million, respectively, net of applicable tax
(see Note 20 in Notes to Consolidated Financial Statements).

(c) Net (Loss) Income for the year ended December 31, 1997 included a charge of
$3.1 million, net of tax, for the cumulative effect of a change in
accounting for computer systems development project costs.

(d) Net (Loss) Income for the years ended December 31, 2000 and 1998 included a
(credit) charge for the global restructuring program, which is focused in
the Company's European operations, of $(2.6) million and of $25.6 million,
respectively (see Note 23 in Notes to Consolidated Financial Statements).

(e) Includes amounts invested in packaging machinery and capitalized interest.

(f) EBITDA is defined as consolidated net income (exclusive of non-cash charges
resulting from purchase accounting during the periods subsequent to the
Merger) before consolidated interest expense, consolidated income taxes,
consolidated depreciation and amortization, and other non-cash charges
deducted in determining consolidated net income, extraordinary items and the
cumulative effect of accounting changes and earnings of, but including
dividends from, non-controlled affiliates. The Company believes that EBITDA
provides useful information regarding the Company's debt service ability,
but should not be considered in isolation or as a substitute for the
Condensed Consolidated Statements of Operations or cash flow data. This
definition of EBITDA may not be comparable to other companies' definitions
of EBITDA as it is calculated based on the definition of EBITDA and GAAP as
defined in the 2001 Senior Secured Credit Agreement.

(g) On October 3, 2000, the Company, along with its joint venture partner,
completed the sale of the jointly-held subsidiary Igaras for approximately
$510 million, including the assumption of $112 million of debt. The Company
recognized a gain of approximately $70.9 million in connection with the sale
(see Note 6 in Notes to Consolidated Financial Statements).

(h) Net (Loss) Income for the year ended December 31, 2001 included a charge of
$0.5 million, net of tax for the cumulative effect of a change in accounting
principle for derivatives.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

In connection with the Merger, the Company entered into a credit agreement
that provided for senior secured credit facilities consisting of a term loan
facility and a $400 million revolving credit facility. Such credit agreement,
term loan facility and revolving facility, as in effect prior to the August 10,
2001 amendment and restatement discussed below, are referred to herein as the
"Credit Agreement", the "Term Loan Facility" and the "Revolving Facility",
respectively. In addition, Riverwood International Machinery, Inc., a wholly-
owned subsidiary of Riverwood, entered into a credit agreement providing for a
$140 million secured revolving credit facility (the "Machinery Facility") for
the purpose of financing or refinancing packaging machinery. In connection with
the Merger, the Company also completed an offering of $250 million aggregate
principal amount of 10 1/4 percent Senior Notes due 2006 (the "1996 Senior
Notes") and $400 million aggregate principal amount of 10 7/8 percent Senior
Subordinated Notes due 2008 (the "1996 Senior Subordinated Notes" and together
with the 1996 Senior Notes, the "1996 Notes").

On July 28, 1997, the Company completed an offering of $250 million
principal amount of 10 5/8 percent Senior Notes due 2007 (the "Initial Notes").
The net proceeds of this offering were applied to prepay certain revolving
credit borrowings under the Revolving Facility (without any commitment
reduction) and to refinance certain Tranche A term loans and other borrowings
under the Credit Agreement. A registration statement under the Securities Act of
1933, as amended, registering senior notes of the Company identical in all
material respects to the Initial Notes (the "Exchange Notes") offered in
exchange for the Initial Notes became effective October 1, 1997. On November 3,
1997, the Company completed its exchange offer of the Initial Notes for the
Exchange Notes. The Initial Notes and the Exchange Notes are referred to herein
as the 1997 Notes.

In connection with the sale of Igaras on October 3, 2000, the Company
entered into Amendment No. 5 dated September 12, 2000, effective October 3,
2000, to the Credit Agreement. Pursuant to the amendment, the Company applied
$120 million and $25 million of the sale proceeds to its 2001 and 2002 term loan
maturities under the Term Loan Facility, respectively. The Company recognized a
loss on the early extinguishment of debt of approximately $2.1 million in the
fourth quarter of 2000. The Company applied the remaining portion of the
proceeds (approximately $48 million) to the Revolving Facility (without any
commitment reduction). In connection with Amendment No. 5, the Company canceled
its Machinery Facility. In addition, certain of the financial covenants included
in the Credit Agreement were amended.

On June 21, 2001, the Company completed an offering of $250 million
principal amount of 10 5/8 percent Senior Notes due 2007 (the "Initial 2001
Notes"). The Initial 2001 Notes were sold at a price of 103 percent of par. The
proceeds from this offering of approximately $251.5 million, net of
approximately $6 million of transaction fees and expenses, were applied to
prepay a portion of the outstanding borrowings under the Term Loan Facility.
During the second quarter of 2001, the Company recorded a non-cash,
extraordinary charge to earnings of approximately $2.8 million, net of tax of
nil, related to the write-off of the applicable portion of deferred debt
issuance costs on the term loans. In connection with this offering, on June 6,
2001, the Company entered into Amendment No. 6 to the Credit Agreement. The
amendment modified certain financial and other covenants, including minimum
EBITDA (as defined in the Credit Agreement) requirements, in the Credit
Agreement to reflect recent financial results and market and operating
conditions. A registration statement under the Securities Act registering senior
notes of the Company identical in all material respects to the Initial 2001
Notes (the "Exchange 2001 Notes") offered in exchange for the Initial 2001 Notes
became effective on August 27, 2001. On October 5, 2001, the Company completed
its exchange offer of the Initial 2001 Notes for the Exchange 2001 Notes. The
Initial 2001 Notes and the Exchange 2001 Notes are referred to herein as the
2001 Notes.

(the "2001 Revolving Facility"). The proceeds of the initial borrowings under
the 2001 Facilities of approximately $386.0 million, including $51.0 million in
revolving credit borrowings, were applied to repay in full the outstanding
borrowings under the Term Loan Facility and the Revolving Facility and to pay
approximately $12 million of the $14 million of fees and expenses incurred in
connection with the amendment and restatement of the Credit Agreement. During
the third quarter of 2001, the Company recorded a non-cash, extraordinary charge
to earnings of approximately $6.0 million, net of tax of nil, related to the
write-off of the applicable remaining deferred debt issuance costs on the Term
Loan Facility and the Revolving Facility.

GENERAL

The Company reports its results in two business segments: Coated Board and
Containerboard. The Coated Board business segment includes (i) the production
and sale of coated unbleached kraft paperboard ("CUK Board") for packaging
cartons from the paper mills in Macon, Georgia (the "Macon Mill") and in West
Monroe, Louisiana (the "West Monroe Mill") and white lined chip board ("WLC") at
its paper mill in Norrkoping, Sweden (the "Swedish Mill"); (ii) converting
operations facilities in the United States, Europe and Brazil; and (iii) the
design, manufacture and installation of packaging machinery related to the
assembly of beverage cartons. The Containerboard business segment includes the
production and sale of linerboard, corrugating medium and kraft paper from
paperboard mills in the United States.

The table below sets forth Net Sales, Income from Operations, and EBITDA.
EBITDA is defined as consolidated net income (exclusive of non-cash charges
resulting from purchase accounting during the periods subsequent to the Merger)
before consolidated interest expense, consolidated income taxes, consolidated
depreciation and amortization, and other non-cash charges deducted in
determining consolidated net income, extraordinary items and the cumulative
effect of accounting changes and earnings of, but including dividends from,
non-controlled affiliates. The Company believes that EBITDA provides useful
information regarding the Company's debt service ability, but should not be
considered in isolation or as a substitute for the Consolidated Statements of
Operations or cash flow data. This definition of EBITDA may not be comparable to
other companies' definitions of EBITDA as it is calculated based on the
definition of EBITDA and GAAP as defined in the 2001 Senior Secured Credit
Agreement.

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 2001 2000 1999
------------------------- ------------ ------------ ------------

Net Sales (Segment Data):
Coated Board.......................................... $1,156,210 $1,065,813 $1,062,671
Containerboard........................................ 93,676 126,549 111,994
---------- ---------- ----------
Net Sales............................................... $1,249,886 $1,192,362 $1,174,665
========== ========== ==========
Income from Operations (Segment Data):
Coated Board.......................................... $ 142,929 $ 161,372 $ 151,453
Containerboard........................................ (19,366) 5,183 (10,235)
Corporate and Eliminations............................ (25,511) 53,934 (20,755)
---------- ---------- ----------
Income from Operations.................................. $ 98,052 $ 220,489 $ 120,463
========== ========== ==========
EBITDA (Segment Data):
Coated Board.......................................... $ 280,410 $ 286,039 $ 269,509
Containerboard........................................ (986) 20,518 7,000
Corporate and Eliminations............................ (11,190) (6,523) (3,034)
---------- ---------- ----------
EBITDA.................................................. $ 268,234 $ 300,034 $ 273,475
========== ========== ==========

BUSINESS TRENDS AND INITIATIVES

The Company's cash flow from operations and EBITDA are influenced by sales
volume and selling prices for its products and raw material and energy costs,
and are affected by a number of significant business,

economic and competitive factors. Many of these factors are not within the
Company's control. Historically, in the Coated Board business segment, the
Company has experienced stable pricing for its integrated beverage carton
products, and moderate cyclical pricing for its folding cartonboard, which is
principally sold in the open market. The Company's folding cartonboard sales are
affected by competition from competitors' CUK Board and other
substrates -- solid bleached sulfate ("SBS"), recycled clay coated news ("CCN")
and, internationally, WLC -- as well as by general market conditions.

In the Containerboard business segment, conditions in the cyclical
worldwide commodity paperboard markets have a substantial impact on the
Company's Containerboard sales. During 2001, the Company elected to take 59
days, or approximately 21,400 tons, of medium and bag market related downtime at
its U.S. mills that resulted in approximately $3.7 million of under-absorbed
fixed costs. The Company expects to take 39 days, or approximately 15,000 tons,
of medium market related downtime during 2002 on its medium machine, but the
amount of downtime could change depending upon market conditions. The downtime
results from a number of factors, but principally a weak containerboard market.
As a result of the expected downtime during 2002, the Company estimates the
impact on earnings at its U.S. mills to be approximately $2.8 million related to
the under-absorption of fixed costs.

Energy, including natural gas, fuel oil and electricity, represents a
significant portion of the Company's manufacturing costs. During 2001, the
Company experienced a significant increase in its energy costs compared to 2000,
principally at its U.S. mills, equal to approximately $16 million. Until
recently, the Company's results had not been significantly affected by the
volatility of energy costs. The Company entered into fixed price contracts
designed to mitigate the impact of future energy cost increases through 2002,
and will continue to evaluate its hedge position.

The Company is pursuing a number of long-term initiatives designed to
improve productivity and profitability while continuing to implement its Coated
Board business strategy. The Company completed a profit center reorganization of
its operations, implemented a global restructuring program (see below),
implemented a number of cost saving measures and effected several management
changes. The Company is continuing to implement a global Total Quality Systems
("TQS") initiative which uses statistical process control to help design and
manage all types of activities including production and maintenance.

In addition, the Company is continuing to implement a strategy focused on
the expansion into the high-growth segments of the global consumer packaged
goods sector. The Company has identified a number of new end-use markets and
strategic alliance partners to position the Company to provide a broad portfolio
of new and enhanced products to generate additional growth in the global
consumer packaged goods sector.

Effective January 1, 2001, the Company consolidated into its financial
statements the accounts of Rengo Riverwood Packaging, Ltd. ("Rengo"), the
Company's Japanese joint venture, since the Company has the ability to exercise
control over Rengo's operating and financial policies. The consolidation of
Rengo contributed approximately $47 million in Net Sales and $4 million in
EBITDA in 2001.

The Company expects capital expenditures will range from $65 million to $80
million in 2002 as the Company invests to improve its process capabilities, in
packaging machinery, and to comply with environmental cluster rules. The Company
continues to evaluate its current operations and assets with a view to
rationalizing its operations and improving profitability, in particular with
respect to its international converting assets and strategy. As part of this
effort, the Company initiated a $25.6 million global restructuring program in
the fourth quarter of 1998 aimed at achieving annualized savings and cost
avoidance of approximately $20 million when fully implemented. The global
restructuring program is focused in the Company's European operations. The
Company completed the restructuring activities during 2001 (see "-- Financial
Condition, Liquidity and Capital Resources -- Restructuring Activities").
Finally, the Company is continuing to focus on reducing working capital and
increasing liquidity.

Packaging machinery placements during 2001 decreased approximately 24
percent when compared to 2000. The Company expects packaging machinery
placements for 2002 to be higher when compared to 2001 and be comparable to 2000
as a result of a 16 percent increase in packaging machinery orders in 2001 when

compared to 2000. The Company has been and will continue to be selective in
future packaging machinery placements to ensure appropriate returns.

OUTLOOK

The Company expects that its 2002 full year EBITDA will exceed its 2001
EBITDA, although no assurance can be given in this regard. The achievement of
this expectation is dependent upon (among other things) a number of profit
improvement initiatives, including increasing worldwide beverage and North
American consumer product sales volumes above 2001 levels, improving U.S. mill
throughput, continued cost savings from other actions taken to date and stable
pricing for the Company's products. In 2002, the Company expects sales volume
increases in its worldwide beverage markets, and continued growth in its North
American consumer product markets. The Company expects containerboard sales and
margins to be negatively affected in 2002 due to the negative market pressures
on containerboard pricing and sales volumes. The Company believes that energy
costs will continue to negatively impact its results for 2002 but the negative
impact is expected to be lower than in 2001.

2001 COMPARED WITH 2000

RESULTS OF OPERATIONS

The following discussion of the Company's results of operations is based
upon the years ended December 31, 2001 and 2000. The Company has reclassified
the presentation of prior period Net Sales and Cost of Sales information to
conform with the current presentation format and Emerging Issues Task Force
00-10, "Accounting for Shipping and Handling Fees and Costs". Shipping and
handling costs totaled $64.9 million in 2001 and $63.7 million in 2000.

% INCREASE
(DECREASE)
YEAR ENDED FROM YEAR ENDED
DECEMBER 31, PRIOR DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 2001 PERIOD 2000
------------------------- ------------ ---------- ------------

Net Sales (Segment Data):
Coated Board............................................ $1,156,210 8.5% $1,065,813
Containerboard.......................................... 93,676 (26.0) 126,549
---------- ----------
Net Sales................................................. 1,249,886 4.8 1,192,362
Cost of Sales............................................. 1,002,059 8.5 923,851
---------- ----------
Gross Profit.............................................. 247,827 (7.7) 268,511
Selling, General and Administrative....................... 120,629 7.5 112,200
Research, Development and Engineering..................... 5,111 12.2 4,554
Restructuring Credit...................................... -- NM (2,600)
Other Expense (Income), Net............................... 24,035 NM (66,132)
---------- ----------
Income from Operations.................................... $ 98,052 (55.5)% $ 220,489
========== ==========
Income from Operations (Segment Data):
Coated Board............................................ $ 142,929 (11.4)% $ 161,372
Containerboard.......................................... (19,366) (100.0) 5,183
Corporate and Eliminations.............................. (25,511) (100.0) 53,934
---------- ----------
Income from Operations.................................... $ 98,052 (55.5)% $ 220,489
========== ==========

PAPERBOARD SHIPMENTS

The following represents shipments of Coated Board and Containerboard to
outside customers. Shipments of Coated Board represent sales to customers of
beverage carrierboard and folding cartonboard. Shipments from the Swedish Mill
represent sales to customers of WLC produced at this mill. Shipments of
Containerboard represent sales to customers of linerboard, corrugating medium,
kraft paper and various other items. Total shipments for the years ended
December 31, 2001 and 2000 were as follows:

(IN THOUSANDS OF TONS) 2001 2000
---------------------- ------- -------

Coated Board................................................ 1,008.3 965.4
Swedish Mill................................................ 150.4 150.4
Containerboard.............................................. 255.3 319.4
------- -------
1,414.0 1,435.2
======= =======

NET SALES

As a result of the factors described below, the Company's Net Sales in 2001
increased by $57.5 million, or 4.8 percent, compared with 2000. Net Sales in the
Coated Board business segment increased by $90.4 million in 2001, or 8.5
percent, to $1,156.2 million from $1,065.8 million in 2000, due primarily to
higher sales volume in North American beverage carton markets, North American
consumer product markets and the consolidation of Rengo. These increases were
somewhat offset by lower sales volumes in international consumer product
markets, lower sales volumes in Brazil and the negative impact of foreign
currency exchange rates. Net Sales in the Containerboard business segment
decreased $32.8 million, or 26.0 percent, to $93.7 million in 2001 from $126.5
million in 2000, due principally to lower volumes and pricing.

GROSS PROFIT

As a result of the factors discussed below, the Company's Gross Profit for
2001 decreased by $20.7 million, or 7.7 percent, to $247.8 million from $268.5
million in 2000. The Company's gross profit margin decreased to 19.8 percent in
2001 from 22.5 percent in 2000. Gross Profit in the Coated Board business
segment increased by $7.3 million, or 2.8 percent, to $262.5 million in 2001
from $255.2 million in 2000, while its gross profit margin decreased to 22.7
percent in 2001 from 23.9 percent in 2000. The increase in Coated Board Gross
Profit was due primarily to worldwide cost reductions, higher Net Sales and
lower depreciation expense somewhat offset by increased energy costs and
last-in, first-out inventory valuation adjustments. Gross Profit in the
Containerboard business segment decreased by $23.8 million to a loss of $15.7
million in 2001 from a profit of $8.1 million in 2000, while its gross profit
margin decreased to (16.8) percent in 2001 from 6.4 percent in 2000. The
decrease in Containerboard Gross Profit resulted principally from lower volumes
and pricing.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, General and Administrative expenses increased by $8.4 million, or
7.5 percent, to $120.6 million in 2001 from $112.2 million in 2000, due
primarily to the consolidation of Rengo and, to a lesser extent, certain
non-recurring operating charges recorded in 2001. As a percentage of Net Sales,
Selling, General and Administrative expenses increased from 9.4 percent in 2000
to 9.7 percent in 2001.

RESEARCH, DEVELOPMENT AND ENGINEERING

Research, Development and Engineering expenses increased by $0.5 million,
or 12.2 percent, to $5.1 million in 2001 from $4.6 million in 2000, due
primarily to higher research and development investing relating to the Company's
new product Z-Flute(R), packaging machinery and the Swedish Mill.

RESTRUCTURING CREDIT

carton converting operations (see "-- Restructuring Activities"). The Company
reduced the restructuring reserve by $4.8 million. In addition, $2.2 million of
new restructuring activities aligned with the overall objectives of the initial
plan were recorded and completed during 2000. The Company completed the 1998
restructuring plan during 2001.

OTHER EXPENSE (INCOME), NET

Other Expense (Income), Net, was $24.0 million in 2001 and $(66.1) million
in 2000. This change was primarily due to the gain recognized from the sale of
Igaras during 2000 (see "-- Equity in Net Earnings of Affiliates") and, to a
lesser extent, non-recurring operating charges recorded in 2001 primarily
relating to a litigation reserve and non-cash asset retirements, and certain
non-recurring operating credits recorded in 2000.

INCOME FROM OPERATIONS

Primarily as a result of the factors discussed above, the Company's Income
from Operations in 2001 decreased by $122.4 million, or 55.5 percent, to $98.1
million from $220.5 million in 2000, while the Company's operating margin
decreased to 7.8 percent in 2001 from 18.5 percent in 2000. Income from
Operations in the Coated Board business segment decreased by $18.5 million, or
11.4 percent, to $142.9 million in 2001 from $161.4 million in 2000, while the
operating margin decreased to 12.4 percent in 2001 from 15.1 percent in 2000,
primarily as a result of the factors described above. Income from Operations in
the Containerboard business segment decreased $24.6 million to a loss of $19.4
million in 2001 from a profit of $5.2 million in 2000, while the operating
margin decreased to (20.7) percent in 2001 from 4.1 percent in 2000, primarily
as a result of the factors described above. Income from Operations in the
Corporate business segment decreased $79.4 million to a loss of $25.5 million in
2001 from a profit of $53.9 million in 2000 due primarily to the sale of Igaras
during 2000.

FLUCTUATIONS IN U.S. CURRENCY EXCHANGE RATES

The strengthening of the U.S. Dollar against the Japanese Yen, and the Euro
and other European currencies had a modest impact on Net Sales, Gross Profit,
Income from Operations, and operating expenses during 2001.

INTEREST INCOME, INTEREST EXPENSE, INCOME TAXES, EQUITY IN NET EARNINGS OF
AFFILIATES, EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT, AND CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE.

INTEREST INCOME

Interest Income increased by $0.1 million to $0.9 million in 2001 from $0.8
million in 2000.

INTEREST EXPENSE

Interest Expense decreased by $22.4 million to $158.9 million in 2001 from
$181.3 million in 2000 due primarily to lower average debt balances and, to a
lesser extent, lower average interest rates.

INCOME TAX EXPENSE

During 2001, the Company recognized an income tax expense of $8.8 million
on a (Loss) before Income Taxes and Equity in Net Earnings of Affiliates of
$(59.9) million. During 2000, the Company recognized an income tax expense of
$3.0 million on Income before Income Taxes and Equity in Net Earnings of
Affiliates of $40.1 million. The income tax expense, in both 2001 and 2000, was
due primarily to international operating income. The increase in income tax
expense from 2000 to 2001 was due primarily to a 90% increase in international
operating income and the consolidation of Rengo. These income tax expenses
differed from the statutory federal income tax rate primarily because of
valuation allowances established on net operating loss carryforward tax assets
in the U.S. and certain international locations where the realization of such
benefits is not more likely than not.

EQUITY IN NET EARNINGS OF AFFILIATES

Equity in Net Earnings of Affiliates was comprised primarily of the
Company's equity in net earnings of Igaras. On October 3, 2000, the Company,
along with its joint venture partner, completed the sale of the jointly-held
subsidiary Igaras for approximately $510 million, including the assumption of
$112 million of debt. The Company recognized a gain of approximately $70.9
million in accordance with the sale. Through the date of the sale, Igaras was
accounted for under the equity method of accounting. Equity in Net Earnings of
Affiliates decreased $3.4 million to nil in 2001 from $3.4 million in 2000
primarily as a result of the sale of Igaras and the consolidation of Rengo.

EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT

On June 21, 2001, the Company completed an offering of $250 million
principal amount of the Initial 2001 Notes, bearing interest at 10 5/8 percent.
The net proceeds of this offering were applied to prepay a portion of the
outstanding borrowings under the Term Loan Facility resulting in a non-cash,
extraordinary charge to earnings of approximately $2.8 million, net of tax of
nil, related to the write-off of the applicable portion of deferred debt
issuance costs on the term loans.

On August 10, 2001, the Company entered into the 2001 Senior Secured Credit
Agreement. The proceeds of the initial borrowings under the 2001 Facilities of
approximately $386.0 million, including $51.0 million in revolving credit
borrowings, were applied to repay in full the outstanding borrowings under the
Term Loan Facility and the Revolving Facility and to pay approximately $12
million of the $14 million of fees and expenses incurred in connection with the
amendment and restatement of the Credit Agreement. During the third quarter of
2001, the Company recorded a non-cash, extraordinary charge to earnings of
approximately $6.0 million, net of tax of nil, related to the write-off of the
applicable remaining deferred debt issuance costs on the Term Loan Facility and
the Revolving Facility.

On October 3, 2000, the Company completed the sale of its 50 percent
investment in Igaras. The Company applied $120 million and $25 million of the
sale proceeds to its 2001 and 2002 term loan maturities under the Term Loan
Facility, respectively. The Company recognized a loss on the early
extinguishment of debt of approximately $2.1 million in the fourth quarter of
2000.

CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE

The Company is exposed to fluctuations in interest rates on its variable
rate debt and fluctuations in foreign currency transaction cash flows. The
Company actively monitors these fluctuations and uses derivative instruments
from time to time to manage its exposure. In accordance with its risk management
strategy, the Company uses derivative instruments only for the purpose of
managing risk associated with fluctuations in the cash flow of the underlying
exposures identified by management. The Company does not trade or use derivative
instruments with the objective of earning financial gains on interest or
currency rates, nor does it use leveraged instruments or instruments where there
are no underlying exposures identified. The Company's use of derivative
instruments may result in short-term gains or losses and may increase volatility
in its earnings.

On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 137, Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities ("SFAS No. 133"). SFAS No. 133 requires all derivative
instruments to be measured at fair value and recognized on the balance sheet as
either assets or liabilities. In addition, all derivative instruments used in
hedging relationships must be designated, reassessed and documented pursuant to
the provisions of SFAS No. 133. Upon adoption of SFAS No. 133, the Company
recognized a one-time after-tax transition adjustment to decrease earnings by
approximately $0.5 million and decrease other comprehensive income by
approximately $1.1 million. These amounts have been presented as a cumulative
effect of change in accounting principle in the accompanying Consolidated
Statement of Operations and Comprehensive (Loss) Income for the year ended
December 31, 2001.

The following is a summary of the Company's derivative instruments as of
December 31, 2001 and the accounting policies it employs for each:

Hedges of Anticipated Cash Flows

The following is a reconciliation of current period changes in the fair
value of the interest rate swap agreements, foreign currency forward and option
contracts which have been recorded as Accumulated Derivative Instruments Loss in
the accompanying Consolidated Balance Sheet at December 31, 2001 and as
Derivative Instruments Loss in the accompanying Consolidated Statement of
Operations and Comprehensive (Loss) Income for the year ended December 31, 2001.

(IN THOUSANDS OF DOLLARS)
-------------------------

SFAS No. 133 transition adjustment.......................... $(1,094)
Reclass to earnings......................................... 331
Current period decrease in fair value....................... (3,807)
-------
Balance at December 31, 2001................................ $(4,570)
=======

During the year ended December 31, 2001, there was no ineffective portion
related to the changes in fair value of the interest rate swap agreements,
foreign currency forward and option contracts and there were no amounts excluded
from the measure of effectiveness. The balance of $4.6 million recorded in
Accumulated Derivative Instruments Loss at December 31, 2001 is expected to be
reclassified into future earnings, contemporaneously with and offsetting changes
in the related hedged exposure. The estimated amount to be reclassified into
future earnings as interest expense and other income over the next twelve months
through December 31, 2002 is approximately $5.4 million and $0.8 million,
respectively. The actual amount that will be reclassified to future earnings
over the next twelve months will vary from this amount as a result of changes in
market conditions. No amounts were reclassified to earnings during the fourth
quarter of 2001 in connection with forecasted transactions that were no longer
considered probable of occurring.

Derivatives not Designated as Hedges

The Company has foreign currency forward contracts used to hedge the
exposure associated with foreign currency denominated receivables. These
contracts are presently being marked-to-market through the income statement and
will continue to be marked-to-market through the income statement.

2000 COMPARED WITH 1999

RESULTS OF OPERATIONS

The following discussion of the Company's results of operations is based
upon the years ended December 31, 2000 and 1999. The Company has reclassified
the presentation of prior period Net Sales and Cost of Sales information to
conform with the current presentation format and Emerging Issues Task Force
00-10, "Accounting for Shipping and Handling Fees and Costs". Shipping and
handling costs totaled $63.7 million in 2000 and $62.0 million in 1999.

% INCREASE
YEAR ENDED (DECREASE) YEAR ENDED
DECEMBER 31, FROM PRIOR DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 2000 PERIOD 1999
------------------------- ------------ ---------- ------------

Net Sales (Segment Data):
Coated Board........................................... $1,065,813 0.3% $1,062,671
Containerboard......................................... 126,549 13.0 111,994
---------- ----------
Net Sales................................................ 1,192,362 1.5 1,174,665
Cost of Sales............................................ 923,851 (1.1) 933,924
---------- ----------
Gross Profit............................................. 268,511 11.5 240,741
Selling, General and Administrative...................... 112,200 (1.9) 114,402
Research, Development and Engineering.................... 4,554 11.7 4,078
Restructuring Credit..................................... (2,600) NM --
Other (Income) Expense, Net.............................. (66,132) (100.0) 1,798
---------- ----------
Income from Operations................................... $ 220,489 83.0% $ 120,463
========== ==========
Income from Operations (Segment Data):
Coated Board........................................... $ 161,372 6.5% $ 151,453
Containerboard......................................... 5,183 NM (10,235)
Corporate and Eliminations............................. 53,934 NM (20,755)
---------- ----------
Income from Operations................................... $ 220,489 83.0% $ 120,463
========== ==========

PAPERBOARD SHIPMENTS

(IN THOUSANDS OF TONS) 2000 1999
---------------------- ------- -------

Coated Board................................................ 965.4 965.6
Swedish Mill................................................ 150.4 141.0
Containerboard.............................................. 319.4 327.8
------- -------
1,435.2 1,434.4
======= =======

NET SALES

As a result of the factors described below, the Company's Net Sales in 2000
increased by $17.7 million, or 1.5 percent, compared with 1999. Net Sales in the
Coated Board business segment increased by $3.1 million in 2000, or 0.3 percent,
to $1,065.8 million from $1,062.7 million in 1999, due primarily to higher sales
volume in North American consumer product markets due principally to selected
switching from competing substrates to the Company's substrate, higher sales
volume in international beverage markets due principally to continued market
penetration and strong demand in Japan, and slightly improved pricing in North
American beverage and North American consumer product markets. These increases
were somewhat

offset by lower sales volumes in Brazil, by lower North American beverage
volumes due primarily to lower soft drink demand and the negative impact of
foreign currency exchange rates, primarily in Europe. Net Sales in the
Containerboard business segment increased $14.5 million, or 13.0 percent, to
$126.5 million in 2000 from $112.0 million in 1999, due principally to higher
pricing, somewhat offset by lower sales volume primarily in the medium markets.

GROSS PROFIT

As a result of the factors discussed below, the Company's Gross Profit for
2000 increased by $27.8 million, or 11.5 percent, to $268.5 million from $240.7
million in 1999. The Company's gross profit margin increased to 22.5 percent in
2000 from 20.5 percent in 1999. Gross Profit in the Coated Board business
segment increased by $9.9 million, or 4.0 percent, to $255.2 million in 2000
from $245.3 million in 1999, while its gross profit margin increased to 23.9
percent in 2000 from 23.1 percent in 1999. The increase in Coated Board Gross
Profit was due directly to worldwide cost reductions and higher Net Sales
somewhat offset by higher energy costs. Gross Profit in the Containerboard
business segment increased by $12.4 million to a profit of $8.1 million in 2000
from a loss of $4.3 million in 1999, while its gross profit margin increased to
6.4 percent in 2000 from (3.8) percent in 1999. The increase in Containerboard
Gross Profit resulted principally from improved pricing.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, General and Administrative expenses decreased by $2.2 million, or
1.9 percent, to $112.2 million in 2000 from $114.4 million in 1999, due mainly
to lower incentive compensation expense somewhat offset by higher depreciation
expense, higher stock option compensation expense, expenses related to the TQS
initiative, and consulting fees related to a project within the Company's
consumer products business. As a percentage of Net Sales, Selling, General and
Administrative expenses decreased from 9.7 percent in 1999 to 9.4 percent in
2000.

RESEARCH, DEVELOPMENT AND ENGINEERING

Research, Development and Engineering expenses increased by $0.5 million,
or 11.7 percent, to $4.6 million in 2000 from $4.1 million in 1999, due
primarily to higher research and development investing relating to packaging
machinery.

RESTRUCTURING CREDIT

During 2000, the Company substantially completed the 1998 restructuring
plan that related primarily to the restructuring of its European operations,
primarily the ongoing rationalization of its international folding carton
converting operations (see "Restructuring Activities"). The Company reduced the
restructuring reserve by $4.8 million. In addition, $2.2 million of new
restructuring activities aligned with the overall objectives of the initial plan
were recorded and completed during 2000.

OTHER (INCOME) EXPENSE, NET

Other (Income) Expense, Net, was $(66.1) million in 2000 and $1.8 million
in 1999. This change was primarily due to the gain recognized from the sale of
Igaras (see "-- Equity in Net Earnings of Affiliates").

INCOME FROM OPERATIONS

Primarily as a result of the factors discussed above, the Company's Income
from Operations in 2000 increased by $100.0 million, or 83.0 percent, to $220.5
million from $120.5 million in 1999, while the Company's operating margin
increased to 18.5 percent in 2000 from 10.3 percent in 1999. Income from
Operations in the Coated Board business segment increased by $9.9 million, or
6.5 percent, to $161.4 million in 2000 from $151.5 million in 1999, while the
operating margin increased to 15.1 percent in 2000 from 14.3 percent in 1999,
primarily as a result of the factors described above. Income from Operations in
the Containerboard business segment increased $15.4 million to a profit of $5.2
million in 2000 from a loss of
20

$10.2 million in 1999, while the operating margin increased to 4.1 percent in
2000 from (9.1) percent in 1999, primarily as a result of the factors described
above. Income from Operations in the Corporate business segment increased $74.7
million to a profit of $53.9 million in 2000 from a loss of $20.8 million in
1999 due primarily to the sale of Igaras.

FLUCTUATIONS IN U.S. CURRENCY EXCHANGE RATES

The strengthening of the U.S. Dollar against the Euro and other European
currencies did have a modest impact on Net Sales, Gross Profit, Income from
Operations, and operating expenses during 2000. However, the impact was somewhat
offset by the weakening of the U.S. Dollar against the Japanese Yen.

INTEREST INCOME, INTEREST EXPENSE, INCOME TAXES, EQUITY IN NET EARNINGS OF
AFFILIATES, AND EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT.

INTEREST INCOME

Interest Income decreased by $0.1 million to $0.8 million in 2000 from $0.9
million in 1999.

INTEREST EXPENSE

Interest Expense increased by $2.1 million to $181.3 million in 2000 from
$179.2 million in 1999 due primarily to higher average interest rates.

INCOME TAX EXPENSE

During 2000, the Company recognized an income tax expense of $3.0 million
on Income before Income Taxes and Equity in Net Earnings of Affiliates of $40.1
million. During 1999, the Company recognized an income tax expense of $3.9
million on a (Loss) before Income Taxes and Equity in Net Earnings of Affiliates
of $(57.8) million. These income tax expenses differed from the statutory
federal income tax rate primarily because of valuation allowances established on
net operating loss carryforward tax assets in the U.S. and certain international
locations where the realization of such benefits is not more likely than not.

EQUITY IN NET EARNINGS OF AFFILIATES

Equity in Net Earnings of Affiliates was comprised primarily of the
Company's equity in net earnings of Igaras. On October 3, 2000, the Company,
along with its joint venture partner, completed the sale of the jointly-held
subsidiary Igaras for approximately $510 million, including the assumption of
$112 million of debt. The Company recognized a gain of approximately $70.9
million in accordance with the sale. Through the date of the sale, Igaras was
accounted for under the equity method of accounting. Equity in Net Earnings of
Affiliates decreased $3.7 million to $3.4 million in 2000 from $7.1 million in
1999 primarily as a result of the sale.

EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The Company broadly defines liquidity as its ability to generate sufficient
cash flow from operating activities to meet its obligations and commitments. In
addition, liquidity includes the ability to obtain appropriate debt and equity
financing and to convert into cash those assets that are no longer required to
meet existing strategic and financial objectives. Therefore, liquidity cannot be
considered separately from capital resources that consist of current or
potentially available funds for use in achieving long-range business objectives
and meeting debt service commitments.
21

CASH FLOWS

Cash and Equivalents increased by approximately $7.7 million in 2001
primarily as a result of the net cash provided by operating activities ($89.6
million) and the consolidation of Rengo ($18.0 million), somewhat offset by the
purchases of property, plant and equipment ($57.7 million), the payment for
settlement of all Louisiana state income tax issues (tax and interest) related
to the period ended March 27, 1996 and the nine month period ended December 31,
1996 ($29.5 million) and net cash used in financing activities ($8.6 million).
Depreciation and amortization during 2001 totaled $137 million, and is expected
to be approximately $130 million to $140 million for 2002.

The Company's cash flows from its operations and EBITDA are subject to
moderate seasonality with demand usually increasing in the spring and summer due
to the seasonality of the worldwide multiple packaging beverage segment.

LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity needs arise primarily from debt service on its
substantial indebtedness, and from the funding of its capital expenditures,
ongoing operating costs, and working capital.

On June 21, 2001, the Company completed the offering of the Initial 2001
Notes. The proceeds of the offering of $251.5 million, net of approximately $6
million of transaction fees and expenses, were applied to prepay a portion of
the outstanding borrowings under the Term Loan Facility.

On August 10, 2001, the Company entered into the 2001 Senior Secured Credit
Agreement with certain lenders providing for senior secured credit facilities
with aggregate commitments not to exceed $635 million, including the $335
million 2001 Term Loan Facility and the $300 million 2001 Revolving Facility.
The proceeds of the initial borrowings under the 2001 Facilities of
approximately $386.0 million, including $51.0 million in revolving credit
borrowings, were applied to repay in full the outstanding borrowings under the
Term Loan Facility and the Revolving Facility and to pay approximately $12
million of the $14 million of fees and expenses incurred in connection with the
amendment and restatement of the Credit Agreement.

As of December 31, 2001, the Company had outstanding approximately $1,525
million of long-term debt, consisting primarily of $650 million aggregate
principal amount of the 1996 Notes, $250 million of the 1997 Notes, $250 million
of the 2001 Notes, $335 million outstanding under the 2001 Term Loan Facility
and $35 million under the 2001 Revolving Facility, and other debt issues and
facilities.

DEBT SERVICE

Principal and interest payments under the 2001 Term Loan Facility and the
2001 Revolving Facility, together with interest payments on the 2001 Notes, 1997
Notes and 1996 Notes, represent significant liquidity requirements for the
Company. The 2001 Term Loan Facility amortization requirements are in
semi-annual installments of $37.5 million beginning June 30, 2003 and amounting
to $75 million annually in each of 2003 and 2004, with $46.25 million due on
June 30, 2005, and the remainder due at maturity on December 31, 2005. The 2001
Revolving Facility matures on December 31, 2005. The final maturities of the
2001 Facilities are extendable from December 31, 2005 to December 31, 2006 if
the Company refinances the 1996 Senior Notes on specified terms on or prior to
December 31, 2005 (in such event, the 2001 Term Loan Facility will continue to
amortize in semi-annual installments of $46.25 million through December 31,
2006). See Note 10 to Notes to Consolidated Financial Statements.

The loans under the 2001 Facilities bear interest at floating rates based
upon the interest rate option elected by the Company. The term loans under the
2001 Term Loan Facility bore interest as of December 31, 2001 at an average rate
per annum of 4.85 percent. The 1996 Senior Notes, the 1997 Notes, the 2001 Notes
and the 1996 Senior Subordinated Notes bear interest at rates of 10 1/4 percent,
10 5/8 percent, 10 5/8 percent and 10 7/8 percent, respectively.

Interest expense in 2001 totaled $159 million, including approximately $8
million of non-cash amortization of deferred debt issuance costs. During 2001,
cash paid for interest was approximately $146 million.

Interest expense in 2002 is expected to be approximately $159 million, including
approximately $7 million of non-cash amortization of deferred debt issuance
costs.

The Company expects that its working capital and business needs will
require it to continue to have access to the 2001 Revolving Facility or a
similar revolving credit facility after the maturity date, and that the Company
accordingly will have to extend, renew, replace or otherwise refinance such
facility at or prior to such date. No assurance can be given that it will be
able to do so. The Company has in the past refinanced and in the future may seek
to refinance its debt prior to the respective maturities of such debt.

The Company uses interest rate swap agreements to fix a portion of its
variable rate term loans to a fixed rate in order to reduce the impact of
interest rate changes on future income. The difference to be paid or received
under these agreements is recognized as an adjustment to interest expense
related to that debt. At December 31, 2001, the Company had interest rate swap
agreements with a notional amount of $225 million, under which the Company will
pay fixed rates of 4.75 percent to 6.53 percent and receive three-month LIBOR.

COVENANT RESTRICTIONS

The 2001 Senior Secured Credit Agreement imposes restrictions on the
Company's ability to make capital expenditures and both the 2001 Senior Secured
Credit Agreement and the indentures governing the 1996 Notes, the 1997 Notes and
the 2001 Notes limit the Company's ability to incur additional indebtedness.
Such restrictions, together with the highly leveraged nature of the Company,
could limit the Company's ability to respond to market conditions, meet its
capital spending program, provide for unanticipated capital investments or take
advantage of business opportunities. The covenants contained in the 2001 Senior
Secured Credit Agreement, among other things, restrict the ability of the
Company and its subsidiaries to dispose of assets, incur additional
indebtedness, incur guarantee obligations, prepay other indebtedness or amend
other debt instruments, pay dividends, create liens on assets, enter into sale
and leaseback transactions, make investments, loans or advances, make
acquisitions, engage in mergers or consolidations, change the business conducted
by Riverwood and its subsidiaries, make capital expenditures and engage in
certain transactions with affiliates. The covenants contained in the indentures
governing the 1996 Notes, the 1997 Notes and the 2001 Notes also impose
restrictions on the operation of the Company's business.

The financial covenants in the 2001 Senior Secured Credit Agreement
specify, among other things, the following requirements for each four quarter
period ended during the following test periods:

CONSOLIDATED CONSOLIDATED
DEBT TO EBITDA INTEREST EXPENSE
TEST PERIOD LEVERAGE RATIO RATIO
----------- -------------- ----------------

September 30, 2001 -- December 30, 2002................ 5.85 to 1.00 1.75 to 1.00
December 31, 2002 -- December 30, 2003................. 5.50 to 1.00 2.00 to 1.00
December 31, 2003 -- December 30, 2004................. 5.00 to 1.00 2.10 to 1.00
December 31, 2004 -- December 30, 2005................. 4.70 to 1.00 2.25 to 1.00
December 31, 2005 -- December 30, 2006................. 4.40 to 1.00 2.25 to 1.00

At December 31, 2001, the Company was in compliance with the financial
covenants in the 2001 Senior Secured Credit Agreement. The Company's ability to
comply in future periods with the financial covenants in the 2001 Senior Secured
Credit Agreement will depend on its ongoing financial and operating performance,
which in turn will be subject to economic conditions and to financial, business
and other factors, many of which are beyond the Company's control and will be
substantially dependent on the selling prices for the Company's products, raw
material and energy costs, and the Company's ability to successfully implement
its overall business and profitability strategies (see "-- Outlook"). If a
violation of any of the covenants occurred, the Company would attempt to get a
waiver or an amendment from its lenders, although no assurance can be given that
the Company would be successful in this regard. The 2001 Senior Secured Credit
Agreement and the indentures governing the 1996 Notes, 1997 Notes and 2001 Notes
have covenants as well as certain cross-default or cross-acceleration
provisions; failure to comply with these covenants in any agreement could result

in a violation of such agreement which could, in turn, lead to violations of
other agreements pursuant to such cross-default or cross-acceleration
provisions.

CAPITAL EXPENDITURES

Capital spending for 2001 was $57.7 million, down 7.1 percent from $62.1
million in 2000. Capital spending during 2001 related primarily to improving the
Company's process capabilities, manufacturing packaging machinery and
environmental cluster rules compliance. Total capital spending for 2002 is
expected to be between $65 million and $80 million, and is expected to relate
principally to improving the Company's process capabilities, the production of
packaging machinery and environmental cluster rules compliance. The Company
estimates that the capital spending that may be required to comply with the
cluster rules could reach $55 million to be spent at its two U.S. paper mills
over a seven-year period that began in 2000 (see "Environmental and Legal
Matters"). The Company estimates that it has spent approximately one-third of
that amount for such compliance.

RESTRUCTURING ACTIVITIES

In connection with the global restructuring program initiated in the fourth
quarter of 1998, the Company began reducing its European workforce by
approximately 300 employees and implemented other initiatives designed to
improve productivity and profitability across the global organization. The
initial cost of this program was approximately $25.6 million of which
approximately $0.8 million was used in December 1998 and related to severance
payments. The following table provides information that details payments on this
restructuring plan since December 31, 1998:

OTHER
(IN THOUSANDS OF DOLLARS) SEVERANCE EXIT COSTS TOTAL
------------------------- --------- ---------- --------

Balance at 12/31/98.................................. $ 21,205 $ 3,537 $ 24,742
Charges against accrual in 1999...................... (11,527) (791) (12,318)
--------- ------- --------
Balance at 12/31/99.................................. 9,678 2,746 12,424
Net charges against accrual in 2000.................. (6,669) (2,499) (9,168)
--------- ------- --------
Balance at 12/31/00.................................. 3,009 247 3,256
Net charges against accrual in 2001.................. (3,009) (247) (3,256)
--------- ------- --------
Balance at 12/31/01.................................. $ -- $ -- $ --
========= ======= ========

During 2000, the Company substantially completed the restructuring plan and
reduced the reserve by $4.8 million. In addition, $2.2 million of new
restructuring activities aligned with the overall objectives of the initial plan
were completed in 2000. The Company completed this program during 2001 resulting
in the reduction of its European workforce related to the 1998 restructuring by
approximately 250 employees.

FINANCING SOURCES AND CASH FLOWS

The 2001 Revolving Facility matures on December 31, 2005, extendable to
December 31, 2006 if the Company refinances the 1996 Senior Notes on specified
terms on or prior to December 31, 2005. At December 31, 2001, the Company and
its U.S. and international subsidiaries had the following amounts of
commitments, amounts outstanding and amounts available under revolving credit
facilities:

TOTAL AMOUNT
OF TOTAL AMOUNT TOTAL AMOUNT
(IN THOUSANDS OF DOLLARS) COMMITMENTS OUTSTANDING AVAILABLE
------------------------- ------------ ------------ ------------

2001 Revolving Facility........................ $300,000 $35,429 $264,571
International Facilities....................... 14,581 10,015 4,566
-------- ------- --------
$314,581 $45,444 $269,137
======== ======= ========

its 2001 Revolving Facility and other available financing sources, will be
adequate to permit the Company to meet its debt service obligations, capital
expenditure program requirements, ongoing operating costs and working capital
needs until the maturity of the 2001 Revolving Facility, although no assurance
can be given in this regard. The Company's future financial and operating
performance, ability to service or refinance its debt and ability to comply with
the covenants and restrictions contained in its debt agreements (see
"-- Covenant Restrictions"), will be subject to future economic conditions and
to financial, business and other factors, many of which are beyond the Company's
control and will be substantially dependent on the selling prices for the
Company's products, raw material and energy costs, and the Company's ability to
successfully implement its overall business and profitability strategies.

COMMITMENTS

At December 31, 2001, total commitments of the Company under long-term,
non-cancelable contracts were as follows:

PAYMENT DUE BY PERIOD
CONTRACTUAL OBLIGATIONS --------------------------------------------------------------
----------------------- LESS THAN
(IN THOUSAND OF DOLLARS) 1 YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS TOTAL
------------------------ --------- --------- --------- ------------- ----------

Long-Term Debt................ $ 1,742 $151,548 $470,506 $901,028 $1,524,824
Operating Leases.............. 13,821 17,975 2,588 946 35,330
Unconditional Purchase
Obligations................. 31,345 16,373 14,693 69,556 131,967
------- -------- -------- -------- ----------
Total Contractual Cash
Obligations................. $46,908 $185,896 $487,787 $971,530 $1,692,121
======= ======== ======== ======== ==========

ENVIRONMENTAL AND LEGAL MATTERS

In late 1995, the Louisiana Department of Environmental Quality ("DEQ")
notified the Predecessor of potential liability for the remediation of hazardous
substances at a wood treatment site in Shreveport, Louisiana that the
Predecessor or its predecessors previously operated, and at a former oil
refinery site in Caddo Parish, Louisiana which is on land that the Company
previously owned. In response to these notices, the Company has provided
additional information concerning these sites and has commenced its own
evaluation of any claims and remediation liabilities for which it may be
responsible. Subsequent to receipt in May 1996 of a Special Demand Letter from
DEQ to remediate the site in Shreveport, the Company performed a soil and
groundwater investigation at the site pursuant to an agreement with DEQ. In
August 2001, the Company entered into a Cooperative Agreement for Remedial
Action with DEQ and the landowners of the site, as well as a Mutual Release and
Settlement Agreement with the landowners. Under the Cooperative Agreement, the
Company will develop the remedial design and carry out the specified remediation
at the site. The Company has engaged a qualified contractor and expects
completion of the work by the end of 2002. In September 1996, the Company
received a Special Demand Letter from DEQ to remediate the site in Caddo Parish.
The Company performed a waste inventory and treatability study at the site and
subsequently met with DEQ in October 1999. On July 6, 2000, the Company and DEQ
entered into a Settlement Agreement that describes in detail the remedial
actions necessary for the Company to obtain full

release of all future liability at this site. The Company has contracted with a
vendor to perform the remedial actions as outlined in the Settlement Agreement
and the work is currently proceeding. The Company no longer owns the site since
transferring the property to another entity on October 22, 2000. The Company
anticipates the remedial actions outlined in the Settlement Agreement will be
completed during the second quarter of 2002 and, at that time, expects to be
relieved of any future liability.

The Company has been a plaintiff in actions against MeadWestvaco, successor
by merger to Mead, and R.A. Jones claiming infringement of the Company's patents
for its packaging machines. The patents in suit were found infringed but invalid
by a jury in a trial against R.A. Jones in August 2001. This finding of
invalidity has been appealed to the Court of Appeals for The Federal Circuit.
The suit against MeadWestvaco was dismissed by mutual agreement pending the
outcome of the appeal of the decision in the case against R.A. Jones.

TAX MATTERS RELATING TO THE MERGER

In connection with the Merger, the former majority owner of the Company
agreed to bear the cost of a Section 338(h)(10) election for U.S. federal tax
purposes and for purposes of state taxes for which the former majority owner and
the Company filed returns on a combined basis. The Company agreed to bear the
cost of this election for the purposes of other state taxes ("stand-alone
taxes"), including Louisiana income tax. During 1997, the Company paid $27.5
million in estimated Louisiana stand-alone taxes relating to the election. The
Company's calculation of its Louisiana tax was based on state law in effect at
the time of the Merger, including a 1993 amendment. In May 1997, the Louisiana
Supreme Court declared the 1993 amendment to be void under the Louisiana
Constitution, retroactive to 1993. After consultation with Louisiana tax
counsel, the Company filed its Louisiana income tax return for the period ended
March 27, 1996 in reliance on the Louisiana tax law in effect at the time of the
Merger, without the payment of any additional tax due to the voiding of the 1993
amendment.

The State of Louisiana completed its audit of the Company's tax return for
the period ended March 27, 1996 and on May 9, 2000, the Company received a
Notice of Proposed Tax Due for this period in the amount of $47.6 million in tax
plus statutory interest. On October 12, 2001, the Company entered into a
settlement agreement with the Louisiana Department of Revenue to pay $29.5
million to the State of Louisiana to settle all Louisiana state income tax
issues (tax and interest) related to the period ended March 27, 1996 and the
nine month period ended December 31, 1996. The Company made this payment on
October 25, 2001 using funds borrowed under the 2001 Revolving Facility. See
Note 15 in Notes to the Consolidated Financial Statements.

INTERNATIONAL OPERATIONS

At December 31, 2001, approximately 12 percent of the Company's total net
assets were denominated in currencies other than the U.S. dollar. The Company
has significant operations in countries that use the Swedish krona, the British
pound sterling, the Japanese yen, the Spanish peseta, or the French franc as
their functional currencies. The effect of a generally stronger U.S. Dollar
against the currencies of Japan, Sweden, Britain, Germany, Spain, and France
produced a net currency translation adjustment loss of approximately $5.6
million, which was recorded as an adjustment to shareholders' equity for the
year ended December 31, 2001. The magnitude and direction of this adjustment in
the future depends on the relationship of the U.S. dollar to other currencies.
The Company cannot predict major currency fluctuations. The Company's revenues
from export sales fluctuate with changes in foreign currency exchange rates. The
Company pursues a currency hedging program in order to limit the impact of
foreign currency exchange fluctuations on financial results. See "-- Financial
Instruments."

Within Europe, eleven of the fifteen member countries of the European Union
participated in the European Economic and Monetary Union (the "EMU"), pursuant
to which a new currency, the Euro, was introduced on January 1, 1999. The new
currency is in response to the EMU's policy of economic convergence to harmonize
trade policy, eliminate business costs associated with currency exchange and to
promote the free flow of capital, goods and services.

On January 1, 1999, the participating countries adopted the Euro as their
local currency, initially available for currency trading on currency exchanges
for use in noncash (banking) transactions. Beginning on January 1, 2002,
Euro-denominated bills and coins were issued for cash transactions. Before the
end of the first quarter of 2002, the participating countries are expected to
withdraw all local currencies and use exclusively the Euro.

Currently, the Company operates in five of the participating countries in
the EMU. Nonparticipating European Union countries, such as Great Britain, where
the Company also has operations, may eventually join the EMU.

Although the Company will continue to review its pricing strategy
throughout Europe due to the increased price transparency created by the Euro,
it does not anticipate that any resulting change would have a material effect on
its operations. The Company also does not believe that EMU will have a material
effect with respect to its derivative and other financial transactions.

FINANCIAL INSTRUMENTS

The functional currency for most of the Company's international
subsidiaries is the local currency for the country in which the subsidiaries own
their primary assets. The translation of the applicable currencies into U.S.
dollars is performed for balance sheet accounts using current exchange rates in
effect at the balance sheet date and for revenue and expense accounts using a
weighted average exchange rate during the period. Any related translation
adjustments are recorded directly to shareholders' equity. Gains and losses on
foreign currency transactions are included in Other Expense (Income), Net for
the period in which the exchange rate changes.

The Company pursues a currency hedging program which utilizes derivatives
to limit the impact of foreign currency exchange fluctuations on its
consolidated financial results. Under this program, the Company has entered into
forward exchange and option contracts in the normal course of business to hedge
certain foreign currency denominated transactions. Realized and unrealized gains
and losses on these forward contracts are included in the measurement of the
basis of the related foreign currency transaction when recorded. The premium on
an option contract is reflected in Other Expense (Income), Net, during the
period in which the contract expires. These instruments involve, to varying
degrees, elements of market and credit risk in excess of the amounts recognized
in the Consolidated Balance Sheets. The Company does not hold or issue financial
instruments for trading purposes. See "Item 7A -- Quantitative and Qualitative
Disclosure About Market Risk."

IMPACT OF INFLATION

In the U.S., the inflation rate was approximately 2.8 percent for 2001. In
Europe, where the Company has manufacturing facilities, the inflation rate for
2001 was approximately 2.7 percent. Net sales from international operations
during the period amounted to approximately $409 million, or 33 percent of the
Company's combined Net Sales in 2001.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

Certain of the statements contained in this report (other than the
financial statements and other statements of historical fact) are
forward-looking statements, including, without limitation, (i) the statements in
"-- Business Trends and Initiatives" concerning (a) the Company's expectation
regarding downtime during 2002, (b) the improvements which the Company's
long-term initiatives, including, without limitation, its profit center
reorganization and global restructuring program, are designed to achieve, (c)
the Company's expectation that capital expenditures will range from $65 million
to $80 million in 2002, and (d) the Company's expectation regarding packaging
machinery placements; (ii) the statements in "-- Outlook" concerning (a) the
Company's expectation that its 2002 EBITDA will exceed its 2001 EBITDA as well
as each of the factors which the Company believes support such expectation, (b)
the Company's expectations regarding sales volumes in its worldwide beverage
markets and continued growth in its North American consumer product markets, (c)
the Company's expectation regarding containerboard sales and margins, and (d)
the Company's expectations regarding increased energy costs; (iii) the
statements in "Financial Condition, Liquidity and Capital Resources" concerning
(a) the Company's expectation that depreciation and amortization for 2002 will
be approximately $130 million to $140 million, (b) the Company's expectation
that 2002 interest expense will be approximately $159 million including
approximately $7 million of non-cash amortization of deferred debt issuance
costs, (c) the Company's expectation that total capital spending for 2002 will
range from $65 million to $80 million, (d) the Company's belief that cash
generated from operations, together with amounts available under available
financing sources, will be adequate to permit the Company to meet its debt
service obligations, capital expenditure program requirements, ongoing operating
costs and working capital needs until the maturity of the Revolving Facility,
and (e) the Company's expectations with respect to capital spending that may be
required to comply with the cluster rules and that, based on current knowledge,
environmental costs are not expected to have a material impact on the results of
operations, cash flows or financial condition of the Company, (iv) other
statements as to management's or the Company's expectations and beliefs
presented in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

Forward-looking statements are made based upon management's current
expectations and beliefs concerning future developments and their potential
effects upon the Company. There can be no assurance that future developments
will be in accordance with management's expectations or that the effect of
future developments on the Company will be those anticipated by management. The
following important factors, and those important factors described elsewhere in
this report (including, without limitation, those discussed in "-- Financial
Condition, Liquidity and Capital Resources -- Liquidity and Capital
Resources -- Environmental and Legal Matters", or in other Securities and
Exchange Commission filings, could affect (and in some cases have affected) the
Company's actual results and could cause such results to differ materially from
estimates or expectations reflected in such forward-looking statements:

- The Company's substantial amount of debt could have important
consequences to the Company, including but not limited to the following:
(i) the Company's ability to obtain additional financing for working
capital, capital expenditures, acquisitions, general corporate purposes
or other purposes may be impaired in the future; (ii) a substantial
portion of the Company's cash flow from operations must be dedicated to
the payment of principal and interest on its indebtedness, thereby
reducing the funds available to the Company for other purposes; (iii)
certain of the Company's borrowings are at variable rates of interest,
which exposes the Company to the risk of increased interest rates; and
(iv) the Company's flexibility to adjust to changing market conditions
and ability to withstand competitive pressures could be limited, and the
Company may be more vulnerable to a downturn in general

economic conditions or its business or be unable to carry out capital
spending that is important to its strategy and productivity improvement
programs.

- The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness, and to comply with the
covenants and restrictions contained in the instruments governing such
indebtedness, will depend on its financial and operating performance,
which, in turn, is subject to prevailing economic and competitive
conditions and to certain financial, business and other factors beyond
its control, including operating difficulties, increased operating costs,
increased raw materials and energy costs, market cyclicality, product
prices, the response of competitors, regulatory developments, and delays
in implementing strategic projects.

- The Company's ability to meet its debt service and other obligations will
depend in significant part on the selling prices that the Company
realizes for its products and the extent to which the Company can
implement its business strategy (which is subject to significant
business, economic and competitive uncertainties and contingencies).

- The Company currently estimates that it will take several years for
coated board markets to absorb the significant increase in the Company's
CUK Board capacity resulting from the upgrade of the second Macon Mill
paper machine, which was completed in June 1997. The Company expects to
sell a significant portion of its additional CUK Board production in open
markets. There can be no assurance that additional CUK Board output can
be sold in these markets or that such additional CUK Board can be sold
without experiencing price reductions.

- All of the Company's CUK Board is produced at its West Monroe and Macon
Mills. Any prolonged disruption in either facility's production due to
labor difficulties (including strikes or work stoppages), equipment
failures, destruction of or material damage to such facility, or other
reasons, could have a material adverse effect on the Company's results of
operations.

- The Company faces significant competition in its CUK Board business
segment from MeadWestvaco, as well as from other manufacturers of
packaging machinery. The highly leveraged nature of the Company could
limit the Company's ability to respond to market conditions or to make
necessary or desirable capital expenditures as effectively as its
competitors, which may not be as leveraged as the Company. In addition,
there can be no assurance that there will not be new entrants in the CUK
Board market segment. In the beverage packaging industry, cartons made
from CUK Board compete with plastics and corrugated packaging for
packaging glass or plastic bottles, cans and other primary containers.
The Company's folding cartonboard sales are affected by competition from
MeadWestvaco's CUK Board and from other substrates: SBS and CCN and,
internationally, WLC and folding boxboard. There are a large number of
suppliers of paperboard for folding carton applications. CUK Board
competes in niche applications in folding cartonboard open markets,
serving only a small portion thereof. There can be no assurance that the
Company will be able to continue to compete successfully in folding
cartonboard open markets.

- Energy, including natural gas, fuel oil and electricity, represents a
significant portion of the Company's manufacturing costs. Until recently,
the Company's results had not been significantly affected by the
volatility of energy costs. The Company entered into fixed price
contracts designed to mitigate the impact of future energy cost increases
through 2002, and will continue to evaluate its hedge position. The
Company believes that higher energy costs will continue to negatively
impact its results for 2002, but the negative impact is expected to be
lower than in 2001. Since negotiated contracts and the market largely
determine the pricing for the Company's products, the Company is limited
in its ability to pass through to it customers any energy or other cost
increases that the Company may incur in the future. Amounts paid by the
Company for pine pulpwood, hardwood and recycled fibers, including old
corrugated containers, used in the manufacture of paperboard, and various
chemicals used in the coating of CUK Board, represent the largest
components of the Company's variable costs of CUK Board and
containerboard production. The cost of these materials is subject to
market fluctuations caused by factors beyond the Company's control. Old
corrugated container pricing tends to be very volatile. With the October
1996 sale of the Company's timberlands, the Company now relies on private
29

land owners and the open market for all of its virgin and recycled fiber
requirements (except for CUK Board clippings from its converting
operations). Under the terms of the sale of those timberlands, the
Company and the buyer entered into a 20-year supply agreement, with a
10-year renewal option, for the purchase by the Company, at market-based
prices, of a majority of the West Monroe Mill's requirements for pine
pulpwood and residual chips, as well as a portion of the Company's needs
for hardwood pulpwood at the West Monroe Mill. An assignee of Plum Creek
supplies residual chips to the Company pursuant to such supply agreement.
While the Company has not experienced any significant difficulty in
obtaining adequate supplies of virgin or recycled fiber for its West
Monroe Mill or Macon Mill, there can be no assurance that this will
continue to be the case for either such mill. Moreover, significant
increases in the cost of these materials, to the extent not reflected in
prices for the Company's products, could have a material adverse effect
on the Company's results of operations.

- The Company is subject to risks associated with operating in foreign
countries, including devaluations and fluctuations in currency exchange
rates, imposition of limitations on conversion of foreign currencies into
U.S. dollars or remittance of dividends and other payments by foreign
subsidiaries, imposition or increase of withholding and other taxes on
remittances and other payments by foreign subsidiaries, hyperinflation in
certain foreign countries and imposition or increase of investment and
other restrictions by foreign governments. No assurance can be given that
such risks will not have a material adverse effect on the Company in the
future.

While the Company periodically reassesses material trends and uncertainties
affecting the Company's results of operations and financial condition in
connection with its preparation of management's discussion and analysis of
results of operations and financial condition contained in its quarterly and
annual reports, the Company does not intend to review or revise any particular
forward-looking statement referenced in this report in light of future events.

SIGNIFICANT ACCOUNTING POLICIES

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires the
Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. These estimates and assumptions are based
on historical experience and various other factors that are believed to be
reasonable under the circumstances. Actual results could differ from these
estimates under different assumptions or conditions.

The Company believes the following accounting policies are the most
critical since these policies require significant judgment or involve complex
estimations that are important to the portrayal of the Company's financial
conditions and operating results:

- The Company recognizes revenue when pervasive evidence of a sales
arrangement exists, delivery has occurred, the price to the buyer is
fixed and determinable, and the collectibility of the sales price is
reasonably assured which is primarily when goods are shipped to
customers. Revenues from packaging machinery use agreements received in
advance are recognized on a straight-line basis over the term of the
agreements. Customer returns and allowances are provided for based on
estimates.

- The Company's inventories are stated at the lower of cost or market. Cost
of inventories is determined principally on the last-in, first-out
("LIFO") basis. Average cost basis is used to determine the cost of
supplies inventories. Inventories are stated net of an allowance for
slow-moving and obsolete inventory, which is based on estimates. If the
condition of the inventories or the state of the Company's business would
deteriorate, additional allowances may be required which would reduce
income.

- The Company reviews long-lived assets, including goodwill and certain
identifiable intangibles for impairment whenever events or circumstances
indicate that the carrying value of an asset may not be recoverable. Upon
determination that the carrying value of the assets is impaired, the
Company would record and impairment charge or loss.

- The Company faces uncertainties relating to pending litigation and
environmental remediation obligations (see "-- Environmental and Legal
Matters"). The Company records accruals for such items based on estimates
developed in consultation with legal counsel and environmental
consultants at the time when the liability is probable and reasonably
estimated. While there can be no assurance as to the ultimate outcome of
any current lawsuits, claims or investigations relating to such
uncertainties, the Company does not believe that such uncertainties will
have a material adverse impact on the results of operations, cash flows
or financial condition of the Company. However, future uncertainties may
have a material adverse impact on the results of operations, cash flows
or financial condition of the Company.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS No. 141"), "Business
Combinations", which is effective January 1, 2002. SFAS No. 141 requires the
purchase method of accounting for business combinations initiated after June 30,
2001 and eliminates the pooling-of-interests method. The Company adopted SFAS
No. 141 on January 1, 2002 and does not believe that the adoption will have a
significant impact on its financial position and results of operations.

In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets", which is
effective January 1, 2002. SFAS No. 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the standard includes
provisions for the reclassification of certain existing recognized intangibles
as goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously reported
goodwill and the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS No. 142 also requires the Company
to complete a transitional goodwill impairment test six months from the date of
adoption. The adoption of SFAS No. 142 will result in the discontinuation of
amortization of goodwill recorded at December 31, 2001 of approximately $8
million annually. Intangible assets with a determinable life will continue to be
amortized over that period. The Company will adopt SFAS No. 142 as of January 1,
2002 and does not believe that any impairment charges will result from the
adoption.

In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 ("SFAS No. 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets", which is effective January 1, 2002. SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets, as well as eliminating the exception to consolidation for a subsidiary
for which control is likely to be temporary. The Company adopted SFAS No. 144 on
January 1, 2002 and the adoption did not have a significant impact on its
financial position and results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is exposed to market risk from changes in interest rates,
foreign currency and commodity prices. To minimize these risks, the Company
enters into various hedging transactions.

INTEREST RATES

The Company is exposed to changes in interest rates, primarily as a result
of its short-term and long-term debt with both fixed and floating interest
rates. The Company uses interest rate swap agreements effectively to fix the
LIBOR rate on $225,000,000 of variable rate borrowings.

INTEREST RATE SENSITIVITY -- PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED
MATURITY -- AVERAGE INTEREST (SWAP) RATE

DECEMBER 31,
------------------------------------------------------------------------------------
FAIR
(IN THOUSANDS OF DOLLARS) 2002 2003 2004 2005 2006 THEREAFTER TOTAL VALUE
------------------------- ------- ------- ------- ------- ------- ---------- --------- ---------

LIABILITIES:
Long-term debt, including
current portion:
Fixed Rate.................. 1,742 769 779 356 250,000 901,028 1,154,674 1,182,100
Average Interest Rate....... 8.7 6.5 6.5 6.5 10.3 10.7
Variable Rate............... -- 75,000 75,000 220,150 -- -- 370,150 373,945
Average Interest Rate,
spread range is 2.75%..... LIBOR + LIBOR + LIBOR + LIBOR + LIBOR + LIBOR +
spread spread spread spread spread spread
INTEREST RATE DERIVATIVE
FINANCIAL INSTRUMENTS
RELATED TO DEBT:
Interest rate swap:
Pay fixed/receive
variable.................. 225,000 225,000 (5,389)
Average pay rate............ 5.55%
Average receive rate........ Three-
Month
LIBOR

FOREIGN EXCHANGE RATES

The Company enters into forward exchange contracts to effectively hedge
substantially all accounts receivable and certain accounts payable resulting
from transactions denominated in foreign currencies. The purpose of these
forward exchange contracts is to protect the Company from the risk that the
eventual functional currency cash flows resulting from the collection of the
hedged accounts receivable or payment of the hedged accounts payable will be
adversely affected by changes in exchange rates. The Company also enters into
foreign currency options and forward exchange contracts to hedge certain
anticipated foreign currency transactions. The purpose of these contracts is to
protect the Company from the risk that the eventual functional currency cash
flows resulting from anticipated foreign currency transactions will be adversely
affected by changes in exchange rates.

FOREIGN EXCHANGE RATES SENSITIVITY -- CONTRACTUAL AMOUNT BY EXPECTED
MATURITY -- AVERAGE CONTRACTUAL EXCHANGE RATE

DECEMBER 31, FAIR
(IN THOUSANDS OF DOLLARS) 2001 VALUE
------------------------- ------------ -----

FORWARD EXCHANGE AGREEMENTS:
Functional Currency:
Yen
Receive $US/Pay Yen.................................. 7,282 244
Weighted average contractual exchange rate........... 127.25
Pay $US/Receive Yen.................................. 3,608 (89)
Weighted average contractual exchange rate........... 128.40
Euro
Receive $US/Pay Euro................................. 9,539 52
Weighted average contractual exchange rate........... 0.90
Pay $US/Receive Euro................................. 4,398 (40)
Weighted average contractual exchange rate........... 0.90
British Pound
Receive $US/Pay GBP.................................. 5,800 (52)
Weighted average contractual exchange rate........... 1.44
Pay $US/Receive GBP.................................. 2,010 36
Weighted average contractual exchange rate........... 1.43
Australian Dollar
Receive $US/Pay AUD.................................. 2,856 (3)
Weighted average contractual exchange rate........... 0.51
Pay $US/Receive AUD.................................. 1,693 (10)
Weighted average contractual exchange rate........... 0.51
Other
Net Receive various/ Pay various..................... 6,249 74
Weighted average contractual exchange rate........... Various

The remaining forward exchange agreements (other than the Yen, Australian
Dollar, British Pound and Euro) listed above represent contracts in several
other countries' currencies, including the Euro, British Pound, Norway Kroner
and the Denmark Kroner. In each instance, the fair value of the net position of
the Company's forward exchange agreements in the respective currencies is not
material at December 31, 2001.

NATURAL GAS HEDGING CONTRACTS

ITEM 8. FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

PAGE
----

RIVERWOOD HOLDING, INC.
Consolidated Balance Sheets as of December 31, 2001 and
2000...................................................... 35
Consolidated Statements of Operations and Comprehensive
(Loss) Income for each of the three years in the period
ended December 31, 2001................................... 36
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2001............... 37
Consolidated Statements of Shareholders' Equity for each of
the three years in the period ended December 31, 2001..... 38
Notes to Consolidated Financial Statements.................. 39
Selected Quarterly Financial Data (Unaudited)............... 68
Independent Auditors' Report................................ 69
Management's Report......................................... 70

RIVERWOOD HOLDING, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS OF DOLLARS)

DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------

ASSETS
------------------------------------------------------------
Current Assets:
Cash and Equivalents...................................... $ 26,107 $ 18,417
Receivables, Net of Allowances............................ 140,099 137,695
Inventories............................................... 181,305 175,972
Prepaid Expenses.......................................... 6,770 13,594
---------- ----------
Total Current Assets........................................ 354,281 345,678
Property, Plant and Equipment, at Cost:
Land and Improvements..................................... 38,216 38,801
Buildings................................................. 109,988 109,870
Machinery and Equipment................................... 1,801,656 1,782,155
---------- ----------
1,949,860 1,930,826
Less, Accumulated Depreciation.............................. 659,945 562,235
---------- ----------
Property, Plant and Equipment, Net.......................... 1,289,915 1,368,591
Deferred Tax Assets......................................... 8,530 1,897
Investments in Net Assets of Equity Affiliates.............. 1,934 5,882
Goodwill, Net of Accumulated Amortization of $45,494 in 2001
and $37,753 in 2000....................................... 276,482 273,436
Other Assets................................................ 126,450 125,873
---------- ----------
Total Assets....................................... $2,057,592 $2,121,357
========== ==========
LIABILITIES
------------------------------------------------------------
Current Liabilities:
Short-Term Debt........................................... $ 11,817 $ 15,908
Accounts Payable.......................................... 123,293 100,261
Compensation and Employee Benefits........................ 24,689 31,297
Income Taxes.............................................. 4,178 1,481
Interest Payable.......................................... 41,588 33,924
Other Accrued Liabilities................................. 31,281 27,096
---------- ----------
Total Current Liabilities................................... 236,846 209,967
Long-Term Debt, Less Current Portion........................ 1,523,082 1,516,881
Deferred Income Taxes....................................... 14,422 9,132
Other Noncurrent Liabilities................................ 59,316 73,354
---------- ----------
Total Liabilities.................................. 1,833,666 1,809,334
---------- ----------
CONTINGENCIES AND COMMITMENTS (Note 15)
REDEEMABLE COMMON STOCK,
at Current Redemption Value............................... 8,061 8,061
---------- ----------
SHAREHOLDERS' EQUITY
------------------------------------------------------------
Nonredeemable Common Stock.................................. 75 75
Capital in Excess of Par Value.............................. 748,753 748,813
Accumulated Deficit......................................... (493,771) (415,875)
Accumulated Derivative Instruments Loss..................... (4,570) --
Cumulative Currency Translation Adjustment.................. (34,622) (29,051)
---------- ----------
Total Shareholders' Equity.................................. 215,865 303,962
---------- ----------
Total Liabilities and Shareholders' Equity.................. $2,057,592 $2,121,357
========== ==========

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

RIVERWOOD HOLDING, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(IN THOUSANDS OF DOLLARS)

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------ ------------ ------------

Net Sales................................................. $1,249,886 $1,192,362 $1,174,665
Cost of Sales............................................. 1,002,059 923,851 933,924
Selling, General and Administrative....................... 120,629 112,200 114,402
Research, Development and Engineering..................... 5,111 4,554 4,078
Restructuring Credit...................................... -- (2,600) --
Other Expense (Income), Net............................... 24,035 (66,132) 1,798
---------- ---------- ----------
Income from Operations.................................... 98,052 220,489 120,463
Interest Income........................................... 944 848 889
Interest Expense.......................................... 158,910 181,285 179,197
---------- ---------- ----------
(Loss) Income before Income Taxes and Equity in Net
Earnings of Affiliates.................................. (59,914) 40,052 (57,845)
Income Tax Expense........................................ 8,759 3,009 3,936
---------- ---------- ----------
(Loss) Income before Equity in Net Earnings of
Affiliates.............................................. (68,673) 37,043 (61,781)
Equity in Net Earnings of Affiliates...................... -- 3,356 7,110
---------- ---------- ----------
(Loss) Income before Extraordinary Item and Cumulative
Effect of a Change in Accounting Principle.............. (68,673) 40,399 (54,671)
Extraordinary Loss on Early Extinguishment of Debt, Net of
Tax of $0............................................... (8,724) (2,117) --
---------- ---------- ----------
(Loss) Income before Cumulative Effect of a Change in
Accounting Principle.................................... (77,397) 38,282 (54,671)
Cumulative Effect of a Change In Accounting Principle Net
of Tax of $0............................................ (499) -- --
---------- ---------- ----------
Net (Loss) Income......................................... (77,896) 38,282 (54,671)
---------- ---------- ----------
Other Comprehensive (Loss) Income, Net of Tax:
Derivative Instruments:
Transition Adjustment................................ (1,094) -- --
Derivative Loss, Net................................. (3,476) -- --
Foreign Currency Translation Adjustments................ (5,571) (13,620) 62
---------- ---------- ----------
Comprehensive (Loss) Income............................... $ (88,037) $ 24,662 $ (54,609)
========== ========== ==========

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

RIVERWOOD HOLDING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS OF DOLLARS)

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------ ------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income..................................... $(77,896) $ 38,282 $(54,671)
Noncash Items Included in Net (Loss) Income:
Depreciation and Amortization....................... 137,258 143,541 142,597
Cumulative Effect of a Change in Accounting
Principle........................................ 499 -- --
Extraordinary Loss on Early Extinguishment of
Debt............................................. 8,724 2,117 --
Deferred Income Taxes............................... (1,247) (2,538) (586)
Pension, Postemployment and Postretirement Benefits
Expense, Net of Contributions.................... 4,908 1,822 4,761
Restructuring Credit................................ -- (2,600) --
Net Gain on Sale of Assets.......................... -- (71,554) --
Equity in Net Earnings of Affiliates, Net of
Dividends........................................ 710 1,727 (2,596)
Amortization of Deferred Debt Issuance Costs........ 7,564 10,261 10,268
LIFO Valuation Adjustments.......................... 12,335 (6,936) (4,876)
Other, Net.......................................... 7,280 -- 1,426
Net (Loss) of International Entities for the Month of
December 1999 (See Note 2).......................... -- -- (1,573)
Changes in Operating Assets & Liabilities, Net of
Subsidiary Consolidated:
Receivables......................................... 15,381 15,677 (16,884)
Inventories......................................... (14,394) 1,904 (12,426)
Prepaid Expenses.................................... 2,094 (3,181) (2,242)
Accounts Payable.................................... (3,852) 5,582 (13,674)
Compensation and Employee Benefits.................. (11,614) (7,606) (10,642)
Income Taxes........................................ 2,731 1,024 (786)
Other Accrued Liabilities........................... 993 (28,815) (8,903)
Other Noncurrent Liabilities........................ (1,875) 147 (12,552)
-------- -------- --------
Net Cash Provided by Operating Activities............. 89,599 98,854 16,641
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Property, Plant and Equipment............ (57,670) (62,062) (66,018)
Payment for Acquisitions.............................. -- (12,500) --
Payment for Settlement of Tax Matters Relating to the
Merger.............................................. (29,500) -- --
Cash Acquired of Subsidiary Consolidated.............. 17,985 -- --
Proceeds from Sales of Assets, Net of Selling Costs... -- 205,714 5,324
Increase in Other Assets.............................. (3,305) (3,849) (7,062)
-------- -------- --------
Net Cash (Used in) Provided by Investing Activities... (72,490) 127,303 (67,756)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Decrease) Increase in Notes Payable.............. (93,727) (72,290) 55,900
Payments on Debt...................................... (488,372) (151,469) (6,290)
Proceeds from Issuance of Debt........................ 592,500 -- --
Increase in Debt Issuance Costs....................... (18,983) -- --
(Repurchases) Issuance of Redeemable Common Stock,
Net................................................. (60) 512 58
-------- -------- --------
Net Cash (Used in) Provided by Financing Activities... (8,642) (223,247) 49,668
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH............... (777) 1,399 1,715
-------- -------- --------
Net Increase in Cash and Equivalents.................. 7,690 4,309 268
Cash and Equivalents at Beginning of Period........... 18,417 14,108 13,840
-------- -------- --------
CASH AND EQUIVALENTS AT END OF PERIOD................. $ 26,107 $ 18,417 $ 14,108
======== ======== ========

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

RIVERWOOD HOLDING, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(IN THOUSANDS OF DOLLARS)

CAPITAL IN RETAINED CUMULATIVE ACCUMULATED
NONREDEEMABLE EXCESS OF EARNINGS CURRENCY DERIVATIVE TOTAL
COMMON PAR (ACCUMULATED TRANSLATION INSTRUMENTS SHAREHOLDERS'
STOCK VALUE DEFICIT) ADJUSTMENT LOSS EQUITY
------------- ---------- ------------ ----------- ----------- -------------

BALANCES AT DECEMBER 31,
1998.................... $75 $750,100 $(397,913) $(15,493) $ -- $336,769
Net (Loss).............. -- -- (54,671) -- -- (54,671)
Net (Loss) of
International Entities
for the Month of
December 1999 (See
Note 2)............... -- -- (1,573) -- -- (1,573)
Currency Translation
Adjustment............ -- -- -- 62 -- 62
Adjustment to Redemption
Value of Redeemable
Common Stock, Net of
(Repurchases)
Issuance.............. -- (939) -- -- -- (939)
--- -------- --------- -------- ------- --------
BALANCES AT DECEMBER 31,
1999.................... 75 749,161 (454,157) (15,431) -- 279,648
Net Income.............. -- -- 38,282 -- -- 38,282
Currency Translation
Adjustment............ -- -- -- (13,620) -- (13,620)
Adjustment to Redemption
Value of Redeemable
Common Stock, Net of
(Repurchases)
Issuance.............. -- (348) -- -- -- (348)
--- -------- --------- -------- ------- --------
BALANCES AT DECEMBER 31,
2000.................... 75 748,813 (415,875) (29,051) -- 303,962
Net (Loss).............. -- -- (77,896) -- -- (77,896)
Accumulated Derivative
Instruments Loss...... -- -- -- -- (4,570) (4,570)
Currency Translation
Adjustment............ -- -- -- (5,571) -- (5,571)
(Repurchases) Issuance
of Redeemable Common
Stock, Net............ -- (60) -- -- -- (60)
--- -------- --------- -------- ------- --------
BALANCES AT DECEMBER 31,
2001.................... $75 $748,753 $(493,771) $(34,622) $(4,570) $215,865
=== ======== ========= ======== ======= ========

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

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

Holding and its wholly-owned subsidiaries RIC Holding and Acquisition Corp.
were incorporated in 1995 to acquire the stock of RIC.

On March 27, 1996, Holding, through its wholly-owned subsidiaries, acquired
all of the outstanding shares of common stock of RIC. On such date, Acquisition
Corp. was merged into RIC. RIC, as the surviving corporation in the Merger,
became a wholly-owned subsidiary of RIC Holding. On March 28, 1996, RIC
transferred substantially all of its properties and assets to Riverwood, other
than the capital stock of Riverwood, and RIC was merged into RIC Holding.
Thereupon, Riverwood was renamed "Riverwood International Corporation." Upon
consummation of the Subsequent Merger, RIC Holding, as the surviving corporation
in the Subsequent Merger, became the parent company of Riverwood.

Holding and RIC Holding, Inc., a wholly-owned subsidiary, conducted no
significant business and have no independent assets or operations other than in
connection with the Merger and related transactions through March 27, 1996.
Holding and RIC Holding, Inc. fully and unconditionally guarantee substantially
all of the debt of Riverwood.

In connection with the Merger, the purchase method of accounting was used
to establish and record a new cost basis for the assets acquired and liabilities
assumed. The difference between the purchase price and the fair market values of
the assets acquired and liabilities assumed was recorded as goodwill.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies of the
Company.

(A) PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include all of the
accounts of Riverwood Holding, Inc. and its majority-owned and controlled
subsidiaries. The accompanying consolidated financial statements include the
worldwide operations of the Coated Board segment which includes the paperboard,
packaging, and packaging machinery businesses and the Containerboard segment.
All significant transactions and balances between the consolidated operations
have been eliminated.

Effective December 1, 1999, the Company changed its international
subsidiaries fiscal year end to December 31. Previously, the Company's
international subsidiaries were principally consolidated and reported on the
basis of fiscal years ending November 30. Accordingly, the net activity for the
month of December 1999 for the international entities is shown as an adjustment
to retained earnings in the accompanying financial statements. The following
represents summarized international results for the month of December 1999:

MONTH ENDED
DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1999
------------------------- ------------

Net Sales................................................... $22,370
=======
Net (Loss).................................................. $(1,573)
=======

(B) CASH AND EQUIVALENTS

Cash and equivalents include time deposits, certificates of deposit and
other marketable securities with original maturities of three months or less.

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Inventories are stated at the lower of cost or market. Cost of inventories
is determined principally on the last-in, first-out ("LIFO") basis. Average cost
basis is used to determine the cost of supplies inventories. Inventories are
stated net of an allowance for slow-moving and obsolete inventory.

(D) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost. Betterments, renewals
and extraordinary repairs that extend the life of the asset are capitalized;
other repairs and maintenance charges are expensed as incurred. The Company's
cost and related accumulated depreciation applicable to assets retired or sold
are removed from the accounts and the gain or loss on disposition is recognized
in income.

Costs directly associated with the development and testing of computer
information systems for internal use are deferred and included in property,
plant and equipment. Such costs are amortized on a straight-line basis over the
expected useful life of 5 years. Costs indirectly associated with such projects
and ongoing maintenance costs are expensed as incurred. A total of $1.4 million
and $1.8 million in costs relating to software development were capitalized in
2001 and 2000, respectively, and were included in property, plant and equipment
at December 31, 2001 and December 31, 2000.

Interest is capitalized on major projects. The capitalized interest is
recorded as part of the asset to which it relates and is amortized over the
asset's estimated useful life. Capitalized interest was approximately $2.1
million, $1.3 million, and $1.4 million in the years ended December 31, 2001,
2000, and 1999, respectively.

(E) DEPRECIATION AND AMORTIZATION

Depreciation and amortization are principally computed using the
straight-line method based on the following estimated useful lives of the
related assets:

Buildings................................................... 10 to 40 years
Land improvements........................................... 3 to 20 years
Machinery and equipment..................................... 2 to 40 years
Furniture and fixtures...................................... 1 to 12 years
Automobiles and light trucks................................ 2 to 5 years

For certain major capital additions, the Company computes depreciation on
the units-of-production method until the asset's designed level of production is
achieved and sustained.

The Company 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 Company projects
future cash flows, undiscounted and before interest, 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. The
Company assesses the appropriateness of the useful life of its long-lived assets
periodically.

Goodwill is amortized on a straight-line basis over 40 years. The cost of
patents, licenses and trademarks is amortized on a straight-line basis over 15
to 20 years. The related amortization expense is included in Other Expense
(Income), Net. The Company assesses goodwill for impairment whenever facts and
circumstances indicate that the carrying amount may not be fully recoverable. To
analyze recoverability, the Company

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

projects future cash flows, undiscounted and before interest, over the remaining
life of the goodwill. If these projected cash flows are less than the carrying
amount of the goodwill, an impairment would be recognized, resulting in a write
down of goodwill with a corresponding charge to earnings. The impairment loss is
measured based upon the difference between the carrying amount of the goodwill
and the undiscounted future cash flows before interest (see Note 26).

(F) INTERNATIONAL CURRENCY

The functional currency for most of the international subsidiaries is the
local currency for the country in which the subsidiaries own their primary
assets. The translation of the applicable currencies into U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. Any related translation adjustments are
recorded directly to Shareholders' Equity. Gains and losses on foreign currency
transactions are included in Other Expense (Income), Net for the period in which
the exchange rate changes.

The Company enters into forward exchange contracts to hedge certain foreign
currency denominated exposures and option contracts to hedge anticipated
transactions denominated in foreign currency. Realized and unrealized gains and
losses on these contracts are included in Other Expense (Income), Net. The
discount or premium on an option or forward exchange contract is included in the
measurement of the basis of the related foreign currency transaction when
recorded.

(G) INCOME TAXES

The Company accounts for income taxes under the liability method whereby
the effect of changes in corporate tax rates on deferred income taxes is
recognized currently as an adjustment to income tax expense. The liability
method also requires that deferred tax assets or liabilities be recorded based
on the difference between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes. A valuation allowance is
established for deferred tax assets when it is more likely than not that the
benefits of such assets will not be realized.

(H) REVENUE RECOGNITION

The Company recognizes revenue when pervasive evidence of a sales
arrangement exists, delivery has occurred, the price to the buyer is fixed and
determinable, and the collectibility of the sales price is reasonably assured
which is primarily when goods are shipped to customers. Revenues from packaging
machinery use agreements received in advance are recognized on a straight-line
basis over the term of the agreements. Customer returns and allowances have been
provided for based on estimates.

(I) SHIPPING AND HANDLING COSTS

During 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-10,
"Accounting for Shipping and Handling Fees and Costs." Previously, the Company
recognized shipping and handling costs as a reduction to Net Sales. EITF 00-10
requires shipping and handling costs to be included in Cost of Sales.
Accordingly, shipping and handling costs have been reclassified to Cost of Sales
for all periods presented. Such costs totaled approximately $64.9 million in
2001, $63.7 million in 2000 and $62.0 million in 1999.

(J) INSURANCE RESERVES

It is the Company's policy to self-insure or fund a portion of certain
expected losses related to group health benefits. Provisions for losses expected
are recorded based on the Company's estimates, on an

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

undiscounted basis, of the aggregate liabilities for known claims and estimated
claims incurred but not reported.

(K) ENVIRONMENTAL REMEDIATION RESERVES

The Company records accruals for environmental obligations based on
estimates developed in consultation with environmental consultants and legal
counsel. Accruals for environmental liabilities are established in accordance
with the American Institute of Certified Public Accountants Statement of
Position 96-1, "Environmental Remediation Liabilities." The Company records a
liability at the time when it is probable and can be reasonably estimated. Such
liabilities are not reduced for potential recoveries from insurance carriers.
Costs of future expenditures are not discounted to their present value.

(L) RECLASSIFICATION

The Company has reclassified the presentation of certain prior period
information to conform with the current presentation format.

(M) USE OF ESTIMATES

The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
amounts could differ from those estimates.

NOTE 3 -- RECEIVABLES

The components of receivables at December 31 were as follows:

(IN THOUSANDS OF DOLLARS) 2001 2000
------------------------- -------- --------

Trade....................................................... $137,462 $136,192
Less, allowance............................................. 3,416 2,769
-------- --------
134,046 133,423
Other....................................................... 6,053 4,272
-------- --------
$140,099 $137,695
======== ========

NOTE 4 -- FINANCIAL INSTRUMENTS

The Company has financial instruments which include foreign currency option
and forward exchange contracts and interest rate swap agreements. These
instruments involve, to varying degrees, elements of market and credit risk in
excess of the amounts recognized in the Consolidated Balance Sheets. The Company
does not hold or issue such financial instruments for trading purposes.

The Company enters into forward exchange contracts to effectively hedge
substantially all accounts receivable and certain accounts payable resulting
from transactions denominated in foreign currencies. The purpose of the forward
exchange contracts is to protect the Company from the risk that the eventual
functional currency cash flows resulting from the collection of the hedged
accounts receivable or payment of the hedged accounts payable will be adversely
affected by changes in exchange rates. At December 31, 2001 and 2000, the
Company had various foreign currency forward exchange contracts, with maturities
ranging up to one year. When aggregated and measured in U.S. dollars at year-end
exchange rates, the notional amount of these

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- FINANCIAL INSTRUMENTS -- (CONTINUED)

forward currency exchange contracts totaled approximately $20.0 million and
$29.7 million at December 31, 2001 and 2000, respectively. Generally, unrealized
gains and losses resulting from these contracts are recognized currently in
operations and approximately offset corresponding unrealized gains and losses
recognized on the hedged accounts receivable or accounts payable.

During 2001 and 2000, the Company entered into option contracts and forward
exchange contracts to hedge certain anticipated foreign currency transactions.
The purpose of the option contracts and forward exchange contracts is to protect
the Company from the risk that the eventual functional currency cash flows
resulting from anticipated foreign currency transactions will be adversely
affected by changes in exchange rates. At December 31, 2001, no option contracts
existed. At December 31, 2000, various option contracts existed, which expired
on various dates through the year 2001. When measured in U.S. dollars at
year-end exchange rates, the year 2000 notional amount of the purchased option
contracts totaled approximately $37.1 million. Gains and losses, if any, related
to these contracts are recognized in income when the anticipated transaction
affects income. As of December 31, 2001 and 2000, when aggregated and measured
in U.S. dollars at year-end exchange rates, the notional amount of these forward
exchange contracts totaled approximately nil and $33.4 million, respectively.

The Company uses interest rate swap agreements to fix a portion of its
variable rate Term Loan Facility to a fixed rate in order to reduce the impact
of interest rate changes on future income. The differential to be paid or
received under these agreements is recognized as an adjustment to interest
expense related to the debt. At December 31, 2001, the Company had interest rate
swap agreements with a notional amount of $225 million, which expire on various
dates through the year 2002, under which the Company will pay fixed rates of
4.75 percent to 6.53 percent and receive three-month LIBOR. At December 31,
2000, the Company had interest rate swap agreements with a notional amount of
$200 million, which expire on various dates through the year 2002, under which
the Company paid fixed rates of 6.53 percent to 6.92 percent and receive
three-month LIBOR.

The Company's customers are not concentrated in any specific geographic
region, but are concentrated in certain industries. Customers of the Coated
Board business segment include the beverage and packaged foods industries.
Customers of the Containerboard business segment include integrated and
non-integrated containerboard converters. During 2001, the Company had one
customer who accounted for approximately 13 percent of the Company's net sales
and another customer who accounted for approximately 11 percent of the Company's
net sales. During 2000, the Company had two customers who each accounted for
approximately 11 percent of the Company's net sales. During 1999, one customer
accounted for approximately 11 percent of the Company's net sales. There were no
significant accounts receivable from a single customer at December 31, 2001 or
2000. The Company reviews a customer's credit history before extending credit.
The Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends, and other
information.

The Company enters into fixed price natural gas contracts designed to
effectively hedge prices for a substantial portion of its natural gas
requirements at its two U.S. mills. The purpose of the fixed price natural gas
contracts is to eliminate or reduce price risk with a focus on making cash flows
more predictable. As of December 31, 2001, the Company had entered into
contracts to hedge substantially all of its natural gas requirements for its two
U.S. mills through December 31, 2002. The contract price and fair value of these
natural gas contracts was approximately $22.3 million and $14.9 million,
respectively. These contracts are not accounted for as derivative instruments
under Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133, and SFAS No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities ("SFAS No. 133"),
as they qualify for the normal purchase exemption.
43

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- FINANCIAL INSTRUMENTS -- (CONTINUED)

The following methods and assumptions were used to estimate the fair value
of each category of financial instrument for which it is practicable to estimate
that value:

NONTRADE RECEIVABLES AND SHORT TERM BORROWINGS

The carrying amount of these instruments approximates fair value due to
their short-term nature.

LONG-TERM DEBT

The fair value of long-term debt is based on quoted market prices.

FORWARD EXCHANGE AND OPTION CONTRACTS

The fair value of forward and option contracts is based on quoted market
prices.

INTEREST RATE SWAP AGREEMENTS

The fair value of interest rate swap agreements is based on quoted market
prices by counter parties.

The carrying amounts and estimated fair value of the Company's financial
instruments as of December 31 were as follows:

2001 2000
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS OF DOLLARS) AMOUNTS VALUE AMOUNTS VALUE
------------------------- ---------- ---------- ---------- ----------

Nontrade receivables................. $ 6,053 $ 6,053 $ 4,272 $ 4,272
Short-term borrowings................ $ 10,075 $ 10,075 $ 15,192 $ 15,192
Long-term debt....................... $1,524,824 $1,556,045 $1,517,597 $1,473,433
Currency forward exchange
contracts.......................... $ 212 $ 212 $ 686 $ 686
Currency option contracts............ $ -- $ -- $ 1,027 $ 528
Interest rate swap contracts......... $ (5,389) $ (5,389) $ -- $ (1,094)

NOTE 5 -- INVENTORIES

The major classes of inventories at December 31 were as follows:

(IN THOUSANDS OF DOLLARS) 2001 2000
------------------------- -------- --------

Finished goods.............................................. $ 87,728 $ 88,101
Work-in progress............................................ 12,194 9,967
Raw materials............................................... 45,656 40,374
Supplies.................................................... 35,727 37,530
-------- --------
$181,305 $175,972
======== ========

Inventories in the amount of $38.9 million and $37.7 million at December
31, 2001 and 2000, respectively, were valued using the first-in, first-out
("FIFO") or average cost method. The balance of the inventories was valued using
the LIFO method. The shortage of FIFO values over amounts for financial
reporting purposes (LIFO) was $5.9 million and $14.8 million at December 31,
2001 and 2000, respectively. During the years ended December 31, 2001, 2000 and
1999, the Company recognized a charge (credit) relating to LIFO valuation of
$12.3 million, $(6.9) million, and $(4.9) million, respectively.

In connection with the Merger, the Company adjusted its inventory balances
to its estimated fair value which resulted in a write-up to inventory of
approximately $13.6 million and is being charged to cost of sales

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- INVENTORIES -- (CONTINUED)

when the March 27, 1996 LIFO base inventory layers are liquidated. There was no
write-up of inventories charged to cost of sales during the three years in the
period ended December 31, 2001. At December 31, 2001 and 2000, $11.5 million of
the write-up remained in Inventory on the Consolidated Balance Sheets.

NOTE 6 -- INVESTMENTS IN NET ASSETS OF EQUITY AFFILIATES

Investments are accounted for using the equity method of accounting. The
most significant of these investments was Igaras, an integrated containerboard
producer located in Brazil of which the Company owned 50 percent. On July 1,
2000, Igaras spun off the multiple packaging portion of its business into a
newly formed company, of which the Company owned 50 percent. On October 3, 2000,
the Company, along with its joint venture partner, Cia Suzano de Papel e
Celulose, completed the sale of the jointly-held subsidiary Igaras for
approximately $510 million, including the assumption of $112 million of debt.
The Company recognized a gain of $70.9 million, in connection with the sale. On
October 12, 2000, the Company purchased the remaining 50 percent of the newly
formed company for $12.5 million.

During 2001 and 2000, the Company received dividends from its equity
investments other than Igaras totaling $0.6 million and $0.5 million,
respectively, net of taxes of $0.1 million and $0.1 million, respectively.

NOTE 7 -- OTHER ASSETS

Other Assets included intangible assets at December 31, and consisted of
the following:

(IN THOUSANDS OF DOLLARS) 2001 2000
------------------------- -------- --------

Patents, licenses and trademarks............................ $ 67,148 $ 66,314
Less, accumulated amortization.............................. (20,353) (16,628)
-------- --------
46,795 49,686
Deferred debt issuance costs, net........................... 32,385 29,713
Pension assets.............................................. 13,594 14,431
Capitalized spare parts..................................... 23,303 21,717
Deferred design costs....................................... 1,985 3,025
Other....................................................... 8,388 7,301
-------- --------
$126,450 $125,873
======== ========

NOTE 8 -- SHORT-TERM DEBT

Short-Term Debt at December 31, consisted of the following:

(IN THOUSANDS OF DOLLARS) 2001 2000
------------------------- ------- -------

Short-term borrowings....................................... $10,075 $15,192
Current portion of long-term debt........................... 1,742 716
------- -------
$11,817 $15,908
======= =======

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 -- SHORT-TERM DEBT -- (CONTINUED)

Short-term borrowings are principally at the Company's international
subsidiaries. The weighted average interest rate on Short-term borrowings as of
December 31, 2001 and 2000 was 3.4 percent and 2.6 percent, respectively.

In connection with the Merger, the Company called $125 million of
Convertible Subordinated Notes, of which $0.2 million was not redeemed at
December 31, 2001 and 2000, and is included in Current portion of long-term
debt.

NOTE 9 -- COMPENSATION AND EMPLOYEE BENEFITS

Accruals for future compensated employee absences, principally vacation,
were $12.1 million and $11.4 million at December 31, 2001 and 2000,
respectively, and were included in Compensation and Employee Benefits on the
Consolidated Balance Sheets.

NOTE 10 -- LONG-TERM DEBT

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- LONG-TERM DEBT -- (CONTINUED)

Loan Facility. During the second quarter of 2001, the Company recorded a
non-cash, extraordinary charge to earnings of approximately $2.8 million, net of
tax of nil, related to the write-off of the applicable portion of deferred debt
issuance costs on the term loans. In connection with this offering, on June 6,
2001, the Company entered into Amendment No. 6 to the Credit Agreement. The
amendment modified certain financial and other covenants, including minimum
EBITDA (as defined in the Credit Agreement) requirements, in the Credit
Agreement to reflect recent financial results and market and operating
conditions. A registration statement under the Securities Act registering senior
notes of the Company identical in all material respects to the Initial 2001
Notes (the "Exchange 2001 Notes") offered in exchange for the Initial 2001 Notes
became effective on August 27, 2001. On October 5, 2001, the Company completed
its exchange offer of the Initial 2001 Notes for the Exchange 2001 Notes. The
Initial 2001 Notes and the Exchange 2001 Notes are referred to herein as the
2001 Notes.

On August 10, 2001, the Company entered into an amendment and restatement
of the Credit Agreement (the "2001 Senior Secured Credit Agreement") with
certain lenders providing for senior secured credit facilities with aggregate
commitments not to exceed $635 million (the "2001 Facilities"), including a $335
million term loan facility (the "2001 Term Loan Facility") and a $300 million
revolving credit facility (the "2001 Revolving Facility"). The proceeds of the
initial borrowings under the 2001 Facilities of approximately $386.0 million,
including $51.0 million in revolving credit borrowings, were applied to repay in
full the outstanding borrowings under the Term Loan Facility and the Revolving
Facility and to pay approximately $12 million of the estimated $14 million of
fees and expenses incurred in connection with the amendment and restatement of
the Credit Agreement. During the third quarter of 2001, the Company recorded a
non-cash, extraordinary charge to earnings of approximately $6.0 million, net of
tax of nil, related to the write-off of the applicable remaining deferred debt
issuance costs on the Term Loan Facility and the Revolving Facility.

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- LONG-TERM DEBT -- (CONTINUED)

The financial covenants in the 2001 Senior Secured Credit Agreement
specify, among other things, the following requirements for each four quarter
period ended during the following test periods:

CONSOLIDATED CONSOLIDATED
DEBT TO EBITDA(A) INTEREST EXPENSE
TEST PERIOD LEVERAGE RATIO RATIO
----------- ------------------ ----------------

September 30, 2001 -- December 30, 2002............. 5.85 to 1.00 1.75 to 1.00
December 31, 2002 -- December 30, 2003.............. 5.50 to 1.00 2.00 to 1.00
December 31, 2003 -- December 30, 2004.............. 5.00 to 1.00 2.10 to 1.00
December 31, 2004 -- December 30, 2005.............. 4.70 to 1.00 2.25 to 1.00
December 31, 2005 -- December 30, 2006.............. 4.40 to 1.00 2.25 to 1.00

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

Note:
(a) EBITDA as defined in the 2001 Senior Secured Credit Agreement

At December 31, 2001, the Company was in compliance with the financial
covenants in the 2001 Senior Secured Credit Agreement. The Company's ability to
comply in future periods with the financial covenants in the 2001 Senior Secured
Credit Agreement will depend on its ongoing financial and operating performance,
which in turn will be subject to economic conditions and to financial, business
and other factors, many of which are beyond the Company's control and will be
substantially dependent on the selling prices for the Company's products, raw
material and energy costs, and the Company's ability to successfully implement
its overall business and profitability strategies. If a violation of any of the
covenants occurred, the Company would attempt to get a waiver or an amendment
from its lenders, although no assurance can be given that the Company would be
successful in this regard. The 2001 Senior Secured Credit Agreement and the
indentures governing the 1996 Notes, 1997 Notes and 2001 Notes have covenants as
well as certain cross-default or cross-acceleration provisions; failure to
comply with these covenants in any agreement could result in a violation of such
agreement which could, in turn, lead to violations of other agreements pursuant
to such cross-default or cross-acceleration provisions.

At December 31, 2001, the Company and its U.S. and international
subsidiaries had the following amounts available under revolving credit
facilities:

TOTAL AMOUNT
TOTAL AMOUNT OUTSTANDING AT TOTAL AMOUNT
OF DECEMBER 31, AVAILABLE AT
(IN THOUSANDS OF DOLLARS) COMMITMENTS 2001 DECEMBER 31, 2001
------------------------- ------------ -------------- -----------------

Revolving Facility................................. $300,000 $35,429 $264,571
International Facilities........................... 14,581 10,015 4,566
-------- ------- --------
$314,581 $45,444 $269,137
======== ======= ========

The Company anticipates pursuing additional working capital financing for
its foreign operations as necessary. The Company believes that cash generated
from operations, together with amounts available under its 2001 Revolving
Facility and other available financing sources, will be adequate to permit the
Company to meet its debt service obligations, capital expenditure program
requirements, ongoing operating costs and working capital needs until the
maturity of the 2001 Revolving Facility, although no assurance can be given in
this regard. The Company's future financial and operating performance, ability
to service or refinance its debt and ability to comply with the covenants and
restrictions contained in its debt agreements, will be subject to future
economic conditions and to financial, business and other factors, many of which
are beyond the Company's control and will be substantially dependent on the
selling prices for the Company's products, raw material and energy costs, and
the Company's ability to successfully implement its overall business and
profitability strategies.
48

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- LONG-TERM DEBT -- (CONTINUED)

Long-Term Debt at December 31 consisted of the following:

(IN THOUSANDS OF DOLLARS) 2001 2000
------------------------- ---------- ----------

Senior Notes with interest payable semi-annually at 10.625
percent, payable in 2007.................................. $ 250,000 $ 250,000
Senior Notes with interest payable semi-annually at 10.25
percent, payable in 2006.................................. 250,000 250,000
Senior Subordinated Notes with interest payable
semi-annually at 10.875 percent, payable in 2008.......... 400,000 400,000
Senior Secured Term Loan Facility with interest payable at
various dates less than one year at floating rates (9.25
percent to 10.25 percent at December 31, 2000)............ -- 488,118
Senior Secured Term Loan Facility with interest payable at
various dates less than one year at floating rates (4.85
percent at December 31, 2001), payable through 2005....... 335,000 --
Senior Notes with interest payable semi-annually at 10.625
percent, payable in 2007.................................. 250,000 --
Senior Secured Revolving Facility with interest payable at
various dates less than one year at floating rates (4.67
percent to 6.5 percent at December 31, 2001) payable in
2005...................................................... 35,150 --
Senior Secured Revolving Facility with interest payable at
various dates less than one year at floating rates (9.14
percent to 10.5 percent at December 31, 2000)............. -- 124,550
Senior Subordinated Notes with interest payable
semi-annually at 11.25 percent, payable in 2002........... 804 804
Convertible Subordinated Notes with interest payable
semi-annually at 6.75 percent, payable in 2002,
convertible beginning March 27, 1996...................... 209 209
Pollution control revenue bonds with interest payable
semi-annually at 6.25 percent, payable through 2007....... 1,000 1,000
International Notes payable to banks with interest payable
at various dates at interest rates of 7.79 percent to 10.0
percent at December 31, 2001, payable through 2004........ 533 99
Capitalized leases with interest payable of 3.6 percent,
payable through 2005...................................... 2,099 2,785
Other....................................................... 29 32
---------- ----------
1,524,824 1,517,597
Less, current portion....................................... 1,742 716
---------- ----------
$1,523,082 $1,516,881
========== ==========

The 2001 Term Loan Facility and the 2001 Revolving Facility were
collateralized by substantially all of the net assets (including the capital
stock of certain international subsidiaries) of the Company.

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- LONG-TERM DEBT -- (CONTINUED)

Long-term debt maturities and expirations of funded long-term working
capital commitments at December 31, 2001, were as follows:

(IN THOUSANDS OF DOLLARS)
-------------------------

2002........................................................ $ 1,742
2003........................................................ 75,769
2004........................................................ 75,779
2005........................................................ 220,506
2006........................................................ 250,000
After 2006.................................................. 901,028
----------
$1,524,824
==========

NOTE 11 -- REDEEMABLE COMMON STOCK

During the nine months ended December 31, 1996, Holding completed an
offering of Holding Common Stock to certain members of management and key
employees of the Company. As of December 31, 1996, the Company had issued
111,900 shares of Holding Class A Common Stock to Management Investors at fair
value for gross cash proceeds of $11.2 million. During 2000, the Company issued
5,000 shares of additional Redeemable Common Stock to Management Investors at
fair value for gross cash proceeds of $0.6 million. The common stock held by
Management Investors is mandatorily redeemable at fair market value as
determined by the Executive Committee of the Board of Directors and in certain
circumstances the Management Investors can require the Company to repurchase the
Holding Class A Common Stock. These shares are classified as Redeemable Common
Stock on the Consolidated Balance Sheets and are carried at their redemption
value at December 31, 2001. Accordingly, during 2001 and 2000, the Company
recorded a charge to Capital in Excess of Par Value of nil and $0.3 million,
respectively, due to a change in the redemption value from the beginning of the
year compared to the end of the year as determined considering a wide variety of
factors including a valuation report from an independent outside firm and
approved by the Executive Committee of the Board of Directors. During 2001 and
2000, the Company repurchased 3,000 and 450 shares of Redeemable Common Stock at
a weighted average price of $120.00 per share and $106.67 per share,
respectively.

In connection with the issuance of Redeemable Common Stock to Management
Investors, the Company has guaranteed loans, with full recourse, from a bank to
certain Management Investors totaling approximately $0.3 million and $0.7
million at December 31, 2001 and 2000, respectively.

NOTE 12 -- NONREDEEMABLE COMMON STOCK

On March 27, 1996, Holding completed an offering of 7,000,000 shares of
Class A Common Stock with a par value of $0.01 per share to certain
institutional investors for $700 million. Total Class A Common Stock authorized
for issuance at December 31, 2001 was 9,000,000 shares, of which amount
7,067,180 shares were outstanding, including 67,180 shares issued to Management
Investors as Redeemable Common Stock (see Note 11). Also on March 27, 1996,
Holding completed an offering of 500,000 shares of Class B Common Stock with a
par value of $0.01 per share to an institutional investor for $50 million. Total
Class B Common Stock, which is non-voting, authorized for issuance at December
31, 2001 was 3,000,000 shares, of which 500,000 shares were outstanding.

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13 -- STOCK INCENTIVE PLANS

In 1996, the Company developed a Long-Term Incentive Plan (LTP) designed to
provide certain key executives and management options to purchase shares of
redeemable Class A Common Stock. Additionally, in 1999 the Company developed a
Supplemental Long-Term Incentive Plan (SLTP) to provide additional options to
certain key executives and management. The following table summarizes
information pertaining to options outstanding and exercisable at December 31,
2001:

GRANTED EXERCISABLE
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE VESTING NUMBER EXERCISE
OUTSTANDING PRICE REFERENCE EXERCISABLE(8) PRICE
PLAN GRANT DATE ----------- -------- --------- -------------- -----------
----
----------

LTP November 2000...... 4,800 $ 115 (1) 1,600 $ 115
SLTP November 2000...... 5,000 115 (2) 1,667 115
SLTP May-Dec, 1999...... 180,500 100 (3) 81,929 100
LTP June-Dec, 1999..... 50,200 100 (4) 14,480 100
LTP August 1998........ 22,500 100 (5) 9,600 100
LTP March 1997......... 225,000 75 (6) 172,833 75
LTP June 1996.......... 57,410 100 (7) 50,660 100
------- ------ ------- ------
Total.......... 545,410 $89.96 332,769 $87.16
======= ====== ======= ======

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

Notes:

(1) Options vest in five equal annual installments on the first five
anniversaries of the date of grant, subject to continuous employment.

(2) Options vest based upon a range of certain financial goals for two years.
Each year, the vesting starts at 30% for achievement of a minimum financial
target, and increases to a maximum of 50% per year, prorated on a
straight-line basis for achievement of certain results above the minimum.
Those options which do not vest in this period will vest, assuming the
employee is still employed, nine years and six months following the date of
grant.

(3) Options vest based upon a range of certain financial goals over the next
three years. Each year, the vesting starts at 20% for achievement of a
minimum financial target, and increases to a maximum of 33 1/3% per year,
prorated on a straight-line basis for achievement of certain financial
results above the minimum. Those options which do not vest in this
three-year period, will vest, assuming the employee is still employed at the
Company, on December 31, 2008.

(4) 35,600 of the options will vest in five equal annual installments on each of
the first five anniversaries of the date of grant, subject to continuous
employment. The remaining 14,600 options vest on the date that the Company
achieves certain financial targets. Should those options not vest as
described above, they will vest assuming the employee is still employed at
the Company, nine years and six months following the date of grant.

(5) 15,000 of the options will vest in four annual installments, on each of the
first four anniversaries of the date of grant, subject to continuous
employment, and the remaining 7,500 options will vest based on achievement
of certain financial goals or on February 19, 2008, whichever occurs first.

(6) 112,500 of these options will vest in five annual installments on each of
the first five anniversaries of the date of grant, subject to continuous
employment, and the remaining 112,500 have accelerated vesting based on
achievement of certain financial goals or on September 30, 2006, whichever
occurs first.

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13 -- STOCK INCENTIVE PLANS -- (CONTINUED)

(7) 50,660 of the options will vest in five equal annual installments on the
first five anniversaries of the date of grant, subject to continuous
employment. The remaining 6,750 options vest on the date that the Company
achieves certain financial targets. Should those options not vest as
described above, they will vest assuming the employee is still employed at
the Company, nine years and six months following the date of grant.

(8) As of December 31, 2000 and 1999, there was exercisable options in the
amount of 277,397 and 157,241, respectively.

A summary of option activity during the three years ended December 31, 2001
is as follows:

SHARES EXERCISE PRICE
------- --------------

Outstanding -- December 31, 1998............................ 348,346 $ 83.85
Granted................................................... 237,300 100.00
Exercised................................................. (6,000) (100.00)
Canceled.................................................. (25,736) (100.00)
------- --------
Outstanding -- December 31, 1999............................ 553,910 $ 89.84
Granted................................................... 13,000 115.00
Exercised................................................. -- --
Canceled.................................................. (1,700) (100.00)
------- --------
Outstanding -- December 31, 2000............................ 565,210 $ 90.39
Granted................................................... -- --
Exercised................................................. (7,069) (120.00)
Canceled.................................................. (12,731) (103.77)
------- --------
Outstanding -- December 31, 2001............................ 545,410 $ 89.70
======= ========

The weighted average contractual life of the outstanding options at
December 31, 2001, is 6 years. The Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for the Stock Options. Accordingly, the Company recognizes
compensation expense for Stock Options when the exercise price is less than the
related fair value at the date of grant or when the performance criteria is met.
During the years ended December 31, 2001, 2000 and 1999, the Company recognized
compensation expense of $1.5 million, $1.8 million, and $0.7 million,
respectively, related to Stock Options. Had compensation expense for the
Company's grants of Stock Options been determined in accordance with Statement
of Financial Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"), the Company's Net (Loss) Income for the years ended December 31,
2001, 2000, and 1999, would have been approximately $(78.3) million, $37.8
million, and $(57.0) million, respectively. The weighted average fair value of
the stock options was estimated to be $30.91 per option on the date of grant for
stock options granted in 2000, and $28.03 per option on the date of grant for
stock options granted in 1999. The Company used the Black-Scholes option-pricing
model to value the Stock Options with the following assumptions: dividend yield
of zero, no volatility, risk-free interest rates ranging from 5.304 to 6.75
percent, a zero forfeiture rate and an expected life of 3 to 10 years.

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 14 -- CURRENCY TRANSLATION ADJUSTMENT

An analysis of changes in the Cumulative Currency Translation Adjustment
included in Shareholders' Equity at December 31 was as follows:

(IN THOUSANDS OF DOLLARS) 2001 2000 1999
------------------------- -------- -------- --------

Cumulative currency translation adjustment at
beginning of period................................ $(29,051) $(15,431) $(15,493)
Currency translation adjustments..................... (5,571) (13,620) 62
-------- -------- --------
$(34,622) $(29,051) $(15,431)
======== ======== ========

NOTE 15 -- CONTINGENCIES AND COMMITMENTS

Total rental expense was approximately $10.4 million, $11.7 million, and
$16.6 million for the years ended December 31, 2001, 2000, and 1999.

At December 31, 2001, total commitments of the Company under long-term,
non-cancelable contracts were as follows:

PAYMENT DUE BY PERIOD
--------------------------------------------------------------
CONTRACTUAL OBLIGATIONS LESS THAN
(IN THOUSANDS OF DOLLARS) 1 YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS TOTAL
------------------------- --------- --------- --------- ------------- ----------

Long-Term Debt............................ $ 1,742 $151,548 $470,506 $901,028 $1,524,824
Operating Leases.......................... 13,821 17,975 2,588 946 35,330
Unconditional Purchase Obligations........ 31,345 16,373 14,693 69,556 131,967
--------- -------- -------- -------- ----------
Total Contractual Cash
Obligations................... $ 46,908 $185,896 $487,787 $971,530 $1,692,121
========= ======== ======== ======== ==========

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 15 -- CONTINGENCIES AND COMMITMENTS -- (CONTINUED)

Settlement Agreement that describes in detail the remedial actions necessary for
the Company to obtain full release of all future liability at this site. The
Company has contracted with a vendor to perform the remedial actions as outlined
in the Settlement Agreement and the work is currently proceeding. The Company no
longer owns the site since transferring the property to another entity on
October 22, 2000. The Company anticipates the remedial actions outlined in the
Settlement Agreement will be completed during the second quarter of 2002 and, at
that time, expects to be relieved of any future liability.

The Company has been a plaintiff in actions against The MeadWestvaco
Corporation, successor by merger to The Mead Corporation, and R.A. Jones
claiming infringement of the Company's patents for its packaging machines. The
patents in suit were found infringed but invalid by a jury in a trial against
R.A. Jones in August 2001. This finding of invalidity has been appealed to the
Court of Appeals for The Federal Circuit. The suit against MeadWestvaco was
dismissed by mutual agreement pending the outcome of the appeal of the decision
in the case against R.A. Jones.

The State of Louisiana completed its audit of the Company's tax return for
the period ended March 27, 1996 and on May 9, 2000, the Company received a
Notice of Proposed Tax Due for this period in the amount of $47.6 million in tax
plus statutory interest. On October 12, 2001, the Company entered into a
settlement agreement with the Louisiana Department of Revenue to pay $29.5
million to the State of Louisiana to settle all Louisiana state income tax
issues (tax and interest) related to the period ended March 27, 1996 and the
nine month period ended December 31, 1996. As required by accounting principles
generally accepted in the United States of America, the Company recorded the
settlement as an increase to Goodwill, Net of Accumulated Amortization. The
Company made this payment on October 25, 2001 using funds borrowed under its
revolving credit facility. See Consolidated Statements of Cash Flows.

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16 -- PENSIONS

U.S. HOURLY AND SALARIED PENSION PLANS

All of the Company's U.S. hourly union employees are participants in the
Company's noncontributory defined benefit hourly plan (the "Hourly plan"). The
pension expense of the Hourly plan is based primarily on years of service and
the pension rate near retirement. The Company's U.S. salaried and nonunion
hourly employees are participants in the Company's noncontributory defined
benefit plan that was established during 1992 (the "Salaried plan").

The Company's funding policies with respect to its U.S. pension plans are
to contribute funds to trusts as necessary to at least meet the minimum funding
requirements of the U.S. Internal Revenue Code. Plan assets are invested
primarily in equities and fixed income securities.

(A) PENSION EXPENSE

The pension expense related to the Hourly plan and Salaried plan consisted
of the following:

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 2001 2000 1999
------------------------- ------------ ------------ ------------

Components of net periodic pension cost
(credit):
Service cost.................................. $ 5,142 $ 4,806 $ 5,395
Interest cost................................. 16,106 15,444 14,231
Expected return on plan assets................ (21,019) (22,101) (20,454)
Amortizations:
Prior service cost......................... 1,029 1,026 1,023
Actuarial (gain)/loss...................... (10) (2,039) 53
-------- -------- --------
Net periodic pension cost (credit)............ $ 1,248 $ (2,864) $ 248
======== ======== ========

Certain assumptions used in determining the pension expense related to the
Hourly plan and Salaried plan were as follows:

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------ ------------ ------------

Assumptions:
Discount rate................................. 7.50% 7.50% 6.50%
Rate of increase in future compensation
levels..................................... 4.50% 4.50% 4.50%
Expected long-term rate of return on plan
assets........................................ 8.50% 8.50% 8.50%

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(B) FUNDED STATUS

The funded status of the Company's U.S. Hourly plan and Salaried plan as of
December 31, were as follows:

(IN THOUSANDS OF DOLLARS) 2001 2000
------------------------- -------- --------

Change in benefit obligation:
Benefit obligation at beginning of year................... $220,881 $206,445
Service cost.............................................. 5,142 4,806
Interest cost............................................. 16,106 15,444
Actuarial (gain) loss..................................... (504) 6,085
Amendments................................................ 130 1,423
Benefits paid............................................. (13,511) (13,322)
-------- --------
Benefit obligation at end of year......................... $228,244 $220,881
======== ========
Change in plan assets:
Fair value of plan assets at beginning of year............ $253,831 $266,455
Actual return on plan assets.............................. (12,783) 670
Employer contributions.................................... 29 28
Benefits paid............................................. (13,511) (13,322)
-------- --------
Fair value of plan assets at end of year.................. $227,566 $253,831
======== ========
Plan assets (less than) in excess of projected benefit
obligation............................................. $ (678) $ 32,950
Unrecognized net actuarial loss (gain).................... 9,252 (24,055)
Unrecognized prior service cost........................... 2,206 3,105
-------- --------
Net amount recognized..................................... $ 10,780 $ 12,000
======== ========
Amounts recognized in the Consolidated Balance Sheets
consist of:
Prepaid pension cost...................................... $ 13,601 $ 14,468
Accrued pension liability................................. (2,821) (2,468)
-------- --------
Net amount recognized..................................... $ 10,780 $ 12,000
======== ========
Assumptions:
Discount rate............................................. 7.50% 7.50%
Rates of increase in future compensation levels........... 4.50% 4.50%

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INTERNATIONAL PENSION PLANS

(A) PENSION EXPENSE

The international defined benefit pension plans are both noncontributory
and contributory and are funded in accordance with applicable local laws. Assets
of the funded plans are invested primarily in equities and fixed income
securities. The pension or termination benefits are based primarily on years of
service and the employees' compensation.

The pension expense related to the international plans consisted of the
following:

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 2001 2000 1999
------------------------- ------------ ------------ ------------

Components of net periodic pension cost:
Service cost.................................. $ 431 $ 1,229 $ 1,647
Interest cost................................. 5,210 4,697 4,788
Expected return on plan assets................ (5,485) (5,384) (5,406)
Amortizations:
Actuarial loss............................. 2,072 -- 1,947
------- ------- -------
Net periodic pension cost..................... $ 2,228 $ 542 $ 2,976
======= ======= =======
Assumptions:
Discount rate................................. 5.75% 5.50% 5.50%
Rates of increase in future compensation
levels..................................... 4.00% 4.00% 4.00%
Expected long-term rate of return on plan
assets..................................... 6.00% 6.00% 6.50%

Approximately 295 employees participate in a multi-employer pension plan
that provides defined benefits to employees under certain union-employer
organization agreements. Pension expense for this plan was $3.5 million, $4.0
million, and $4.8 million for the years ended December 31, 2001, 2000 and 1999,
respectively.

Effective March 31, 2001, the Company's Defined Benefit Pension Plan in the
U.K. (the "U.K. Plan") was curtailed. No curtailment gain was recorded as the
unrecognized net loss of the U.K. Plan at March 31, 2001 exceeded any gain
calculated as a result of the curtailment. Effective March 31, 2001, the Company
began a defined contribution savings plan in the U.K. to replace the curtailed
U.K. Plan.

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(B) FUNDED STATUS

The following table sets forth the funded status of the international
pension plans as of December 31:

(IN THOUSANDS OF DOLLARS) 2001 2000
------------------------- -------- --------

Change in benefit obligation:
Benefit obligation at beginning of year................... $101,529 $ 93,887
Service cost.............................................. 431 1,229
Interest cost............................................. 5,210 4,697
Plan participants contributions........................... 173 536
Amendments................................................ -- --
Actuarial (gain) loss..................................... (6,431) 4,461
Benefits paid............................................. (4,358) (3,281)
-------- --------
Benefit obligation at end of year......................... $ 96,554 $101,529
======== ========
Change in plan assets:
Fair value of plan assets at beginning of year............ $ 97,003 $ 96,784
Actual return on plan assets.............................. (5,524) 490
Employer contributions.................................... 2,382 2,474
Plan participants contributions........................... 173 536
Benefits paid............................................. (4,358) (3,281)
-------- --------
Fair value of plan assets at end of year.................. $ 89,676 $ 97,003
======== ========
Plan assets less than projected benefit obligation........ $ (6,878) $ (4,526)
Unrecognized net actuarial loss........................... 8,099 5,909
-------- --------
Net amount recognized..................................... $ 1,221 $ 1,383
======== ========
Amounts recognized in the Consolidated Balance Sheets
consist of:
Prepaid pension cost...................................... $ 1,221 $ 1,383
Accrued pension liability................................. -- --
-------- --------
Net amount recognized..................................... $ 1,221 $ 1,383
======== ========
Assumptions:
Discount rate............................................. 5.75% 5.50%
Rates of increase in future compensation levels........... 4.00% 4.00%

As of December 31, 2001 and 2000, accrued retirement contributions for the
international pension plans included in Compensation and Employee Benefits on
the Consolidated Balance Sheets were $1.4 million and $1.6 million,
respectively.

DEFINED CONTRIBUTION PLANS

The Company provides defined contribution plans for eligible U.S.
employees. Salaried employees may make contributions of up to 16 percent of
their compensation (6 percent pretax and 10 percent after tax). The Company
matches 3 percent and may match up to a total of 6 percent of the eligible
compensation, depending on the Company's performance.

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Hourly employees may make contributions of up to 16 percent of their
compensation (pretax and after tax percentages vary based on negotiated union
contracts). The Company matches various percentages of the eligible compensation
based on negotiated union contracts.

Contributions to these plans for the years ended December 31, 2001, 2000,
and 1999 were $2.5 million, $2.3 million, and $2.4 million, respectively.

Accrued plan contributions included in Compensation and Employee Benefits
on the Consolidated Balance Sheets were $0.1 million and $0.1 million at
December 31, 2001 and 2000, respectively.

NOTE 17 -- OTHER POSTRETIREMENT BENEFITS

The Company sponsors postretirement health care plans that provide medical
and life insurance coverage to eligible salaried and hourly retired U.S.
employees and their dependents. No postretirement medical benefits are offered
to salaried employees who began employment after December 31, 1993.

The other postretirement benefits expense consisted of the following:

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 2001 2000 1999
------------------------- ------------ ------------ ------------

Service cost.................................. $ 272 $ 255 $ 291
Interest cost............................... 1,669 1,645 1,663
Amortizations:
Prior service cost....................... (162) (162) (162)
Actuarial loss........................... 151 124 184
------ ------ ------
Net periodic pension cost................... $1,930 $1,862 $1,976
====== ====== ======
Assumptions:
Discount rate............................... 7.5% 7.5% 6.5%
Initial health care cost trend rate......... 7.5% 5.5% 5.5%
Ultimate health care cost trend rate*....... 5.0% 4.5% 4.5%
Ultimate year*.............................. 2006 2001 2001

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

* The salaried plan's cost was capped beginning in 1999.

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 17 -- OTHER POSTRETIREMENT BENEFITS -- (CONTINUED)

The accrued postretirement benefit obligation at December 31 was as
follows:

(IN THOUSANDS OF DOLLARS) 2001 2000
------------------------- -------- --------

Change in benefit obligation:
Benefit obligation at beginning of year................... $ 22,703 $ 24,242
Service cost.............................................. 272 255
Interest cost............................................. 1,669 1,645
Actuarial loss (gain)..................................... 2,013 (564)
Assumptions............................................... -- 176
Benefits paid............................................. (3,717) (3,051)
-------- --------
Benefit obligation at end of year......................... $ 22,940 $ 22,703
======== ========
Fair value of plan assets at end of year.................. -- --
-------- --------
Accumulated postretirement benefit obligation in excess of
plan assets............................................ $(22,940) $(22,703)
Unrecognized net actuarial loss........................... 2,660 860
Unrecognized prior service credit......................... (1,676) (1,838)
-------- --------
Total accrued postretirement benefit obligation... $(21,956) $(23,681)
======== ========
Assumptions:
Discount rate............................................. 7.50% 7.50%
Initial health care cost trend rate....................... 7.00% 7.50%
Ultimate health care cost trend rate *.................... 5.00% 5.00%
Ultimate year*............................................ 2006 2006

1 PERCENTAGE 1 PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------

Health care trend rate sensitivity:
Effect on total of interest and service cost
components............................................ $ 26 $ (24)
Effect on year-end postretirement benefit obligation..... $234 $(211)

---------------
* The salaried plan's cost was capped beginning in 1999.

NOTE 18 -- FOREIGN CURRENCY MOVEMENT EFFECT

Net international currency transaction (losses) gains included in
determining Income from Operations for the years ended December 31, 2001, 2000
and 1999 were $(1.4) million, $(0.1) million and $1.2 million, respectively.

NOTE 19 -- INCOME TAXES

The U.S. and international components of (Loss) Income before Income Taxes
and Equity in Net Earnings of Affiliates consisted of the following:

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 2001 2000 1999
------------------------- ------------ ------------ ------------

U.S. ............................................. $(78,540) $30,274 $(53,190)
International..................................... 18,626 9,778 (4,655)
-------- ------- --------
(Loss) Income before Income Taxes and Equity in
Net Earnings of Affiliates...................... $(59,914) $40,052 $(57,845)
======== ======= ========

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 19 -- INCOME TAXES -- (CONTINUED)

The provisions for Income Tax Expense on (Loss) Income before Income Taxes
and Equity in Net Earnings of Affiliates consisted of the following:

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 2001 2000 1999
------------------------- ------------ ------------ ------------

Current:
U.S. Federal.................................... $ -- $ 850 $ --
U.S. State and Local............................ 1,651 (768) 1,787
International................................... 7,108 2,927 2,149
------ ------ ------
Total Current..................................... 8,759 3,009 3,936
------ ------ ------
Income Tax Expense.............................. $8,759 $3,009 $3,936
====== ====== ======

A reconciliation of Income Tax Expense on (Loss) Income before
Extraordinary Item and Cumulative Effect of a Change in Accounting Principle
including Equity in Net Earnings of Affiliates at the federal statutory rate of
35% compared with the Company's actual Income Tax Expense is as follows:

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 2001 2000 1999
------------------------- ------------ ------------ ------------

Income (benefit) tax at U.S. statutory rate....... $(20,970) $ 15,193 $(17,757)
U.S. federal taxes -- AMT......................... -- 850 --
U.S. state and local tax (benefit)................ 1,651 (768) 1,787
Limitation on use of U.S. net operating losses.... 27,490 (11,771) 16,128
International tax rate differences................ (47) (1,637) 2,850
Foreign withholding tax........................... 635 1,142 928
-------- -------- --------
Income Tax Expense................................ $ 8,759 $ 3,009 $ 3,936
======== ======== ========

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, were as follows:

(IN THOUSANDS OF DOLLARS) 2001 2000
------------------------- --------- ---------

Property, plant and equipment............................... $(274,081) $(263,786)
Other....................................................... (5,321) (2,014)
--------- ---------
Gross deferred tax liabilities............................ $(279,402) $(265,800)
--------- ---------
Net operating loss carryforwards............................ 498,795 426,469
Other....................................................... (5,538) 6,955
--------- ---------
Gross deferred tax assets................................. 493,257 433,424
--------- ---------
Valuation allowance......................................... (219,747) (174,859)
--------- ---------
Net deferred tax liability................................ $ (5,892) $ (7,235)
========= =========

The Company has determined that, as of both December 31, 2001 and 2000, it
is more likely than not that no net deferred tax assets will be realized. The
valuation allowance of $219.7 million and $174.9 million at December 31, 2001
and 2000, respectively, is maintained on net deferred tax assets for which the
Company has not determined that realization is more likely than not.

The U.S. federal net operating loss carryforward amount totals $1,136.4
million, and expires in 2012, 2013, 2019, 2020 and 2021 in the amounts of $85.0
million, $421.5 million, $295.0 million, $196.8 million and

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 19 -- INCOME TAXES -- (CONTINUED)

$138.1 million, respectively. International net operating loss carryforward
amounts total $114.5 million of which $9.5 million expire through 2011 and
$105.0 million have no expiration date.

Undistributed earnings intended to be reinvested indefinitely by the
international subsidiaries totaled approximately $42.0 million at December 31,
2001. No U.S. deferred income tax has been recorded on these undistributed
earnings.

NOTE 20 -- EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT

On August 10, 2001, the Company entered into the 2001 Senior Secured Credit
Agreement. The proceeds of the initial borrowings under the 2001 Facilities of
approximately $386.0 million, including $51.0 million in revolving credit
borrowings, were applied to repay in full the outstanding borrowings under the
Term Loan Facility and the Revolving Facility and to pay approximately $12
million of the estimated $14 million of fees and expenses incurred in connection
with the amendment and restatement of the Credit Agreement. During the third
quarter of 2001, the Company recorded a non-cash, extraordinary charge to
earnings of approximately $6.0 million, net of tax of nil, related to the
write-off of the applicable remaining deferred debt issuance costs on the Term
Loan Facility and the Revolving Facility.

On October 3, 2000, the Company completed the sale of its 50 percent
investment in Igaras (see Note 6). The Company applied $120 million and $25
million of the sale proceeds to its 2001 and 2002 term loan maturities under the
Term Loan Facility, respectively. The Company recognized a loss on the early
extinguishment of debt of approximately $2.1 million in the fourth quarter of
2000.

NOTE 21 -- DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

On January 1, 2001, the Company adopted SFAS No. 133 which requires all
derivative instruments to be measured at fair value and recognized on the
balance sheet as either assets or liabilities. In addition, all derivative
instruments used in hedging relationships must be designated, reassessed and
documented pursuant to the provisions of SFAS No. 133. Upon adoption of SFAS No.
133, the Company recognized a one-time after-tax transition adjustment to
decrease earnings by approximately $0.5 million and decrease other comprehensive
income by approximately $1.1 million. These amounts have been presented as a
cumulative effect of change in accounting principle in the accompanying
Consolidated Statement of Operations and Comprehensive (Loss) Income for the
year ended December 31, 2001.

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 21 -- DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES -- (CONTINUED)

The following is a summary of the Company's derivative instruments as of
December 31, 2001 and the accounting policies it employs for each:

Hedges of Anticipated Cash Flows

The following is a reconciliation of current period changes in the fair
value of the interest rate swap agreements, foreign currency forward and option
contracts which have been recorded as Accumulated Derivative Instruments Loss in
the accompanying Condensed Consolidated Balance Sheet at December 31, 2001 and
as Derivative Instruments Loss in the accompanying Consolidated Statement of
Operations and Comprehensive (Loss) Income for the year ended December 31, 2001.

(IN THOUSANDS OF DOLLARS)
-------------------------

SFAS No. 133 transition adjustment.......................... $(1,094)
Reclassification to earnings................................ 331
Current period decrease in fair value....................... (3,807)
-------
Balance at December 31, 2001................................ $(4,570)
=======

Derivatives not Designated as Hedges

NOTE 22 -- SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest and cash paid (received), net of refunds, for income
and franchise taxes was as follows:

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
IN THOUSANDS OF DOLLARS) 2001 2000 1999
------------------------ ------------ ------------ ------------

Interest................................................ $145,752 $173,180 $169,623
======== ======== ========
Income and Franchise Taxes.............................. $ 32,483 $ 5,780 $ (5,293)
======== ======== ========

See Note 15 to the Consolidated Financial Statements.

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 23 -- RESTRUCTURING ACTIVITIES

OTHER
(IN THOUSANDS OF DOLLARS) SEVERANCE EXIT COSTS TOTAL
------------------------- --------- ---------- --------

Balance at 12/31/98.................................... 21,205 3,537 24,742
Charges against accrual in 1999........................ (11,527) (791) (12,318)
-------- ------- --------
Balance at 12/31/99.................................... 9,678 2,746 12,424
Net charges against accrual in 2000.................... (6,669) (2,499) (9,168)
-------- ------- --------
Balance at 12/31/00.................................... $ 3,009 $ 247 $ 3,256
Net charges against accrual in 2001.................... (3,009) (247) (3,256)
-------- ------- --------
Balance at 12/31/01.................................... $ -- $ -- $ --
======== ======= ========

During 2000, the Company substantially completed the restructuring plan and
reduced the reserve by $4.8 million. In addition, $2.2 million of new
restructuring activities aligned with the overall objectives of the initial plan
were completed in 2000. The Company completed this program during 2001 resulting
in a reduction of its European workforce related to the 1998 restructuring by
approximately 250 employees.

NOTE 24 -- BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION

The Company reports its results in two business segments: Coated Board and
Containerboard. These segments are evaluated by the chief operating decision
maker based primarily on income from operations and EBITDA. The Coated Board
business segment includes the production and sale of coated board for beverage
carrierboard and folding cartons from its West Monroe, Louisiana and Macon,
Georgia mills and from its mill in Sweden; carton converting facilities in the
United States, Europe and Brazil; and the design, manufacture and installation
of packaging machinery related to the assembly of beverage cartons. The
Containerboard business segment includes the production and sale of linerboard,
corrugating medium and kraft paper from paperboard mills in the United States.

The Company's four separate geographic areas are the United States,
Central/South America, Europe and Asia-Pacific. The United States area includes
paper mills, beverage and folding carton plants, and packaging machinery
facilities. The Central/South America area includes beverage and folding carton
operations. The Europe area includes a coated recycled paperboard mill, beverage
and folding carton operations, and a packaging machinery facility. The
Asia-Pacific area includes beverage and folding carton operations.

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 24 -- BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION -- (CONTINUED)

Business segment information is as follows:

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 2001 2000 1999
------------------------- ------------ ------------ ------------

NET SALES:
Coated Board.......................................... $1,156,210 $1,065,813 $1,062,671
Containerboard........................................ 93,676 126,549 111,994
---------- ---------- ----------
$1,249,886 $1,192,362 $1,174,665
========== ========== ==========
INCOME FROM OPERATIONS:
Coated Board.......................................... $ 142,929 $ 161,372 $ 151,453
Containerboard........................................ (19,366) 5,183 (10,235)
Corporate(A).......................................... (25,511) 53,934 (20,755)
---------- ---------- ----------
$ 98,052 $ 220,489 $ 120,463
========== ========== ==========
EBITDA(F):
Coated Board.......................................... $ 280,410 $ 286,039 $ 269,509
Containerboard........................................ (986) 20,518 7,000
Corporate and Eliminations............................ (11,190) (6,523) (3,034)
---------- ---------- ----------
$ 268,234 $ 300,034 $ 273,475
========== ========== ==========
RECONCILIATION OF INCOME FROM
OPERATIONS TO EBITDA:
Income from Operations................................ $ 98,052 $ 220,489 $ 120,463
Add: Depreciation and Amortization.................... 137,258 143,541 142,597
Dividends from equity investments................ 710 5,083 4,515
Other non-cash charges(E)........................ 32,214 (69,079) 5,900
---------- ---------- ----------
EBITDA(F)............................................. $ 268,234 $ 300,034 $ 273,475
========== ========== ==========
CAPITAL EXPENDITURES:
Coated Board.......................................... $ 51,852 $ 57,669 $ 42,505
Containerboard........................................ 2,562 3,231 3,782
Corporate............................................. 3,256 1,162 19,731
---------- ---------- ----------
$ 57,670 $ 62,062 $ 66,018
========== ========== ==========
DEPRECIATION AND AMORTIZATION:
Coated Board.......................................... $ 115,868 $ 123,893 $ 120,991
Containerboard........................................ 13,787 17,252 18,068
Corporate............................................. 7,603 2,396 3,538
---------- ---------- ----------
$ 137,258 $ 143,541 $ 142,597
========== ========== ==========

(IN THOUSANDS OF DOLLARS) 2001 2000 1999
------------------------- ------------ ----------- ------------

IDENTIFIABLE ASSETS AT DECEMBER 31:
Coated Board(B)....................................... $1,759,787 $1,734,802 $1,824,297
Containerboard(B)..................................... 191,598 287,335 293,852
Corporate(C).......................................... 106,207 99,220 244,993
---------- ---------- ----------
$2,057,592 $2,121,357 $2,363,142
========== ========== ==========

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 24 -- BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION -- (CONTINUED)

Business geographic area information is as follows:

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 2001 2000 1999
------------------------- ------------ ------------ ------------

NET SALES:
United States......................................... $ 939,985 $ 974,868 $ 966,006
Central/South America................................. 17,372 15,473 6,313
Europe................................................ 203,393 208,794 228,503
Asia Pacific.......................................... 188,309 97,357 80,522
Eliminations(D)....................................... (99,173) (104,130) (106,679)
---------- ---------- ----------
$1,249,886 $1,192,362 $1,174,665
========== ========== ==========
INCOME FROM OPERATIONS:
Unites States......................................... $ 67,947 $ 195,074 $ 131,070
Central/South America................................. (4,023) (925) (1,954)
Europe................................................ 12,477 12,030 (2,779)
Asia Pacific.......................................... 17,199 7,668 4,707
Eliminations(D)....................................... 4,452 6,642 (10,581)
---------- ---------- ----------
$ 98,052 $ 220,489 $ 120,463
========== ========== ==========

(IN THOUSANDS OF DOLLARS) 2001 2000 1999
------------------------- ------------ ------------ ------------

IDENTIFIABLE ASSETS AT DECEMBER 31:
Unites States......................................... $1,709,686 $1,805,760 $1,904,349
Central/South America................................. 29,330 35,851 10,803
Europe................................................ 147,050 142,502 165,799
Asia Pacific.......................................... 64,893 38,569 36,228
Corporate(C).......................................... 106,207 99,220 244,993
Eliminations(D)....................................... 426 (545) 970
---------- ---------- ----------
$2,057,592 $2,121,357 $2,363,142
========== ========== ==========

---------------
Notes:

(A) Primarily consists of unallocated general corporate expenses and the gain on
the sale of Igaras (see Note 6) in 2000.

(B) Certain mill assets are allocated based on production.

(C) Corporate assets are principally the equity investment in Igaras (up to the
date of sale), (see Note 6), cash and equivalents, prepaid pension costs and
other prepayments, deferred loan costs, deferred tax assets and a portion of
property, plant and equipment.

(D) Represents primarily the elimination of intergeographic sales and profits
from transactions between the Company's U.S., Europe, Asia-Pacific and
Central/South America operations.

(E) Other non-cash charges include non-cash charges for LIFO accounting,
pension, postretirement and postemployment benefits, and amortization of
premiums on hedging contracts deducted in determining net income.

(F) EBITDA is defined as consolidated net income (exclusive of non-cash charges
resulting from purchase accounting during the periods subsequent to the
Merger) before consolidated interest expense, consolidated income taxes,
consolidated depreciation and amortization, and other non-cash charges
deducted in

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 24 -- BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION -- (CONTINUED)

determining consolidated net income, extraordinary items and the cumulative
effect of accounting changes and earnings of, but including dividends from,
non-controlled affiliates. The Company believes that EDITDA provides useful
information regarding the Company's debt service ability, but should not be
considered in isolation or as a substitute for the Consolidated Statements
of Operations or cash flow data. This definition of EBITDA may not be
comparable to other companies' definitions of EBITDA as it is calculated
based on the definition of EBITDA and GAAP as defined in the 2001 Senior
Secured Credit Agreement.

NOTE 25 -- RELATED PARTY TRANSACTIONS

On November 18, 1999, the Company loaned $5.0 million to a principal
employee in a non-interest bearing note due March 26, 2002. On December 19,
2001, the Company extended the maturity of the loan through March 26, 2007. At
December 31, 2001 and 2000 this receivable was included in Other Assets on the
Consolidated Balance Sheets.

The Company receives certain management services provided by Clayton,
Dubilier and Rice, Inc. ("CD&R"), an affiliate of an equity investor in the
Company. Charges for such services, including reimbursement of expenses, totaled
approximately $0.5 million, $0.6 million, and $0.6 million for the years ended
December 31, 2001, 2000, and 1999, respectively, and were included in Selling,
General and Administrative in the Consolidated Statements of Operations and
Comprehensive (Loss) Income.

NOTE 26 -- NEW ACCOUNTING PRONOUNCEMENTS

RIVERWOOD HOLDING, INC.

SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)

Results of operations for the four quarters of 2001 and 2000 are shown
below:

(LOSS) INCOME
INCOME BEFORE
(IN THOUSANDS OF DOLLARS) NET GROS FROM EXTRAORDINARY NET
(QUARTER) SALES(F) PROFIT OPERATIONS ITEM (LOSS) INCOME
------------------------- ---------- -------- ---------- ------------- -------------

Company:
2001
First............................ $ 288,600 $ 50,719 $ 10,817 $(29,665) $(30,164)
Second(A)........................ 340,873 73,172 36,918 (4,672) (7,442)
Third(B)......................... 321,682 74,170 40,116 (1,828) (7,782)
Fourth(C)........................ 298,731 49,766 10,201 (32,508) (32,508)
---------- -------- -------- -------- --------
Total.................. $1,249,886 $247,827 $ 98,052 $(68,673) $(77,896)
========== ======== ======== ======== ========
2000
First............................ $ 286,329 $ 58,301 $ 24,096 $(21,163) $(21,163)
Second........................... 321,725 72,933 43,349 (3,655) (3,655)
Third............................ 293,826 66,147 37,543 (9,297) (9,297)
Fourth(D)(E)..................... 290,482 71,130 115,501 74,514 72,397
---------- -------- -------- -------- --------
Total.................. $1,192,362 $268,511 $220,489 $ 40,399 $ 38,282
========== ======== ======== ======== ========

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

Notes:

(A) During the second quarter of 2001, the Company recorded an extraordinary
charge to earnings of approximately $2.8 million, net of tax of nil, related
to the write-off deferred debt issuance costs (see Note 20 in Notes to
Consolidated Financial Statements).

(B) During the third quarter of 2001, the Company recorded an extraordinary
charge to earnings of approximately $6.0 million, net of tax of nil, related
to the write-off deferred debt issuance costs (see Note 20 in Notes to
Consolidated Financial Statements).

(C) During the fourth quarter of 2001, the Company recorded a charge of $12.3
million related to LIFO inventory valuation. The net debit relating to LIFO
inventory valuation for the year ended December 31, 2001, was $12.3 million
(see Note 5 in Notes to Consolidated Financial Statements).

(D) During the fourth quarter of 2000, the Company recorded a credit of $6.9
million related to LIFO inventory valuation. The net credit relating to LIFO
inventory valuation for the year ended December 31, 2000, was $6.9 million
(see Note 5 in Notes to Consolidated Financial Statements).

(E) On October 3, 2000, the Company completed the sale of the jointly-held
subsidiary Igaras and recognized a gain of approximately $70.9 million in
accordance with the sale (see Note 6 in Notes to Consolidated Financial
Statements). During the fourth quarter of 2000, the Company recorded an
extraordinary charge to earnings of approximately $2.1 million, net of tax
of nil, related to the write-off of the applicable portion of deferred debt
issuance costs (see Note 20 in Notes to Consolidated Financial Statements).

(F) The Company has reclassified the presentation of prior period Net Sales and
Cost of Sales information to conform with the current presentation format
and Emerging Issues Task Force 00-10, "Accounting for Shipping and Handling
Fees and Costs". Shipping and handling costs totaled $15.0 million in the
first quarter of 2001, $17.0 million in the second quarter of 2001, $16.4
million in the third quarter of 2001, $16.5 million in the fourth quarter of
2001, $16.1 million in the first quarter of 2000, $17.2 million in the
second quarter of 2000, $15.3 million in the third quarter of 2000 and $15.1
million in the fourth quarter of 2000. See Note 2 in Notes to Consolidated
Financial Statements.

INDEPENDENT AUDITORS' REPORT

To the Stockholders and Directors of Riverwood Holding, Inc.:

We have audited the accompanying consolidated balance sheets of Riverwood
Holding, Inc. and subsidiaries (the "Company") as of December 31, 2001 and 2000,
and the related consolidated statements of operations and comprehensive (loss)
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 2001. Our audits also included the financial statement
Schedule listed in the Index at Item 14. These consolidated financial statements
and financial statement Schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Riverwood Holding, Inc. and
subsidiaries at December 31, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2001 in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

As discussed in Note 21 to the consolidated financial statements, effective
January 1, 2001, the Company changed its method of accounting for derivative
instruments and hedging activities.

DELOITTE & TOUCHE LLP

Atlanta, Georgia
February 15, 2002

MANAGEMENT'S REPORT

The accompanying consolidated financial statements have been prepared by
Management in conformity with accounting principles generally accepted in the
United States of America. The representations in the financial statements and
the fairness and integrity of such statements are the responsibility of
Management. All of the other financial information in the Annual Report and Form
10-K is consistent with the financial statements.

The financial statements necessarily include some amounts that are based on
Management's best estimates and judgments. Management believes that the
financial statements reflect, in all material respects, the substance of
transactions that should be included and appropriately account for or disclose
all material uncertainties.

The consolidated financial statements prepared by Management have been
audited in accordance with auditing standards generally accepted in the United
States of America by Deloitte & Touche LLP (for the years ended December 31,
2001, 2000 and 1999), Independent Auditors, whose report is also presented.

Riverwood International Corporation maintains internal accounting control
systems to provide reliable financial information for preparation of financial
statements, to safeguard assets against loss or unauthorized use and to ensure
proper authorization and accounting for all transactions. Management is
responsible for maintenance of these systems, which is accomplished through
communication of established written codes of conduct, systems, policies and
procedures, employee training, and appropriate delegation of authority and
segregation of responsibilities.

In establishing and maintaining its internal accounting control systems,
Management considers the inherent limitations of the various control procedures
and weighs their costs against the benefits derived. Management believes that
existing internal accounting control systems are achieving their objectives and
that they provide reasonable assurance concerning the accuracy of the financial
statements.

Oversight of Management's financial reporting and internal accounting
control responsibilities is exercised by the Board of Directors through the
Audit Committee, which consists solely of outside directors. The Audit Committee
meets at least quarterly with financial management and the Independent Auditors
to review how each is carrying out its responsibilities and to discuss matters
concerning auditing, internal accounting control and financial reporting. The
Independent Auditors have free access to meet with the Audit Committee without
Management's presence.

Stephen Humphrey Daniel J. Blount
Chief Executive Officer Senior Vice President
and President and Chief Financial Officer

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There were no such changes in or disagreements with accountants on
accounting or financial disclosure.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

The names, ages as of March 1, 2002 and positions of the current directors
of the Company and executive officers of Riverwood are set forth below.

NAME AGE POSITION
---- --- --------

Stephen M. Humphrey......... 57 President, Chief Executive Officer and Director
Thomas M. Gannon............ 52 Chief Operating Officer
Daniel J. Blount............ 46 Senior Vice President and Chief Financial Officer
Wayne E. Juby............... 54 Senior Vice President, Human Resources
Steven D. Saucier........... 48 Senior Vice President, Paperboard Operations
B. Charles Ames............. 76 Chairman and Director
Kevin J. Conway............. 43 Director
Leon J. Hendrix, Jr......... 60 Director
Hubbard C. Howe............. 73 Director
Alberto Cribiore............ 56 Director
Brian J. Richmand........... 48 Director
Lawrence C. Tucker.......... 59 Director
Samuel M. Mencoff........... 45 Director
G. Andrea Botta............. 48 Director
Gianluigi Gabetti........... 77 Director

Stephen M. Humphrey is the President and Chief Executive Officer and a
director of Holding, RIC Holding and Riverwood. Mr. Humphrey joined Riverwood in
March 1997. From 1994 through 1996, Mr. Humphrey was Chairman, President and
Chief Executive Officer of National Gypsum Company, a manufacturer and supplier
of building products and services. From 1981 until 1994 Mr. Humphrey was
employed by Rockwell International Corporation, a manufacturer of industrial
automation products, telecommunications systems and automotive components
products and systems ("Rockwell"), where he held a number of key executive
positions.

Thomas M. Gannon is Chief Operating Officer of Holding, RIC Holding and
Riverwood, a position he assumed in July 2001. From September 1998 until July
2001, Mr. Gannon served as Executive Vice President, Commercial Operations of
Riverwood and from July 1997 until September 1998, Mr. Gannon was Senior Vice
President and Chief Financial Officer of Riverwood. Prior to joining Riverwood,
Mr. Gannon was employed from August 1995 until July 1997 by Libby-Owens-Ford
Co., a manufacturer of home, commercial and automobile flat glass products, most
recently as Corporate Vice President of Finance and Administration and Chief
Financial Officer. From April 1976 through August 1995, Mr. Gannon served in
various positions with Rockwell.

Daniel J. Blount is Senior Vice President and Chief Financial Officer of
Holding, RIC Holding and Riverwood, positions he assumed in September 1999. From
September 1998 until September 1999, Mr. Blount was Vice President and Chief
Financial Officer. Prior to joining Riverwood, Mr. Blount spent 13 years at
Montgomery Kone, Inc., an elevator, escalator and moving ramp product
manufacturer, installer

and service provider, most recently as Senior Vice President, Finance. From 1983
until 1985, Mr. Blount was an international auditor at United Technologies
Corporation, where he conducted and led operational and financial audits of
subsidiary companies, mainly outside the United States. From 1979 until 1983,
Mr. Blount served in various positions at Ernst and Whinney, most recently as
Audit Manager.

Wayne E. Juby is Senior Vice President, Human Resources of Holding, RIC
Holding and Riverwood. Mr. Juby joined Riverwood in November 2000. From November
2000 until April 2001, Mr. Juby was Director, Corporate Training, of Riverwood.
From 1994 until 1996, Mr. Juby was Vice President, Human Resources, of National
Gypsum Company.

Steven D. Saucier is Senior Vice President, Paperboard Operations of
Riverwood. Mr. Saucier joined Riverwood in November 1998. From July 1998 until
October 1998, Mr. Saucier was Senior Vice President, Manufacturing, of JPS
Packaging, a manufacturer of flexible packaging. From April 1996 until July
1998, Mr. Saucier was Senior Vice President, Supply Chain, of Sealright Co.,
Inc., a manufacturer of rigid and flexible packaging, and from September 1975
until April 1996, Mr. Saucier was employed by Mobil Corporation, where his last
position was General Manager, Manufacturing with Mobil Films division.

B. Charles Ames is Chairman of the Boards of Holding, RIC Holding and
Riverwood. Since 1987, Mr. Ames has been a principal of Clayton, Dubilier &
Rice, Inc., a New York-based private investment firm ("CD&R"). Mr. Ames is a
director of CD&R Investment Associates II, Inc. ("Associates II Inc."), a Cayman
Islands exempted company that is the managing general partner of CD&R Associates
V Limited Partnership, a Cayman Islands exempted limited partnership
("Associates V"), the general partner of Clayton, Dubilier & Rice Fund V Limited
Partnership, a Cayman Islands exempted limited partnership ("CD&R Fund V"). Mr.
Ames is also a limited partner of Associates V and serves as a director of
Remington Arms Company, Inc., a manufacturer of sporting goods products for the
hunting, shooting sports and fishing markets ("Remington"), and its parent RACI
Holding, Inc. ("RACI"). RACI is a company in which an investment fund managed by
CD&R has an investment. He is also a director of Kinko's, The Progressive
Corporation, Schulte GmbH & Co., KG, and Lexmark International, Inc.

Kevin J. Conway is a principal of CD&R, a director of Associates II Inc.
and a limited partner of Associates V. Mr. Conway is also a director of Allied
Worldwide, a moving services and logistics company and Covansys, an IT services
company. Prior to joining CD&R in 1994, Mr. Conway worked at Goldman, Sachs &
Co., an investment banking firm.

Leon J. Hendrix, Jr. is the Chairman and a director of Remington and RACI.
He was a principal of CD&R from 1993 until 2000. From 1973 until 1993, Mr.
Hendrix was employed by Reliance Electric Company, a manufacturer of industrial
drives, electrical motors and telecommunications equipment, most recently as its
Chief Operating Officer and a director. Mr. Hendrix serves as a director of
Keithley Instruments, Inc., a manufacturer of electronic test and measurement
instruments and systems, NACCO Industries Inc., a manufacturer of forklift
trucks and small electric appliances, a supplier of kitchenware, and the mining
and marketing of fuel for power generation by electric utilities, and Cambrex
Corporation, an international manufacturer of a broad line of specialty and fine
chemicals.

Hubbard C. Howe was a principal of CD&R from 1990 until his retirement in
1998. Mr. Howe is a limited partner of Associates V. Mr. Howe has served as
Chairman and a director of A.P.S., Inc., a distributor of automotive replacement
parts ("A.P.S."), and its parent corporation, APS Holding Corporation, a
corporation in which an investment fund managed by CD&R had an investment ("APS
Holding"), since prior to 1993. Mr. Howe served as interim Chief Executive
Officer of A.P.S. and APS Holding from March 1997 until January 1998. On
February 2, 1998, A.P.S. and several of its direct and indirect subsidiaries
filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy
Code with the United States Bankruptcy Court for the District of Delaware. APS
was liquidated in 1999. Mr. Howe has been a director of Remington and RACI since
1993, and was Chairman and Chief Executive Officer of Remington and RACI until
December 1997. Mr. Howe served as Vice Chairman from February 1994 until
November 1997, and as Chairman from prior to 1993 until February 1994, of
Nu-kote International, Inc., a printing supplies manufacturer, and its parent
Nu-kote Holding, Inc., a corporation in which an investment fund managed by CD&R
had an investment.
72

Alberto Cribiore is currently the Managing Principal of Brera Capital
Partners, LLC, a private equity investment firm in New York. Mr. Cribiore serves
on the Board of Directors of Western Industries, Inc., Classic Cable, Inc. and
GAB Robins North America. Mr. Cribiore was a principal of CD&R from 1985 to
March 1997 and a co-President of CD&R from 1995 to March 1997. Mr. Cribiore also
serves as a director of Hansberger Global Investors, Inc., an international
money management firm. Mr. Cribiore also currently serves as the Chairman and a
director of Global Decisions Group, LLC, the parent company of Cambridge Energy
Research Associates, Inc., a leading strategic knowledge firm focusing on the
energy industry.

Brian J. Richmand has served as a Special Limited Partner of J.P. Morgan
Partners LLC (formerly Chase Capital Partners), since January 1, 2000, and as a
General Partner of J.P. Morgan Partners LLC from August 1, 1993 to December 31,
1999. Prior to joining J.P. Morgan Partners LLC, Mr. Richmand was a partner at
the law firm of Kirkland & Ellis. Mr. Richmand is also currently a director of
Reiman Publishing, LLC, Transtar Metals, LLC and EMP Group, L.L.C. J.P. Morgan
Partners LLC is an affiliate of J.P. Morgan Partners (BHCA), L.P.

Lawrence C. Tucker has been a General Partner of Brown Brothers Harriman &
Co., a private banking firm, since 1979. He also serves as an advisory director
of WorldCom, Inc., an international provider of telecommunications, data and
Internet services, WorldCom Ventures, Inc., a venture capital fund, National
Healthcare Corp., an owner, operator and manager of long-term care facilities,
retirement apartments and assisted living units, VAALCO Energy Inc., an
international oil and gas exploration company, US Unwired, Inc., a digital
wireless telephone carrier, Z-tel Technologies, Inc., a provider of voice and
enhanced communications services to residential customers and other carriers,
Digex, Inc., a provider of web hosting and related services and Xspedius, Inc.,
a competitive local exchange company. Brown Brothers Harriman & Co. is the
general partner of The 1818 Fund, L.P., The 1818 Fund II, L.P. ("1818 Fund"),
The 1818 Fund III, L.P., The 1818 Mezzanine Fund, L.P. and The 1818 Mezzanine
Fund II, L.P.

Samuel M. Mencoff has been employed principally as a Managing Director of
Madison Dearborn Partners, LLC, a private equity investment firm, which he
co-founded in January, 1993. From 1987 until 1993, Mr. Mencoff served as Vice
President of First Chicago Venture Capital, a private equity investment firm.
Mr. Mencoff is a director of Buckeye Technologies Inc., a manufacturer of
specialty cellulose pulps and non-woven fiber products, Bay State Paper Holding
Company, a producer of recycled containerboard and related products and
Packaging Corporation of America, an integrated producer of containerboard and
corrugated packaging products.

G. Andrea Botta has been a managing director of Morgan Stanley from
September 5, 1999. Previously he was President of EXOR America, Inc. (formerly
IFINT-USA Inc.) ("EXOR America") from 1993 until September 5, 1999 and for more
than five years prior thereto, Vice President of Acquisitions of IFINT-USA, Inc.
Mr. Botta is also a director of Key 3 Media.

Gianluigi Gabetti has been Vice Chairman of IFI S.p.A. -- Istituto
Finanziario Industriale (the holding company of the Agnelli family) since 1993,
and had been its Chief Executive Officer from 1972 to 1993. Mr. Gabetti is also
a director of IFIL -- Finanziaria di Partecipazioni, a holding company of the
Agnelli Group. Mr. Gabetti had been a director of FIAT S.p.A. from 1971 to 1999
where, upon mandatory retirement, he was appointed Director Emeritus. Mr.
Gabetti is also Vice Chairman of EXOR Group, an international investment holding
company of the Agnelli Group; Chairman of FIAT U.S.A., the U.S. arm of the
Italian industrial group; and a director of Club Mediterranee S.A., an
international leisure and travel organization.

ELECTION AND COMPENSATION OF DIRECTORS

All directors are elected annually and hold office until their successors
are elected and qualified, or until their earlier removal or resignation. The
Stockholders Agreement entered into among Holding and each of CD&R Fund V, EXOR
Group S.A. ("EXOR"), 1818 Fund, HWH Investment Pte Ltd, J.P. Morgan, First Plaza
Group Trust, Madison Dearborn Capital Partners, L.P. and Wolfensohn-River LLC
(collectively, the "Equity Investors"), provides that CD&R Fund V is entitled to
nominate five persons, EXOR is entitled to nominate two persons, the 1818 Fund
is entitled to nominate one person and Madison Dearborn Capital Partners, L.P.
is entitled to nominate one person to serve on the Boards of Directors (the
"Boards") of each of
73

Holding, RIC Holding and Riverwood. There is also an understanding between J.P.
Morgan Partners (BHCA), L.P. (formerly Chase Equity Associates, L.P.) ("J.P.
Morgan") and CD&R Fund V with respect to the nomination of CD&R Fund V's fifth
nominee to such Boards. CD&R Fund V exercised its intention to nominate a
designee of J.P. Morgan (the "J.P. Morgan Designee") as its nominee to such
Boards; however, J.P. Morgan does not have a legally enforceable right to such
directorship. The Chairman of each of the Boards is to be selected from one of
the CD&R Fund V nominees (other than the J.P. Morgan Designee). Each of the
Boards of Holding, RIC Holding and Riverwood has an Executive Committee, a
Compensation and Benefits Committee and an Audit Committee. The Executive
Committee consists of the Chief Executive Officer, two of the CD&R Fund
V-nominated directors (other than the J.P. Morgan Designee), one of the
EXOR-nominated directors and the director nominated by 1818 Fund. The
Compensation and Benefits Committee consists of two of the CD&R Fund V-nominated
directors (other than the J.P. Morgan Designee), one of the EXOR-nominated
directors and two directors nominated by the Equity Investors other than CD&R
Fund V and EXOR (but including the J.P. Morgan Designee) (the "Other
Investors"). The Audit Committee consists of one of the CD&R Fund V-nominated
directors (other than the J.P. Morgan Designee), one of the EXOR-nominated
directors, two of the Other Investor-nominated directors and one independent
director. The Executive Committee's current members are Messrs. Ames, Botta,
Conway, Humphrey and Tucker. The members of the Compensation and Benefits
Committee are currently Messrs. Hendrix, Ames, Botta and Cribiore; and the Audit
Committee consists of Messrs. Tucker, Conway, Mencoff and Richmand.

Non-employee directors who are not employed by or affiliated with CD&R will
receive compensation for their services on the Boards of $30,000 per year plus
$2,500 per board meeting attended. Currently, two of the Company's directors are
employees of CD&R, to which the Company pays fees for management and financial
consulting services. See "Item 13. Certain Relationships and Related
Transactions."

ITEM 11. EXECUTIVE COMPENSATION

MANAGEMENT COMPENSATION SUMMARY

The following table summarizes the compensation paid for services rendered
during the fiscal years indicated below by the Company to the Chief Executive
Officer and the four most highly compensated executive officers (the "Named
Executive Officers").

LONG-TERM
COMPENSATION AWARD
ANNUAL COMPENSATION -------------------------------
-------------------------- SECURITIES
SALARY BONUS OTHER ANNUAL UNDERLYING ALL OTHER
NAME YEAR $ $ COMPENSATION($)(1) STOCK OPTIONS COMPENSATION(9)
---- ---- -------- -------- ------------------ ------------- ---------------

Stephen M. Humphrey......... 2001 $807,667 $ -- $282,535(2) -- --
President and Chief 2000 766,000 350,000 284,040(3) -- --
Executive Officer 1999 558,833 511,612 119,295(4) 75,000 --
Thomas M. Gannon............ 2001 $380,250 $ -- $ 6,471 -- $5,100
Chief Operating Officer 2000 343,167 200,000 6,305 -- 5,100
1999 318,167 353,782 -- 24,000 8,789
Daniel J. Blount............ 2001 $262,583 $ -- -- -- --
Sr. Vice President and 2000 239,000 130,000 -- -- --
Chief Financial Officer 1999 210,000 192,255 -- 15,000 --
Steven D. Saucier........... 2001 $270,917 $ -- $ 67,841(5) -- $5,100
Sr. Vice President, 2000 246,083 200,000 20,043(6) -- 5,100
Paperboard Operations 1999 225,000 205,988 113,406(7) 25,667 8,789
Wayne E. Juby............... 2001 $188,542 $ -- $ 33,046(8) -- $5,100
Sr. Vice President, 2000 -- -- -- -- --
Human Resources 1999 -- -- -- -- --

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

(1) Except as otherwise noted, amounts consist of certain taxable perquisites
the value of none of which exceeded 25% of the total value of the
perquisites provided.
(2) Includes $9,685 of perquisites. Also includes $272,850, which is the amount
of interest that would have been paid on a $5,000,000 non-interest bearing
loan made by Holding to the named Executive Officer had such loan borne
interest at 5.49% per annum through December 18, 2001 and 3.93% per annum
from December 19, 2001, the applicable federal rates at the time such loan
was made and extended respectively.
(3) Includes $9,540 of perquisites. Also includes $274,500 which is the amount
of interest that would have been paid by the Named Executive Officer on a
$5,000,000 non-interest bearing loan made by Holding to the Named Executive
Officer had such loan borne interest at 5.49% per annum, the applicable
federal rate at the time such loan was made.
(4) Includes $86,957 of perquisites of which $76,898 consisted of tax
reimbursements paid in respect of certain taxable perquisites. Also includes
$32,338 which is the amount of interest that would have been paid by the
Named Executive Officer on a $5,000,000 non-interest bearing loan made by
Holding to the Named Executive Officer had such loan borne interest at 5.49%
per annum, the applicable federal rate at the time such loan was made.
(5) Includes $7,841 of perquisites. Also, includes $60,000 of income
attributable to the purchase of shares below the estimated fair market value
of Holding Common Stock.
(6) Includes $5,043 of perquisites of which $100 consisted of tax reimbursements
paid in respect of certain taxable perquisites. Also, includes $15,000 of
income attributable to the purchase of shares below the estimated fair
market value of Holding Common Stock.
(7) Includes $78,632 of tax reimbursements paid in respect of taxable
perquisites.
(8) Includes $13,555 of tax reimbursements paid in respect of taxable
perquisites.
(9) Amounts consist of Company contributions on behalf of the Named Executive
Officers to the Company's savings plan.

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE

The following table sets forth information for each Named Executive Officer
with regard to stock option exercises during 2001 and the aggregate value of
options held at December 31, 2001.

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT FISCAL
FISCAL YEAR-END YEAR-END($)
SHARES ---------------------- ----------------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISBLE(1)
---- -------------- ----------- ---------------------- ----------------------

S. Humphrey............... -- -- 206,875/93,125 $8,458,325/$3,166,675
T. Gannon................. -- -- 20,493/26,007 $ 409,860/$ 520,140
D. Blount................. -- -- 5,123/ 9,877 $ 102,460/$ 197,540
S. Saucier................ -- -- 8,841/16,826 $ 176,820/$ 336,520
W. Juby................... -- -- --/-- $ --/--

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

(1) The dollar amounts set forth under this heading are calculated based on a
price per share of Holding Common Stock of $120, the estimated fair market
value of Holding Common Stock as of December 31, 2001 as determined
considering a wide variety of factors including a valuation report from an
independent outside firm and approved by the Executive Committee of the
Board of Directors, minus the exercise price for such options.

PENSION PLAN

All U.S. salaried employees who satisfy the service eligibility criteria
are participants in the Riverwood International Employees Retirement Plan (the
"Retirement Plan"). Pension benefits under the Retirement Plan are limited in
accordance with the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), governing tax qualified pension plans. The Company has adopted a
Supplemental Pension Plan (the "Supplemental Plan" and, together with the
Retirement Plan, the "Pension Plans") that provides for payment to participants
of the retirement benefits equal to the excess of the benefits that would have
been earned by each such participant had the limitations of the Code not applied
to the Retirement Plan and the amount actually earned by such participant under
the Retirement Plan. Each of the Named Executive Officers is eligible to
participate in the Pension Plans. Benefits under the Supplemental Plan are not
pre-funded; such benefits are paid by the Company when due. The Pension Plan
Table below sets forth the estimated annual benefits payable upon retirement,
including amounts attributable to the Supplemental Plan, for specified
remuneration levels and years of service.

PENSION PLAN TABLE

YEARS OF SERVICE
----------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ -------- -------- -------- -------- --------

$ 125,000............................... $ 24,249 $ 32,332 $ 40,416 $ 48,499 $ 56,582
150,000.............................. 29,499 39,332 49,166 58,999 68,832
175,000.............................. 34,749 46,332 57,915 69,499 81,082
200,000.............................. 39,999 53,332 66,666 79,999 93,332
225,000.............................. 45,249 60,332 75,416 90,499 105,582
250,000.............................. 50,499 67,332 84,165 100,999 117,832
300,000.............................. 60,999 81,332 101,666 121,999 142,332
400,000.............................. 81,999 109,332 136,665 163,999 191,332
450,000.............................. 92,499 123,332 154,166 184,999 215,832
500,000.............................. 102,999 137,332 171,666 205,999 240,332
600,000.............................. 123,999 165,332 206,666 247,999 289,332
700,000.............................. 144,999 193,332 241,665 289,999 338,332
800,000.............................. 165,999 221,332 276,666 331,999 387,332
900,000.............................. 186,999 249,332 311,666 373,999 436,332
1,000,000.............................. 207,999 277,332 346,666 415,999 485,332

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

(A) Had the Named Executive Officers in the Summary Compensation Table retired
as of December 31, 2001, their respective five-year average salaries, plus
bonuses, for purposes of the table set forth above, would have been as
follows: Mr. Blount, $342,337; Mr. Gannon, $495,354; Mr. Humphrey, $959,708;
Mr. Juby, $144,271; and Mr. Saucier, $343,247.
(B) On December 31, 2001, the Named Executive Officers in the Summary
Compensation Table had the following years of credited service under the
Retirement Plan: Mr. Blount 4; Mr. Gannon, 4; Mr. Humphrey, 5; Mr. Juby 1;
and Mr. Saucier, 3.
(C) Salary as defined in the Retirement Plan includes payment under the annual
incentive compensation plan but excludes payments under any equity incentive
plan of the Company or Predecessor Company.

EMPLOYMENT AGREEMENTS

Each of Messrs. Humphrey, Gannon, Blount, Saucier and Juby are parties to
employment agreements with the Company. Mr. Humphrey's agreement was entered
into on March 31, 1997, and has an initial term of five years that automatically
extends for additional one-year periods following the expiration of the initial
term. The agreements with Messrs. Gannon, Blount, Saucier and Juby, entered into
as of July 14, 1997, September 1, 1998, November 1, 1998 and May 1, 2001, have
an initial three year term that also automatically extends for additional
one-year periods following the expiration of the initial term. The agreements
provide for minimum base salaries of at least $500,000, $265,000, $200,000,
$225,000 and $225,000, for each of Messrs. Humphrey, Gannon, Blount, Saucier and
Juby, respectively, and for bonuses and other benefits set forth in the Summary
Compensation Table. Mr. Saucier's employment agreement provides that he will
apply the after-tax proceeds of his bonuses for 1999 and 2000 toward the
purchase of 5,000 shares of Holding Common Stock. In the event of termination of
employment by the Company without cause or by the executive for good reason (in
each case as defined in the respective employment agreement), the agreements
provide for severance of a pro rata incentive bonus for the year in which
termination of employment occurs and base salary and continued welfare benefits
for, in the case of Mr. Humphrey, the remainder of the employment term or, if
shorter, three years, or in the case of Messrs. Gannon, Blount, Saucier and
Juby, the longer of the reminder of the employment term, one year or one month
for each year of service. The agreements also contain certain non-competition
and nonsolicitation provisions.

CERTAIN CHANGE IN CONTROL ARRANGEMENTS

Under the Company's Stock Incentive Plan and Supplemental Long-Term
Incentive Plan, in the event of a change in control (as defined in the plans),
the Company may be obligated to make certain payments to the Named Executive
Officers and options held by those individuals may vest.

COMPENSATION COMMITTEE INTERLOCKS

During fiscal year 2001, Messrs. Hendrix, Ames, Botta and Cribiore served
on the Compensation and Benefits Committee of the Holding Board. Mr. Hendrix,
one of the two CD&R Fund V-nominated directors, was a principal of CD&R until
2000. CD&R received a fee from RIC Holding of $12 million in connection with the
Merger and arranging the financing thereof. CD&R received an annual fee of
$470,000 for advisory, management, consulting and monitoring services from
Riverwood. Holding, RIC Holding and Riverwood have also agreed to indemnify the
members of the Boards employed by CD&R and CD&R against liabilities incurred
under securities laws with respect to their services for Holding, RIC Holding
and Riverwood.

Messrs. Hendrix and Cribiore are the CD&R Fund V-nominated directors on the
Compensation and Benefits Committees of Holding, RIC Holding and Riverwood.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Holding owns all of the outstanding common stock of RIC Holding. RIC
Holding owns all of the outstanding common stock of Riverwood. As of March 1,
2002, the Holding Common Stock was beneficially owned as follows:

NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES CLASS
------------------------ --------- ----------

Clayton, Dubilier & Rice Fund V Limited Partnership(1)...... 2,250,000 29.7%
1403 Foulk Road
Suite 106
Wilmington, DE 19803
EXOR Group S.A.(2).......................................... 2,250,000 29.7
22-24, Boulevard Royal
L-2449 Luxembourg
The 1818 Fund II, L.P.(3)................................... 750,000 9.9
c/o Brown Brothers Harriman & Co.
59 Wall Street
New York, NY 10005
HWH Investment Pte Ltd...................................... 700,000 9.3
250 North Bridge Road
Singapore 179101
Republic of Singapore
J.P. Morgan Partners (BHCA), L.P.(4)........................ 500,000 6.6
1221 Avenue of the Americas
New York, NY 10020
First Plaza Group Trust..................................... 500,000 6.6
Mellon Bank, N.A., as Trustee
c/o General Motors Investment Management Corporation
767 Fifth Avenue
New York, NY 10153
Madison Dearborn Capital Partners, L.P.(5).................. 500,000 6.6
Three First National Plaza
Chicago, IL 60602
Wolfensohn-River LLC........................................ 50,000 0.7
130 Liberty Avenue
New York, NY 10006
--------- ----
Total Equity Investors............................ 7,500,000 99.1%
========= ====
B. Charles Ames(6).......................................... 0 --
Kevin J. Conway(6).......................................... 0 --
Leon J. Hendrix, Jr.(6)..................................... 0 --
Hubbard C. Howe(6).......................................... 0 --
Alberto Cribiore(6)......................................... 0 --
Brian J. Richmand........................................... 0 --
Samuel M. Mencoff(5)........................................ 0 --
Lawrence C. Tucker(3)....................................... 0 --
G. Andrea Botta............................................. 0 --
Gianluigi Gabetti........................................... 0 --
Stephen M. Humphrey(7)...................................... 216,875 (8)
Thomas M. Gannon(7)......................................... 26,493 (8)
Steven D. Saucier(7)........................................ 12,841 (8)
Daniel J. Blount(7)......................................... 8,123 (8)
All directors and executive officers as a group (15
persons)(3)(5)(6)(7)...................................... 264,332 3.5%
Total Management Investors(9)..................... 66,180 0.9%
Total Equity Investors and Management
Investors(9).................................... 7,566,180 100%
========= ====

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

(1) CD&R Associates V Limited Partnership, a Cayman Islands exempted limited
partnership ("CD&R Associates V"), is the general partner of Clayton,
Dubilier & Rice Fund V Limited Partnership, a Cayman Islands exempted
limited partnership ("CD&R Fund V"), and has the power to direct CD&R Fund V
as to the voting and disposition of shares held by CD&R Fund V. CD&R
Investment Associates II, Inc., a Cayman Islands exempted company
("Investment Associates II"), is the managing general partner of CD&R
Associates V and has the power to direct CD&R Associates V as to its
direction of CD&R Fund V's voting and disposition of the shares held by CD&R
Fund V. No person controls the voting and dispositive power of Investment
Associates II with respect to the shares owned by CD&R Fund V. Each of CD&R
Associates V and Investment Associates II expressly disclaims beneficial
ownership of the shares owned by CD&R Fund V. The business address for each
of CD&R Fund V, CD&R Associates V and Investment Associates II is 1403 Foulk
Road, Suite 106, Wilmington, Delaware 19803.
(2) Reflects transfer on March 2, 1999 of shares formerly held by FIMA Finance
Management Inc. to EXOR Group S.A.
(3) Mr. Tucker may be deemed to share beneficial ownership of the shares owned
of record by The 1818 Fund II, L.P. by virtue of his affiliation with such
organization. Mr. Tucker expressly disclaims any such beneficial ownership.
(4) J.P. Morgan Partners (BHCA), L.P., formerly known as Chase Equity
Associates, L.P., purchased shares of the Class B Common Stock which do not
have voting rights.
(5) Mr. Mencoff may be deemed to share beneficial ownership of the shares owned
of record by Madison Dearborn Capital L.P. by virtue of his affiliation with
such organization. Mr. Mencoff expressly disclaims any such beneficial
ownership.
(6) Excludes shares of Holding Common Stock owned by CD&R Fund V, as to which
Messrs. Ames, Conway, Hendrix, Howe and Cribiore may be deemed to share
beneficial ownership or have an economic interest. See footnote (1).
(7) Includes options to purchase 206,875; 20,493; 8,841; and 5,123 shares of
Holding Common Stock which may be exercised by Messrs. Humphrey, Gannon,
Saucier and Blount, respectively.
(8) Less than 1%.
(9) Excludes options to purchase shares of Holding Common Stock. As of March 1,
2002, a total of 83,570 shares of management investor stock have been
repurchased as a result of death, resignation and other termination of
employment. As of March 1, 2002, Mr. Humphrey and the Named Executive
Officers owned an aggregate of 23,000 shares of Holding Common Stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CD&R Fund V, which is one of Holding's largest stockholders, is a private
investment fund managed by CD&R. Amounts contributed to CD&R Fund V by its
limited partners are invested at the discretion of the general partner in equity
or equity-related securities of entities formed to effect leveraged acquisition
transactions and in the equity of corporations where the infusion of capital,
coupled with the provision of managerial assistance by CD&R, can be expected to
generate returns on investments comparable to returns historically achieved in
leveraged buyout transactions. The general partner of CD&R Fund V is CD&R
Associates V, and the general partners of CD&R Associates V are Investment
Associates II, CD&R Investment Associates, Inc., a Delaware corporation, and
CD&R Cayman Investment Associates, Inc., a Cayman Islands exempted company. Mr.
Ames, who is a principal of CD&R, a director of Investment Associates II and a
limited partner of CD&R Associates V, is Chairman of Holding, RIC Holding and
Riverwood. Mr. Conway, who is a principal of CD&R, a director of Investment
Associates II and a limited partner of CD&R Associates V, is a director of
Holding, RIC Holding and Riverwood. Mr. Hendrix, who was until recently a
principal of CD&R and a limited partner of CD&R Associates V, is a director of
Holding, RIC Holding and Riverwood. Mr. Howe, who was until recently a principal
of CD&R and continues to be a limited partner of CD&R Associates V, is a
director of Holding, RIC Holding and Riverwood. See "Item 10. Directors &
Executive Officers of the Registrant -- Directors & Executive Officers." CD&R
Fund V purchased $225 million of equity of Holding in connection with the
Merger.

CD&R is a private investment firm which is organized as a Delaware
corporation. CD&R is the manager of a series of investment funds, including CD&R
Fund V. CD&R generally assists in structuring, arranging financing for and
negotiating the transactions in which the funds it manages invest. After the
consummation of such transactions, CD&R generally provides management and
financial advisory and consulting services to the companies in which its
investment funds have invested during the period of such fund's investment. Such
services include helping the company to establish effective banking, legal and
other business relationships and assisting management in developing and
implementing strategies for improving the operational, marketing and financial
performance of the company.

In April 1996, CD&R began to receive monthly payments of an aggregate
annual fee of $375,000 for providing management and financial consulting
services to the Company and reimbursement of out-of-pocket expenses it incurred
during the nine months ended December 31, 1996. Pursuant to a consulting
agreement dated as of March 27, 1996, so long as CD&R Fund V has an investment
in the Company, CD&R will continue to receive an annual fee (and reimbursement
of out-of-pocket expenses) for providing such management and financial
consulting services to the Company. The indentures relating to the Company's
outstanding Notes allow the payment to CD&R of annual fees for management and
financial consulting services of up to $1 million, although there is no current
intention to increase the amount of the annual fee to be received by CD&R above
$500,000. During the year ended December 31, 2001, the Company paid CD&R annual
fees in the amount of $470,000 for providing such management and financial
consulting services.

CD&R, CD&R Fund V, Holding, Riverwood and RIC Holding entered into an
indemnification agreement dated as of March 27, 1996, pursuant to which Holding,
RIC Holding and Riverwood, have agreed to indemnify CD&R, CD&R Fund V,
Associates V, Associates Inc. (together with any other general partner of
Associates V) and their respective directors, officers, partners, employees,
agents, advisors, representatives and controlling persons against certain
liabilities arising under the federal securities laws, liabilities arising out
of the performance of the consulting agreement and certain other claims and
liabilities.

MANAGEMENT

Following the consummation of the Merger, Holding adopted the Equity
Incentive Plan providing for the issuance of up to 695,000 shares of Holding
Common Stock pursuant to the sale of shares of Holding Common Stock and the
grant of options with respect to Holding Common Stock under the plan.

On June 4, 1996, certain members of management and key employees of the
Company purchased shares of Holding Common Stock, at a purchase price of $100.00
per share, pursuant to the Equity Incentive Plan. Under certain circumstances,
such stockholders can require the Company to purchase their shares of Holding
Common Stock.

During 2001 and through March 1, 2002, the Company repurchased 4,000 shares
of Holding Common Stock from management investors at $120.00 per share.

During 2000, the Company repurchased 450 shares of Holding Common Stock
from management investors. Of this total, 250 shares were repurchased at $100.00
per share and 200 shares were repurchased at $115.00 per share.

On May 4, 1999, certain members of management and key employees of the
Company purchased shares of Holding Common Stock, at a purchase price of $100.00
per share, pursuant to the Equity Incentive Plan. Under certain circumstances,
such stockholders can require the Company to purchase their shares of Holding
Common Stock. Such management stock purchases included purchases of 10,000;
6,000; and 3,000 shares of Holding Common Stock by Messrs. Humphrey, Gannon and
Blount, respectively.

In June 1999, Holding adopted a Supplemental Long-Term Incentive Plan that
provides for, among other things, the grant of options to purchase shares of
Holding Common Stock and incentive stock units and supplemental payments with
respect to, up to, an aggregate amount of 457,300 shares of Holding Common
Stock.

In November 1999, Holding lent to Mr. Humphrey $5,000,000 pursuant to a
full-recourse non-interest bearing promissory note due March 26, 2002 entered
into by Mr. Humphrey and Holding. On December 19, 2001, Holding extended the
maturity of the loan through March 26, 2007; or, earlier, if Mr. Humphrey
voluntarily terminates his employment other than for "good reason" or the
Company terminates his employment for "cause" (in each case, as defined in Mr.
Humphrey's employment agreement).

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

a. Financial statements, financial statement schedule and exhibits filed as
part of this report:

1. Consolidated financial statements of Riverwood Holding, Inc. and
subsidiaries as of December 31, 2001 and 2000 and for each of the three
years in the period ended December 31, 2001, and Independent Auditors'
Report.

2. Schedule II -- Valuation and Qualifying Accounts.

All other schedules are omitted as the information required is either
included elsewhere in the consolidated financial statements herein or is
not applicable.

c. Exhibit Index to Annual Report on Form 10-K for Year Ended December 31,
2001.

DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
----------- ------------------------------

3.1 Certificate of Incorporation of Riverwood Filed as Exhibit 3.3 to the Registration
Holding, Inc. (formerly known as New River Statement on Form S-1 (Registration No.
Holding, Inc.). 33-80475) of New River Holding, Inc.
(renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
3.2 Certificate of Amendment of Certificate of Filed as Exhibit 3.2 to the Registrant's
Incorporation of Riverwood Holding, Inc. Annual Report on Form 10-K filed March 27,
1997 (Commission File No. 1-11113), and
incorporated herein by reference.
3.3 Restated By-Laws of Riverwood Holding, Filed as Exhibit 3.4 to the Riverwood
Inc. Holding, Inc.'s Annual Report on Form 10-K
filed March 17, 2000 (Commission File No.
1-11113), and incorporated herein by
reference.
3.4 Certificate of Incorporation of RIC Filed as Exhibit 3.1 to RIC Holding,
Holding, Inc. Inc.'s Annual Report on Form 10-K filed
April 16, 1996 (Commission File No.
1-11113), and incorporated herein by
reference.
3.5 Restated By-Laws of RIC Holding, Inc. Filed as Exhibit 3.5 to Riverwood Holding,
Inc.'s Annual Report on Form 10-K filed
March 17, 2000 (Commission File No.
1-11113), and incorporated herein by
reference.
3.6 Certificate of Incorporation of Riverwood Filed as Exhibit 3.1 to Registration
International Corporation (formerly known Statement on Form S-1 (Registration No.
as Riverwood International, USA, Inc.) 33-80475) of New River Holding, Inc.
(renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
3.7 Certificate of Amendment of Certificate of Filed as Exhibit 3.7 to the Registration
Incorporation of Riverwood International Statement on Form S-4 (Registration No.
USA, Inc. (renamed Riverwood International 333-67550) of Riverwood International
Corporation) Corporation, Riverwood Holding, Inc. and
RIC Holding, Inc. under the Securities Act
of 1933, as amended, and incorporated
herein by reference.

DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
----------- ------------------------------

3.8 Restated By-Laws of Riverwood Filed as Exhibit 3.6 to Riverwood Holding,
International Corporation Inc.'s Annual Report on Form 10-K filed
March 17, 2000 (Commission File No.
1-11113), and incorporated herein by
reference.
4.1 Amended and Restated Credit Agreement, Filed as Exhibit 4.4 to Riverwood Holding,
dated as of August 10, 2001, among Inc.'s Quarterly Report on Form 10-Q filed
Riverwood International Corporation, the August 14, 2001 (Commission File No.
several banks and other financial 1-11113), and incorporated herein by
institutions from time to time parties reference.
thereto, Deutsche Banc Alex Brown Inc., as
syndication agent and the Chase Manhattan
Bank, as administrative agent.
4.2 Indenture, dated March 27, 1996, among RIC Filed as Exhibit 4.6 to RIC Holding,
Holding, Inc., Riverwood Holding, Inc., Inc.'s Annual Report on Form 10-K filed
CDRO Acquisition Corporation and Fleet April 16, 1996 (Commission File No.
National Bank of Connecticut, as trustee, 1-11113), and incorporated herein by
relating to the 10 1/4% Senior Notes due reference.
2006 of Riverwood International
Corporation, together with the First
Supplemental Indenture and the Second
Supplemental Indenture thereto.
4.3 Indenture, dated March 27, 1996, among RIC Filed as Exhibit 4.7 to RIC Holding,
Holding, Inc., Riverwood Holding, Inc., Inc.'s Annual Report on Form 10-K filed
CDRO Acquisition Corporation and Fleet April 16, 1996 (Commission File No.
National Bank of Massachusetts, as 1-11113), and incorporated herein by
trustee, relating to the 10 7/8% Senior reference.
Subordinated Notes due 2008 of Riverwood
International Corporation, together with
the First Supplemental Indenture and the
Second Supplemental Indenture thereto.
4.4 Indenture, dated as of July 28, 1997, Filed as Exhibit 4.1 to the Registration
among Riverwood International Corporation, Statement on Form S-4 (Registration No.
RIC Holding, Inc., Riverwood Holding, Inc. 333-33499) of Riverwood International
and State Street Bank & Trust Company, as Corporation, Riverwood Holding, Inc. and
trustee, relating to the 10 5/8% Senior RIC Holding, Inc. under the Securities Act
Notes due 2007 of Riverwood International of 1933, as amended, and incorporated
Corporation. herein by reference.
4.5 Indenture, dated June 21, 2001, among Filed as Exhibit 4.1 to the Registrant's
Riverwood International Corporation, RIC Quarterly Report on Form 10-Q filed August
Holding, Inc., Riverwood Holding, Inc. and 14, 2001 (Commission File No. 1-11113),
State Street Bank & Trust Company, as and incorporated herein by reference.
trustee, relating to the 10 5/8% Senior
Notes due 2007 of Riverwood International
Corporation.
10.1 Wood Products Supply Agreement, dated as Filed as Exhibit 2c to the Registrant's
of October 18, 1996, between Plum Creek Current Report on Form 8-K filed October
Timber Company, L.P. and Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation, including a and incorporated herein by reference.
list of omitted annexes and an undertaking
of the Registrant to furnish
supplementally a copy of any such omitted
annex to the Securities and Exchange
Commission upon request.

DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
----------- ------------------------------

10.2 Form of Investor Stock Subscription Filed as Exhibit 10.6 to Registration
Agreement between Riverwood Holding, Inc. Statement on Form S-1 (Registration No.
(formerly named New River Holding, Inc.) 33-80475) of New River Holding, Inc.
and each of the investors named on the (renamed Riverwood Holding, Inc.) under
schedule thereto. the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.3 Form of Management Stock Subscription Filed as Exhibit 10.4 to Registration
Agreement between New River Holding, Inc. Statement on Form S-1 (Registration No.
(renamed Riverwood Holding, Inc.) and the 33-80475) of New River Holding, Inc.
purchasers named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.4 Form of Management Stock Option Agreement Filed as Exhibit 10.5 to Registration
between New River Holding, Inc. (renamed Statement on Form S-1 (Registration No.
Riverwood Holding, Inc.) and the grantees 33-80475) of New River Holding, Inc.
named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.5 Form of Registration and Participation Filed as Exhibit 10.7 to Registration
Agreement among New River Holding, Inc. Statement on Form S-1 (Registration
(renamed Riverwood Holding, Inc.) and No. 33-80475) of New River Holding, Inc.
certain stockholders of New River Holding, (renamed Riverwood Holding, Inc.) under
Inc. the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.6 Form of New River Holding, Inc. Stock Filed as Exhibit 10.10 to Registration
Incentive Plan. Statement on Form S-1 (Registration No.
33-80475) of New River Holding, Inc.
(renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.7 Form of Stockholders Agreement among New Filed as Exhibit 10.11 to Registration
River Holding, Inc. (renamed Riverwood Statement on Form S-1 (Registration No.
Holding, Inc.) and the stockholders of New 33-80475) of New River Holding, Inc.
River Holding, Inc. named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.8 Form of Indemnification Agreement among Filed as Exhibit 10.8 to the Registration
Riverwood Holding, Inc., RIC Holding, Statement on Form S-1 (Registration No.
Inc., Riverwood International Corporation, 33-80475) of New River Holding, Inc.
Clayton, Dubilier & Rice, Inc. and (renamed Riverwood Holding, Inc.) under
Clayton, Dubilier & Rice Fund V Limited the Securities Act of 1933, as amended,
Partnership. and incorporated herein by reference.
10.9 Form of Consulting Agreement among Filed as Exhibit 10.12 to the Registration
Riverwood Holding, Inc., RIC Holding, Statement on Form S-1 (Registration No.
Inc., the corporation formerly known as 33-80475) of New River Holding, Inc.
Riverwood International Corporation, (renamed Riverwood Holding, Inc.) under
Riverwood International Corporation and the Securities Act of 1933, as amended,
Clayton, Dubilier & Rice, Inc. and incorporated herein by reference.
10.10 Employment Agreement, dated as of March Filed as Exhibit 10.1 to the Registrant's
31, 1997, among Riverwood International Quarterly Report on Form 10-Q filed May 9,
Corporation, Riverwood Holding, Inc. and 1997 (Commission File No. 1-11113), and
Stephen Humphrey. incorporated herein by reference.

DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
----------- ------------------------------

10.11 Management Stock Option Agreement, dated Filed as Exhibit 10.2 to the Registrant's
as of March 31, 1997, between Riverwood Quarterly Report on Form 10-Q filed May 9,
Holding, Inc. and Stephen Humphrey. 1997 (Commission File No. 1-11113), and
incorporated herein by reference.
10.12 Employment Agreement, dated as of July 14, Filed as Exhibit 10.13 to the Registrant's
1997, among Riverwood International Annual Report on Form 10-K filed March 5,
Corporation, Riverwood Holding, Inc. and 1999 (Commission File No. 1-11113), and
Thomas M. Gannon. incorporated herein by reference.
10.13 Management Stock Option Agreement, dated Filed as Exhibit 10.14 to the Registrant's
as of August 19, 1998, between Riverwood Annual Report on Form 10-K filed March 5,
Holding, Inc. and Thomas M. Gannon. 1999 (Commission File No. 1-11113), and
incorporated herein by reference.
10.14 Form of Riverwood Holding, Inc. Filed as Exhibit 10.15 to the Registrant's
Supplemental Long-Term Incentive Plan. Annual Report on Form 10-K filed March 17,
2000 (Commission File No. 1-11113), and
incorporated herein by reference.
10.15 Employment Agreement, dated as of Filed as Exhibit 10.16 to the Registrant's
September 1, 1998, among Riverwood Annual Report on Form 10-K filed March 17,
International Corporation, Riverwood 2000 (Commission File No. 1-11113), and
Holding, Inc. and Daniel J. Blount. incorporated herein by reference.
10.16 Employment Agreement, dated as of November Filed as Exhibit 10.17 to the Registrant's
1, 1998, among Riverwood International Annual Report on Form 10-K filed March 17,
Corporation, Riverwood Holding, Inc. and 2000 (Commission File No. 1-11113), and
Steven D. Saucier. incorporated herein by reference.
10.17 Agreement, dated as of November 18, 1999, Filed as Exhibit 10.18 to the Registrant's
between Riverwood Holding, Inc. and Annual Report on Form 10-K filed March 17,
Stephen M. Humphrey. 2000 (Commission File No. 1-11113), and
incorporated herein by reference.
10.18 Promissory Note, dated as of November 18, Filed as Exhibit 10.19 to the Registrant's
1999, by Stephen M. Humphrey. Annual Report on Form 10-K filed March 17,
2000 (Commission File No. 1-11113), and
incorporated herein by reference.
10.19 Amendment to Promissory Note, dated as of Filed as an exhibit hereto.
December 19, 2001, by Stephen M. Humphrey.
10.20 Employment Agreement, dated as of May 1, Filed as an exhibit hereto.
2001, among Riverwood International
Corporation, Riverwood Holding, Inc. and
Wayne E. Juby.
21 List of subsidiaries. Filed as an exhibit hereto.
99 Reconciliation of Income (Loss) from Filed as an exhibit hereto.
Operations to EBITDA.

Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Company hereby
agrees to furnish a copy of each document set forth below upon request of the
Securities and Exchange Commission:

Indenture, dated as of June 24, 1992, between RIC and NationsBank of
Georgia, National Association, as trustee, relating to 11 1/4% Senior
Subordinated Notes Due 2002 (the "11 1/4% Indenture").

First Supplemental Indenture to the 11 1/4% Indenture, dated as of February
13, 1996, between RIC and The Bank of New York (as successor trustee to
NationsBank of Georgia, National Association).

Indenture, dated as of September 15, 1993, between RIC and Morgan Guaranty
Trust Company of New York, relating to 6 3/4% Convertible Subordinated Notes due
2003 (the "6 3/4% Indenture").

First Supplemental Indenture to the 6 3/4% Indenture, dated as of March 27,
1996, between RIC and First Trust of New York, National Association (as
successor trustee to Morgan Guaranty Trust Company of New York).

Second Supplemental Indenture to the 6 3/4% Indenture, dated as of March
28, 1996, between RIC Holding, Inc. (as successor to RIC) and First Trust of New
York, National Association (as successor trustee to Morgan Guaranty Trust
Company of New York).

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of the 11th day of
March, 2002.

RIVERWOOD HOLDING, INC.

By: /s/ STEPHEN M. HUMPHREY
------------------------------------
Stephen M. Humphrey
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURES TITLE DATE
---------- ----- ----

/s/ B. CHARLES AMES Chairman of the Board March 11, 2002
-----------------------------------------------------
B. Charles Ames

/s/ STEPHEN M. HUMPHREY President and Chief Executive March 11, 2002
----------------------------------------------------- Officer (Principal Executive
Stephen M. Humphrey Officer)

/s/ DANIEL J. BLOUNT Senior Vice President and Chief March 11, 2002
----------------------------------------------------- Financial Officer (Principal
Daniel J. Blount Financial and Accounting
Officer)

/s/ KEVIN J. CONWAY Director March 11, 2002
-----------------------------------------------------
Kevin J. Conway

/s/ LEON J. HENDRIX, JR. Director March 11, 2002
-----------------------------------------------------
Leon J. Hendrix, Jr.

/s/ HUBBARD C. HOWE Director March 11, 2002
-----------------------------------------------------
Hubbard C. Howe

/s/ ALBERTO CRIBIORE Director March 11, 2002
-----------------------------------------------------
Alberto Cribiore

/s/ BRIAN J. RICHMAND Director March 11, 2002
-----------------------------------------------------
Brian J. Richmand

/s/ G. ANDREA BOTTA Director March 11, 2002
-----------------------------------------------------
G. Andrea Botta

/s/ GIANLUIGI GABETTI Director March 11, 2002
-----------------------------------------------------
Gianluigi Gabetti

SIGNATURES TITLE DATE
---------- ----- ----

/s/ LAWRENCE C. TUCKER Director March 11, 2002
-----------------------------------------------------
Lawrence C. Tucker

/s/ SAMUEL M. MENCOFF Director March 11, 2002
-----------------------------------------------------
Samuel M. Mencoff

RIVERWOOD HOLDING, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

(IN THOUSANDS OF DOLLARS)

BALANCE (CREDITS) CHARGES BALANCE
BEGINNING TO COSTS AND DEDUCTIONS AT END
(CLASSIFICATION) OF PERIOD EXPENSES (A) OF PERIOD
---------------- --------- ----------------- ---------- ---------

YEAR ENDED DECEMBER 31, 2001:
Allowances Reducing the Assets in the Balance
Sheet:
Doubtful accounts receivable................. $ 2,769 $ 2,286 $(1,639) $ 3,416
Deferred tax assets.......................... 174,859 44,888 -- 219,747
-------- -------- ------- --------
Total................................ $177,628 $ 47,174 $(1,639) $223,163
======== ======== ======= ========
YEAR ENDED DECEMBER 31, 2000:
Allowances Reducing the Assets in the Balance
Sheet:
Doubtful accounts receivable................. $ 4,474 $ 404 $(2,109) $ 2,769
Deferred tax assets.......................... 214,911 (40,052) -- 174,859
-------- -------- ------- --------
Total................................ $219,385 $(39,648) $(2,109) $177,628
======== ======== ======= ========
YEAR ENDED DECEMBER 31, 1999:
Allowances Reducing the Assets in the Balance
Sheet:
Doubtful accounts receivable................. $ 2,132 $ 3,148 $ (806) $ 4,474
Deferred tax assets.......................... 175,612 39,299 -- 214,911
-------- -------- ------- --------
Total................................ $177,744 $ 42,447 $ (806) $219,385
======== ======== ======= ========

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

NOTE:
(a) The reductions in the allowance for doubtful accounts receivable relate
principally to charges for which reserves were provided, net of recoveries.

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF
1934.

The Company did not send an annual report or proxy materials to security
holders during the year ended December 31, 2001.