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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934:
|- |  | -------------------------------------------------------------------------------------



For the fiscal year ended December 28, 2002



OR



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



Commission File No. 333-82084



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APPLETON PAPERS INC.

(Exact name of registrant
as specified in its charter)



|Delaware                                                       |  | 36-2556469                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|825 East Wisconsin Avenue                |  |           
|---------------------------------------- |  | ----------
|Appleton, Wisconsin                      |  | 54912-0359
|(Address of principal executive offices) |  | (Zip Code)



Registrants telephone number, including area code: (920) 734-9841



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Securities registered pursuant to Section 12(b) of the Act:



None



Securities registered pursuant to Section 12(g) of the Act:



None



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See Table of Additional Registrants Below



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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  þ  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 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.  þ



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



As of February 28, 2003, 100 shares of Appleton Papers Inc.
common stock, $100.00 par value, were outstanding. There is no trading market for the common stock of Appleton Papers Inc. As of February 28, 2003, each of the additional registrants had the

number of shares outstanding which is shown in the table below. There is no trading market for the common stock of the additional registrants. No shares
of the Registrant or the additional registrants were held by non-affiliates.



Appleton Papers Inc. and WTA Inc. meet the conditions set forth in General Instruction I (1)(a) and (b) of Form 10-K and are therefore filing this form with the reduced disclosure format.



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ADDITIONAL REGISTRANTS



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|Exact name of Registrant as specified in its charter |  | State or other jurisdiction of incorporation or organization |  | Number of Shares Outstanding as of February 28, 2003 |  | I.R.S. Employer Identification Number |  | Address, including zip code, and telephone number, including area code, of Registrants
principal executive office |  | Registration No.
|---------------------------------------------------- |  | ------------------------------------------------------------ |  | ---------------------------------------------------- |  | ------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------ |  | ----------------
|                                                    
|Paperweight Development Corp.                        |  | Wisconsin                                                    |  | 11,809,138                                           |  | 39-2014992                            |  | 825 East Wisconsin Avenue Appleton, Wisconsin 54912-0359 (920) 734-9841                                            |  | 333-82084-01    
|                                                    
|WTA Inc.                                             |  | Delaware                                                     |  | 1                                                    |  | 51-0329653                            |  | Suite 1300, 1105 Market Street Wilmington, Delaware 19899 (302) 651-8339                                           |  | 333-82084-02    
|                                                    



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TABLE OF CONTENTS



|                              |  |                                                                                                |  | Page Number
|----------------------------- |  | ---------------------------------------------------------------------------------------------- |  | -----------
|PART I                        |  |                                                                                                |  |            
|                             
|Item 1                        |  | Business                                                                                       |  | 1          
|                             
|Item 2                        |  | Properties                                                                                     |  | 18         
|                             
|Item 3                        |  | Legal Proceedings                                                                              |  | 18         
|                             
|Item 4                        |  | Submission of Matters to a Vote of Security Holders                                            |  | 19         
|                             
|PART II                       |  |                                                                                                |  |            
|                             
|Item 5                        |  | Market for Registrants Common Equity and Related Stockholder Matters                          |  | 20         
|                             
|Item 6                        |  | Selected Financial Data                                                                        |  | 21         
|                             
|Item 7                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 22         
|                             
|Item 7A                       |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 35         
|                             
|Item 8                        |  | Financial Statements and Supplementary Data                                                    |  | 44         
|                             
|Item 9                        |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           |  | 94         
|                             
|PART III                      |  |                                                                                                |  |            
|                             
|Item 10                       |  | Directors and Executive Officers of the Registrant                                             |  | 95         
|                             
|Item 11                       |  | Executive Compensation                                                                         |  | 99         
|                             
|Item 12                       |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 103        
|                             
|Item 13                       |  | Certain Relationships and Related Transactions                                                 |  | 103        
|                             
|PART IV                       |  |                                                                                                |  |            
|                             
|Item 14                       |  | Controls and Procedures                                                                        |  | 104        
|                             
|Item 15                       |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                |  | 104        
|                             
|SIGNATURES AND CERTIFICATIONS |  | 108-117                                                                                       
|                             
|EXHIBITS                      |  |                                                                                               



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PART I



Unless stated to the contrary or the context requires otherwise, all references to Appleton, we,
us, company, or our refer to Appleton Papers Inc. and our subsidiaries and predecessors.



Item 1. Business



Overview



Appleton Papers
Inc. creates innovative products for business, consumer and government applications worldwide through its development and use of coating formulations and applications and encapsulation technology. We believe we are the worlds largest producer
of carbonless paper. Carbonless paper is used to make multipart business forms such as invoices and credit card receipts. We also believe that we are the largest manufacturer of thermal paper in the United States and Canada. Thermal paper is used to
make point-of-sale, tag, ticket and label products. In addition to carbonless and thermal paper, we produce security products that have authentication features such as watermarks, taggants, embedded threads and fibers, and machine-readable
technologies. We also manufacture a variety of coated products used for applications such as digital inkjet printing and point-of-sale displays, as well as design and print applications.



Company Background



Company History



Appleton Coated Paper Company, or ACPC, began operations in 1907 in Appleton, Wisconsin. In 1953, ACPC began working with National Cash
Register Company, which later changed its name to NCR Corporation, on the development and production of carbonless paper. In 1954, NCR began marketing its NCR PAPER* brand of carbonless paper, which ACPC manufactured.



In 1969, NCR acquired Combined Paper Mills, Inc., which then
consisted of pulp and paper mills in Combined Locks, Wisconsin, and Roaring Spring, Pennsylvania. In 1970, NCR acquired ACPC. In 1971, the Appleton Papers division of NCR was formed through the merger of ACPC with Combined Paper Mills, Inc.



In 1978, Appleton Papers Inc., as a subsidiary
of B.A.T Industries Limited, acquired the assets of the Appleton Papers division from NCR. In 1990, Appleton, together with The Wiggins Teape Group Ltd., was separated from B.A.T Industries to form Wiggins Teape Appleton p.l.c., a public company
listed on the London Stock Exchange. Later that year, Wiggins Teape Appleton merged with Arjomari Prioux SA, a public French paper manufacturer and merchant. Shortly after the merger, the group changed its name to Arjo Wiggins Appleton p.l.c.
Appleton operated as an indirect, wholly owned subsidiary of Arjo Wiggins Appleton p.l.c. until 2001.



On November 9, 2001, as discussed in more detail below, the Appleton Papers employees acquired the Company from Arjo Wiggins Appleton
p.l.c. through the use of an employee stock ownership plan. Effective February 3, 2003, we changed our trade name to Appleton. We now use the tagline, What Ideas Can Do, with a new logo as part of our new identity. We have retained Appleton Papers Inc. as our legal name.



Formation of the ESOP



Our 401(k) plan, which was called the Appleton Papers
Retirement Savings Plan, was amended and restated effective as of January 1, 2001, in the form of the Appleton Papers Retirement Savings and Employee Stock Ownership Plan, which we refer to as the KSOP or the plan. The KSOP includes a separate
employee stock



* NCR PAPER is a registered trademark licensed to
Appleton.



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ownership plan component, which we refer to as the ESOP or the Company Stock Fund. The KSOP is a
tax-qualified retirement plan that is available to all of our employees. The ESOP component of the KSOP is a tax-qualified employee stock ownership plan that has invested and will invest in Paperweight Development common stock.



We offered eligible participants, as named
fiduciaries under the Employee Retirement Income Security Act of 1974, as amended, which we refer to as ERISA, a one-time irrevocable election to direct State Street Global Advisors, the ESOP trustee, to accept the transfer of all or any part
of their existing balances in the KSOP and the 401(a) plan to the Company Stock Fund. The total proceeds transferred by eligible participants to the Company Stock Fund were approximately $107 million, representing an average election by each
eligible participant to direct the transfer of approximately 73% of his or her account to the Company Stock Fund. On November 9, 2001, the ESOP trustee purchased 100% of the common stock of Paperweight Development. Paperweight Development
simultaneously used all the proceeds from the sale of those shares of common stock to finance a portion of the purchase price of the acquisition described below.



Our Acquisition from AWA



On November 9, 2001, Paperweight Development and its then wholly owned subsidiary, New Appleton LLC, acquired Appleton Papers from Arjo
Wiggins Appleton p.l.c., which is now known as Arjo Wiggins Appleton Limited or AWA, a leading European manufacturer of paper products, and two of its subsidiary holding companies, which we sometimes refer to as the sellers or as affiliates of AWA.
We refer to this transaction as the acquisition. The purchase price was $810 million, plus proceeds of $7.4 million from the sale of our Harrisburg facility. We are now a wholly owned subsidiary of Paperweight Development and the ESOP
owns 100% of the shares of common stock of Paperweight Development. Paperweight Development has elected to be treated as an S corporation for federal and state income tax purposes and elected that its eligible subsidiaries be treated as qualified
subchapter S subsidiaries for federal and state income tax purposes. We expect that this tax treatment, together with 100% ownership of Paperweight Developments common stock by the tax-exempt ESOP, will result in substantial corporate tax
savings and enhanced cash flow. Paperweight Development does not conduct any business apart from undertaking matters incidental to its ownership of stock of its subsidiaries and matters relating to the ESOP and taking actions required to be taken
under ancillary acquisition agreements.



Business Segments



For financial
information regarding our business segments, refer to Note 24 of Notes to Consolidated Financial Statements contained below in Item 8. Financial Statements and Supplementary Data.



Coated Solutions



In the fourth quarter 2002, we redefined our segment
reporting and created three segments: coated solutions, technical products and security products. The coated solutions segment combines the operations of our carbonless business with our specialty business, our emerging digital products business and
our business of engineered manufacturing solutions or toll coating services.



Carbonless products are sold in large rolls, which account for approximately 80% of sales, and in precut sheets, which account for approximately 20% of sales. Based on our assessment of the U.S.
carbonless market, we believe that in 2002 the U.S. carbonless market totaled more than 560,000 tons.



We sell all of our carbonless roll and sheet products under the NCR PAPER* brand. We offer over 500 grades of carbonless roll and sheet
products with nearly 4,000 SKUs differentiated by grade, width, length, color, basis weight and distribution center location. We believe we have the broadest carbonless product range in the industry.



We sell most of our carbonless roll products directly to
converters and business forms printers who print carbonless forms. We sell some of our carbonless roll products and most of our carbonless sheet products to paper merchants who stock and sell carbonless paper to printers.



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Our specialty
business consists of a variety of niche products aimed primarily at the graphic design industry. In 2002, we sold over 3,000 tons of specialty products to merchants and printers. Our digital products business includes a linerboard product for the
packaging industry, our AvarioTMDigital Color Paper and other inkjet papers that are designed for specific printing
applications or presses.



Carbonless Product
Description



NCR PAPER* brand carbonless
paper is similar in composition to high-quality bond paper. The major component in both is cellulose. The remainder is filler and sizing materials added to give the desired surface appearance and characteristics. What makes carbonless paper
different from bond paper are the coatings used to manufacture it. Those coatings are composed of adhesives, inert fillers, microencapsulated dyes, coreactants and other materials used to ensure a smooth, uniform printing surface. These coatings
enable a copy to be made without using carbon paper or other copying materials.



In a typical three-part business form, three kinds of carbonless paper work together as a system to transfer images cleanly and clearly from one sheet to the next. The top sheet is a CB (coated back)
sheet, the back of which is covered with a coating made of millions of microscopic capsules containing colorless dyes. The last sheet is a CF (coated front) sheet coated on its front side with a coreactant or receiver material. The middle sheet is a
CFB (coated front and back) sheet, front-coated with receiver materials and back-coated with dye capsules. As pressure from a pen or printer is applied to the top sheet, the dye capsules on the CB surface break and interact with the CF receiver
coating to develop a black or blue image on each copy.



Carbonless paper is used in a diverse group of end markets, including government, retail, financial, insurance and manufacturing, with no one segment dominating demand. Use in many of these markets is tied to economic growth, which
impacts the number of transactions completed in a given year. As such, periods of economic growth or contraction can impact demand. Sales of carbonless products historically have not been significantly impacted by seasonality.



The carbonless market experienced rapid growth during the
1980s as carbonless paper replaced carbon tissue-based multipart forms, economic growth fueled increased business activity and forms usage and businesses began to make greater use of computers which also increased overall forms demand. Based on our
assessment, the U.S. carbonless market peaked in 1994 at approximately 890,000 tons. Since 1994, the U.S. carbonless market has been in decline. The decline is the result of increased use by businesses of competing technologies that do not use
impact printing to create images. Examples of such technologies include digital laser, inkjet, and thermal printers, as well as electronic communications.



Based on our assessment, we believe the annual rates of decline in the U.S. carbonless market from 1994 to 1999 were between 1% and 7%,
with a compound annual rate of approximately 4% during this period. On the same basis, we estimate that the U.S. carbonless paper market declined by approximately 9% in 2001 and 8% percent in 2002 and will decline at a compound annual rate of
approximately 9% between 2003 and 2007. We attribute these varying rates of decline to fluctuations in the number of commercial transactions in which carbonless products are used, as well as changes in technological substitution rates. We expect the
decline rate for carbonless sheets in the United States to continue to be lower than the decline rate for rolls because there are fewer economically viable substitute technologies for sheet applications than there are for roll applications.



One reason for this difference is that, when
used, most carbonless sheet forms are handwritten rather than printed by mechanical impact. Small businesses buy a significant portion of carbonless sheet forms for low volume applications and we believe those businesses will be less likely to incur
the expense of substitute technologies. We believe that sales of carbonless rolls are declining at a faster rate because they are sold to medium-sized to large businesses that are better positioned to implement substitute technologies more rapidly.



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Carbonless
Competitors



The U.S. carbonless market is
served primarily by three domestic manufacturersAppleton, MeadWestvaco Corporation and Imation Corp. Appleton estimates that, in 2002, those three companies produced over 90% of the carbonless paper sold in the U.S. market. Our primary
competitor is MeadWestvaco Corporation. In 2002 we estimate we had over 55% of the U.S. carbonless roll market and over 55% of the U.S. carbonless sheet market and that MeadWestvaco had nearly 40% of the U.S. carbonless roll market and approximately
20% of the U.S. carbonless sheet market. In addition, we estimate that Imation had more than 10% of the U.S. carbonless sheet market in 2002. There are two other small domestic carbonless producers. They focus on specific regions or a limited
offering of carbonless products.



There were
several foreign competitors who used an aggressive, low-price strategy to sell into the U.S. carbonless market in 2002. We estimate that, collectively, those foreign competitors served approximately 5% of the market. In the carbonless market,
Appleton competes primarily on the basis of product quality, service and price.



Technical Products



The
technical products segment consists of our thermal business, as well as the development of non-thermal label products and related substrates.



Currently this business segment consists primarily of thermal products. The most popular direct thermal imaging chemistry used today is
based on the leuco dye system invented by NCR Corporation and commercially introduced by Appleton in the late 1960s. Thermal paper is used in a wide variety of applications in five principal segments. The point-of-sale segment consists of retail
receipts. The label segment consists primarily of package delivery, industrial and weigh scale labels. The tag and ticket segment consists of entertainment, lottery and transportation tickets. The fax segment consists of facsimile paper. The
printer/calculator/chart segment consists of older generation medical diagnostic charts and other specialty applications. The point-of-sale and label segments combined account for nearly 80% of technical products sales.



We estimate that in 2002 the growing U.S. and Canadian thermal
market was more than 160,000 tons and that total thermal consumption outside the United States and Canada was more than double that amount. Market demand for thermal paper continues to grow as new applications are developed that utilize the benefits
of thermal technology.



We sell our point-of-sale
and direct thermal facsimile products to printers and converters who in turn sell to large end-user customers or to resellers such as office supply stores, office superstores, warehouse clubs, mail order catalogs, equipment dealers, merchants and
original equipment manufacturers.



Thermal label
products are sold to companies who apply pressure sensitive adhesive coatings and release liners and then sell these products to label printers. Thermal tag, ticket and chart grades are sold to specialty printing companies who convert them to
finished products such as entertainment tickets, tags, coupons and medical charts.



Thermal Product Description



Direct thermal paper is produced by coating a base material, such as paper, with a mixture of colorless dye, coreactant, sensitizer, stabilizer, adhesives, clays and binders. Until heat is applied to
the paper, the dye and the coreactant are separated on the papers surface within a mixture of sensitizer and stabilizer. Heat causes the sensitizer to melt and form the medium that allows the dye and the coreactant to combine, react and form
an image on the paper. Once the reaction occurs, the coatings stabilizer keeps the image from fading by preventing the reaction from reversing itself. A top coat may be added to enhance resistance to environmental elements, while adding a back
coat controls curl and static.



The type and
amount of dye, coreactant and sensitizer used to produce direct thermal paper affects the temperature at which the image-forming reaction occurs on the paper. Thermal printers provide the heat energy that helps to form the thermal image on paper.



The U.S. and Canadian thermal market experienced
strong growth during the 1990s and is expected to continue growing as the advantages of thermal printing systems become more widely recognized. These advantages



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include its competitive cost, quiet operation, cleanliness, speed, high print quality, reliability,
portability and its use of a single consumable (thermal paper) versus other printing systems which require paper and ink or toner cartridges.



Based on our assessment, we estimate that the annual rates of growth in the U.S. and Canadian thermal market from 1995 to 2002 were
between 1% and 13% and averaged 7% for the period. We saw little growth in 2001 because of a weak economy and reduced travel after the September 11th terrorist attacks, however, the market rebounded and grew approximately 7% in 2002. Based on our
assessment, we believe this market will continue to grow at a compound annual rate of more than 3% between 2003 and 2007.



Historically, a large part of this growth consisted of thermal fax paper that peaked in 1994 with a volume of 64,000 tons. Fax
applications are moving rapidly to plain paper fax machines or electronic communications, such as email. Based on our assessment, the non-fax segments of the thermal market, which consists primarily of value-added grades, are expected to account for
approximately 99% of the U.S. and Canadian thermal markets by 2005, up from 92% in 2001. We estimate annual growth between 2003 and 2007 in the non-fax segments to be more than 4%. Sales of thermal products have not been significantly impacted by
seasonality.



Thermal Competitors



We believe we had more than 35% of the
combined U.S. and Canadian thermal market in 2002, which we believe was more than twice as large as the market share of our largest competitor. In 2002, the top four thermal producers (Appleton, Koehler, Kanzaki, Ricoh Company, Ltd.) comprised
approximately 80% of the total market. Kanzaki and Ricoh are domestic producers, while Koehler is based in Germany.



There are a number of other foreign competitors who have a presence in the United States and Canada. Foreign competitors typically focus
on a limited range of products and compete based primarily on price. In the thermal market, Appleton competes primarily on the basis of service, product quality, breadth of product offering and price.



Security Products



Our security business developed out of our carbonless check
business that continues to produce products with basic security features that make them resistant to forgery and counterfeiting. From that foundation we are building a more comprehensive business that incorporates security technologies including
watermarks, taggants, embedded threads and fibers, and machine-readable technologies to address the sophisticated fraud and security problems that more and more companies face. We focus our security business on checks, business and government
documents, and the emerging brand protection market.



Product Description



In
1994, we introduced DocuCheckSecurity Papers to provide reliable protection focused on the check market. We
then introduced DocuMarkCustom Solutions products for high-value documents such as titles, certificates and
other official/high-value documents. Those products utilize watermarks and visible threads or fluorescent fibers embedded in the substrate that enable authentication of original documents and deter counterfeiting. Our TechMarkIntelligent Solutions products use digital coding features to provide the highest level of machine-readable
security.



Security Competitors



Our North American competitors include
Boise, MeadWestvaco Corporation and JB Rolland. We believe we have a 5% share of the worldwide market for check paper and a smaller share in the secure document market. We believe no single producer has a significant share of the emerging brand
protection market. Sales of our security products have not been significantly impacted by seasonality.



Geographical Financial Information



Our revenues from customers attributed to the U.S. were $768.3 million in fiscal 2002, $94.8 million in the 2001 successor period, $726.6
million in the 2001 predecessor period and $920.4 million in fiscal 2000. Our revenues from customers attributed to foreign countries were $129.7 million in fiscal 2002, $18.2 million in the 2001 successor period, $116.3 million in the 2001
predecessor period and $159.6 million in fiscal 2000. We do not hold a material amount of long-lived assets in foreign countries.



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Research and
Development and New Business Development



Research and development plays a vital role in our position as a leader in specialty coating and encapsulation technologies. Ongoing investment in research and development has enabled us to develop core competencies in the
encapsulation process, specialty coating chemistry, and coating application technologies and systems. Our R&D efforts focus on applying those core competencies to improve our coated solutions products and our technical products and to support
the work of our new business development team in developing new products. Those efforts include our security products business, which focuses on products with special security and authentication features.



For the coated solutions business, R&D professionals focus
their efforts on reducing costs through product design changes, material savings, manufacturing efficiency improvements and enhancing product design to produce defect-free products that meet customer requirements. For the technical products
business, R&D efforts focus on extending current product lines as well as developing new products with improved qualities and characteristics that meet emerging market needs. For our security business, we seek to develop or apply verification
and authentication technologies to produce new identity products and services.



We recently created a technology development team to leverage and expand our expertise in coating applications, coating formulations, microencapsulation, security feature technology and radio frequency
technology. We also narrowed the focus of our new business development efforts to performance packaging for both consumer and commercial markets.



We incurred $14.7 million in research and development costs in fiscal 2002 related to the development of new products and significant
improvements to existing products.



Our strategy
for growth also includes strengthening and expanding our presence in certain market segments and broadening our product offerings through acquisitions. We have evaluated and will continue to evaluate opportunities to acquire other companies that
will help us achieve our business strategies. As a result, we may engage in discussions or, in some cases, negotiations with prospective targets and may make future acquisitions. Any such acquisitions will be subject to limitations contained in our
debt instruments. Generally, we will not comment on such discussions or possible acquisitions until a definitive agreement has been executed.



Sales, Marketing and Distribution



We promote and sell our products through our own sales and marketing organization. We sell most of our products to printers, paper
merchants, converters, distributors and original equipment manufacturers. Our sales personnel operate from field locations. Our marketing employees work to obtain and analyze market data, work with research and development personnel to develop new
products, create unique new value-added services and provide support for our products. Our technical service representatives assist customers with production improvement and complaint resolution by telephone and in person at customer locations. Our
customer service representatives are based in Appleton, Wisconsin, and receive customer orders, establish delivery dates, and answer inquiries about stock availability and order status.



We operate a network of eight distribution centers to store our products and distribute them to customers.
Distribution centers are located in Appleton, Wisconsin; Harrisburg, Pennsylvania; Independence, Kentucky; Kansas City, Kansas; Portland, Oregon; Los Angeles, California; Atlanta, Georgia; and Peterborough, Ontario, Canada.



Customers



We currently have 35 merchant customers that stock and
redistribute our carbonless sheet products on a national or regional basis through over 400 locations. We sell our carbonless rolls directly to 80 printer and converter customers. We also sell our carbonless rolls to over 400 forms printers through
merchants on a drop-shipment basis. In those cases, we deliver our product from our Appleton distribution center and provide customer support directly to the printer while the merchant bears the credit risk of nonpayment.



We primarily sell our thermal products directly to converters
who cut and rewind large rolls into smaller rolls, print and otherwise further process the paper based on end-user needs. We believe that during 2002 we were essentially the sole provider to over 80% of our carbonless customers. In addition, we
believe we were essentially the



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sole provider to two of our ten largest thermal customers and that we sold product to more than 80% of all
potential thermal customers in the North American market in 2002.



We sell our security products to check and other security printers who print checks, titles, certificates and other secure documents.



Sales to Unisource Worldwide, Inc. and xpedx each represented over 10% of our total net sales in 2002. Unisource accounted for
approximately 14% and xpedx accounted for approximately 11% of our 2002 net sales.



Customer Focused Quality



Customer Focused Quality (CFQ) means meeting or exceeding customer expectations in all aspects of every transaction with Appleton. This approach to serving customers has become the core of our company
culture, the hallmark of our competitive reputation and a point of differentiation from our competitors.



CFQ is a dynamic process designed to engage all Appleton employees. The process requires employees to identify their internal and external
customers, define customer expectations, establish performance measures for meeting those expectations, and create a plan for continuous improvement. We believe that our employees ongoing commitment to CFQ significantly contributes to our
ability to meet our business objectives.



Working Capital Practices



We maintain finished goods inventories at levels that enable us to provide 99% availability of stock items and next day delivery to 85% of our customers. We also maintain raw material inventories at levels consistent with demand for
both stock and custom orders. The custom order lead times are 10 days or less for carbonless products and 21 days or less for thermal products. Our accounts receivable management practices, including terms of sale, accommodate the competitive
differences of each business segment.



Order
Backlogs



We do not have a substantial order
backlog. Over 75% of orders call for stocking grades and a majority of sales of those stock products are delivered one day following the order. Less than 25% of our sales derive from custom orders. For competitive reasons we maintain custom order
lead times at 10 days or less for carbonless products and 21 days or less for thermal products. For both year-end 2001 and 2002, products ordered not shipped totaled approximately 2% of our total annual shipment volumes.



Manufacturing



To produce carbonless paper, we coat the microcapsules onto
paper either on a paper machine, where the paper is first manufactured and then, in a continuous process, coated with the microcapsules, or on an off-machine coater where previously manufactured paper is coated in a separate operation.



Coating the microcapsules on the paper machine is a
technically challenging but efficient process because it saves the costs of winding, transporting and unwinding the paper before sending it through an off-machine coater. We believe we are the only U.S. carbonless producer that uses on-machine
coating to apply microcapsules.



We manufacture
all our thermal paper on off-machine coaters at the Appleton plant. We mix the specialized dyes, coreactants and stabilizers required for the thermal image reaction and apply those and other needed coatings to basestock, often in a continuous
process in which the paper is coated and dried up to three times in a single pass. Significant technical challenges in coating thermal paper include both applying expensive coating materials in an efficient manner and drying the coated paper at low
heat to prevent image reaction.



Paper machines
and off-machine coaters are large, complex machines that operate most efficiently when operated continuously. Paper machine production and yield decline when a machine is stopped for grade changes in coatings, basis weight, color or width.
Therefore, we organize our manufacturing processes so that all our paper



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machines and most of our coaters run almost continuously throughout the year. We schedule our higher
volume, longer runs of carbonless products at our more cost-effective pulp and paper mills located in West Carrollton and Roaring Spring. Shorter runs of carbonless products as well as thermal and specialty coated products are produced on coaters at
the Appleton plant. The plants 12 off-machine coaters use five different coating technologies. Three coaters are equipped with three coating heads each to allow production in one coating pass of thermal grades requiring three separate
coatings.



The Appleton plant also produces all
of our carbonless sheet products. As the demand for carbonless paper continues to decline, which we expect to occur, we will move carbonless production to our more cost-effective mills. We intend to utilize the open capacity at the Appleton plant
for the production of technical products and new products developed through our new business development efforts.



The Roaring Spring mill is a fully integrated pulp and paper mill. Two of the mills three paper machines produce carbonless products
while a third machine produces our security products.



The West Carrollton mill is the focus of our recycling operations. The mill features extensive waste paper processing and deinking operations. West Carrolltons three paper machines produce carbonless and thermal basestock and
finished carbonless paper products.



Raw
Materials



Our principal raw materials
consist of basestock, chemicals, pulp, wastepaper and packaging. In fiscal 2002, those materials made up approximately 60% of the annual cost of goods sold. Our largest raw material component is basestock, which was approximately 25% of our cost of
goods sold in fiscal 2002. Most of our externally purchased basestock is acquired from four sources with whom we have one-year pricing and volume target purchase agreements. These agreements protect us to some extent from the significant pricing
cycles for pulp and commodity paper products.



Approximately 10% of our cost of goods sold in 2002 was for pulp, wood and wastepaper used in the Roaring Spring and West Carrollton paper mills. While wastepaper and pulp prices are subject to swings in the supply and demand cycle
for pulp and commodity papers, we seek to reduce the impact of those swings in the pulp and commodity paper cycle by negotiating price and volume agreements for pulp and by purchasing wastepaper through a national broker.



The technical challenges of manufacturing our products require
Appleton to use many specialty raw materials, designed and manufactured to work with our products and manufacturing processes. We make purchasing decisions based upon quality, service, value and long-term strategic importance. We have long-term
agreements with key suppliers designed to ensure stable and consistent supply, to promote joint development and engineering of new raw materials and products, to enhance total value to our customers and to protect mutual strategic interests.



We are a party to two significant chemical
supply agreements, one of which is with Nisseki Chemical Texas Inc. and commenced January 1, 2002. Under this agreement we purchase primary solvents, which are a key component in our carbonless paper manufacturing process. The cost of those
purchases was approximately 5% of our total 2002 chemical purchases. Pursuant to this agreement, we are obligated to purchase a significant portion of primary solvents through December 31, 2005. The agreement continues year to year after 2005 until
either party terminates the contract.



We are
also a party to a chemical supply agreement with ESCO Company Limited Partnership, Mitsui Toatsu Chemicals, Inc. and Yamamoto Chemicals, Inc., which commenced July 1, 1997. Under this agreement, we purchase black colorformers, which are chemicals
that interact with other chemicals to form a neutral or black marking. The cost of those purchases was approximately 15% of our 2002 chemical purchases. Pursuant to this agreement, we are obligated to purchase a significant portion of black
colorformers through June 30, 2007.



We are also
party to a significant basestock supply agreement with Appleton Coated LLC, which commenced December 30, 2001. Under this agreement we purchase basestock products, which are rolls of uncoated paper used in the production of coated paper products.
The cost of those purchases was approximately 59% of our total 2002 basestock purchases.



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Pursuant to this agreement, which was amended effective as of December 30, 2002, we are obligated to
purchase 65,000 tons of basestock during 2003 and 40,000 tons of basestock during 2004. The term of this agreement, as amended, expires on January 1, 2005.



Information Technology



We are approximately half-way through a two-year conversion of our computer system software designed to optimize our current business
operations as well as expand our capabilities to accommodate future growth. The conversion, known as Project Venture, involves the installation of a J.D. Edwards enterprise resource planning software system. The project is being implemented in three
waves with the first wave having successfully begun operations on December 29, 2002. The second wave involves our order-to-cash cycle (order entry, customer invoicing, accounts receivable and distribution). The second wave will begin in June 2003
using a phased approach, implementing one distribution center at a time until all distribution centers have been implemented. We believe this phased approach will help reduce the risk associated with the implementation of an enterprise resource
planning software system of this size and complexity. We anticipate that our total capital expenditures for Project Venture will be approximately $22.6 million.



Employees



As of February 28, 2003, we employed approximately 2,500 persons, of whom approximately 1,550 were covered by union contracts. Of these
employees, approximately 2,285 currently have an investment in the Company Stock Fund of our KSOP, including approximately 1,370 union employees.



Manufacturing employees at our major manufacturing facilities in Appleton, Roaring Spring and West Carrollton are represented by the
Paper, Allied-Industrial, Chemical and Energy Workers International Union, or PACE. We entered into long-term labor contracts for all three of these facilities early in 2001. As a result, labor contracts at our Appleton and West Carrollton
facilities will expire in 2006 and the Roaring Spring labor contract will expire in 2007. As of February 28, 2003, approximately 1,450 employees were covered by the labor contracts at these three facilities.



PACE also represents employees at the Appleton, Harrisburg and
Edwardsville distribution centers. Employees at the Peterborough, Ontario, Canada facility are represented by Independent Paperworkers of Canada. Employees at the Portage, Wisconsin plant and our other distribution centers in Georgia, Kentucky,
California and Oregon have chosen not to be represented by a union. Office employees have also chosen not to be represented.



We have enjoyed good labor-management relations over an extended period of time. There have been no work stoppages over the last 30 years.
We believe this long-term relationship has been critical in developing efficient manufacturing sites and a workforce that is highly committed to Customer Focused Quality and the success of our company.



Intellectual Property



Our wholly owned subsidiary, WTA Inc., owns approximately 70
unexpired U.S. patents, through assignment from Appleton, covering carbonless and thermal paper products and manufacturing technologies, with foreign counterparts in Canada, Europe and Japan. We have also licensed technology from other paper
manufacturers mainly involving non-critical manufacturing processes or materials used in such processes. Together with NCR, we have licensed technology to Kanzaki, Nippon Paper Industries Co., Ltd., formerly Jujo Paper Company, Ltd., and Yamamoto
Chemicals Inc.



As part of the acquisition of our
business from NCR in 1978, we obtained a 100-year license to use forms of the NCR Paper* trademark that are used as our brand for carbonless products.



Under our license agreements with Kanzaki, and as a result of a settlement of a potential patent interference proceeding, our rights to
manufacture and sell thermal paper containing a single sensitizer, DPE, in some foreign countries are restricted until 2004. In response to this restriction, we have developed alternative technology, which could be cost-effective, and we have filed
U.S. patent applications for this technology.



We
do not believe that any single patent or patent application is material to our business or operations. We believe that the duration of our existing patents is consistent with our business needs.



|* |  | NCR Paper is a registered trademark licensed to Appleton.
|- |  | ---------------------------------------------------------



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Environmental Matters



General



Our operations are subject to comprehensive
and frequently changing federal, state and local environmental laws and regulations, including laws and regulations governing emissions of air pollutants, discharges of wastewater and stormwater, storage, treatment and disposal of materials and
waste, remediation of soil, surface water and groundwater contamination, and liability for damages to natural resources.



We are subject to the following material environmental laws and regulations:



| |  |  | the Comprehensive Environmental Response Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act, which governs the
identification, reporting and cleanup of hazardous substances that have been released into the environment;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act and Hazardous and Solid Waste Amendment, which governs the disposal of solid
waste and the identification, treatment and disposal of hazardous waste;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Toxic Substances Control Act, which governs the regulation of hazardous chemical substances, such as asbestos, polychlorinated biphenyls, radon and lead;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Federal Water Pollution Control Act, as amended by the Clean Water Act, which governs the regulation of the discharge of pollutants into navigable waters;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Clean Air Act, which governs the regulation of the emission of contaminants into the atmosphere;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | the Emergency Planning and Community Right-to-Know Act, which governs the reporting and emergency notification of hazardous and toxic chemicals used in or released
from a facility; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | similar state statutes and regulations.
| | - |  | ---------------------------------------



Compliance with these laws and regulations is an increasingly important factor in our business. We expect to incur capital expenditures of
approximately $1 million in 2003, $2 million in 2004 and $9 million from 2005 through 2007 and to continue to incur expenditures after 2007 in order to maintain compliance with applicable federal, state and local environmental laws and regulations
and to meet new regulatory requirements. Compliance with these regulatory requirements is likely to increase our expenses, reduce our earnings and adversely affect the operating flexibility of our manufacturing operations, which could harm our
competitive position, especially relative to foreign competitors who may not be subject to the same restrictions and attendant compliance costs.



We are subject to strict, and under some circumstances, joint and several, liability for the investigation and remediation of
environmental contamination, including contamination caused by other parties, at properties that we own or operate and at properties where we or our predecessors have arranged for the disposal of regulated materials. As a result, we are involved
from time to time in administrative and judicial proceedings and inquiries relating to environmental matters. We could be involved in additional proceedings in the future and the total amount of these future costs and other environmental liabilities
may be material. To our knowledge, we have only been named a potentially responsible party, or PRP, at one site for which our liability may be significant, the Lower Fox River site, which is described below, although it is possible that we could be
named as a PRP for additional sites in the future.



We have adopted a corporate-wide Environment, Health and Safety, or EHS, management system. This system includes corporate and plant-specific EHS strategic plans and goals, annual EHS audits at each plant and management and employee
incentives for continuous improvement in environmental management practices. It also includes testing of new chemicals and mixtures, and certification of vendors.



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Portage Plant



The Portage plant operates under various
state and federal permits for discharges and emissions to air and water. There are no known material liabilities with respect to environmental compliance issues at the Portage plant.



Roaring Spring Mill



The Roaring Spring mill operates under various state and federal permits for discharges and emissions to air and water.



In August 2000, we entered into a consent decree with the
Environmental Protection Agency, or EPA, and the State of Pennsylvania to settle an enforcement action brought by the state and federal governments against us for alleged violations of the federal Clean Air Act. Under the consent decree, we made a
payment to the government and agreed to install certain air emissions control equipment at the Roaring Spring mill by May 2002, at a cost of approximately $10 million. This air emissions control equipment was installed in 2002 and will, in addition
to satisfying obligations under the consent decree, also serve to achieve compliance with new federal air emissions control regulations known as the Cluster Rule. The Cluster Rule regulates the release of pollutants into both the air and
water by the pulp, paper and paperboard industry. The Cluster Rule establishes air emission standards and water effluent limitations guidelines and standards. We are not required to comply with these standards until 2006. However, the air emissions
control equipment that we installed to comply with the consent decree also brings the Roaring Spring mill into compliance with the Cluster Rule. We have spent $9.9 million through December 28, 2002 to install and fine tune this equipment. The only
other material capital expenditure that we expect to make over the next several years is the upgrade of the pollution control devices on our lime kiln at the Roaring Spring mill at a cost of approximately $0.5 million. Although we previously
anticipated the need to install a lime kiln precipitator, during 2002 we determined that the planned upgrade of this equipment will bring us into compliance with the Cluster Rule as required in 2006. We do not anticipate that any other material
capital expenditures will be required at any of our mills to comply with the Cluster Rule.



We have submitted to the State of Pennsylvania, and received state approval for, a landfill closure plan for a non-hazardous clay-lined landfill that is present at the Roaring Spring mill. Under the
plan, we estimate closure costs to be approximately $950,000, with long-term groundwater monitoring costs expected to be up to $725,000 in aggregate over the next 30 years.



Appleton Plant



The Appleton plant operates under various state and federal permits for discharges and emissions to air and water. There are no known
material liabilities with respect to environmental compliance issues at the Appleton plant.



West Carrollton Mill



The West Carrollton mill operates pursuant to various state and federal permits for discharges and emissions to air and water.



As a result of the de-inking of carbonless paper containing PCBs through the early 1970s, there have been
releases of PCBs and volatile organic compounds into the soil in the area of the wastewater impoundments at the West Carrollton facility, and low levels of PCBs have been detected in the groundwater immediately under this area. In addition, PCB
contamination is present in sediment in the adjacent Great Miami River, but it is believed that this contamination is from a source other than the West Carrollton mill. Based on investigation and delineation of PCB contamination in soil and
groundwater in the area of the wastewater impoundments, we believe that it could be necessary to undertake remedial action in the future, although we are currently under no obligation to do so. We have not had any discussions or communications with
any Federal, state or local agencies or authorities regarding remedial action to address PCB contamination at the West Carrollton mill. Remedial action to address PCB contamination in the area of the wastewater impoundments is expected to involve
construction of a cap to prevent exposure to PCBs. In addition, remedial action could involve long-term monitoring of groundwater or the construction and operation of a groundwater pump-and-treat system to prevent migration of PCB contamination in
groundwater, and the removal and disposal of PCB-contaminated sediment in the Great Miami River. The cost for



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remedial actionincluding installation of a cap, long-term pumping, treating and/or monitoring of
groundwater, and removal of sediment in the Great Miami Riveris estimated to range up to approximately $10.5 million, with approximately $3 million in short-term capital costs and the remainder to be incurred over a period of 30 years.
However, costs could exceed this amount if additional contamination is discovered, if additional remedial action is necessary or if the remedial action costs are more than expected. In conjunction with the acquisition of Appleton by the ESOP in
2001, AWA agreed to indemnify us for 50% of all environmental liabilities up to $5.0 million and 100% of all such environmental costs exceeding $5.0 million. In addition, the former owner and operator of the West Carrollton mill may be liable for
all or part of the cost of remediation of historic PCB contamination. Other than the PCB contamination in the area of the wastewater impoundments, there are no other known material liabilities with respect to environmental issues at the West
Carrollton mill.



Lower Fox River



Introduction.Various state and federal government
agencies and Native American tribes have asserted claims against us and other parties with respect to historic discharges of PCBs into the Lower Fox River in Wisconsin.



Carbonless paper containing PCBs was manufactured at what is currently the Appleton plant from 1954 until
1971. Wastewater from the Appleton plant, the Combined Locks paper mill now owned by Appleton Coated (which is still owned by AWAs ultimate parent) and from other local industrial facilities carried PCBs into the Lower Fox River during this
time period. As a result, there are allegedly eleven million cubic yards of PCB-contaminated sediment spread over 39 miles of the Lower Fox River. Low levels of PCBs have also been washed by the Lower Fox River into Green Bay, which is part of Lake
Michigan.



In June 1997, the EPA published notice
that it intended to list the Lower Fox River on the National Priorities List of Contaminated Sites pursuant to the federal Comprehensive Environmental Response, Compensation, and Liability Act, which we refer to as CERCLA or Superfund. The EPA
identified seven potentially responsible parties, or PRPs, for PCB contamination in the Lower Fox River, including NCR and our company as the former and current owners and operators of the Appleton plant, and the owners of five paper reprocessing
mills located on the Fox River, including Georgia-Pacific, P.H. Glatfelter Company, WTM I Co., owned by Chesapeake Corporation, Riverside Paper Corporation and U.S. Paper Mills Corp., which is now owned by Sonoco Products Company.



Remedial Action.In October 2001, the Wisconsin
Department of Natural Resources, or DNR, released a remedial investigation/feasibility study for the Lower Fox River, studying various remedial alternatives. Also in October 2001, the DNR and EPA jointly issued, for public comment, a Proposed
Remedial Action Plan (the PRAP) for the Lower Fox River proposing a remedial plan based on one of the remedial alternatives evaluated in the feasibility study. The PRAP involved a combination of monitored natural recovery and dredging
and off-site disposal of sediment contaminated with PCBs. On January 7, 2003, the DNR issued a Record of Decision (the ROD), in which the EPA concurred, on the first two segments of the river which are largely upstream of the Appleton
plant. The ROD provides for dredging in the first segment and monitored natural recovery in the second segment, as proposed in the PRAP; however, the ROD also provides that up to 25% of the remedy in the first segment may consist of capping if
dredging proves not to be cost-effective and certain conditions are met. It is our position that neither Appleton nor NCR has any responsibility or liability for PCB contamination in the first segment of the Lower Fox River. We believe that a ROD
covering the third, fourth and fifth segments of the Lower Fox River (which includes Green Bay) will be issued prior to the third quarter of 2003 and will propose remedial actions substantially similar to those proposed in the PRAP.



In a December 2002 update to its cost estimates, which appears
to incorporate the remediation proposed in the ROD, the DNR estimates total costs for the Lower Fox River remedial action plan of approximately $333 million over a 7 to 18 year time period. Most of the estimated costs pertain to the removal of large
quantities of sediment from the Lower Fox River by dredging, dewatering of the dredged materials, treatment of the dredge water and off-site disposal of the remaining solids. Based on cost estimates of large-scale dredging response actions at other
sites and many subjective assumptions regarding the work to be done, engineers engaged by several of the PRPs have estimated that the cost of the remediation work in the PRAP could be between $740 million and $1.6 billion. The DNR strongly disputes
this analysis and continues to believe that its cost estimates are accurate.



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The total
costs estimated by the DNR, EPA and the U.S. Fish & Wildlife Service, or FWS, for the proposed remediation and natural resource damages, or NRD, discussed below range from $509 million to $666 million. We do not believe that the remedial action
proposed by the DNR in the ROD is appropriate or cost-effective. We, along with the other PRPs, have developed a substantial body of evidence that we believe demonstrates that selection of alternatives involving active, river-wide remediation,
particularly massive dredging, would be inappropriate and unnecessary. There is ongoing, vigorous debate within the scientific, regulatory, legal, public policy and legislative communities over how to properly manage contaminated sediments. Although
we believe that the remedy proposed by the PRAP and adopted in the ROD (for the upper portion of the river) is inappropriate and may be substantially modified and improved over time through further design and experience, the issuance of the ROD
greatly reduces the uncertainty about the remedy which will be selected by the EPA and DNR for the remaining three segments of the Lower Fox River.



Natural Resource Damages (NRD).In October 2000, the FWS released a proposed restoration and compensation determination
plan presenting the federal and tribal natural resource trustees planned approach for restoring natural resources injured by PCBs and calculating the potential natural resource damages under different remedial action scenarios. The final NRD
valuation will depend on the extent of PCB cleanup; however, the proposed plan estimates that natural resource damages will fall in the range of $176 million to $333 million for all PRPs in the aggregate. Over the past several years and at various
natural resource damage sites, the FWS and other government agencies have settled NRD claims for amounts substantially less than original estimates or claims. In June 2002, the state and federal trustees announced a proposed settlement of their NRD
claims against Fort James Operating Company, a subsidiary of Georgia-Pacific Corporation (Fort James), the owner of one of the reprocessing mills. Under the settlement, Fort James would pay for or conduct restoration projects with a
total cost of approximately $14 million. The proposed settlement has been challenged by an environmental group in a case pending before the U.S. District Court in Milwaukee. We, along with NCR and the trustees, have expressed an interest in
negotiating a similar NRD settlement for us and NCR, and preliminary discussions have begun. We anticipate the actual costs for the PRPs to settle NRD claims related to the Lower Fox River to be significantly less than the initial range of $176
million to $333 million.



Our Share of
Liability.We purchased the Appleton plant from NCR in 1978, after the use of PCBs in the manufacturing process was discontinued. Nevertheless, pursuant to CERCLA, we and NCR are viewed by the EPA as PRPs. Accordingly, we and NCR asserted
indemnity claims against each other pursuant to the terms of the agreement for the purchase of the assets of the business in 1978. In order to resolve our indemnification obligations to each other, we entered into an interim settlement agreement
with NCR in 1998 under which the parties agreed to share both defense and liability costs arising from the Lower Fox River.



In addition to our interim settlement agreement with NCR, five of the seven PRPs, excluding U.S. Paper Mills and Riverside Paper, have
entered into a non-binding agreement to share both defense costs and costs for scientific studies relating to PCBs discharged into the Lower Fox River.



A study performed by the FWS in 2000 provided a preliminary estimate of the amount of PCBs discharged into the Lower Fox River by each PRP
and concluded that the discharges from the Appleton plant and the Combined Locks paper mill (which we formerly owned and which is now owned by an affiliate of AWA) represented a percentage in the range of 36% to 52% of the total PCBs discharged.
These preliminary estimates are presently under review by the FWS and may be revised. The FWS analysis will not be binding on the PRPs. The final allocation of liability among the PRPs will be determined by negotiation, litigation or other dispute
resolution processes. Based on historical and technical analyses performed by environmental engineers we have engaged, we believe that the percentage of PCBs discharged from the Appleton and Combined Locks facilities is less than 20% of the total
discharged by all the PRPs. A portion of our potential liability for the Lower Fox River may be joint and several. If, in the future, one or more of the other PRPs were to become insolvent or unable to pay their respective share(s) of the potential
liability, we could be responsible for a portion of their share(s). Based on a review of publicly available financial information about the other PRPs, we believe that the other PRPs will be required, and have adequate financial resources, to pay
their share of the remediation and natural resource damage claims for the Lower Fox River.



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Interim
Restoration and Remediation Consent Decree.We have entered into a consent decree with NCR, the DNR, the Wisconsin Department of Justice, the EPA, the FWS, the U.S. Department of Justice, the National Oceanic and Atmospheric Administration, and
the Oneida and Menomonee Indian Tribes, which are collectively referred to as the intergovernmental partners, or IGP. Pursuant to the consent decree, we and NCR will provide up to $41.5 million over a period of four years, up to a maximum of $10.4
million per year, for interim restoration and remediation efforts directed by the IGP. We and NCR will each pay about half of this amount. Under the consent decree, the IGP agree not to sue or take administrative action against us and NCR during the
four-year period including pursuant to any claims that could be made as a result of the issuance of the ROD. The consent decree does not constitute a final settlement with the IGP or provide protection against future claims against us and NCR;
however, under the decree, we and NCR will receive full credit against remediation costs and NRD claims for all monies expended for restoration and remediation of the Lower Fox River during the interim period.



Estimates of Liability. A precise estimate of our
ultimate share of remediation and natural resource damage liability cannot be made at this time due to uncertainties with respect to:



| |  |  | the scope and cost of implementing the final remediation plan;
| | - |  | --------------------------------------------------------------



| |  |  | the scope of restoration and final valuation of federal and state NRD assessments;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | the evolving nature of remediation and restoration technologies and governmental policies; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | our share of remediation and NRD costs relative to the other PRPs.
| | - |  | ------------------------------------------------------------------



However, the issuance of the ROD greatly reduces the uncertainty about the remedy that will be selected for the remaining
three segments of the Lower Fox River and provides us the ability to reasonably estimate our potential liability. Accordingly, we recorded an additional $80.8 million charge to our existing $13.7 million reserve in 2002. In addition, we recorded an
additional $59.8 million receivable to our existing $13.7 million indemnification receivable from AWA. The $21.0 million difference between the additional reserve and the indemnification receivable represents the discounted share of Lower Fox River
costs for which we are responsible. This $21.0 million amount will accrete to $25.0 million by the end of 2005. We used the estimates described below, including the most recent government agency estimates, in estimating our total Lower Fox River
environmental liability:



| |  |  | total costs for remediation of $400 million, based on the DNRs estimate of $333 million in total costs for remediation, plus a 20% contingency;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the FWS preliminary estimate that discharges from the Appleton plant and the Combined Locks mill represent 36% to 52% of the total PCBs discharged by the PRPs, which
is substantially greater than our estimate (we assume that Appleton and NCR are primarily responsible for only the discharges from our plant and our former mill and not for other discharges);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | costs to settle NRD claims against Appleton and NCR, estimated at $20 million or less, based on the IGPs $14 million settlement of NRD claims against Fort
James;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our responsibility for about half of the claims asserted against Appleton and NCR, based on our interim settlement agreement with NCR, the terms of which are
confidential; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $20 million in fees and expenses.
| | - |  | ---------------------------------



Because of the numerous uncertainties underlying these estimates, it is possible that our share of costs will be higher.



AWA Indemnification.In conjunction with the
acquisition of Appleton in 2001, we entered into two indemnification agreements under which AWA agreed to indemnify Paperweight Development and Paperweight Development agreed to indemnify us for, and pay, all governmental and third party liabilities
and all costs and expenses incurred by us in defending ourselves against governmental and third party claims, which we refer to as the Fox River Liabilities. The Fox River Liabilities also include fees and expenses of our environmental counsel,
advisers, engineers and scientific experts, and the costs incurred in obtaining studies and other analyses concerning various remedial alternatives for the Lower Fox River.



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The
indemnification agreements mirror one another and result in our receiving the indemnification payments directly or indirectly from AWA. This summary assumes that AWA is satisfying the Fox River Liabilities by paying us directly or making payments on
our behalf to third parties, even though the indemnification agreements provide that Paperweight Development is indemnified by AWA and Paperweight Development indemnifies us.



Under the indemnification agreements, we will be indemnified for the first $75 million of Fox River
Liabilities and for those in excess of $100 million. We are responsible for the $25 million of liabilities between $75 million and $100 million. The indemnification agreements provide that it is the intent of the parties that at no time will we or
Paperweight Development be required to fund any costs and expenses relating to the Fox River Liabilities for which we or Paperweight Development will be indemnified. Under its indemnity, AWA provided for payment of $14.1 in Fox River Liabilities
through 2002.



In connection with the
indemnification agreements and in order to assure us, the ESOP Trustee and our lenders that AWA would be able to meet its indemnification obligations under these agreements, AWA purchased and fully paid for indemnity claim insurance from an
affiliate of American International Group, Inc., or AIG.



The AIG insurance policy is a $250 million policy that is designed to provide coverage, with the exception described below, for an increasing amount of potential Fox River Liabilities for each of the 12-month periods beginning
November 9th of the years specified below:



|Year                |  | Maximum Coverage                   
|------------------- |  | -----------------------------------
|2001                |  | $  75 million                      
|2002                |  | $100 million                       
|2003                |  | $125 million                       
|2004                |  | $150 million                       
|2005                |  | $175 million                       
|2006                |  | $200 million                       
|2007 and thereafter |  | $250 million                       
|                    |  | (unless reduced as described below)



The
amounts available under the AIG insurance policy were determined as a result of negotiations with AWA and are not based on any particular cost estimates. We believe that the $250 million available under the AIG insurance policy will be in excess of
our ultimate liability for remediation of the Lower Fox River even if (a) the costs of remediation were to be twice the government agencies estimate of $333 million, (b) our NRD settlement were to be twice the $14 million obtained by
Georgia-Pacific, and (c) our combined share with NCR of all of these liabilities were to be substantially more than any estimate of our share of PCB discharge.



The AIG insurance policy was designed to provide a funding source to satisfy the Fox River Liabilities and other liabilities. As such, the
policyholder (described below) has designated a third party administrator to manage the various environmental issues that arise with respect to the Lower Fox River. This administrator works with our employees as negotiations and discussions occur
with governmental authorities and third parties. As we incur costs and expenses that constitute Fox River Liabilities, we submit invoices to the administrator which are in turn submitted to AIG and then paid under the AIG insurance policy. As noted
above, the indemnification agreements negotiated with AWA and the AIG insurance policy are designed to ensure that we will not be required to fund any costs and expenses for the Fox River Liabilities and to assure us, the ESOP Trustee and our
lenders and investors that we will not have to rely on AWA itself to make these payments.



The AIG insurance policy will not terminate sooner than the stated maturity of our senior subordinated notes unless we experience some types of changes of control and provided we comply with the
provisions of the senior credit facility and senior subordinated notes, including provisions that could require us to repay or offer to repay that indebtedness. The AIG insurance policy will be extended beyond the stated maturity of the senior
subordinated notes, which we refer to as an extension period, (1) for up to three years if a designated arbiter is not able to determine that we will have sufficient internal



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cash to repay the senior subordinated notes at stated maturity, or if the designated arbiter determines we
will have sufficient cash but we do not actually repay the senior subordinated notes or irrevocably deposit funds sufficient to repay them or (2) for up to five years if AWA shall have committed a payment default under its indemnification
obligations in excess of $1 million that is not cured within 60 days of written notice. The amount of coverage required under the AIG insurance policy during an extension period will be the lesser of (1) two times the excess of the required
remaining indemnification payments during the extension period over funds available from the net worth protection described below and the amounts otherwise available under the policy after December 15, 2008 from the stream of payments we refer to as
the annuity as determined by a designated arbiter or (2) the amount of coverage available under the AIG insurance policy remaining on the first day of the extension period.



The AIG insurance policy is owned by a Bermuda corporation which we refer to as the policyholder. Under the
indemnification agreements, the policyholder has the right to elect to reduce the maximum coverage amount from $250 million to $167 million at any time after the notes are paid in full and certain other conditions are met or upon a change of
control. At such time, AIG will make available to the policyholder a stream of payments that continues until 2027, which we refer to as the annuity.



In order to establish and administer the AIG insurance policy, AWA and Paperweight Development each formed direct or indirect special
purpose subsidiaries that jointly own the policyholder. The policyholder owns and is the direct beneficiary of the AIG insurance policy. At the closing of the acquisition, AWA assigned, and the policyholder assumed, AWAs share of the Fox River
Liabilities under AWAs indemnification agreement in exchange for a capital contribution by AWA to the policyholder in the amount of the premium due under and to fully purchase the AIG insurance policy. AWA has not been released from its
primary responsibility for performance under its indemnification agreement. This structure is intended to protect the policyholder and the AIG insurance policy from claims made by the creditors of AWA, Paperweight Development and/or their respective
affiliates, including the special purpose subsidiaries that own the policyholder, in a bankruptcy or other liquidation proceeding involving any of these companies.



At the closing of the acquisition, AWA, Paperweight Development, the special purpose subsidiaries and the
policyholder entered into a Relationship Agreement, which, among other things and subject to certain limited exceptions, prohibits AWA and Paperweight Development from taking any actions that would result in any change to this structure including,
without limitation, (1) amendments to the charter documents of any of the special purpose subsidiaries or the policyholder, (2) issuances, redemptions or transfers of any of the equity securities of the special purpose subsidiaries or the
policyholder and (3) transfers or assignments of the AIG insurance policy. In addition, AWA and Paperweight Development agreed, with respect to the special purpose subsidiaries, and the special purpose subsidiaries agreed, with respect to the
policyholder, that they will not make any assignment for the benefit of creditors, consent to the appointment of a receiver for their assets, or file any petition or application under any bankruptcy, reorganization or similar liquidation law or
regulation.



The indemnification agreements
provide that AWA can elect to control and manage the Fox River Liabilities with the cooperation and assistance of our personnel. We have agreed to make certain of our employees available to AWA at its cost to assist with discussions and negotiations
with the EPA, the DNR, the FWS and other governmental agencies.



In addition to the AIG insurance policy, AWA agreed to deposit up to $75 million, minus all previous indemnification payments made for Fox River Liabilities, into an escrow account, which we refer to as the net worth protection, if
the maximum coverage limits under the AIG insurance policy are no longer in force, if AWA has not yet paid its first $75 million of Fox River Liabilities and if AWAs consolidated tangible net worth is less than £500 million (1) for two
consecutive fiscal quarters, or (2) in whole or in part as a result of a sale of assets outside the ordinary course of business, a sale of stock or other ownership interests of any direct or indirect operating subsidiary or a transaction out of the
ordinary course of business.



The AIG insurance
policy and the net worth protection are collectively referred to as the financial assurance. Under the indemnification agreements, AWA is able to reduce some of the financial assurance to avoid duplication of the components of the financial
assurance.



16



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The
indemnification agreements provide for a dispute resolution process involving arbitration in accordance with the Center for Public ResourcesRules for Non-Administered Arbitration.



AWAs indemnification obligation to us is also discussed in Notes 2 and 19 of Notes to Consolidated
Financial Statements.



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Item 2. Properties



We
own or lease the facilities reflected in the table below. We believe that our plants and facilities have been well maintained, are in good condition, are suitable for their respective operations and provide sufficient capacity to meet production
requirements.





|Location                                   |  | Description                                 |  | Approximate Square Footage |  | Status                
|------------------------------------------ |  | ------------------------------------------- |  | -------------------------- |  | ----------------------
|Appleton, Wisconsin (Wisconsin Ave.)       |  | Headquarters Office and Manufacturing Plant |  | 885,000                    |  | Owned                 
|Portage, Wisconsin                         |  | Capsule Manufacturing Plant                 |  | 44,000                     |  | Owned                 
|Roaring Spring, Pennsylvania               |  | Pulp and Paper Mill                         |  | 634,000                    |  | Owned                 
|West Carrollton, Ohio                      |  | Pulp and Paper Mill                         |  | 750,000                    |  | Owned                 
|Appleton, Wisconsin (1) (Radio Road)       |  | Distribution Center and Warehouse           |  | 430,000                    |  | Lease expires 11/30/05
|Appleton, Wisconsin (1) (Kensington Drive) |  | Distribution Center                         |  | 360,000                    |  | Lease expires 12/31/04
|Independence, Kentucky                     |  | Distribution Center                         |  | 350,000                    |  | Lease expires 6/30/06 
|Harrisburg, Pennsylvania                   |  | Distribution Center                         |  | 300,000                    |  | Lease expires 8/16/06 
|Ontario, California                        |  | Distribution Center                         |  | 260,000                    |  | Lease expires 5/31/05 
|Edwardsville, Kansas                       |  | Distribution Center                         |  | 240,000                    |  | Lease expires 12/28/10
|McDonough, Georgia                         |  | Distribution Center                         |  | 210,000                    |  | Lease expires 3/31/07 
|Portland, Oregon                           |  | Distribution Center                         |  | 70,000                     |  | Lease expires 5/31/03 
|Peterborough, Ontario, Canada              |  | Distribution Center                         |  | 60,000                     |  | Lease expires 12/31/04

---

|(1) |  | The Radio Road and Kensington Drive facilities are operated as a single distribution center.
|--- |  | --------------------------------------------------------------------------------------------



Between fiscal 1998 and fiscal 2002, we invested approximately
$261 million in capital improvements, approximately $212 million of which was spent at our manufacturing facilities. The primary goal of this capital spending was to improve manufacturing efficiencies, product quality and cycle time. Of the $212
million spent at our manufacturing facilities, approximately $23 million was spent to comply with applicable environmental regulations.



We also maintain 9 field sales offices in the U.S., all of which are in leased premises under short-term leases.



Item 3. Legal Proceedings



From time to time we are subject to a number of legal proceedings and other claims arising in the ordinary course of our business. Other than the Ellis, Cinquanti, McLaughlin and Marks v. Appleton Papers Inc. case and the
Lower Fox River matter described above, we do not believe that any pending or threatened legal proceedings or other claims will have, individually or in the aggregate, a material adverse effect on our financial condition or results of operations.



In Ellis, Cinquanti, McLaughlin and Marks v.
Appleton Papers Inc., a case pending in U.S. District Court in Syracuse, New York, the plaintiffs generally allege that exposure to carbonless paper has caused allergic reactions which are totally disabling and that they are, therefore, entitled to
substantial damages. The plaintiffs are seeking monetary damages in an aggregate amount of $12 million, plus punitive damages. We have defended a number of such cases over the past 20 years, settling some for amounts which are not material to our
business and obtaining dismissals in others based on various arguments including, in one case, that the plaintiffs alleged proof that carbonless paper causes injury was based on junk science. While we are vigorously defending
ourselves and expect to prevail in this case and in any similar cases that may be brought against us in the future, there can be no assurance that we will be successful in our defense.



For a discussion of environmental matters see Item 1. BusinessEnvironmental Matters and
Note 19 of Notes to Consolidated Financial Statements.



18



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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders



None.



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PART II



Item 5. Market for Registrants Common Equity and Related Stockholder Matters



On November 9, 2001 we issued to AWA a senior subordinated note due 2008 in the aggregate principal amount of $250 million. We issued the
note to AWA in a private placement pursuant to Section 4(2) of the Securities Act, which exempts from registration sales of securities that do not involve a public offering. There were no underwriters used and no underwriting discounts or
commissions were paid.



On December 14, 2001 we
sold to Bear, Stearns & Co. Inc., TD Securities (USA) Inc., ABN AMRO Incorporated and U.S. Bancorp Piper Jaffray Inc., who we refer to as the initial purchasers, $250 million in aggregate principal amount of our 121⁄2% Series A senior
subordinated notes due 2008. We offered and sold the notes to the initial purchasers in a private placement pursuant to Section 4(2) of the Securities Act, which exempts from registration sales of securities that do not involve a public offering.
The initial purchasers resold the notes to qualified institutional buyers in reliance on Rule 144A under the Securities Act for cash in an amount equal to $1,000 per $1,000 principal amount at maturity. The aggregate offering price was
$250 million, and the aggregate underwriting commissions and discounts were $7,587,329.



Effective November 9, 2001, Paperweight Development Corp. sold 10,684,373 shares of its common stock to the Company Stock Fund of the Appleton Papers Retirement Savings and Employee Stock Ownership
Plan, or KSOP. The Company Stock Fund acquired the shares pursuant to an offer to eligible participants in the KSOP of a one-time irrevocable election to direct the ESOP trustee to accept the transfer of all or any part of their existing balances in
the KSOP and our 401(a) plan to the Company Stock Fund. The aggregate offering price was $106,843,720. There were no underwriters used and no underwriting discounts or commissions were paid. The offer and sale of the shares was made pursuant to Rule
701 under the Securities Act, as amended, and a no-action letter issued by the Securities and Exchange Commission to Paperweight Development and Appleton dated July 3, 2001.



Effective December 30, 2001, Paperweight Development sold 116,614 shares of its common stock to the Company
Stock Fund of the KSOP. The Company Stock Fund acquired the shares with payroll deductions deferred to the Company Stock Fund during the period from November 10, 2001 to December 29, 2001 by employees of Appleton who are participants in the KSOP.
The aggregate offering price was $1,166,140. There were no underwriters used and no underwriting discounts or commissions were paid. The offer and sale of the shares was made pursuant to Rule 701 under the Securities Act, as amended, and a no-action
letter issued by the Securities and Exchange Commission to Paperweight Development and Appleton dated July 3, 2001.



Effective July 1, 2002, Paperweight Development sold 341,480 shares of its common stock to the Company Stock Fund of the KSOP. The Company
Stock Fund acquired the shares with payroll deductions deferred to the Company Stock Fund during the period from December 30, 2001 to June 12, 2002 by employees of Appleton who are participants in the KSOP. The aggregate offering price was
$4,374,362. There were no underwriters used and no underwriting discounts or commissions were paid. The offer and sale of the shares was made pursuant to Rule 701 under the Securities Act, as amended, and a no-action letter issued by the Securities
and Exchange Commission to Paperweight Development and Appleton dated July 3, 2001.



There is no established trading market for the common stock of Paperweight Development, Appleton or WTA Inc. All of the outstanding shares of Paperweight Development are owned of record by the KSOP, in
which there are approximately 2,375 participants who have invested in the Company Stock Fund. All of the outstanding shares of Appleton are owned of record by Paperweight Development and all of the outstanding shares of WTA Inc. are owned of record
by Appleton.



In order to finance the acquisition
of the Company from AWA, Appleton entered into various loan agreements and then loaned the proceeds to Paperweight Development so it could close the transaction. In November 2002, Appleton declared and paid to Paperweight Development a dividend of
$596.9 million. Paperweight Development used the dividend proceeds to repay this intercompany loan, plus accrued interest, owed to Appleton. Also in 2002,



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##### Table of Contents



WTA Inc. declared and paid to
Appleton a dividend of $6.2 million. WTA Inc. had received payment of accrued interest and royalties from Appleton, which it then returned to Appleton as a dividend.



In 2001, immediately prior to the acquisition of Appleton from AWA, Appleton declared and paid to our parent
corporation at the time, Appleton Investments LLC, a dividend of approximately $51,000 in conjunction with the settlement of remaining intercompany debt balances.



Other than the intercompany settlement transactions described immediately above, no dividends have been
declared on the common stock of Paperweight Development, Appleton and WTA Inc. in the last two fiscal years and none of these entities currently anticipates paying dividends in the foreseeable future. Each of these entities is restricted from
declaring dividends and repurchasing common stock pursuant to provisions contained in our senior credit facility and trust indenture. Refer to Notes 12, 22 and 25 of the Notes to Consolidated Financial Statements.



Item 6. Selected Financial Data





Selected Financial Data



The following tables set forth selected historical consolidated financial data for Paperweight Development and Appleton as of and for each
of the five fiscal years in the five-year period ended December 28, 2002. The historical consolidated financial data for the fiscal year ended December 28, 2002, the periods ended December 29, 2001 and November 9, 2001 and for the fiscal year ended
December 30, 2000 were derived from our consolidated financial statements included elsewhere in this report, which have been audited by PricewaterhouseCoopers LLP, our independent public accountants, as indicated in its report included in Item
8. Financial Statements and Supplementary Data. The remaining historical financial data presented below were derived from our audited consolidated financial statements not included in this report. The historical consolidated financial data
presented in this report are not necessarily indicative of our financial position or the results of operations for any future period. The financial and other operating data set forth below should be read in conjunction with Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations and our historical consolidated financial statements and related notes included elsewhere in this report.



|                                                            |  | (Successor Basis) |         |   | (Predecessor Basis)                                   |  
|----------------------------------------------------------- |  | ----------------- | ------- | - | ----------------------------------------------------- | -
|                                                            |  | 2002              |         |   | For the Period November 10, 2001 to
December 29, 2001 |  
|                                                            |  | (in thousands)    |         |   | (in thousands)                                        |  
|Statement of Operations Data:                               |  |                   |         |   |                                                       |  
|Net sales                                                   |  | $                 | 897,973 |   |                                                       | $
|Cost of sales                                               |  |                   | 630,712 |   |                                                       |  
|                                                            |  |                   |         |   |                                                       |  
|Gross profit                                                |  |                   | 267,261 |   |                                                       |  
|Selling, general and administrative                         |  |                   | 156,577 |   |                                                       |  
|Restructuring and other charges (1)                         |  |                   |        |   |                                                       |  
|Special charges (2)                                         |  |                   | 21,017  |   |                                                       |  
|                                                            |  |                   |         |   |                                                       |  
|Operating income                                            |  |                   | 89,667  |   |                                                       |  
|Interest expense                                            |  |                   | 68,354  |   |                                                       |  
|Debt extinguishment expenses                                |  |                   | 11,754  |   |                                                       |  
|Interest income                                             |  |                   | (990    | ) |                                                       |  
|Other (income) expense                                      |  |                   | (46     | ) |                                                       |  
|                                                            |  |                   |         |   |                                                       |  
|Income before income taxes from continuing operations       |  |                   | 10,595  |   |                                                       |  
|Provision for income taxes                                  |  |                   | 503     |   |                                                       |  
|                                                            |  |                   |         |   |                                                       |  
|Income from continuing operations                           |  |                   | 10,092  |   |                                                       |  
|Loss from discontinued operations, net of tax (3)           |  |                   |        |   |                                                       |  
|                                                            |  |                   |         |   |                                                       |  
|Income (loss) before cumulative effect of accounting change |  |                   | 10,092  |   |                                                       |  
|Cumulative effect of accounting change, net of tax (4)      |  |                   |        |   |                                                       |  
|                                                            |  |                   |         |   |                                                       |  
|Net income (loss)                                           |  | $                 | 10,092  |   |                                                       | $
|                                                            |  |                   |         |   |                                                       |  
|Other Financial Data:                                       |  |                   |         |   |                                                       |  
|Depreciation and amortization                               |  |                   | 67,977  |   |                                                       |  
|Capital expenditures                                        |  |                   | 32,444  |   |                                                       |  
|Ratio of earnings to fixed charges (5)                      |  |                   | 1.1     |   |                                                       |  
|Balance Sheet Data (at end of period):                      |  |                   |         |   |                                                       |  
|Working capital (deficit) (6)                               |  | $                 | 89,706  |   |                                                       | $
|Total assets                                                |  |                   | 960,162 |   |                                                       |  
|Total debt                                                  |  |                   | 520,673 |   |                                                       |  
|Redeemable common stock                                     |  |                   | 133,581 |   |                                                       |  
|(Accumulated deficit) retained earnings                     |  |                   | (541    | ) |                                                       |  
|Shareholders equity (deficit)                              |  |                   |        |   |                                                       |  



|(1) |  | During the third quarter of fiscal 1999, we announced plans to close our Harrisburg plant, which was sold on August 17, 2001. See Note 6 of Notes to Consolidated
Financial Statements.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Special charges consist of the following items:
|--- |  | -----------------------------------------------



|                                  |  | (Successor Basis) |        | (Predecessor Basis)                                  
|--------------------------------- |  | ----------------- | ------ | -----------------------------------------------------
|                                  |  | Fiscal 2002       |        | For the Period November 10, 2001 to December 29, 2001
|                                  |  |                   |        |                                                      
|                                  |  | (in thousands)   
|Environmental expense (a)         |  | $                 | 21,017 |                                                      
|Litigation settlements (b)        |  |                   |       |                                                      
|Equipment relocation expenses (c) |  |                   |       |                                                      
|Loss on investment (d)            |  |                   |       |                                                      
|                                  |  |                   |        |                                                      
|Total                             |  | $                 | 21,017 |                                                      
|                                  |  |                   |        |                                                      



| | (a) |  | Represents costs related to the Lower Fox River. See Item 1. BusinessEnvironmental Matters. In connection with the acquisition, AWA has agreed to
indemnify us for certain of these costs. See Item 1. BusinessEnvironmental MattersLower Fox RiverAWA Indemnification.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) |  | Represents settlement amounts and legal fees, primarily for two litigation matters.
| | --- |  | -----------------------------------------------------------------------------------

| | (c) |  | Represents costs to dismantle and transport equipment from the Harrisburg plant to the Appleton plant and Roaring Spring mill as part of the Harrisburg plant
closure.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) |  | Represents write-off of the notes receivable and equity investment in Paperhub.com, a proposed internet paper and supplies purchasing business. Paperhub.com has
ceased its operations and, subject to limitations, AWA and affiliates of AWA have agreed to indemnify us for any further liabilities in connection with this investment.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Effective November 26, 2000, we completed the transfer of two wholly owned subsidiaries, Appleton Coated and Appleton Leasing, to Appleton Coated Papers Holdings
Inc. These two subsidiaries consisted entirely of our coated free sheet, fine paper products and leasing divisions. We classified these subsidiaries as discontinued operations in our consolidated balance sheet and consolidated statements of
operations for all periods presented. The Newton Falls, New York mill, which was part of the business operated by Appleton Coated and therefore included in discontinued operations for the periods presented, was not included within the November 26,
2000 transfer described above because the Newton Falls mill was sold to a third party in the third quarter of 2001. After the mill was sold, Newton Falls, Inc. was transferred to an affiliate of AWA. See Note 5 of Notes to Consolidated Financial
Statements.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Represents the write-off of deferred start-up costs.
|--- |  | ----------------------------------------------------

|(5) |  | For the purpose of calculating these ratios, we define earnings as pre-tax income from continuing operations plus fixed charges. We define fixed charges as interest
expense plus amortized expenses related to indebtedness.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Beginning in fiscal 1998, includes parent company debt which has been classified as a current liability. See Note 7 of Notes to Consolidated Financial Statements.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations



Introduction



This discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity of
Paperweight Development Corp. and Appleton Papers Inc. for the three-year period ended December 28, 2002. This discussion should be read in conjunction with our accompanying Consolidated Financial Statements and related notes.



General



Appleton Papers Inc. creates innovative products for business, consumer and government applications worldwide
through its development and use of coating formulations and applications and encapsulation technology. We believe we are the worlds largest producer of carbonless paper. Carbonless paper is used to make multipart business forms such as
invoices and credit card receipts. We also believe that we are the largest manufacturer of thermal paper in the United States and Canada. Thermal paper is used to make point-of-sale, tag, ticket and label products. In addition to carbonless and
thermal paper, we produce security products that have authentication features such as watermarks, taggants, embedded threads and fibers, and machine-readable technologies. We also manufacture a variety of coated products used for applications such
as digital inkjet printing and point-of-sale displays, as well as design and print applications. We currently operate manufacturing facilities in Roaring Spring, Pennsylvania, West Carrollton, Ohio and Appleton, Wisconsin, as well as a U.S. and
Canadian system of eight distribution centers.



Acquisition of Appleton Papers. At the close of business on November 9, 2001, Paperweight Development acquired Arjo Wiggins Delaware General Partnership, or AWDGP, and its wholly owned subsidiary, Appleton Papers Inc., from
Arjo Wiggins Appleton p.l.c. (AWA) for $810 million. Paperweight Development had no operating activity prior to the acquisition of AWDGP.



We and Paperweight Development financed the acquisition, refinanced most of our current debt and paid related fees and expenses with the
following:



| |  |  | $79 million of our available cash;
| | - |  | ----------------------------------



| |  |  | $340 million of a senior credit facility, of which $265 million of term loans were borrowed at the closing of the acquisition;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | $250 million in aggregate principal amount of a senior subordinated note due 2008 issued by us to AWA, which was repaid with the proceeds of the offering of the $250
million aggregate principal amount of 12.5% Series A Senior Subordinated Notes due 2008 and other available cash;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a deferred payment obligation with a present value of $140 million at the closing of the acquisition to be paid to one of AWAs affiliates; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $107 million in proceeds from the sale of Paperweight Development redeemable common stock to the ESOP.
| | - |  | ------------------------------------------------------------------------------------------------------



The acquisition was accounted for using the purchase method
and the financial statements of Appleton Papers were adjusted on November 10, 2001 to reflect its assets and liabilities at fair value. We refer to the period November 10, 2001 to December 29, 2001 as the 2001 successor period. The successor period
includes the accounts of Paperweight Development and its wholly owned subsidiaries, which we refer to as the successor company. We refer to the period December 31, 2000 to November 9, 2001 as the 2001 predecessor period. The predecessor period
includes the accounts of Appleton Papers, its wholly owned subsidiaries, as well as Appleton Papers direct parent companies, AWDGP and Appleton Investments LLC, which we collectively refer to as the predecessor company. The accounts for AWDGP
and Appleton Investments consisted of debt used to fund the operations of Appleton Papers and corresponding interest expense and tax benefits.



Facility Closing and Related Restructuring.During the third quarter of fiscal 1999, we announced plans to close our Harrisburg
plant in fiscal 2001 to improve operational efficiencies by reducing excess production capacity. As a result, we recorded restructuring charges of $44.5 million in fiscal 1999, $7.8 million in fiscal 2000,



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and $6.4 million in fiscal 2001 related to the Harrisburg plant closure. The charge recorded in fiscal
1999 was primarily due to the Harrisburg asset impairment totaling $26.4 million, costs for employment terminations of $11.3 million and distribution center exit costs of $6.0 million. As part of the Harrisburg plant closure, we also recorded a
special charge, described below, of $5.2 million in fiscal 2000 and $0.5 million in fiscal 2001. For a more detailed review of these activities, please read our Consolidated Financial Statements and related notes included elsewhere in this report.



Special Charges.Special charges consist
of (1) environmental expenses related to the Lower Fox River, (2) settlement and legal fees, primarily for two litigation matters, (3) costs to dismantle and transport equipment from the Harrisburg plant to the Appleton plant and the Roaring Spring
mill as part of the Harrisburg plant closure and (4) the write-off of the notes receivable and equity investment in Paperhub.com, a proposed internet paper and supplies purchasing business.



Discontinued Operations.On November 26, 2000, we
completed the transfer of two wholly owned subsidiaries, Appleton Coated LLC and Appleton Leasing LLC, to Appleton Coated Papers Holdings Inc., an affiliate of AWA. These two subsidiaries, which have been operated with a separate management team
since the first quarter of fiscal 1999, consisted entirely of our coated free sheet, fine paper products and leasing divisions. The Newton Falls, New York mill, which was part of the business operated by Appleton Coated, was not included within the
November 26, 2000 transfer. The Newton Falls mill was sold to a third party in the third quarter of 2001. On October 28, 2001, we completed the transfer of Newton Falls, Inc. to Newton Falls LLC, an affiliated company of AWA. These subsidiaries,
including the Newton Falls mill, have been classified as discontinued operations for purposes of our financial statements and the following discussion and analysis.



Nature of Operations.In the fourth quarter of 2002, we redefined our segment reporting and created
three segments: coated solutions, technical products and security products. The coated solutions segment combines the operations of our carbonless business with our specialty business, our emerging digital products business and our business of
engineered manufacturing solutions or toll coating services. The technical products segment consists of our thermal business as well as the development of non-thermal label products and related substrates. Our security segment focuses on checks,
business and government documents, and the emerging brand protection market. Sales within the coated solutions business accounted for approximately 77% of consolidated net sales in 2002, 79% of consolidated net sales in fiscal 2001 successor and
predecessor periods and 80% of consolidated net sales for 2000. The principal markets for our products are printers, merchants and converters in the United States and Canada.



Project Venture. In January 2002, our board of directors formally approved Project Venture, a $22.6
million capital project to install a new enterprise resource planning system with the goal of optimizing our current business operations as well as expanding our capabilities to transform to a new products company. We selected J.D. Edwards to
provide the software system solution. Project Venture will affect nearly every business function at Appleton including finance, information services, product development, manufacturing, logistics, purchasing, human resources, marketing, sales and
customer service. During 2001, an 18-member employee project team began working to identify, define and redesign our work processes in preparation for the new software installation. In addition to our own internal dedicated resources, we have also
selected industry-respected implementation partners to assist in the design and installation of the J.D. Edwards software.



In order to minimize the risks associated with an implementation of this size and complexity, we have chosen to implement Project Venture
in three waves. The first wave, which was successfully implemented on December 29, 2002, involved our financial reporting and non-raw material procurement processes. The second wave involves our order-to-cash cycle (order entry, customer invoicing,
accounts receivable and product distribution). The second wave implementation will begin in June 2003 using a phased approach, implementing one distribution center at a time until all distribution centers have been implemented by the fourth quarter
of 2003. The final wave, which involves our manufacturing and raw material procurement processes, is expected to begin in the fourth quarter of 2003 and be completed during the first half of 2004.



For purposes of the discussion of yearly operating results,
the financial information for the 2001 predecessor period has been combined with the financial information for the 2001 successor period and referred to as fiscal 2001.



Comparison of Fiscal 2002 and Combined Fiscal 2001



Net Sales. Net sales for fiscal 2002 decreased $57.8 million, or 6.1%, to $898.0 million, compared to
$955.8 million for fiscal 2001. Coated solutions net sales were $691.9 million, a decrease of $62.6 million, or 8.3%, compared to fiscal 2001 due primarily to a carbonless roll volume decline of 10%, which was offset by a modest increase in
carbonless sheet volume. Technical products net sales increased $4.6 million, or 2.7%, as a result of volume increases of 8.3%. Net selling prices for our high volume point-of-sale grades were stable throughout 2002 after experiencing a 4.2% decline
from the fourth quarter 2001 price levels due to competitive market conditions.



Gross Profit. Gross profit was $267.3 million for fiscal 2002, a decrease of $20.5 million, or 7.1%, compared to fiscal 2001. Gross profit margin was 29.8% for fiscal 2002 as compared to 30.1%
for fiscal 2001. The benefit of lower raw material costs for pulp and chemicals, and the full year benefits achieved from the restructuring plan completed in fiscal 2001, were offset by the carbonless volume decline and an increase of $17.7 million
in manufacturing depreciation expense, when compared to fiscal 2001. The acquisition of Appleton Papers by Paperweight Development was recorded using the purchase method of accounting and the financial

statements of Appleton Papers were adjusted on November 10, 2001 to reflect property, plant and equipment at fair value, which resulted in higher
depreciation expense.



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Selling,
General and Administrative. Selling, general and administrative expenses for fiscal 2002 were $156.6 million, an increase of $2.8 million, or 1.8%, compared to fiscal 2001. Amortization expense related to intangible assets increased $7.7 million
for fiscal 2002 as compared to fiscal 2001 due to the value assigned to intangible assets in the purchase price allocation related to the acquisition of Appleton Papers. Information systems expenses increased by $3.1 million due to additional costs
associated with the installation of our new enterprise resource planning platform, known as Project Venture. Long-term management incentive plans based on the performance of Appleton Papers and increases in the value of Paperweight Development
redeemable common stock resulted in an increase in non-cash compensation expense of $3.5 million in fiscal 2002. Bad debt expense in fiscal 2002 was $0.8 million higher than in fiscal 2001 primarily due to potential credit exposures from Argentinean
customers. In fiscal 2001, we received fees of $1.8 million from Appleton Coated for information technology services we provided and recorded as an offset to our information technology department expenses. Appleton Coated did not utilize our
information technology services in fiscal 2002. Distribution costs for fiscal 2002 decreased by $7.0 million, or 10.7%, compared to fiscal 2001 due to reduced carbonless volumes, lower freight costs and reduced warehousing expenses. Selling, general
and administrative expenses for fiscal 2001 also included a charge of $6.9 million in management bonuses, incurred in the 2001 predecessor period, related to the acquisition of Appleton Papers.



Restructuring and Other Charges. During the third
quarter of fiscal 1999, we announced plans to close our Harrisburg plant in fiscal 2001. Restructuring and other charges associated with this plant closure, which was completed in fiscal 2001, approximated $6.4 million in fiscal 2001, and related to
asset impairments of $3.8 million, employee severance benefits of $1.1 million and $1.5 million of various costs relating to the final closure of the plant. We did not incur any restructuring or other charges in fiscal 2002.



Special Charges. Special charges for fiscal 2002
related to environmental costs of $21.0 million. Special charges for fiscal 2001 related to (1) environmental costs of $23.4 million, (2) a legal settlement during fiscal 2001 resulting in charges of $0.4 million and (3) costs to dismantle and
transport equipment from the Harrisburg plant to the Appleton plant and Roaring Spring mill of $0.5 million.



During the fourth quarter of 2002, we recorded an environmental expense of $21 million in response to the January 2003 issuance of the
Wisconsin Department of Natural Resources Record of Decision for the Lower Fox River PCB cleanup. AWA has agreed to indemnify us for the first $75 million and for all amounts over $100 million in liabilities relating to the Lower Fox River. This $21
million fourth quarter charge represents the discounted share of the portion of Lower Fox River costs for which Appleton will be responsible. This discounted share will accrete (i.e., increase) to $25 million by the end of 2005 to coincide with the
expiration of the interim restoration and remediation agreement entered into between Appleton and various government agencies in 2001 (see Note 19 of Notes to Consolidated Financial Statements). We anticipate that we will begin funding our $25
million share of the Lower Fox River liability sometime after 2008.



Operating Income. Operating income for fiscal 2002 was $89.7 million, a decrease of $13.6 million, or 13.2%, compared to fiscal 2001. Operating income as a percentage of net sales for fiscal 2002 was 10.0% as compared
to 10.8% of net sales for fiscal 2001. Coated solutions operating income for fiscal 2002 decreased $17.5 million compared to fiscal 2001 primarily due to the decline in carbonless roll volume in fiscal 2002 as compared to fiscal 2001. Technical
products operating income for fiscal 2002 decreased $1.0 million compared to fiscal 2001 due to volume increases experienced in 2002, which were more than offset by an increase in depreciation and amortization expenses due to the purchase price
allocation related to the acquisition of Appleton Papers.



Interest Expense. Interest expense for fiscal 2002 was $68.4 million, an increase of $32.3 million compared to $36.1 million for fiscal 2001 due to the issuance of long-term debt obligations associated with the acquisition of
Appleton Papers on November 9, 2001. As a result of our voluntary debt prepayments in 2002, we also amortized a larger share of the deferred debt expenses as compared to the scheduled loan terms. Non-cash deferred debt amortization expenses in
fiscal 2002 amounted to $9.6 million.



Debt
Extinguishment Expenses. During June 2002, a portion of our long-term debt obligations was refinanced with new debt carrying a reduced interest rate. As a result, we were required to write-off $11.8 million of deferred debt issuance costs
associated with the original debt. Refer to Liquidity and Capital Resources below for additional discussion of this refinancing. During the 2001 predecessor period, we recorded debt extinguishment expenses of $10.4 million as a result of
the early redemption of our 6.26% and 6.61% senior unsecured notes. The debt extinguishment expenses consisted primarily of a prepayment penalty and the write-off of non-cash deferred debt issuance costs.



Interest Income. Interest income for fiscal 2002 was
$1.0 million, a decrease of $8.2 million compared to $9.2 million for fiscal 2001. The decrease was due to the October 1, 2001 sale of a $125 million interest-bearing shareholder note we held from Arjo Wiggins SA, a French company ultimately owned
by AWA.



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Provision
for Income Taxes. In connection with the acquisition of Appleton Papers, Paperweight Development elected to be treated as a subchapter S corporation and for its eligible subsidiaries to be treated as qualified subchapter S subsidiaries for
federal and state income tax purposes. As a result of these elections, we expect to incur no future federal income tax liability and minimal state income tax liabilities. As a subchapter S corporation, Paperweight Development is subject to a
corporate-level tax under Section 1374 of the Internal Revenue Code known as the built-in gain tax. The built-in gain tax is a tax imposed on the gain inherent in assets as of the effective date of the S election if the gain is recognized within ten
years after the effective date of the S election. If we engage in any sale of a material portion of our assets in the future, we could be subject to a significant tax liability.



Loss from Discontinued Operations. In October 2001, we completed the transfer of one of our wholly
owned subsidiaries, Newton Falls, Inc., to an affiliated company of AWA. This entity was classified as a discontinued operation for fiscal 2001. Loss from discontinued operations, net of taxes, was $4.5 million for fiscal 2001 and primarily
consisted of asset impairments and closing costs associated with the permanent closure of the Newton Falls mill.



Net Income. Net income for fiscal 2002 was $10.1 million compared to $40.3 million for fiscal 2001, a decrease of $30.2 million
resulting primarily from an increase in interest expense and a reduction in operating income. Environmental expense of $21.0 million and $23.4 million was recorded for fiscal 2002 and fiscal 2001, respectively.



Comparison of Combined Fiscal 2001 and Fiscal 2000



Net Sales. Net sales for fiscal 2001 decreased $124.2
million, or 11.5%, compared to $1.08 billion for fiscal 2000. Coated solutions net sales were $754.6 million, a decrease of $110.5 million, or 12.8%, compared to fiscal 2000 due primarily to a total carbonless volume decline of 13%. Technical
products net sales decreased $12.4 million, or 6.7%, primarily due to a total volume reduction of 3,000 tons across a majority of our thermal product lines as a result of the slowing U.S. economy and a reduction in prices of some of our grades of
fax and point-of-sale paper in response to aggressive pricing by a foreigner competitor.



Gross Profit. Gross profit was $287.7 million for fiscal 2001, a decrease of $39.7 million, or 12.1%, compared to fiscal 2000. Gross profit margin was 30.1% for fiscal 2001 as compared to 30.3%
for fiscal 2000. In the second quarter of 2001, we completed the eighteen-month restructuring project that included the closing of our Harrisburg plant and relocation of strategic pieces of manufacturing equipment to our Appleton plant and Roaring
Spring mill. The first half of 2001 experienced approximately $15 million of the expected negative impact of start-up costs related to the equipment transferred from the Harrisburg plant. During the second half of 2001, we began to benefit from the
positive impact of the elimination of the Harrisburg cost structure as well as elimination of the start-up costs related to the transferred equipment.



Selling, General and Administrative. Selling, general and administrative expenses for fiscal 2001 were $153.8 million, a decrease
of $12.4 million, or 7.5%, compared to fiscal 2000. The decrease was primarily the result of a dedicated effort to reduce these expenses, the write-off of accounts receivable in the first quarter of fiscal 2000, lower distribution expenses related
to lower volumes in fiscal 2001 and fees received from Appleton Coated for information technology services we provided in fiscal 2001 and recorded as an offset to our information technology department expenses. Selling, general and administrative
expenses for fiscal 2001 included a charge of $6.9 million for management bonuses, incurred in the predecessor period, related to the acquisition of Appleton Papers.



Restructuring and Other Charges. During the third quarter of fiscal 1999, we announced plans to close
our Harrisburg plant in fiscal 2001. Restructuring and other charges associated with this plant closure, which was completed in fiscal 2001, approximated $6.4 million in fiscal 2001 compared to $7.8 million in fiscal 2000. Restructuring charges for
fiscal 2001 pertained to asset impairments of $3.8 million and employee severance benefits of $1.1 million and $1.5 million of various costs relating to the final closure of the plant. Restructuring charges for fiscal 2000 related primarily to
severance and benefits for identified employment terminations, which were implemented in fiscal 2001.



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Special
Charges. Special charges for fiscal 2001 pertained to (1) environmental costs of $23.4 million, (2) a legal settlement during fiscal 2001 resulting in charges of $0.4 million and (3) costs to dismantle and transport equipment from the Harrisburg
plant to the Appleton plant and Roaring Spring mill of $0.5 million. Special charges for fiscal 2000 pertained to (1) environmental costs of $3.2 million, (2) a legal settlement during fiscal 2000 resulting in charges of $3.6 million, (3) costs to
dismantle and transport equipment from the Harrisburg plant to the Appleton plant and Roaring Spring mill of $5.2 million and (4) the write-off of the notes receivable and equity investment in Paperhub.com, a proposed internet paper and supplies
purchasing business, of $6.5 million.



Operating Income. Operating income for fiscal 2001 was $103.2 million, a decrease of $31.6 million, or 23.5%, compared to fiscal 2000. Operating income as a percentage of net sales for fiscal 2001 was 10.8% as compared to
12.5% of net sales for fiscal 2000. Coated solutions operating income for fiscal 2001 decreased $38.1 million compared to fiscal 2000 primarily due to the environmental expense of $23.4 million and the decline in carbonless volume in fiscal of 2001
as compared to fiscal 2000. Technical products operating income for fiscal 2001 decreased $3.7 million compared to fiscal 2000 due to volume decreases experienced in 2001.



Interest Expense. Interest expense for fiscal 2001 was $36.1 million, a decrease of $7.1 million
compared to $43.2 million for fiscal 2000 due to the redemption of senior unsecured notes payable in November 2000.



Debt Extinguishment Expenses. We recorded debt extinguishment expenses of $10.4 million and $7.5 million during the 2001
predecessor period and fiscal 2000, respectively. These expenses were the result of the early redemption of senior unsecured notes payable. The losses consisted primarily of prepayment penalties and the write-off of deferred debt issuance costs.



Interest Income. Interest income for
fiscal 2001 was $9.2 million, a decrease of $4.6 million compared to $13.8 million for fiscal 2000. The decrease was due primarily to interest earned on tax refunds received in 2000 and to the October 1, 2001 sale of a $125 million interest-bearing
shareholder note we held from Arjo Wiggins SA, a French company ultimately owned by AWA, which resulted in lower interest income in fiscal 2001.



Provision for Income Taxes. In connection with the acquisition of Appleton Papers, Paperweight Development elected to be treated as
a subchapter S corporation and for its eligible subsidiaries to be treated as qualified subchapter S subsidiaries for federal and state income tax purposes. As a result of these elections, we expect to incur no future federal income tax liability
and minimal state income tax liability. The effective income tax rate for the 2001 predecessor period was 35.7% compared to 33.2% for fiscal 2000. The increase in the effective rate for these periods is primarily due to a tax benefit received in
fiscal 2000 associated with a favorable IRS audit.



Loss from Discontinued Operations. In October 2001, we completed the transfer of one of our wholly owned subsidiaries, Newton Falls, Inc., to an affiliated company of AWA. In November 2000, we also transferred two wholly owned
subsidiaries, Appleton Coated LLC and Appleton Leasing LLC, to an affiliated company of AWA. These three entities have been classified as discontinued operations for all periods presented. Loss from discontinued operations, net of taxes, was $4.5
million during fiscal 2001 compared to $13.1 million in fiscal 2000. Operating losses for discontinued operations approximated $6.9 million and $27.2 million in 2001 and 2000, respectively. Fiscal 2001 operating losses primarily consisted of asset
impairments and various closing costs associated with the permanent closure of the Newton Falls mill. Operating losses in fiscal 2000 primarily related to the operations of Appleton Coated LLC and environmental costs associated with the closure of
the Newton Falls mill.



Net Income. Net
income for fiscal 2001 decreased $12.8 million, or 24.1%, to $40.3 million, compared to $53.1 million for fiscal 2000. The lower operating income for fiscal 2001 was offset by reductions in the provision for income taxes and losses from discontinued
operations as compared to fiscal 2000.



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Liquidity and Capital
Resources



Predecessor Period



Prior to the acquisition of Appleton
Papers by Paperweight Development, we operated as an indirect, wholly owned subsidiary of AWA. This resulted in numerous intercompany transactions related to our investing and financing activities. Therefore, the following discussion regarding our
historical cash flows from operating, investing and financing activities is not representative of our cash flow and activities as a separate entity following the acquisition.



We historically financed our short-term liquidity needs with internally generated funds, working capital
lines of credit and loans from an affiliate of AWA.



Successor Period



As a result of the acquisition of Appleton Papers on November 9, 2001, we incurred significant debt requiring periodic interest and principal repayments. Requirements for working capital, capital expenditures, Project Venture,
pension fund contributions, periodic interest and debt principal payments, employee redemptions of redeemable common stock and acquisitions, if any, in fiscal 2003 will continue to be funded from operations supplemented with borrowings under the
revolving credit portion of our senior credit facility. We believe our capital resources and liquidity position at December 28, 2002 were adequate to meet projected needs.



In connection with the acquisition of Appleton Papers, Paperweight Development elected to be treated as a
subchapter S corporation and for its eligible subsidiaries to be treated as qualified subchapter S subsidiaries for federal and state income tax purposes. As a result of these elections, we expect to incur no future federal income tax liability and
minimal state income tax liability. This should also have a positive impact on our future liquidity and cash flows.



Our strategy for growth includes strengthening and expanding our presence in certain market segments and broadening our product offerings
through acquisitions and new product development. We have evaluated and will continue to evaluate opportunities to acquire other companies that will help us achieve our business strategies. As a result, we may engage in discussions, or, in some
cases, negotiations with prospective targets and may make future acquisitions. Any such acquisitions would be subject to the limitations contained in our debt instruments. Generally, we will not comment on such discussions or possible acquisitions
until a definitive agreement has been executed.



Cash Flows from Operating Activities. Net cash provided by operating activities of continuing operations for fiscal 2002 was $176.9 million. As required by the rules for purchase accounting, fixed assets and intangible assets
acquired in connection with the acquisition of Appleton Papers were recorded at fair value as of the date of the acquisition resulting in an increase in non-cash depreciation and amortization expense of $25.3 million for fiscal 2002. We also
incurred $7.3 million in non-cash employer matching contributions to the KSOP during fiscal 2002. A decrease in working capital for fiscal 2002 increased operating cash flows by $20.5 million. Decreases in inventories of $16.5 million and
receivables of $12.0 million were partially offset by a decrease in accounts payable and other accrued liabilities of $6.3 million. Inventories, that were strategically built in 2001 during the Harrisburg shutdown and movement of production
equipment to the Appleton plant and Roaring Spring mill facilities, were reduced throughout 2002. Accounts receivable decreased due to lower sales and a reduction in past due account balances. Accrued income tax liability increased by $18.0 million,
largely attributable to income tax refunds received during fiscal 2002, which relate to periods prior to the November 9, 2001 acquisition date. These refunds will be used to satisfy any additional tax liabilities arising from audits of prior
periods.



Net cash provided by operating
activities of continuing operations for fiscal 2001 was $130.7 million. A decrease in working capital for fiscal 2001 increased operating cash flows by $29.3 million. Accounts receivable decreased $34.7 million, largely due to a reduction in past
due account balances. Inventories decreased $20.5 million, primarily as a result of a next-day basestock inventory program initiated during the first quarter of fiscal 2001 and a partial reduction in safety stock that was in place while the
Harrisburg closure and transfer of equipment to Appleton plant and Roaring Spring mill was being completed during the first half of fiscal 2001. Accounts payable, other accrued liabilities and restructuring reserves decreased $25.8 million,
partially due to final severance payments and a reduction in accounts payable for capital expenditures upon the completion of the equipment transfer and reinstallation projects related to the Harrisburg plant closure during fiscal 2001.



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Net cash
provided by operating activities of continuing operations for fiscal 2000 was $111.8 million. An increase in working capital for fiscal 2000 decreased operating cash flows by $6.3 million. Year-end fiscal 2000 inventories declined by $5.3 million
compared to fiscal 1999, primarily due to customer pre-buying in response to an announced price increase effective January 2, 2001. Accounts receivable increased $13.6 million, primarily due to accelerated cash receipts from customers at the end of
fiscal 1999. Accounts payable, other accrued liabilities and restructuring reserves decreased $1.2 million, primarily due to reductions in accruals for customer rebates and employee bonuses compared to fiscal 1999.



Cash Flows from Investing Activities.During fiscal
2000 and fiscal 2001, we invested heavily in our facilities, including restructuring our manufacturing base and re-installing the equipment originally located at our Harrisburg plant. During fiscal 2002, fiscal 2001 and fiscal 2000, capital
expenditures were $32.4 million, $56.5 million and $81.1 million, respectively.



The senior credit facility does not permit us to make capital expenditures during any fiscal year in excess of the amount indicated:



|Fiscal Year                          |  | Amount
|------------------------------------ |  | ------
|2002                                 |  | $     
|2003                                 |  | $     
|2004 and each fiscal year thereafter |  | $     



The
indenture under which we issued the notes does not permit us to make capital expenditures during any fiscal year in excess of the amount indicated:



|Fiscal Year                          |  | Amount
|------------------------------------ |  | ------
|2002                                 |  | $     
|2003                                 |  | $     
|2004 and each fiscal year thereafter |  | $     



Under
the senior credit facility and the indenture, we may carry forward up to 50% of any unexpended amounts for capital expenditures to the next succeeding fiscal year. We may also make capital expenditures with the proceeds from sales of our assets.
Actual capital expenditures in fiscal 2002 were $32.4 million, which resulted in a capital carryforward of $13.8 million into fiscal 2003. Allowable capital expenditures in fiscal 2003, including the carryforward, amount to $63.8 million under the
senior credit facility and $78.8 million under the indenture. We project that our capital expenditures will be approximately $51.0 million in 2003, of which approximately $8 million will be used for capital expenditures relating to Project Venture,
our name for the installation of a new enterprise resource planning system consisting of a computer software system used for order entry, invoicing, procurement, financial reporting, shipment planning and distribution and manufacturing operations.
We anticipate that our total capital expenditures for Project Venture will be approximately $22.6 million, of which $12.6 million was spent in fiscal 2002. We believe that the limitations described above will permit us to carry out our planned
capital expenditures during 2003 and each fiscal year thereafter.



Net cash used by investing activities of continuing operations was $32.4 million for fiscal 2002. Of this amount, $11.3 million was expended on capital projects approved prior to the end of fiscal 2001. The remaining $21.1
million was expended on capital projects approved in 2002.



Net cash used by investing activities of continuing operations was $321.5 million for the 2001 successor period. Of this amount, $6.7 million related to various machinery and equipment capital expenditures. At the close of business
on November 9, 2001, Paperweight Development Corp. completed the acquisition of Appleton Papers Inc. for a total cash purchase price of $314.8 million.



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Net cash used
by investing activities of continuing operations was $40.8 million for the 2001 predecessor period. Of this amount, $49.8 million related to various machinery and equipment capital expenditures, which was partially offset by $9.0 million of proceeds
from the sale of the Harrisburg facility.



Net
cash used by investing activities of continuing operations was $157.1 million in fiscal 2000. Of this amount, $81.1 million pertained to various machinery and equipment capital expenditures. In addition, $46.0 million was used to purchase the
remaining 20% minority interest share in an AWA affiliate. In fiscal 2000, we also invested $30.1 million in equipment that was previously under a capital lease.



Cash Flows from Financing Activities. On November 9, 2001, we entered into a $340 million senior
credit facility. The senior credit facility was comprised of the following: a four-year credit facility of up to $75 million for revolving loans, including letters of credit; a four-year term loan of $115 million; and a five-year term loan of $150
million. The senior credit facility is unconditionally and jointly and severally guaranteed by Paperweight Development and WTA Inc., one of our wholly owned subsidiaries.



Borrowings under the revolving credit facility and the $115 million term loan bore interest at LIBOR plus
3.5% per annum through May 8, 2002. On May 9, 2002, our defined leverage ratio was calculated at less than 2.50 to 1.00 but greater than or equal to 2.00 to 1.00, and, as such, the interest rate was reduced to LIBOR plus 3.0% per annum. On November
18, 2002, our defined leverage ratio was calculated at less than 2.00 to 1.00 but greater than or equal to 1.50 to 1.00 and the interest rate was reduced to LIBOR plus 2.5% per annum.



Through June 5, 2002, the interest rate on borrowings under the $150 million term loan was LIBOR plus 4.25%
per annum, subject to a minimum LIBOR rate of 2.5% per annum. On June 6, 2002, we refinanced the $112.4 million remaining principal amount and replaced it with similar debt carrying a reduced interest rate of LIBOR plus 3.25% per annum, not subject
to a minimum LIBOR rate. As a result of this refinancing, $11.8 million of deferred debt issuance costs were written off in a non-cash transaction as debt extinguishment expenses. The terms of this refinanced debt also allowed us to repurchase and
retire up to $50.0 million of aggregate principal amount of our 12.5% Series B Senior Subordinated Notes due 2008. In aggregate, actual principal of $50,042,000 was purchased and retired during fiscal 2002. This was $42,000 higher than permitted
under the senior credit facility terms agreed to as part of the June 6, 2002 refinancing. This purchase resulted in a technical default. However, we obtained a waiver from our senior lenders related to this technical default.



On December 14, 2001, we issued $250 million aggregate
principal amount of 12.5% Series A Senior Subordinated Notes due 2008, which were used to redeem in full, at par, the senior subordinated note due 2008 held by AWA as described in Note 12 of our fiscal 2002 Notes to Consolidated Financial
Statements. On June 12, 2002, we filed a Registration Statement on Form S-4 to register an offer with the Securities and Exchange Commission to exchange up to $250 million of our registered 12.5% Series B Senior Subordinated Notes due 2008 for any
and all of our outstanding 12.5% Series A Senior Subordinated Notes due 2008. The exchange offer closed on July 12, 2002. The entire outstanding principal balance of Series A notes was exchanged for Series B notes. During 2002, we paid a premium of
$1.8 million to purchase and retire $50.0 million in aggregate principal amount of our Series B notes.



The Series B notes are unsecured obligations of Appleton Papers, ranking subordinate in right of payment to all of our senior debt and are
unconditionally and jointly and severally guaranteed by Paperweight Development and WTA Inc. Interest on the notes is payable semi-annually in June and December of each year. Prior to December 15, 2004, and after 100% application toward repayment of
the senior credit facility, we may use proceeds of certain sales of our equity to redeem up to 35% of the original principal amount of the notes at a redemption price of 112.5% of their principal amount, plus accrued and unpaid interest and
liquidated damages, if any, to the redemption date.



Except as described in the preceding paragraphs, the notes will not be redeemable at our option prior to December 15, 2005. On or after December 15, 2005, we may redeem during the twelve-month period beginning on December 15 of the
applicable year all or part of the notes at the redemption price of 106.25% in 2005, 103.125% in 2006, and 100% in 2007 and thereafter, plus accrued and unpaid interest and liquidated damages, if any.



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Both the
senior credit facility and the notes contain affirmative and negative covenants. In general, the covenants contained in the senior credit facility are more restrictive than those of the notes. Among other restrictions, the covenants contained in the
senior credit facility require us to meet specified financial tests, including various debt and cash flow ratios, which become more restrictive over the term of the debt.



Paperweight Development incurred approximately $2.1 million of costs in conjunction with the issuance of
redeemable common stock to the KSOP. The appropriate netting of these costs with the $106.8 million of proceeds received from the KSOP resulted in a technical default under our minimum net worth covenant at the date of the acquisition of Appleton
Papers and during a limited portion of the successor period. In conjunction with the terms of the senior credit facility, we obtained a waiver from our senior lenders related to this technical default and we were in compliance with this covenant as
of December 29, 2001.



The senior credit facility
and notes also contain covenants, which, among other things, restrict our ability and the ability of our other guarantors of the senior credit facility and notes to incur liens; engage in transactions with affiliates; incur additional indebtedness;
declare dividends or redeem or repurchase capital stock; make loans and investments; engage in mergers, acquisitions, consolidations and asset sales; acquire assets, stock or debt securities of any person; make capital expenditures; terminate the S
corporation status of Paperweight Development or the qualified subchapter S subsidiary status of its subsidiaries eligible to elect such status; amend our debt instruments and amend other agreements related to the acquisition.



Net cash used by financing activities of continuing operations
was $155.8 million in fiscal 2002. We used cash generated by operations to repay $113.7 million of term loans. Of this amount, $18.0 million was for mandatory principal repayments, while the remaining $95.7 million represented voluntary principal
repayments, which we made in order to reduce future interest expense. In addition, we purchased and retired $50.0 million of our Series B notes during fiscal 2002.



During fiscal 2002, we received net proceeds of $5.9 million from the sale of redeemable common stock. The
ESOP trustee purchased these shares with pre-tax payroll deferrals made by employees from November 10, 2001 through June 30, 2002. Employees eligible to begin diversification redeemed approximately $0.3 million of Paperweight Development redeemable
common stock.



Net cash provided by financing
activities of continuing operations was $327.2 million for the 2001 successor period. Of this amount, $484.5 million represented the net proceeds from the issuance of long-term debt, which was used to finance the acquisition of Appleton Papers and
for the repayment of the $250 million senior subordinated note due 2008 held by AWA. Proceeds from the issuance of Paperweight Development redeemable common stock of $106.8 million, or $104.7 million net of stock issuance costs, were also used to
finance the acquisition of Appleton Papers. Finally, $7.4 million was paid to AWA related to the net proceeds from the sale of the Harrisburg plant. Net cash used by financing activities of continuing operations was $21.5 million for the 2001
predecessor period. During this period, we used cash generated by operations and loan proceeds of $159.1 million from an AWA affiliate to repay $150.0 million of external debt and $45.7 million of loans from affiliated companies.



Net cash provided by financing activities of continuing
operations was $65.6 million in fiscal 2000. We received loan proceeds of $189.6 million from an AWA affiliate, which was used, in part, to repay $133.4 million in external and intercompany debt.



Disclosure About Critical Accounting Policies



We prepare our consolidated financial statements in
conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). This requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ
from those estimates. Our accounting policies are disclosed in our notes to the consolidated financial statements. The following policies are considered by us to be the most critical in understanding the judgments that are involved in the
preparation of the consolidated financial statements and the uncertainties that could impact our results of operations, financial condition and cash flows. Management has discussed the development, selection and disclosure of these estimates and
assumptions with the audit committee and board of directors.



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Environmental. Accruals for losses associated with environmental obligations are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing
legislation, regulatory action and remediation technologies. Accruals are discounted to reflect the time value of money if the aggregate amount of the liability and the amount and timing of cash payments are fixed or reliably determinable. The
process of estimating environmental cleanup liabilities is complex and dependent primarily on the nature and extent of historical information and physical data relating to a contaminated site, the complexity of the site, the uncertainty as to what
remedy and technology will be required, the outcome of discussions with regulatory agencies and, at multi-party sites, other PRPs. In future periods, new laws or regulations, advances in cleanup technologies and additional information about the
ultimate cleanup remedy that is used could significantly change our estimates. Accordingly, we cannot give any assurances that our eventual environmental cleanup costs and liabilities will not exceed the amount of our current reserve.



Redeemable Common Stock. Redeemable equity securities
are required to be accreted (i.e., increased) so that the amount on the balance sheet reflects the estimated amount redeemable at the earliest redemption date based upon the redemption value at each period end. We accreted the redeemable common
stock by $18.2 million for the year ended December 28, 2002. Redeemable common stock is being accreted up to the earliest redemption date based upon our estimated fair market value of the redeemable common stock as of December 28, 2002. We estimate
that the earliest redemption date occurs when the participant reaches 55 years of age and has 10 years of participation in the KSOP. At that point, the participant has the right to make diversification elections for a period of six years. Based upon
our estimated fair value of the redeemable common stock, an ultimate redemption amount of approximately $254 million has been determined. The accretion is being charged to retained earnings since redeemable common stock is the only class of shares
outstanding.



Restructuring. Charges
related to involuntary employee termination benefits are recognized in the period management approves the plan of termination and all of the following conditions exist: (1) prior to the date of the financial statements, management having the
appropriate level of authority to involuntarily terminate employees approves and commits us to the plan of termination and establishes the benefits that current employees will receive upon termination; (2) prior to the date of the financial
statements, the benefit arrangement is communicated to employees in sufficient detail to enable employees to determine the type and amount of benefits they will receive if they are terminated; (3) the plan of termination specifically identifies the
number of employees to be terminated, their job classifications or functions, and their locations; and (4) the period of time to complete the plan of termination indicates that significant changes to the plan of termination are not likely. Other
costs to exit a business activity are recognized when management approves the plan to exit an activity; the cost is incremental to other costs incurred by us; the cost will be incurred as a direct result of the exit plan or the cost represents
amounts to be incurred by us under a contractual obligation that existed prior to the commitment date and will either continue after the exit plan is completed with no economic benefit to us or be a penalty incurred by us to cancel the contractual
obligation. The ultimate costs associated with these termination and exit activities may differ from original estimates.



Income Taxes. In conjunction with the acquisition of Appleton Papers, Paperweight Development elected to be treated as a subchapter
S corporation and elected to treat its eligible subsidiaries, including Appleton Papers, as qualified subchapter S subsidiaries for federal and state income tax purposes. As a result of these elections, we do not expect to incur any future federal
income tax liability and we expect to incur minimal state income tax liabilities. Our current income tax liability consists of non-indemnified liabilities for LIFO recapture taxes and our 50% share for adverse tax audits for amounts between $5
million and $10 million related to various C corporation tax years prior to the closing of the acquisition, currently under review by the IRS. All other amounts related to tax exposures for C corporation tax years are fully indemnified by AWA;
however, any adverse tax audits that have been indemnified by AWA must first be funded with tax refunds we have received.



Inventories. We value inventories primarily at the lower of cost or market. Cost is determined using the last-in, first-out, or
LIFO, method for finished goods, work in process and raw materials. Stores and spare parts inventory is valued at average cost and other inventory is valued using the first-in, first-out, or FIFO, method. Valuing inventories at the lower of cost or
market requires the use of estimates and judgment relating to excess and obsolete inventory. Any actions taken by our customers that could impact the value of our inventory are considered when determining the lower of cost or market valuations.



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Accounts
Receivable. We value accounts receivable net of an allowance for uncollectible accounts. This allowance is based on our estimate of the portion of the receivables that will not be collected in the future. However, the ultimate collectibility of
a receivable is dependent upon the financial condition of an individual customer, which could change rapidly and without advance warning.



Intangible Assets.We have accounted for the acquisition of Appleton Papers under the guidance of SFAS No. 142,
Goodwill and Other Intangible Assets. Under SFAS No. 142, indefinite-lived intangible assets are not amortized, however, they must be tested for impairment at least annually. Amortization is recorded for other intangible assets with
definite lives. To the extent that indefinite-lived and other intangible assets become impaired, we would be required to reflect impairment adjustments in our financial statements.



Revenue Recognition. Sales are recognized when there is evidence of a sales agreement; the delivery of
goods has occurred; the sales price is fixed or determinable and collectibility is reasonably assured. Generally these criteria are met upon shipment of product to customers and transfer of title under standard commercial terms. Accrued discounts,
sales incentives and returns are recorded as sales reductions in the period in which the related revenue is recognized and are estimated by us based upon historical experience and current sales agreements.



Employee Benefit Plans. We provide a range of benefits
to our employees and retired employees, including pensions and postretirement healthcare. The determination of our obligation and expense for pension and other postretirement benefits, such as retiree healthcare and life insurance, is dependent on
our selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, the discount rate, expected long-term rate of return on plan assets and rates of increase in compensation and healthcare
costs. The expected long-term rate of return for pension assets is based on historical returns for the different asset classes held by our plan and our asset allocation. The discount rate is based on market rates for long-term, high-quality
corporate bonds. In accordance with accounting principles generally accepted in the United States of America, actual results that differ from our assumptions are accumulated and amortized over future periods and, therefore, generally affect our
recognized expense and recorded obligation in such future periods.We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when appropriate. Based on information
provided by our independent actuaries and other relevant sources, we believe that the assumptions used are reasonable. Significant differences in our actual experience or significant changes in our assumptions may materially affect our pension and
other postretirement obligations and our future expense.



Additional disclosures concerning liquidity and capital resources, including off-balance sheet arrangements.



Liquidity Disclosures.As disclosed above, we entered into a $340 million senior credit facility and issued $250 million in
aggregate principal amount of senior subordinated notes in conjunction with the acquisition of Appleton Papers. The senior credit facility and the indenture require us to meet affirmative and negative covenants. In general, the covenants contained
in the senior credit facility are more restrictive than those of the indenture. Among other restrictions, the covenants contained within the senior credit facility require us to meet specified financial tests, including various debt and cash flow
ratios, which become more restrictive over the term of the loans. If we default on any of these provisions, it could require the repayment of the amounts outstanding, which were approximately $360.0 million as of December 28, 2002. Based on
managements expectations for 2003, we anticipate that we will be able to comply with all covenants and other requirements set forth in the senior credit facility and the indenture.



We are not aware of circumstances that could reasonably be expected to impair our ability to continue to
engage in our operations in the future.



We
believe that the following factors could reasonably be given significant weight in the determination of our credit rating or could otherwise adversely affect our ability to raise short-term and long-term financing:



| |  |  | our highly leveraged balance sheet;
| | - |  | -----------------------------------



| |  |  | the declining market for our carbonless paper;
| | - |  | ----------------------------------------------



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| |  |  | an actual rate of decline in the market for our carbonless paper that may be greater than the rate projected by us;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | our customer concentration; and
| | - |  | -------------------------------



| |  |  | our reliance on a small number of suppliers for a significant portion of our raw materials.
| | - |  | -------------------------------------------------------------------------------------------



Guarantees of Debt or Other Commitments to Third Parties.We do not have any significant guarantees of third party debt or other commitments to third parties.



Written Options on Non-Financial Assets (for example, real estate puts). We do not have any written options on non-financial
assets.



Off-Balance Sheet Arrangements.We had no arrangements or other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the availability of or requirements for capital resources at December 28, 2002.



Disclosures about Contractual Obligations and
Commercial Commitments. A summary of our significant contractual obligations and other commercial commitments as of December 28, 2002 are as follows:



|                                      |  | Payment Due by Period
|------------------------------------- |  | ---------------------
|Contractual Obligations               |  | Total                
|                                      |  | (in thousands)       
|Long-Term Debt                        |  | $                    
|Capital Lease Obligations             |  |                      
|Operating Leases                      |  |                      
|Unconditional Purchase Obligations(1) |  |                      
|Other Long-Term Obligations (2)       |  |                      
|                                      |  |                      
|Total Contractual Cash Obligations    |  | $                    
|                                      |  |                      



|(1) |  | Represents contractual arrangements for the purchase of raw materials with various suppliers.
|--- |  | ---------------------------------------------------------------------------------------------

|(2) |  | Represents obligations for pension, postretirement health benefits, deferred compensation payments and our share of the Lower Fox River liability.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------



In addition to the contractual
obligations listed above, it will also be necessary for us to use cash to satisfy our repurchase obligations related to the ESOP. The following table outlines the potential repurchase liability for the next five years based on managements
assumptions, developed in conjunction with the ESOP administrator, related to participant death, retirement, diversification requests, employment termination and changes in share valuation.



|Other Commitments          |       | Estimate of Potential Commitment per Period
|-------------------------- | ----- | -------------------------------------------
|                           | Total |                                            
|                           |       | (in thousands)                             
|Share Repurchase Liability |       | $                                          



We
expect that a portion of this share repurchase liability will be funded from new deferrals from employees into the Company Stock Fund. Employees may defer, on a pre-tax basis, a percentage of their pay in an amount equal to between 2 percent and 50
percent of their annual compensation. Participants have the option of directing their deferrals to the Vanguard Fund, the Company Stock Fund, or a combination of both. We believe that new deferrals from employees into the Company Stock Fund for the
five-year period presented above will aggregate approximately $40 million, which would reduce the repurchase liability set forth in the table above.



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Deferrals
directed to the Company Stock Fund accumulate in a short-term interest bearing account within the ESOP trust until the next valuation date, June 30th or December 31st. At that time, these deferrals, and the interest earned on these amounts, are used
to purchase shares based upon the price of a share of Paperweight Development common stock on the valuation date preceding or following the date on which the participant made the deferrals, whichever is lower.



Disclosures About Certain Trading Activities that Include
Non-Exchange Traded Contracts Accounted for at Fair Value.We do not engage in any trading activities that include non-exchange-traded contracts accounted for at fair value.



Disclosures About Effects of Transactions with Related and Certain Other Parties. We disclose the
effects of transactions with related parties in Notes 5 and 7 of the Notes to Consolidated Financial Statements. There were no other significant transactions with related and certain other parties.



New Accounting Pronouncements



In June 2001, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143, which is effective for fiscal years beginning after June 15, 2002, requires
entities to record the fair value of a legal liability for an asset retirement obligation in the period in which it is incurred. When the liability is recorded, the entity capitalizes the cost of the liability by increasing the carrying amount of
the related long-lived asset. Over time, the liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss. SFAS No. 143 will be effective for us in the first quarter of fiscal 2003 and is not expected to have a material effect on our financial position or results of operations.



In August 2001, the FASB issued SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, which supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of
Accounting Principles Board (APB) Opinion No. 30, Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and is effective for us in fiscal 2002. The adoption of this statement did not have a material impact on our financial
position, results of operations or cash flows.



In April 2002, SFAS No. 145, Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections was issued. This statement rescinds SFAS No. 4, Reporting Gains and Losses
from Extinguishment of Debt, and an amendment of the SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This statement also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor
Carriers, and amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The
provisions of this statement were effective for us for all transactions consummated after May 15, 2002. Pursuant to this pronouncement, we recorded debt extinguishment expenses of $11.8 million as part of other expenses as a result of refinancing a
portion of the senior credit facility during the second quarter of 2002.



We adopted SFAS No. 142, Goodwill and Other Intangible Assets, in the first quarter of fiscal 2002. SFAS No. 142 required that intangible assets with indefinite useful lives not be amortized. Instead, in
accordance with the provisions of SFAS No. 142, these assets will be tested for impairment annually, or on an interim basis when events or changes in circumstances warrant. Under the transitional provisions of SFAS No.142, we tested intangible
assets with indefinite useful lives for impairment as of December 30, 2001 pursuant to the method prescribed by SFAS No. 142. The testing determined that the fair market value of the indefinite-lived assets



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exceeded their carrying value. As such, the impairment provisions of the statement currently do not have
an impact on our financial position or results of operations.



In June 2002, the FASB issued SFAS No. 146, Accounting for Exit or Disposal Activities. SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with
exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the Emerging Issues Task Force (EITF) has set forth in EITF Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 will be effective for exit or disposal activities that are initiated after December 31, 2002. Early
application is encouraged. We anticipate that this statement, upon adoption, will not have a significant impact on our financial position or results of operations.



In November 2002, the FASB issued FASB Interpretation No. (FIN) 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it
assumes under that guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued. The Interpretations provision for initial recognition and measurement should be applied on a prospective basis to guarantees
issued or modified after December 31, 2002. We will apply the recognition provisions of FIN 45 prospectively to guarantees issued after December 28, 2002, and anticipate that this interpretation, upon adoption, will not have a significant impact on
our financial position or results of operations.



Item 7A.
Quantitative and Qualitative Disclosures About Market Risk



We are exposed to market risk from changes in interest rates and commodity prices. To reduce these risks, we selectively use financial instruments and other proactive risk management techniques.



Interest Rate Risk. We are exposed to
interest rate volatility with regard to our existing senior credit facility. Primary exposure includes movements in the U.S. prime rate and London Interbank Offer Rate, or LIBOR. Borrowings under the senior credit facility bear interest at LIBOR
plus a spread.



In February 2002, we entered into
an interest rate protection cap under which LIBOR is capped at 6% plus the spread, for a cost of $0.2 million. The rate protection is for two years and covers as of December 28, 2002, over 60% of our borrowings under the  senior credit
facility. The amount of principal protected declines in conjunction with the schedule of mandatory principal repayments. We believe a shift in interest rates will not have a material effect on our consolidated financial position, statement of
operations or cash flows. A one-percent change in LIBOR would have an impact of $1.3 million on fiscal 2003 financial results for the borrowings under the senior credit facility.



Commodity Prices. We are subject to the effects of changing raw material costs caused by movements in
underlying commodity prices. We are exposed to fluctuating market prices for commodities, including pulp, chemicals and basestock. We have established programs to manage commodity prices through effective negotiations with suppliers. As listed
within our contractual obligations, we enter into contracts with our vendors to lock in commodity prices at various times and for various periods to limit our near-term exposure to fluctuations in raw material prices.



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SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS



This
report contains forward-looking statements. The words will, believes, anticipates, intends, estimates, expects, projects, plans or similar expressions
are intended to identify forward-looking statements. All statements in this report other than statements of historical fact, including statements which address our strategy, future operations, future financial position, estimated revenues, projected
costs, prospects, plans and objectives of management and events or developments that we expect or anticipate will occur, are forward-looking statements. All forward-looking statements speak only as of the date on which they are made. They rely on a
number of assumptions concerning future events and are subject to a number of risks and uncertainties, many of which are outside our control, that could cause actual results to differ materially from such statements. These risks and uncertainties
include, but are not limited to, the factors listed under Risk Factors below. We disclaim any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.



RISK FACTORS



We are subject to substantial costs and potential liabilities relating
to environmental regulation and litigation.



We are subject to substantial regulation by various federal, state and local authorities concerned with the impact of the environment on human health, the limitation and control of emissions and discharges into the air, ground and
waters, the quality of ambient air and bodies of water and the handling, use and disposal of specified substances. Financial responsibility for the cleanup or other remediation of contaminated property or for natural resource damages can extend to
previously owned or used properties, waterways and properties owned by unrelated companies or individuals, as well as properties currently owned and used by us regardless of whether the contamination is attributable entirely to prior owners. As
described in the following risk factor, we have been identified as a potentially responsible party for remediation and alleged natural resource damages related to the Lower Fox River and Green Bay system, which we refer to as the Lower Fox River. In
addition, we make capital expenditures and incur operating expenses for cleanup obligations and other environmental matters arising from our daily operations.



Including the Lower Fox River, we have approximately $94.5 million of accrued liabilities as of December 28, 2002 for estimated or
anticipated liabilities and legal and consulting costs relating to environmental matters arising from past operations. We also have approximately $73.5 million of indemnification receivables from our former parent company, AWA, as of December 28,
2002. While the accrued liabilities reflect our current estimate of the cost of these environmental matters, the amount that we have accrued may be inadequate. In addition, we may be named as a potentially responsible party at other sites in the
future and the costs associated with such future sites may be material. We expect environmental laws and regulations and the interpretation and enforcement of those laws and regulations to become increasingly stringent and to further limit emission
and discharge levels and to increase the likelihood and cost of environmental cleanups and related costs. All of these factors are likely to increase our operating expenses, require continuing capital expenditures and adversely affect the operating
flexibility of our manufacturing operations and may require indeterminable and significant additional expenditures in connection with such compliance.



We have been named as a potentially responsible party related to the Lower Fox River.



We have been named by the United States Environmental
Protection Agency, or EPA, as a potentially responsible party, or PRP, under the Comprehensive Environmental Response Compensation and Liability Act. We have been named a PRP because of discharges of polychlorinated biphenyls, or PCBs,
into the Lower Fox River from our Appleton Plant in the 1950s, 1960s and 1970s and because of discharges from the Appleton Coated paper mill in Combined Locks, Wisconsin, which we owned from 1978 to 2000. We could be liable for a significant



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portion of the costs of remediating the PCBs that remain in the Lower Fox River. These costs could be very
large. In October 2001, the DNR and EPA released a report in which they estimated total remediation costs, which we would share with other PRPs, to be $308 million. In a December 2002 update to its estimates, the DNR estimated the total remediation
costs to be $333 million over a 7 to 18 year period. In January 2003, the DNR and EPA issued a Record of Decision (ROD) on the first two, upstream segments of the river that provides for a combination of dredging and monitored natural recovery.
In addition to remediation, various government agencies are also asserting that we and the other PRPs are liable for natural resource damages caused by the PCBs. In October 2000, the U.S. Fish & Wildlife Service estimated that total natural
resource damages would be in a range between $176 million to $333 million. At this time, we cannot precisely estimate our total liability for the Lower Fox River because we do not know how much the remedial actions and natural resource damages may
cost or how large our share of those costs will be. Our liability could be substantial. Because the ROD greatly reduces the uncertainty about the remedy that will be selected, we recorded an additional $80.8 million environmental liability for
the Lower Fox River, before indemnification by our former parent. Although we believe our recorded environmental liability reflects a reasonable estimate of our liabilities associated with the Lower Fox River based on the ROD, the actual amount of
liabilities associated with the Lower Fox River could prove to be significantly larger than our recorded environmental liability. The liabilities associated with the Lower Fox River are discussed in greater detail under the heading Item 1.
BusinessEnvironmental MattersLower Fox River.



Our former parent, AWA, may fail to comply with its indemnification obligations related to the acquisition of our company.



Pursuant to the purchase agreement relating to the acquisition of our company, AWA and two of its affiliates have agreed to indemnify us
for certain losses resulting from:



| |  |  | inaccuracies in the representations and warranties made by AWA and its affiliates;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | the breach or nonperformance of AWAs or its affiliates covenants and other agreements;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | liabilities related to the businesses of Newton Falls, Inc., Appleton Coated LLC, Appleton Recycled Fibers, Inc., Appleton Capital Inc., Appleton Leasing LLC, Arjo
Wiggins Investments Inc., Paperhub.com, Inc. and several other of our former subsidiaries;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ownership of the real property on which the Harrisburg plant is located and environmental matters at this location prior to our sale of the Harrisburg plant to a
third party; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | other designated liabilities.
| | - |  | -----------------------------



AWA has also, subject to certain limitations, agreed to indemnify us for specified environmental liabilities relating to the contamination of the Lower
Fox River. In addition, AWA has agreed to indemnify us against certain taxes, including taxes we may be required to pay in respect of periods prior to the closing of the acquisition. AWAs indemnification obligations are discussed in greater
detail under the heading Item 1. BusinessEnvironmental MattersLower Fox RiverAWA Indemnification.



If the potential matters for which we will receive indemnification from AWA and its affiliates result in significant liabilities for us,
and for any reason AWA and/or its affiliates are unable or unwilling to honor these indemnification obligations, we could be required to pay for these liabilities ourselves, which could have a material adverse effect on our cash flow, our ability to
fund or expand our operations and our ability to repay our existing and future indebtedness.



We incurred a significant amount of debt to complete the acquisition and, as a result, we are operating as a highly leveraged company.



To complete our acquisition, it was necessary for us to incur
a substantial amount of indebtedness. Our consolidated operating company debt and deferred payment obligation was approximately $521 million at December 28, 2002.





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This large
amount of indebtedness could:



| |  |  | make it more difficult for us to satisfy our obligations with respect to the senior credit facility and the Series B senior subordinated notes;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to
fund working capital, capital expenditures, research and development efforts and other general corporate purposes;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions and other general corporate activities;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | make it more difficult for us to satisfy our obligations to our creditors and, if we fail to comply with the requirements of the indebtedness, could result in an
event of default under the agreements related to our indebtedness;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit our ability to successfully withstand a downturn in our business or the economy generally; and
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | place us at a competitive disadvantage against other less leveraged competitors.
| | - |  | --------------------------------------------------------------------------------



Furthermore, although our ability, Paperweight Developments ability and the ability of substantially all of our
subsidiaries to borrow money is restricted by the terms of the senior credit facility, the indenture and the deferred payment obligation to one of AWAs affiliates, it may be possible for us and our guarantors to incur even more debt and, if we
and our guarantors were to do so, these risks could intensify.



Our ability to service our debt is dependent on our future operating results and we cannot be sure that we will be able to meet our debt obligations as they come due.



Our ability to meet our payment obligations and to comply
with the financial covenants contained in the agreements relating to our indebtedness is subject to a variety of factors, including changes in:



| |  |  | demand for and selling prices of our products;
| | - |  | ----------------------------------------------



| |  |  | competition;
| | - |  | ------------



| |  |  | costs of raw materials;
| | - |  | -----------------------



| |  |  | the decline rate in sales of carbonless paper products;
| | - |  | -------------------------------------------------------



| |  |  | interest rate levels;
| | - |  | ---------------------



| |  |  | our status as a qualified subchapter S subsidiary;
| | - |  | --------------------------------------------------



| |  |  | environmental regulations; and
| | - |  | ------------------------------



| |  |  | general economic conditions.
| | - |  | ----------------------------



We may not be able to generate sufficient cash flows to meet our payment obligations under the agreements relating to our indebtedness. If we are unable
to generate sufficient cash flow or otherwise obtain funds necessary to make the required payments on our indebtedness, then we may be required to refinance our indebtedness. We may not be able to refinance our indebtedness on terms that are
acceptable to us or at all. In the absence of a refinancing, our lenders would be able to accelerate the maturity of our indebtedness, which could cause us to default under our other indebtedness, dispose of assets or declare bankruptcy.



Compliance with the covenants relating to our indebtedness
may limit our operating flexibility.



The agreements related to our indebtedness, among other things, prohibit or restrict our ability to:



| |  |  | pay dividends on or purchase stock;
| | - |  | -----------------------------------



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| |  |  | repay subordinated indebtedness;
| | - |  | --------------------------------



| |  |  | make investments;
| | - |  | -----------------



| |  |  | acquire other companies;
| | - |  | ------------------------



| |  |  | borrow additional money;
| | - |  | ------------------------



| |  |  | use assets as security in other transactions;
| | - |  | ---------------------------------------------



| |  |  | sell assets or merge with or into other companies;
| | - |  | --------------------------------------------------



| |  |  | make capital expenditures;
| | - |  | --------------------------



| |  |  | enter into sale and leaseback transactions;
| | - |  | -------------------------------------------



| |  |  | sell equity interests in our subsidiaries;
| | - |  | ------------------------------------------



| |  |  | amend particular agreements relating to our transaction with AWA and the ESOP;
| | - |  | ------------------------------------------------------------------------------



| |  |  | engage in new lines of business; and
| | - |  | ------------------------------------



| |  |  | take, or fail to take, any actions that would cause us to lose our S corporation status.
| | - |  | ----------------------------------------------------------------------------------------



These limitations, together with our highly leveraged position, could limit our ability to finance our
operations with debt or equity in the future. In addition, these restrictions and our leveraged position may restrict our ability to respond to competitive market conditions, to make capital expenditures beyond those permitted in the agreements
relating to the indebtedness or to take advantage of other business opportunities, including making acquisitions. This loss of operating flexibility may have a material adverse affect on our ability to achieve our financial objectives or our ability
to sustain our current levels of revenue, earnings and cash flow.



The long-term economic and political effects of terrorism and hostilities with Iraq could negatively affect the U.S. economy and our financial condition.



On September 11, 2001, New York City and Washington D.C. suffered serious terrorist attacks and there is the
risk that the United States may suffer additional attacks in the future. Furthermore, tensions between the United States and Iraq have recently escalated and may lead to war. The ultimate cost associated with terrorism and a war with Iraq may place
significant burdens on the United States economy as a whole. The potential for future terrorist attacks, the national and international responses to terrorist attacks, possible war with Iraq and other acts of war or hostility have created many
economic and political uncertainties. These events could adversely affect our business and operating results in other ways that presently cannot be predicted. If these events cause an overall economic decline, the number of commercial transactions
in which our products are used may substantially decline, which could have a material adverse effect on our revenues, earnings and cash flow.



The market for the primary product in our coated solutions business, carbonless paper, may decline more rapidly than we anticipate.



Our coated solutions business, of which
the primary product is carbonless paper, currently represents our primary business and accounted for 80% of our net sales in fiscal 2000, 79% of our net sales in fiscal 2001 and 77% of our net sales in fiscal 2002. Our total sales volume of
carbonless paper products declined 8.2% from fiscal 1999 to fiscal 2000, 12.9% from fiscal 2000 to fiscal 2001 and 7.9% from fiscal 2001 to fiscal 2002. We believe the U.S. carbonless market is declining as users switch to alternative modes of
communication and technologies that do not use multipart business forms. We assume that a decline in our sales volume of carbonless paper products will continue at approximately 8% compounded annually for the next five years. If the decline in our
sales of carbonless paper products accelerates, or if we are unable to maintain our share or the prices of these products, then our operating efficiency and cash flow may be materially adversely affected.



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Declining general
economic conditions could adversely affect us and our customers.



End users for our products come from a broad cross section of the economy and may be exposed in varying degrees to general declines in economic conditions. If there is a continuing and sustained decline in general economic
conditions in the markets in which we and our customers operate and a commensurate decline in the number of commercial transactions in which our products are used, our customers could experience a decrease in demand for their products and services,
which would result in lower sales of our products, especially our carbonless and thermal products used in retail transactions. If we experience prolonged decreases in demand for our products as a result of sustained declines in economic conditions,
our earnings and cash flow may be materially adversely affected.



We may be unable to develop and introduce new and enhanced products.



Our success will depend in large part on our ability to use our existing technical and manufacturing capabilities and knowledge in the
development and introduction of new value-added products targeted at new markets and customers. If we are unable to utilize our capabilities, or properly identify and address the evolving needs of targeted customers and markets, our ability to
capture and develop new business opportunities will be limited. In addition, if the revenue and profits generated by new products are not sufficient to replace the anticipated decline in revenue and profits generated by carbonless products, then our
business would suffer.



The development of new
products can be very difficult and requires high levels of innovation. The development process is also lengthy and costly. Our New Business Development group recently introduced two new products which have yet to generate significant revenues or
profits. The success of our new product offerings will depend on several factors, including our ability to:



| |  |  | accurately anticipate and properly identify our customers needs and industry trends;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | price our products competitively;
| | - |  | ---------------------------------



| |  |  | manufacture our products at a competitive cost;
| | - |  | -----------------------------------------------



| |  |  | innovate, develop and commercialize new products and applications in a timely manner;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | differentiate our products from our competitors products;
| | - |  | ----------------------------------------------------------



| |  |  | hire and retain personnel specializing in new product development; and
| | - |  | ----------------------------------------------------------------------



| |  |  | use our research and development budget efficiently.
| | - |  | ----------------------------------------------------



The risks associated with acquisitions could have a material adverse effect on us.



Our strategy for growth includes strengthening and expanding
our presence in certain market segments and broadening our product offerings through acquisitions. Acquisitions are subject to potential problems and inherent risks, including:



| |  |  | difficulties in identifying, financing and completing viable acquisitions, especially in light of the restrictions on acquisitions imposed by our debt covenants and
our inability to use our common stock as consideration;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | difficulties in integrating the acquired company, retaining the acquired companys customers and achieving the expected benefits of the acquisition, such as
expected revenue increases, cost savings and increases in geographic or product presence, in the desired time frames, if at all;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the diversion of managements attention away from current operations;
| | - |  | ---------------------------------------------------------------------



| |  |  | the loss of key employees of the acquired company; and
| | - |  | ------------------------------------------------------



| |  |  | the assumption of undisclosed liabilities.
| | - |  | ------------------------------------------



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Financing
acquisitions could require us to use substantial cash or other liquid assets or to incur additional debt. In such cases, we could become more susceptible to default under our outstanding debt obligations, an economic downturn and competitive
pressures. If we are unable to overcome the potential problems and inherent risks related to our acquisition strategy, then our business, operating results, financial condition and future growth prospects could suffer.



We currently rely on a relatively small number of customers to produce a
significant amount of our net sales from coated solutions and technical products.



Our five largest customers for coated solutions products accounted for approximately 46% of coated solutions net sales in fiscal 2000, approximately 52% of coated solutions net sales in fiscal 2001 and
approximately 51% of coated solutions net sales in fiscal 2002. Our dependence on these customers has increased in the last several years as a result of their acquisition of other customers. Our five largest customers for technical products
accounted for approximately 56% of technical products net sales in fiscal 2000, approximately 57% of technical products net sales in fiscal 2001 and approximately 52% of technical products net sales in fiscal 2002. Many of our customers are under no
obligation, contractual or otherwise, to purchase our products in the future. Furthermore, some of our customers have become insolvent or financially distressed in recent years, especially in the coated solutions market, which has resulted in bad
debt write-offs of $5.5 million in 2000, $0.5 million in 2001 and $1.1 million in 2002. If we lose one or more of our significant customers (e.g., to a competitor or as a result of their being acquired by a customer of a competitor) or any of our
significant customers experiences financial difficulty, then our operating efficiency, earnings and cash flow could be materially adversely affected.



We currently rely on a small number of third parties to supply several of the key raw materials we use to produce our products.



Our business depends upon the
availability of key raw materials, including basestock and some chemicals. In fiscal 2002, we purchased from external suppliers approximately $149 million of basestock. We relied on three external suppliers for approximately 90% of the basestock we
purchased in fiscal 2002 to produce our coated solutions products. We relied on a single external supplier for approximately 70% of the basestock we purchased in fiscal 2002 to produce our technical products. For some of the key chemicals we use in
our products we rely on one or two suppliers. If there is a disruption in the supply of our raw materials, including the chemicals that we need to produce our coated solutions and technical products, then we may be required to purchase these raw
materials from alternative sources, which may result in a significant increase in our operating costs. Included in these increased costs would be development costs associated with qualifying new raw materials and suppliers. We may not be able to
procure carbonless basestock, thermal basestock or our other raw materials from alternative suppliers in the future in amounts sufficient to meet our needs or at prices consistent with historical prices. The unavailability of alternative suppliers
could subject us to significant cost increases and manufacturing delays and could have a material adverse effect on our earnings and cash flow.



We have competitors in our various markets and we may not be able to maintain prices and margins for our products.



We face strong competition from companies in both the
carbonless and thermal markets. Our competitors vary in size and the breadth of their product offerings and some of our competitors have significantly greater financial, technical and marketing resources than we do.



Regardless of the continuing quality of our primary products,
we may be unable to maintain our prices or margins due to:



| |  |  | declining overall carbonless market size;
| | - |  | -----------------------------------------



| |  |  | accelerating decline in the carbonless sheet market;
| | - |  | ----------------------------------------------------



| |  |  | increasing manufacturing costs;
| | - |  | -------------------------------



| |  |  | increasing international competition; or
| | - |  | ----------------------------------------



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| |  |  | declining general economic conditions.
| | - |  | --------------------------------------



Our inability to compete effectively or to maintain our prices and margins could have a material adverse effect on our earnings and cash
flow.



We depend on our key personnel to manage our
business effectively and they may be difficult to replace.



Our success depends, to a significant degree, on the efforts and abilities of our current senior and middle management teams. Their skills, experience and industry contacts significantly benefit us. The loss of key employees
could have a negative effect on our operating results and financial condition. We do not maintain key-man life insurance on any members of our senior management team, other than our chief executive officer, and no members of our senior management
team are subject to employment agreements.



Paperweight
Development, its eligible subsidiaries and the ESOP may not continue to be exempt from federal or state income tax.



Paperweight Development has made an election to be taxed as an S corporation for federal income tax purposes and an election to treat its
eligible subsidiaries as qualified subchapter S subsidiaries for federal and state income tax purposes.



Section 1362 of the Internal Revenue Code of 1986 provides that a corporation that meets certain requirements may elect to be taxed as an
S corporation. These requirements include, but are not limited to: (1) the corporation having only certain types of shareholders, including ESOPs, (2) the corporation having 75 shareholders or less and (3) the corporation having only one class of
stock.



The continuing status of Paperweight
Development as an S corporation for federal and state income tax purposes will depend upon it continuing to meet the S corporation requirements. Neither we nor Paperweight Development have obtained a ruling from the Internal Revenue Service or any
state tax agency confirming that Paperweight Development will be treated as an S corporation or that we will be treated as a qualified subchapter S subsidiary. In addition, neither we nor Paperweight Development have obtained an opinion upon which
any investor may rely stating that Paperweight Development qualifies as an S corporation and its eligible subsidiaries qualify as qualified subchapter S subsidiaries for federal and state income tax purposes. It is possible that the Internal Revenue
Service could take the position on audit that certain debt or obligations of Paperweight Development or its subsidiaries constitute a second class of stock and terminate Paperweight Developments S election. The applicable law and regulations
may change in a way which results in the taxation of Paperweight Development as a corporation other than as an S corporation. Furthermore, the current law that exempts the ESOP trust from taxation on its allocable share of an S corporations
income may change.



Paperweight Development
realized a benefit of approximately $17 million during fiscal 2002 as a result of the elimination of its and its eligible subsidiaries federal and state income tax liability. If, for any reason, Paperweight Development loses its S corporation
status, or any of its qualified subchapter S subsidiaries loses its qualified subchapter S subsidiary status, Paperweight Development and its subsidiaries would be required to pay federal and state income tax, thereby reducing the amount of cash
available to repay debt or reinvest in our operations, which would have a material adverse effect on our earnings and cash flow. The termination of Paperweight Developments S corporation status or the termination of Paperweight
Developments subsidiaries qualified subchapter S subsidiary status would violate covenants under the senior credit facility and the indenture governing the notes and would lead to a default under the senior credit facility and/or the
indenture governing the notes. Loss of S corporation or comparable status would also require Paperweight Development and its subsidiaries to pay state income taxes in many states. Similarly, if the ESOP trust becomes subject to tax on its share of
the S corporations income, Paperweight Development would have to distribute cash to the ESOP trust to allow it to pay the tax, again reducing the amount of cash available to repay debt or to be reinvested in our operations.



As an S corporation, Paperweight Development is subject to a
corporate-level tax under Section 1374 of the Code known as the built-in gain tax. The built-in gain tax is a tax imposed on the gain inherent in assets as of the effective date of the S election if the gain is recognized within ten years after the
effective date of the S election. If



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we engage in any sale of a
material portion of our assets in the future, we could be subject to a significant tax liability.



Proposed legislation and regulations intended to address employee benefit plan terms that may have contributed to losses in the 401(k) plan maintained by Enron Corp. and other highly visible
corporate failures could adversely affect our ability to repay our debt, reinvest in our operations, or grow our business through new product development or through acquisitions.



Following the bankruptcy filings of Enron Corp. and others, legislators and agencies of the executive branch
proposed legislation and have continued to formulate recommendations to amend, restrict or eliminate various features of employee benefit plans. For example, legislation has been proposed in Congress to restrict the amount of company stock that may
be held by a 401(k) plan and to allow plan participants to freely sell company stock held in their plan accounts. In addition, a Presidential Task Force has been established which may formulate regulatory recommendations on employers
restrictions on portfolio diversification and on employees selling their company stock. If legislation is adopted or new regulations are adopted that require us to lift restrictions on sales of stock held in participants KSOP accounts, that
expand the diversification rights of participants in the KSOP, or that limit the amount of Paperweight Development common stock that may be held by the KSOP, then we may be required to fund the repurchase of substantial amounts of Paperweight
Development common stock or take some other action restrictive to our finances. These repurchases or other restrictive actions could reduce the amount of cash available to repay debt, reinvest in our operations, or grow our business through new
product development or through acquisitions. In addition, these repurchases could violate covenants under the senior credit facility and the indenture governing the notes, which would lead to a default under those documents.



Paperweight Developments legal obligations to repurchase common
stock from employees terminating their participation in the ESOP may lead to a default under the agreements governing our indebtedness.



It may be necessary for us to make significant distributions to Paperweight Development in order for it to satisfy its share repurchase
obligations to the ESOP under ERISA and the terms of the KSOP. The ESOP incurs obligations to its participants when they retire, otherwise terminate employment or make diversification elections. However, the agreements governing our indebtedness
contain limitations on our ability to make this type of distribution. The amount of Paperweight Developments repurchase obligations may at any time exceed these limitations and we may elect to or be forced to help Paperweight Development meet
its obligations. Further, Paperweight Development may also be limited to some extent from making payments to the ESOP or its beneficiaries by the terms of its and our indebtedness. As a result of Paperweight Developments legally imposed
repurchase obligation, we and/or Paperweight Development may be forced to violate the distribution and/or payment limitations contained in the agreements relating to its and our indebtedness, which may ultimately result in a default under these
agreements. Defaults on any of our indebtedness could result in acceleration of our indebtedness and cause us to dispose of our assets or declare bankruptcy.



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Item 8.
Financial Statements and Supplementary Data



1. Report of Independent Accountants



To
the Shareholder and Board of Directors

of Paperweight Development Corp. and Appleton Papers Inc. and Subsidiaries:



We have audited the accompanying consolidated balance sheets of
Paperweight Development Corp. and its subsidiaries (Successor Company) as of December 28, 2002 and December 29, 2001 and the related consolidated statements of operations, redeemable common stock, (accumulated deficit) retained earnings, accumulated
other comprehensive loss and comprehensive income and cash flows for the year ended December 28, 2002 and for the period from November 10, 2001 to December 29, 2001. We have also audited the accompanying consolidated statements of operations,
shareholders equity and cash flows of Appleton Papers Inc. and its subsidiaries (Predecessor Company) for the period December 31, 2000 to November 9, 2001 and for the year ended December 30, 2000. These financial statements are the
responsibility of the respective Successor and Predecessor Companys managements. Our responsibility is to express an opinion on these financial statements 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, the
Successor Company consolidated financial statements referred to above present fairly, in all material respects, the financial position of Paperweight Development Corp. and its subsidiaries at December 28, 2002 and December 29, 2001, and the results
of their operations and their cash flows for the year ended December 28, 2002 and the period from November 10, 2001 to December 29, 2001 in conformity with accounting principles generally accepted in the United States of America. Also, in our
opinion, the Predecessor Company consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Appleton Papers Inc. and its subsidiaries for the period December 31, 2000 to
November 9, 2001 and for the year ended December 30, 2000 in conformity with accounting principles generally accepted in the United States of America.



As discussed in Note 2 to the consolidated financial statements, the Successor Company adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, effective December 30, 2001.



As discussed in Note 2 to the consolidated financial statements, the Predecessor Company had a change in ownership as of November 9, 2001 which resulted in a new basis of accounting.



/s/ PricewaterhouseCoopers LLP



PricewaterhouseCoopers LLP

Milwaukee, Wisconsin

February 27, 2003



44



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##### Table of Contents



2. Financial Statements.



PAPERWEIGHT DEVELOPMENT CORP. AND
SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

DECEMBER 28, 2002 and DECEMBER 29, 2001

(dollars in thousands, except share data)



|                                                                                                                                                |  | 2002 |         |   | 2001
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ----
|ASSETS                                                                                                                                          |  |      |         |   |     
|Current assets                                                                                                                                  |  |      |         |   |     
|Cash and cash equivalents                                                                                                                       |  | $    | 24,390  |   |     
|Accounts receivable, less allowance for doubtful accounts of $1,428 and $1,585,
respectively                                                    |  |      | 93,377  |   |     
|Inventories                                                                                                                                     |  |      | 118,098 |   |     
|Other current assets                                                                                                                            |  |      | 12,933  |   |     
|                                                                                                                                                |  |      |         |   |     
|Total current assets                                                                                                                            |  |      | 248,798 |   |     
|Property, plant and equipment, net                                                                                                              |  |      | 504,088 |   |     
|Intangible assets, net                                                                                                                          |  |      | 127,016 |   |     
|Environmental indemnification receivable                                                                                                        |  |      | 67,356  |   |     
|Other assets                                                                                                                                    |  |      | 12,904  |   |     
|                                                                                                                                                |  |      |         |   |     
|Total assets                                                                                                                                    |  | $    | 960,162 |   |     
|                                                                                                                                                |  |      |         |   |     
|LIABILITIES, REDEEMABLE COMMON STOCK, (ACCUMULATED DEFICIT) RETAINED EARNINGS AND ACCUMULATED OTHER COMPREHENSIVE LOSS                          |  |      |         |   |     
|Current liabilities                                                                                                                             |  |      |         |   |     
|Current portion of long-term debt                                                                                                               |  | $    | 42,419  |   |     
|Accounts payable                                                                                                                                |  |      | 45,419  |   |     
|Accrued interest expense                                                                                                                        |  |      | 1,758   |   |     
|Restructuring reserve                                                                                                                           |  |      | 4,753   |   |     
|Other accrued liabilities                                                                                                                       |  |      | 64,743  |   |     
|                                                                                                                                                |  |      |         |   |     
|Total current liabilities                                                                                                                       |  |      | 159,092 |   |     
|Senior secured notes payable                                                                                                                    |  |      | 108,923 |   |     
|Variable rate industrial development bonds                                                                                                      |  |      | 8,650   |   |     
|Capital lease obligation                                                                                                                        |  |      | 3,923   |   |     
|Postretirement benefits other than pension                                                                                                      |  |      | 58,262  |   |     
|Accrued income taxes                                                                                                                            |  |      | 24,548  |   |     
|Accrued pension                                                                                                                                 |  |      | 10,959  |   |     
|Environmental liability                                                                                                                         |  |      | 88,373  |   |     
|Other long-term liabilities                                                                                                                     |  |      | 9,548   |   |     
|Senior subordinated notes payable                                                                                                               |  |      | 199,958 |   |     
|Deferred payment obligation                                                                                                                     |  |      | 156,409 |   |     
|Commitments and contingencies (Note 19)                                                                                                         |  |      |        |   |     
|Redeemable common stock, $0.01 par value, shares authorized: 30,000,000, shares issued
and outstanding: 11,587,204 and 10,684,373, respectively |  |      | 133,581 |   |     
|(Accumulated deficit) Retained earnings                                                                                                         |  |      | (541    | ) |     
|Accumulated other comprehensive loss                                                                                                            |  |      | (1,523  | ) |     
|                                                                                                                                                |  |      |         |   |     
|Total liabilities, redeemable common stock, (accumulated deficit) retained earnings and
accumulated other comprehensive loss                    |  | $    | 960,162 |   |     
|                                                                                                                                                |  |      |         |   |     



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



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##### Table of Contents

PAPERWEIGHT DEVELOPMENT CORP. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands)



|                                     |  | (Successor Basis)                    |         |   | (Predecessor Basis)                                   |  
|------------------------------------ |  | ------------------------------------ | ------- | - | ----------------------------------------------------- | -
|                                     |  | For the Year Ended December 28, 2002 |         |   | For the Period November 10, 2001 to December
29, 2001 |  
|Net sales                            |  | $                                    | 897,973 |   |                                                       | $
|Cost of sales                        |  |                                      | 630,712 |   |                                                       |  
|                                     |  |                                      |         |   |                                                       |  
|Gross profit                         |  |                                      | 267,261 |   |                                                       |  
|Selling, general and administrative  |  |                                      | 156,577 |   |                                                       |  
|Restructuring and other charges      |  |                                      |        |   |                                                       |  
|Environmental expense                |  |                                      | 21,017  |   |                                                       |  
|Litigation settlements               |  |                                      |        |   |                                                       |  
|Equipment relocation expenses        |  |                                      |        |   |                                                       |  
|Loss on investment                   |  |                                      |        |   |                                                       |  
|                                     |  |                                      |         |   |                                                       |  
|Operating income                     |  |                                      | 89,667  |   |                                                       |  
|Other expense (income)               |  |                                      |         |   |                                                       |  
|Interest expense                     |  |                                      | 68,354  |   |                                                       |  
|Debt extinguishment expenses         |  |                                      | 11,754  |   |                                                       |  
|Interest income                      |  |                                      | (990    | ) |                                                       |  
|Minority interest                    |  |                                      |        |   |                                                       |  
|Foreign exchange (gain) loss         |  |                                      | (46     | ) |                                                       |  
|                                     |  |                                      |         |   |                                                       |  
|Income before income taxes           |  |                                      | 10,595  |   |                                                       |  
|Provision for income taxes           |  |                                      | 503     |   |                                                       |  
|                                     |  |                                      |         |   |                                                       |  
|Income from continuing operations    |  |                                      | 10,092  |   |                                                       |  
|                                     |  |                                      |         |   |                                                       |  
|Discontinued operations, net of tax: |  |                                      |         |   |                                                       |  
|Loss from discontinued operations    |  |                                      |        |   |                                                       |  
|                                     |  |                                      |         |   |                                                       |  
|Net income                           |  | $                                    | 10,092  |   |                                                       | $
|                                     |  |                                      |         |   |                                                       |  





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



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PAPERWEIGHT
DEVELOPMENT CORP. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)



|                                                                                                                                  |  | (Successor Basis)                    |          |   | (Predecessor Basis)                                   |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | -------- | - | ----------------------------------------------------- | -
|                                                                                                                                  |  | For the Year Ended December 28, 2002 |          |   | For the Period November 10, 2001 to
December 29, 2001 |  
|Cash flows from operating activities:                                                                                             |  |                                      |          |   |                                                       |  
|Income from continuing operations                                                                                                 |  | $                                    | 10,092   |   |                                                       | $
|Adjustments to reconcile income from continuing operations to net cash provided by
operating activities of continuing operations: |  |                                      |          |   |                                                       |  
|Depreciation                                                                                                                      |  |                                      | 58,514   |   |                                                       |  
|Amortization of intangible assets                                                                                                 |  |                                      | 9,463    |   |                                                       |  
|Amortization of financing fees                                                                                                    |  |                                      | 9,585    |   |                                                       |  
|Employer 401(k) noncash matching contributions                                                                                    |  |                                      | 7,339    |   |                                                       |  
|Foreign exchange (gain) loss                                                                                                      |  |                                      | (46      | ) |                                                       |  
|Loss on disposals of equipment                                                                                                    |  |                                      | 1,563    |   |                                                       |  
|Debt extinguishment expenses                                                                                                      |  |                                      | 11,754   |   |                                                       |  
|Accretion of deferred payment and capital lease obligations                                                                       |  |                                      | 14,818   |   |                                                       |  
|Minority interest                                                                                                                 |  |                                      |         |   |                                                       |  
|Deferred income taxes                                                                                                             |  |                                      |         |   |                                                       |  
|Asset impairment charges                                                                                                          |  |                                      |         |   |                                                       |  
|(Increase)/decrease in assets and increase/(decrease) in liabilities:                                                             |  |                                      |          |   |                                                       |  
|Accounts receivable                                                                                                               |  |                                      | 12,017   |   |                                                       |  
|Inventories                                                                                                                       |  |                                      | 16,500   |   |                                                       |  
|Other current assets                                                                                                              |  |                                      | (923     | ) |                                                       |  
|Accounts payable and other accrued liabilities                                                                                    |  |                                      | (6,335   | ) |                                                       |  
|Restructuring reserve                                                                                                             |  |                                      | (711     | ) |                                                       |  
|Accrued income taxes                                                                                                              |  |                                      | 17,970   |   |                                                       |  
|Accrued pension                                                                                                                   |  |                                      | (7,097   | ) |                                                       |  
|Environmental liability                                                                                                           |  |                                      | 21,017   |   |                                                       |  
|Other, net                                                                                                                        |  |                                      | 1,368    |   |                                                       |  
|                                                                                                                                  |  |                                      |          |   |                                                       |  
|Net cash provided by operating activities of continuing operations                                                                |  |                                      | 176,888  |   |                                                       |  
|Net cash provided by (used by) operating activities of discontinued
operations                                                    |  |                                      |         |   |                                                       |  
|                                                                                                                                  |  |                                      |          |   |                                                       |  
|Net cash provided by operating activities                                                                                         |  |                                      | 176,888  |   |                                                       |  
|                                                                                                                                 
|Cash flows from investing activities:                                                                                             |  |                                      |          |   |                                                       |  
|Proceeds from sale of equipment                                                                                                   |  |                                      | 56       |   |                                                       |  
|Additions to property, plant and equipment                                                                                        |  |                                      | (32,444  | ) |                                                       |  
|Acquisition of business, net of cash acquired                                                                                     |  |                                      |         |   |                                                       |  
|Purchase of minority interest in affiliates                                                                                       |  |                                      |         |   |                                                       |  
|Payments to acquire equipment from capital lease                                                                                  |  |                                      |         |   |                                                       |  
|                                                                                                                                  |  |                                      |          |   |                                                       |  
|Net cash (used by) investing activities of continuing operations                                                                  |  |                                      | (32,388  | ) |                                                       |  
|Net cash (used by) investing activities of discontinued operations                                                                |  |                                      |         |   |                                                       |  
|                                                                                                                                  |  |                                      |          |   |                                                       |  
|Net cash (used by) investing activities                                                                                           |  |                                      | (32,388  | ) |                                                       |  
|                                                                                                                                 
|Cash flows from financing activities:                                                                                             |  |                                      |          |   |                                                       |  
|Payments of senior secured notes payable                                                                                          |  |                                      | (113,658 | ) |                                                       |  
|Payments of senior subordinated notes payable                                                                                     |  |                                      | (50,042  | ) |                                                       |  
|Payments relating to capital lease obligation                                                                                     |  |                                      | (671     | ) |                                                       |  
|Proceeds from issuance of redeemable common stock, net of issuance costs                                                          |  |                                      | 5,909    |   |                                                       |  
|Payments to redeem common stock                                                                                                   |  |                                      | (304     | ) |                                                       |  
|Cash overdraft                                                                                                                    |  |                                      | 2,954    |   |                                                       |  
|Payments of loans from former parent and affiliated companies                                                                     |  |                                      |         |   |                                                       |  
|Loans from former parent and affiliated companies                                                                                 |  |                                      |         |   |                                                       |  
|Due to former parent and affiliated companies, net                                                                                |  |                                      |         |   |                                                       |  
|Payment of senior subordinated seller note                                                                                        |  |                                      |         |   |                                                       |  
|Proceeds from issuance of long-term debt, net of issuance costs                                                                   |  |                                      |         |   |                                                       |  
|Payments for debt extinguishment                                                                                                  |  |                                      |         |   |                                                       |  
|                                                                                                                                  |  |                                      |          |   |                                                       |  
|Net cash (used by) provided by financing activities of continuing
operations                                                      |  |                                      | (155,812 | ) |                                                       |  
|Net cash (used by) provided by financing activities of discontinued
operations                                                    |  |                                      |         |   |                                                       |  
|                                                                                                                                  |  |                                      |          |   |                                                       |  
|Net cash (used by) provided by financing activities                                                                               |  |                                      | (155,812 | ) |                                                       |  
|Change in cash and cash equivalents                                                                                               |  |                                      | (11,312  | ) |                                                       |  
|Cash and cash equivalents at beginning of period                                                                                  |  |                                      | 35,702   |   |                                                       |  
|                                                                                                                                  |  |                                      |          |   |                                                       |  
|Cash and cash equivalents at end of period                                                                                        |  | $                                    | 24,390   |   |                                                       | $
|                                                                                                                                  |  |                                      |          |   |                                                       |  



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



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##### Table of Contents



PAPERWEIGHT
DEVELOPMENT CORP. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

(dollars in thousands, except share data)



|                                                          |  | Common Stock       |  |        |        |                 |   |          |                   |  |   |                  | Total Shareholders Equity (Deficit) | 
|--------------------------------------------------------- |  | ------------------ |  | ------ | ------ | --------------- | - | -------- | ----------------- |  | - | ---------------- | ------------------------------------ | 
|                                                          |  | Shares Outstanding |  | Amount |        | Paid-In Capital |   |          | Retained Earnings |  |   | Shareholder Note |                                      | 
|Balance, January 1, 2000 (Predecessor Basis)              |  | 100                |  | $      | 10,500 |                 | $ | (224,282 | )                 |  | $ | 404,873          |                                      | 
|Net income                                                |  |                   |  |        |       |                 |   |         |                   |  |   | 53,098           |                                      | 
|Dividend distribution                                     |  |                   |  |        |       |                 |   |         |                   |  |   | (119,708         | )                                    | 
|                                                          |  |                    |  |        |        |                 |   |          |                   |  |   |                  |                                      | 
|Balance, December 30, 2000 (Predecessor Basis)            |  | 100                |  |        | 10,500 |                 |   | (224,282 | )                 |  |   | 338,263          |                                      | 
|Net income                                                |  |                   |  |        |       |                 |   |         |                   |  |   | 32,721           |                                      | 
|Conversion of shareholder note                            |  |                   |  |        |       |                 |   |         |                   |  |   |                 |                                      | 
|Dividend distribution                                     |  |                   |  |        |       |                 |   |         |                   |  |   | (7,388           | )                                    | 
|Capital contribution from parent and affiliated companies |  |                   |  |        |       |                 |   | 352,973  |                   |  |   |                 |                                      | 
|Transfer of liability to affiliated company               |  |                   |  |        |       |                 |   | 2,782    |                   |  |   |                 |                                      | 
|Recovery of withholding tax                               |  |                   |  |        |       |                 |   |         |                   |  |   | 5,204            |                                      | 
|                                                          |  |                    |  |        |        |                 |   |          |                   |  |   |                  |                                      | 
|Balance, November 9, 2001 (Predecessor Basis)             |  | 100                |  | $      | 10,500 |                 | $ | 131,473  |                   |  | $ | 368,800          |                                      | 
|                                                          |  |                    |  |        |        |                 |   |          |                   |  |   |                  |                                      | 



CONSOLIDATED STATEMENTS OF REDEEMABLE COMMON STOCK, (ACCUMULATED DEFICIT)

RETAINED EARNINGS,
ACCUMULATED OTHER COMPREHENSIVE LOSS AND COMPREHENSIVE INCOME

(dollars in thousands, except share data)



|                                                           |  | Redeemable Common Stock |   |  |        |         |   |                                         |   |         |                                      | 
|---------------------------------------------------------- |  | ----------------------- | - |  | ------ | ------- | - | --------------------------------------- | - | ------- | ------------------------------------ | 
|                                                           |  | Shares Outstanding      |   |  | Amount |         |   | (Accumulated Deficit) Retained Earnings |   |         | Accumulated Other Comprehensive Loss | 
|Issuance of redeemable common stock, net of issuance costs |  | 10,684,373              |   |  | $      | 104,663 |   |                                         | $ |        |                                      | 
|Comprehensive income:                                      |  |                         |   |  |        |         |   |                                         |   |         |                                      | 
|Net income                                                 |  |                        |   |  |        |        |   |                                         |   | 7,616   |                                      | 
|                                                           |  |                         |   |  |        |         |   |                                         |   |         |                                      | 
|Total comprehensive income                                 |  |                         |   |  |        |         |   |                                         |   |         |                                      | 
|                                                           |  |                         |   |  |        |         |   |                                         |   |         |                                      | 
|                                                           |  |                         |   |  |        |         |   |                                         |   |         |                                      | 
|Balance, December 29, 2001                                 |  | 10,684,373              |   |  |        | 104,663 |   |                                         |   | 7,616   |                                      | 
|Comprehensive income:                                      |  |                         |   |  |        |         |   |                                         |   |         |                                      | 
|Net income                                                 |  |                        |   |  |        |        |   |                                         |   | 10,092  |                                      | 
|Minimum pension liability adjustment                       |  |                        |   |  |        |        |   |                                         |   |        |                                      | 
|                                                           |  |                         |   |  |        |         |   |                                         |   |         |                                      | 
|Total comprehensive income                                 |  |                         |   |  |        |         |   |                                         |   |         |                                      | 
|                                                           |  |                         |   |  |        |         |   |                                         |   |         |                                      | 
|Issuance of redeemable common stock                        |  | 919,539                 |   |  |        | 10,973  |   |                                         |   |        |                                      | 
|Redemption of redeemable common stock                      |  | (16,708                 | ) |  |        | (304    | ) |                                         |   |        |                                      | 
|Accretion of redeemable common stock                       |  |                        |   |  |        | 18,249  |   |                                         |   | (18,249 | )                                    | 
|                                                           |  |                         |   |  |        |         |   |                                         |   |         |                                      | 
|Balance, December 28, 2002                                 |  | 11,587,204              |   |  | $      | 133,581 |   |                                         | $ | (541    | )                                    | 
|                                                           |  |                         |   |  |        |         |   |                                         |   |         |                                      | 



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



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PAPERWEIGHT
DEVELOPMENT CORP. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|1. |  | BASIS OF PRESENTATION AND NATURE OF OPERATIONS
|-- |  | ----------------------------------------------



Paperweight Development Corp. (PDC) and New Appleton LLC were formed on December 28, 2000 by an executive management group of
Appleton Papers Inc. (API) for the purpose of purchasing all of the partnership interests of Arjo Wiggins Delaware General Partnership (AWDGP). The partnership interests in AWDGP were held by Arjo Wiggins US Holdings Limited
(87.5%) and Arjo Wiggins North America Investments Limited (12.5%). API was a wholly owned subsidiary of Appleton Investments LLC (AI) and AI was a wholly owned subsidiary of AWDGP. Prior to the acquisition of AWDGP, PDC had no operating
activity.



The Appleton Papers Retirement Savings
Plan (the 401(k) plan) was amended and restated effective January 1, 2001 in the form of the Appleton Papers Retirement Savings and Employee Stock Ownership Plan (the KSOP). The KSOP includes a separate employee stock
ownership plan component (the ESOP or the Company Stock Fund). Eligible employees of API, as named fiduciaries under the Employee Retirement Income Security Act of 1974 (ERISA), as amended, were offered a one-time
irrevocable election to direct State Street Global Advisors, the ESOP trustee, to accept the transfer of all or any part of their existing balances in the 401(k) plan and the 401(a) plan to the Company Stock Fund. At the close of the election
period, the proceeds from this offering were approximately $106.8 million and were used to purchase 100% of the outstanding common stock of PDC (see Note 22 Employee Stock Ownership Plan). PDC and New Appleton LLC acquired AWDGP on
November 9, 2001.



In December 2001, AI was
liquidated and merged into AWDGP. Subsequently, AWDGP was liquidated and merged into API and New Appleton LLC was liquidated and merged into PDC.



The accompanying consolidated financial statements, after the elimination of intercompany accounts and transactions, include the accounts
of PDC and its wholly owned subsidiaries (collectively the Company) for the year ended December 28, 2002 and the period November 10, 2001 to December 29, 2001 (Successor Period). The accounts prior to the acquisition of AWDGP
(Predecessor Period) relate to API, its wholly owned subsidiaries, as well as AWDGP and AI. The accounts of AWDGP and AI consisted of debt used to fund the operations of API and the corresponding interest expense and tax benefits. The
consolidated statements of operations and cash flows for the Successor Period have been segregated from the Predecessor Period to reflect the change in the reporting entity. Subsequent to the November 9, 2001 acquisition, API became a wholly owned
subsidiary of PDC (see Note 2 Acquisition of Appleton Papers Inc.).



Prior to July 2000, APIs ultimate parent was Arjo Wiggins Appleton p.l.c. (AWA), a company incorporated in the United Kingdom. In July 2000, APIs ultimate parent became Worms et
Cie. through the purchase of AWAs outstanding shares. Worms et Cie. is incorporated in France.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





NATURE OF OPERATIONS



API
is the primary operating subsidiary of PDC and was the primary operating subsidiary of AWDGP. APIs principal line of business is the manufacture of carbonless and thermal paper and various other technical products. In the fourth quarter of
2002, the Company redefined the structure of its internal organization, which has resulted in a change in the composition of its reportable segments. The Companys most significant operations are now included within its coated solutions and
technical products segments. The coated solutions segment is comprised of the Companys carbonless, specialty papers, digital printing papers and toll coating service businesses. The Companys technical products segment is comprised of the
Companys direct thermal business as well as additional applications in the label and tag/ticket product categories. The Companys remaining segment is security products. Sales within the coated solutions segment accounted for
approximately 77% of consolidated net sales in 2002, 78% in the fiscal 2001 Successor Period, 79% in the fiscal 2001 Predecessor Period and 80% of consolidated net sales for 2000. The principal markets for APIs products are printers, merchants
and converters in the United States and Canada.



|2. |  | ACQUISITION OF APPLETON PAPERS INC.
|-- |  | -----------------------------------



At the close of business on November 9, 2001, PDC and New Appleton LLC completed the purchase of all the partnership interests of AWDGP
(the Acquisition). The total cash purchase price consisted of the following (dollars in thousands):



|Agreed upon purchase price                    |  | $ | 810,000  |  
|--------------------------------------------- |  | - | -------- | -
|Transaction fees                              |  |   | 6,203    |  
|Cash acquired by buyer                        |  |   | (78,508  | )
|Settlement of intercompany note receivable    |  |   | (32,869  | )
|                                              |  |   |          |  
|Net assets acquired                           |  |   | 704,826  |  
|Senior subordinated seller note               |  |   | (250,000 | )
|Deferred payment obligation                   |  |   | (140,000 | )
|                                              |  |   |          |  
|Acquisition of business, net of cash acquired |  | $ | 314,826  |  
|                                              |  |   |          |  



The
transaction was financed with $106.8 million of proceeds received from the ESOP ($104.7 million, net of stock issuance costs), $265.0 million of senior secured notes payable borrowed at the closing (see Note 12 Long-Term Obligations),
$250.0 million in aggregate principal amount of a senior subordinated note due 2008 issued to AWA which bore interest at the rate of 11.5% per annum in the Successor Period and a deferred payment obligation with a present value of $140 million at
the closing of the Acquisition to be paid to AWA (see Note 12 Long-Term Obligations).



In conjunction with the Acquisition, the Company entered into two indemnification agreements under which AWA agreed to indemnify PDC and
PDC agreed to indemnify API for, and pay, all governmental and third party liabilities and all costs and expenses incurred by API in defense against governmental and third party claims, referred to as the Fox River Liabilities. The Fox River
Liabilities also include fees and expenses of APIs environmental counsel, advisers, engineers and scientific experts, and the costs incurred in obtaining studies and other analyses concerning various remedial alternatives for the Lower Fox
River. The indemnification agreements mirror one another and result in API receiving indemnification payments directly or indirectly from AWA.



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PAPERWEIGHT DEVELOPMENT CORP. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Under the
indemnification agreements, AWA agreed to indemnify the Company for the first $75 million of Fox River Liabilities and for those in excess of $100 million (see Note 19 Commitments and Contingencies). The Company is responsible for the
$25 million of liabilities between $75 million and $100 million. The indemnification agreements provide that it is the intent of the parties that at no time will API or PDC be required to fund any costs and expenses relating to the Fox River
Liabilities for which API or PDC will be indemnified. Under its indemnity, AWA provided for payment of $14.1 million in Fox River Liabilities through 2002.



In connection with the indemnification agreements and in order to assure the Company, the ESOP Trustee and the Companys lenders that
AWA would be able to meet its indemnification obligations under these agreements, AWA purchased and fully paid for indemnity claim insurance from an affiliate of American International Group, Inc. (AIG).



The AIG insurance policy is a $250 million policy that is
designed to provide coverage, with the exception described below, for an increasing amount of potential Fox River Liabilities for each of the 12-month periods beginning November 9 of the years specified below:



|Year                |  | Maximum Coverage                   
|------------------- |  | -----------------------------------
|2001                |  | $  75 million                      
|2002                |  | $100 million                       
|2003                |  | $125 million                       
|2004                |  | $150 million                       
|2005                |  | $175 million                       
|2006                |  | $200 million                       
|2007 and thereafter |  | $250 million                       
|                    |  | (unless reduced as described below)



The
amounts available under the AIG insurance policy were determined as a result of negotiations with AWA and are not based on any particular cost estimates. The Company believes that the $250 million available under the AIG insurance policy will be in
excess of the Companys ultimate liability for remediation of the Lower Fox River even if, as discussed in Note 19, Commitments and Contingencies, (a) the costs of remediation were to be twice the government agencies estimate
of $333 million, (b) the Companys natural resource damages (NRD) settlement was to be twice the $14 million obtained by Georgia-Pacific and (c) the Companys combined share with NCR of all of these liabilities was to be
substantially more than any estimate of the Companys share of the PCB discharge.



The AIG insurance policy was designed to provide a funding source to satisfy the Fox River Liabilities and other liabilities. As such, the policyholder (described below) has designated a third party
administrator to manage the various environmental issues that arise with respect to the Lower Fox River. This administrator works with the Companys employees as negotiations and discussions occur with governmental authorities and third
parties. As the Company incurs costs and expenses that constitute Fox River Liabilities, it submits invoices to the administrator which are in turn submitted to AIG and then paid under the AIG insurance policy. As noted above, the indemnity
arrangements negotiated with AWA and the AIG insurance policy are designed to ensure that the Company will not be required to fund any costs and expenses for the Fox River Liabilities and to assure the Company, the ESOP Trustee and the
Companys lenders and investors that it will not have to rely on AWA itself to make these payments.



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PAPERWEIGHT DEVELOPMENT CORP. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





The AIG
insurance policy will not terminate sooner than the stated maturity of the senior subordinated notes unless the Company experiences some types of changes of control and provided it complies with the provisions of the senior credit facility and
senior subordinated notes, including provisions that could require it to repay or offer to repay that indebtedness. The AIG insurance policy will be extended beyond the stated maturity of the senior subordinated notes, referred to as an extension
period, (1) for up to three years if a designated arbiter is not able to determine that the Company will have sufficient internal cash to repay the senior subordinated notes at stated maturity, or if the designated arbiter determines the Company
will have sufficient cash but does not actually repay the senior subordinated notes or irrevocably deposit funds sufficient to repay them or (2) for up to five years if AWA shall have committed a payment default under its indemnification obligations
in excess of $1 million that is not cured within 60 days of written notice. The amount of coverage required under the AIG insurance policy during an extension period will be the lesser of (1) two times the excess of the required remaining
indemnification payments during the extension period over funds available from the net worth protection described below and the amounts otherwise available under the policy after December 15, 2008 from the stream of payments referred to as the
annuity as determined by a designated arbiter or (2) the amount of coverage available under the AIG insurance policy remaining on the first day of the extension period.



The AIG insurance policy is owned by a Bermuda corporation and is referred to as the policyholder. Under the
indemnification agreements, the policyholder has the right to elect to reduce the maximum coverage amount from $250 million to $167 million at any time after the notes are paid in full and certain other conditions are met or upon a change of
control.



In order to establish and administer
the AIG insurance policy, AWA and PDC each formed direct or indirect special purpose subsidiaries that jointly own the policyholder. The policyholder owns and is the direct beneficiary of the AIG insurance policy. At the closing of the Acquisition,
AWA assigned, and the policyholder assumed, AWAs share of the Fox River Liabilities under AWAs indemnification agreement in exchange for a capital contribution by AWA to the policyholder in the amount of the premium due under and to
fully purchase the AIG insurance policy. AWA has not been released from its primary responsibility for performance under its indemnification agreement. This structure is intended to protect the policyholder and the AIG insurance policy from claims
made by the creditors of AWA, PDC and/or their respective affiliates, including the special purpose subsidiaries that own the policyholder, in a bankruptcy or other liquidation proceeding involving any of these companies.





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PAPERWEIGHT DEVELOPMENT CORP. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





The
indemnification agreements provide that AWA can elect to control and manage the Fox River Liabilities with the cooperation and assistance of the Companys personnel. API agreed to make certain of its employees available to AWA at its cost to
assist with discussions and negotiations with the United States Environmental Protection Agency (EPA), the Wisconsin Department of Natural Resources (DNR), the Fish & Wildlife Service (FWS) and other
governmental agencies.



In addition to the AIG
insurance policy, AWA agreed to deposit up to $75 million, minus all previous indemnification payments made for Fox River Liabilities, into an escrow account, which is referred to as the net worth protection, if the maximum coverage limits under the
AIG insurance policy are no longer in force, if AWA has not yet paid its first $75 million of Fox River Liabilities and if AWAs consolidated tangible net worth is less than £500 million (1) for two consecutive fiscal quarters or (2) in
whole or in part as a result of a sale of assets outside the ordinary course of business, a sale of stock or other ownership interests of any direct or indirect operating subsidiary or a transaction out of the ordinary course of business.



The AIG insurance policy and the net worth
protection are collectively referred to as the financial assurance. Under the indemnification agreements, AWA is able to reduce some of the financial assurance to avoid duplication of the components of the financial assurance. The indemnification
agreements provide for a dispute resolution process involving arbitration in accordance with the Center for Public ResourcesRules for Non-Administered Arbitration.



AWA also agreed to indemnify the Company for liabilities related to the business and operations of Newton
Falls, Inc., Appleton Coated LLC, Appleton Capital Inc., Appleton Leasing LLC, Arjo Wiggins Investments Inc., Appleton Recycled Fibers, Inc., Paperhub.com, Inc. and several other of APIs former subsidiaries, the ownership of the real property
on which the Harrisburg plant is located and for pre-closing environmental contingencies at this location, and for certain other designated liabilities, which are referred to as other excluded liabilities, including pending litigation, and some
known environmental conditions or issues, other than those matters relating to the Lower Fox River which are covered by the indemnification agreement described above. Under these provisions AWA is obligated to reimburse API for losses for, in the
case of a breach of an environmental representation or warranty or a loss arising from a known environmental condition or issue constituting other excluded liabilities, 50% of the first $5 million of losses and, 100% of losses in excess of $5
million, and in all other cases, 100% of the losses.



Also as part of the purchase agreement, AWA agreed to indemnify the Company for 100% of net income tax liabilities after the November 9, 2001 acquisition, in respect of periods through September 30, 2001, excluding 50% of amounts in
excess of $5.0 million in the aggregate up to and including $10.0 million in the aggregate, representing a maximum amount of $2.5 million for which the Company shall remain responsible. All tax refunds relating to periods through September 30, 2001
received by the Company must first be applied against the amount of net income tax liabilities indemnified by AWA. The Company will be allowed to retain any excess net refunds over net income tax liabilities. In fiscal 2002, API received $17.9
million of federal and state tax refunds that relate to periods prior to September 30, 2001, which may be used to satisfy any additional tax liabilities arising from audits for those periods.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





The
Acquisition was accounted for using the purchase method in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and the financial statements of API were adjusted on November 10,
2001 to reflect assets and liabilities at fair value. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed, excluding cash acquired (dollars in thousands):



|                              |  | (Successor Basis)   
|----------------------------- |  | --------------------
|                              |  | At November 10, 2001
|Current assets                |  | $                   
|Property, plant and equipment |  |                     
|Intangible assets             |  |                     
|Other assets                  |  |                     
|                              |  |                     
|Total assets acquired         |  | $                   
|                              |  |                     
|Current liabilities           |  | $                   
|Long-term debt                |  |                     
|Other long-term liabilities   |  |                     
|                              |  |                     
|Total liabilities assumed     |  | $                   
|                              |  |                     
|Net assets acquired           |  | $                   
|                              |  |                     



Due to
the nonperformance on the part of Enron Corp., the Company sought the termination of unfavorable purchase contracts that were in existence at the Acquisition date. The Company believes that it will have no further obligation under these purchase
contracts, and, as a result, the allocation of purchase price is final.



Effective December 30, 2001, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill and intangible assets with an indefinite life will no longer be amortized,
however, they must be tested for impairment annually. Amortization will continue to be recorded for other intangible assets with determinable lives. A summary of net income, as if the Company had accounted for goodwill under SFAS No. 142 as of
January 2, 2000 is as follows (dollars in thousands):



|                        |  | (Successor Basis)                    |        | (Predecessor Basis)                                  
|----------------------- |  | ------------------------------------ | ------ | -----------------------------------------------------
|                        |  | For the Year Ended December 28, 2002 |        | For the Period November 10, 2001 to December 29, 2001
|Adjusted net income     |  |                                      |        |                                                      
|As reported, net of tax |  | $                                    | 10,092 |                                                      
|Goodwill amortization   |  |                                      |       |                                                      
|                        |  |                                      |        |                                                      
|                        |  | $                                    | 10,092 |                                                      
|                        |  |                                      |        |                                                      





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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Of the
$137.8 million of acquired intangible assets, $90.7 million was assigned to registered trademarks. Trademarks, related to carbonless paper, of approximately $60.0 million are being amortized over their useful life of 20 years, while the remaining
$30.7 million are considered to have an indefinite life, and, as such, are not subject to amortization. The remaining acquired intangible assets are being amortized over their estimated useful lives ranging from 6 to 25 years and relate to patents
of $40.0 million and customer relationships of $7.1 million, respectively. Intangible assets consist of the following (dollars in thousands):



|                               |  | As of December 28, 2002 |         | As of December 29, 2001 
|------------------------------ |  | ----------------------- | ------- | ------------------------
|                               |  | Gross Carrying Amount   |         | Accumulated Amortization
|Amortized intangible assets:   |  |                         |         |                         
|Trademarks                     |  | $                       | 60,000  |                         
|Patents                        |  |                         | 40,000  |                         
|Customer relationships         |  |                         | 7,050   |                         
|                               |  |                         |         |                         
|Total                          |  | $                       | 107,050 |                         
|                               |  |                         |         |                         
|Unamortized intangible assets: |  |                         |         |                         
|Trademarks                     |  | $                       | 30,718  |                         
|                               |  |                         |         |                         



Amortization expense for the year ended December 28, 2002 and the period November 10, 2001 to December 29, 2001 approximated $9.5 million and $1.3 million, respectively. Excluding the impact of any future acquisitions, the Company
anticipates that annual amortization expense of intangible assets will approximate $9.5 million for each of the next five years.



|3. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- |  | ------------------------------------------



FISCAL YEAR



The Companys fiscal year is the 52-week or 53-week period ending the Saturday nearest December 31. Fiscal year 2002 was a 52-week
period ending on December 28, 2002. Fiscal 2001 was a 52-week year, for which the Predecessor Period and the Successor Period ended November 9, 2001 and December 29, 2001, respectively. Fiscal year 2000 was a 52-week period ending on December 30,
2000.



USE OF ESTIMATES



The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. The more critical estimates made by management relate to environmental contingencies, pension and postretirement
assumptions, accrued discounts, restructuring charges and accruals, accrued income taxes, intangible asset impairment, fair market value of redeemable common stock and receivable and inventory reserves. Actual results could differ from those
estimates.





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PAPERWEIGHT DEVELOPMENT CORP. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





RECLASSIFICATIONS



Certain
prior year financial statement amounts have been reclassified to conform to their current year presentation. These reclassifications had no effect on net income.



REVENUE RECOGNITION



Revenue is recognized by the Company when all of the following criteria are met: persuasive evidence of a
selling arrangement exists; the Companys price to the customer is fixed; collectibility is reasonably assured; and title has transferred to the customer. Generally, these criteria are met at the time of shipment. Estimated costs for sales
incentives, discounts and sales returns and allowances are recorded as sales reductions in the period in which the related revenue is recognized.



CASH EQUIVALENTS



Cash equivalents consist of funds invested in institutional money market funds with daily liquidity and commercial paper with original
maturity dates less than three months. At December 28, 2002 and December 29, 2001, there were cash overdrafts of approximately $9.8 million and $6.8 million, respectively, which are included in accounts payable within the accompanying consolidated
balance sheets.



INVENTORIES



Inventories
are stated at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method for finished goods, work in process and raw materials. Stores and spare parts inventory are valued at average cost and certain other
inventories are valued using the first-in, first-out (FIFO) method. Finished goods and work in process inventories include the cost of materials, labor and manufacturing overhead.



PROPERTY, PLANT AND EQUIPMENT



Property, plant and equipment are stated at
cost, including interest incurred during construction, and depreciated over their estimated useful lives using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. The general range of useful
lives for financial reporting is 10 to 40 years for buildings and improvements and 2 to 20 years for machinery and equipment. Maintenance and repair costs that do not significantly improve the related asset or extend its useful life are charged to
expense as incurred. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts with resulting gains or losses reflected in earnings.



INTERNAL USE SOFTWARE



Costs incurred related to the development of internal use software are accounted for in accordance with
Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. SOP No. 98-1 requires the capitalization of certain costs incurred in connection with developing or
obtaining software for internal use once certain criteria are met. Capitalized software costs are amortized over the lesser of 8 years or the useful life of the software using the straight-line method.



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PAPERWEIGHT DEVELOPMENT CORP. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





INTANGIBLE ASSETS



Certain
intangible assets (including a portion of registered trademarks) have been determined to have indefinite useful lives and will not be amortized until their useful lives are determined to be no longer indefinite. Other intangible assets (patents,
customer relationships and the remaining registered trademarks) are amortized over their estimated useful lives of 6 to 25 years.



IMPAIRMENT OF LONG-LIVED ASSETS



The Company reviews the carrying value of intangible assets with indefinite lives for impairment annually or
more frequently if events or changes in circumstances indicate that the asset might be impaired. This impairment analysis consists of a comparison of the fair value of an intangible asset with its carrying amount. If the carrying amount of an
intangible asset with an indefinite life exceeds its fair value, an impairment loss would be recognized in an amount equal to that excess.



The carrying value of intangible assets with definite lives and long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. An impairment would be determined based upon a comparison of the undiscounted future net cash flows anticipated to be generated during the remaining life of the intangible
assets with a definite life or long-lived assets to their respective carrying values. Measurement of any impairment loss would be based upon discounted operating cash flows.



INCOME TAXES



In conjunction with the Acquisition, PDC elected to be treated as a subchapter S corporation and elected that
its eligible subsidiaries be treated as qualified subchapter S subsidiaries for federal and state income tax purposes, and therefore, the Company anticipates that it will not incur any future federal income tax liability and minimal state income tax
liabilities.



Prior to the Acquisition, API and
its domestic subsidiaries were included within the consolidated tax return of AWDGP and accounted for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes, which requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial
statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.



FAIR VALUE OF FINANCIAL INSTRUMENTS



Cash and cash equivalents, accounts receivable and accounts payable recorded in the balance sheets
approximate fair value based on the short maturity of these instruments. Fair values of long-term debt and deferred payment and lease obligations are estimated based on market conditions and interest rates available to the Company for similar
financial instruments.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





COMPREHENSIVE INCOME



SFAS
No. 130, Reporting Comprehensive Income, establishes standards for the reporting and display of comprehensive income and its components in financial statements. At December 28, 2002 comprehensive income for the Company consists of net
income and accumulated other comprehensive loss relating to minimum pension liability adjustments totaling $1.5 million.



RESEARCH AND DEVELOPMENT



Research and development costs are charged to expense as incurred. Such costs incurred in the development of new products or significant
improvements to existing products amounted to $14.7 million in 2002, $1.7 million during the 2001 Successor Period and $12.5 million for the fiscal 2001 Predecessor Period. Similar research and development costs were $15.9 million in 2000. Such
costs for APIs discontinued coated free sheet and fine paper products division approximated $2.8 million in 2000.



ACCOUNTING PRONOUNCEMENTS



In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143,
Accounting for Asset Retirement Obligations. SFAS No. 143, which is effective for fiscal years beginning after June 15, 2002, requires entities to record the fair value of a legal liability for an asset retirement obligation in the
period in which it is incurred. When the liability is recorded, the entity capitalizes the cost of the liability by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period
and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss. SFAS No. 143 will be effective for the
Companys first quarter of fiscal 2003 and is not expected to have a material effect on its financial position or results of operations.



In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of Accounting Principles Board (APB) Opinion No. 30, Reporting
the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS No. 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and was effective for the Company in fiscal 2002. The adoption of this statement did not have a material impact on the Companys financial position, results of operations or cash flows.



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In
April 2002, SFAS No. 145, Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections was issued. This statement rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment
of Debt, and an amendment of the SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This statement also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor Carriers, and amends
SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. The provisions of this statement
were effective for the Company for all transactions consummated after May 15, 2002. Pursuant to this pronouncement, API recorded debt extinguishment expenses of $11.8 million as part of other expenses as a result of refinancing a portion of the
senior credit facility during the second quarter of 2002.



In June 2002, the FASB issued SFAS No. 146, Accounting for Exit or Disposal Activities. SFAS No. 146 addresses significant issues regarding the recognition, measurement and reporting of costs that are associated
with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the Emerging Issues Task Force (EITF) has set forth in EITF Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 will be effective for exit or disposal activities initiated after December 31, 2002. The Company
anticipates that this statement, upon adoption, will not have a significant impact on its financial position or results of operations.



|4. |  | GUARANTEES
|-- |  | ----------



In November 2002, the FASB issued FASB Interpretation No. (FIN) 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that
guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued. This Interpretation outlines disclosure requirements effective beginning with 2002 calendar year-end financial statements, including a requirement to
disclose the maximum amount of future payments that an entity might need to make under a guarantee. The Interpretations provision for initial recognition and measurement should be applied on a prospective basis to guarantees issued or modified
after December 31, 2002. The Company will apply the recognition provisions of FIN 45 prospectively to guarantees issued after December 28, 2002.



At December 28, 2002, the Companys guarantees consisted of the potential repurchase obligation related to its redeemable common
stock (see Note 22 Employee Stock Ownership Plan).



|5. |  | DISCONTINUED OPERATIONS
|-- |  | -----------------------



On October 28, 2001, API completed the transfer of one of its wholly owned subsidiaries, Newton Falls, Inc. (NFI), to Newton
Falls LLC (NFLLC), an affiliated company of AWA. The Newton Falls mill, which represented the remainder of APIs coated free sheet and fine paper products division, was permanently closed in the third quarter of 2001. APIs
deficit investment in this subsidiary at the date of transfer was $2.8 million. This amount was credited to shareholders equity as API and NFLLC were commonly controlled entities.



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Effective
November 26, 2000, API completed the transfer of two wholly owned subsidiaries, Appleton Coated LLC (AC) and Appleton Leasing LLC, to Appleton Coated Papers Holdings Inc. (ACPHI), a company whose ultimate parent was also
Worms et Cie. APIs investment in these subsidiaries at the date of the transfer was $225.1 million. API received related party notes receivable totaling $105.4 million as proceeds for this transaction. The $119.7 million loss generated as a
result of this related party transaction was charged to shareholders equity as a dividend distribution as API and ACPHI were commonly controlled entities.



API classified these subsidiaries as discontinued operations in its consolidated statements of operations and
of cash flows for the Predecessor Periods presented.



Revenues for these subsidiaries were none in the fiscal 2001 Predecessor Period and $221.7 million in 2000. Operating losses for these subsidiaries were $6.9 million in the fiscal 2001 Predecessor Period and $27.2 million in 2000.



|6. |  | RESTRUCTURING AND OTHER CHARGES
|-- |  | -------------------------------



During the third quarter of 1999, API announced plans to close the Newton Falls mill in 2000 and the Harrisburg plant in 2001. API
recorded restructuring charges of $12.7 million in the fiscal 2001 Predecessor Period and $13.5 million in 2000 related to these facility closings.



In the third quarter of 2000, API ceased operations at the Newton Falls mill and permanently closed the mill during the third quarter of
2001. API sold its Harrisburg plant in August 2001. As part of this sale, API entered into a five-year agreement to lease the portion of the plant that served as a distribution center.



The table below summarizes the components of restructuring costs included in the consolidated statements of
operations (dollars in thousands):



|                                |  | (Predecessor Basis)                                  |      
|------------------------------- |  | ---------------------------------------------------- | -----
|                                |  | For the Period December 31, 2000 to November 9, 2001 |      
|                                |  | Restructuring and Other Charges                      |      
|Asset impairments               |  | $                                                    | 3,827
|Employee termination benefits   |  |                                                      | 1,089
|Environmental costs             |  |                                                      |     
|Newton Falls mill closing costs |  |                                                      |     
|Loss on contractual obligations |  |                                                      |     
|Other                           |  |                                                      | 1,469
|                                |  |                                                      |      
|                                |  | $                                                    | 6,385
|                                |  |                                                      |      



In
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, API recorded impairment losses of $3.8 million and $3.3 million during the period December 31, 2000 to November
9, 2001 for the sale of the Harrisburg plant and the closure of the Newton Falls mill, respectively.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Charges
related to employee termination benefits of $1.1 million recorded in the period December 31, 2000 to November 9, 2001 and $5.9 million in fiscal 2000 were recorded for the 348 plant and distribution center employees whose employment was terminated
in 2001.



In conjunction with the permanent
closure of the Newton Falls mill in 2001, API estimated that it would incur environmental costs of $3.0 million to dredge the areas surrounding the mill. In October 2001, the remaining reserve related to these environmental costs of $2.8 million was
transferred to an affiliated company (see Note 5 Discontinued Operations). Newton Falls mill closing costs of $2.7 million in the fiscal 2001 Predecessor Period and $2.9 million in 2000 relate to additional costs caused by various delays
in closing the facility that were not included within APIs original estimates.



Other charges of $1.9 million and $2.0 million were recorded in the fiscal 2001 Predecessor Period and 2000, respectively. The 2001 charges primarily related to other payments made for various closing
costs incurred for the Harrisburg plant. The most significant of the 2000 costs related to an early retirement package offered to salaried employees in 2000 that was not in place as of January 1, 2000.



The table below summarizes the components of the restructuring
reserve included on the Consolidated Balance Sheets at December 28, 2002 and December 29, 2001 (dollars in thousands):



|                               |  | December 29, 2001 Reserve |       | 2002 Reserve Additions |   | 2002 Charges to Reserve |  |   | December 28, 2002 Reserve
|------------------------------ |  | ------------------------- | ----- | ---------------------- | - | ----------------------- |  | - | -------------------------
|Distribution center exit costs |  | $                         | 5,464 |                        | $ |                        |  | $ | (711                     
|                               |  |                           |       |                        |   |                         |  |   |                          



The $0.7
million reduction to the reserve represents 2002 lease payments, net of sublease income, for the New York distribution center. In 1999, the Company committed to exiting this distribution center in 2001 because it was no longer needed as a result of
the closure of the Newton Falls mill and thus recorded $6.0 million of related restructuring and other charges expected to be incurred until the long-term lease expires in 2007.



|7. |  | TRANSACTIONS WITH AWA AND AWA AFFILIATED COMPANIES
|-- |  | --------------------------------------------------



In December 1997, API entered into a revolving credit facility with a financial institution and borrowed $600 million against the
facility. API repaid approximately $387.7 million and $212.3 million of this debt in 1999 and 1998, respectively. In 1999, API entered into loans with affiliated companies for $372.9 million. The proceeds of these loans were used primarily to repay
the revolving credit facility. At year-end 2000 these loans from affiliated companies totaled $331.6 million and had interest rates ranging from 5.0% to 7.0%. Principal amounts of these loans were payable upon demand.



On November 6, 2001, AWDGPs two partners made a capital
contribution of approximately $353.0 million to AWDGP. A portion of the receivables associated with this capital contribution were assigned to affiliated companies for full settlement of intercompany loan balances. Prior to the Acquisition, API made
a dividend distribution of approximately $7.4 million to an affiliated company.



Management fee expenses to AWA approximated $1.0 million in the fiscal 2001 Predecessor Period and $2.1 million in 2000. Basestock and other paper purchases from Appleton Coated LLC for the fiscal 2001
Predecessor Period were $86.4 million. Similar purchases were $165.3 million in 2000. Fees, associated with information technology and other services, received from affiliated companies approximated $2.7 million for the fiscal 2001 Predecessor
Period and $4.3 million for 2000.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





On
December 16, 1999, Arjo Wiggins Investments Inc. (AWII) issued an additional 11 shares of stock to API, increasing APIs share in AWII from 78.6% to 80%. On July 26, 2000, API bought the 20% minority interest share of AWII held by a
subsidiary of AWA for $46.0 million and AWII was liquidated into API.



During 2000 and through September of 2001, API held a $125 million shareholder note in AWSA (the AWSA Note). The AWSA Note could be redeemed at the option of AWSA on every tenth anniversary of the January 5, 1994
issue date. Interest at the annual rate of 6.46% was payable on June 15 and December 15 of each year. API recorded $6.4 million of interest income in the fiscal 2001 Predecessor Period and $8.1 million of interest income in 2000. Effective October
1, 2001 the note was sold to AWA for $125 million plus accrued interest. In consideration for the sale of the AWSA Note, AWA agreed to reduce intercompany debt owed by API to AWA.



During 1990, API made a dividend distribution of $113.4 million to AWA, of which, $5.2 million represented
withholding tax. This $113.4 million dividend was charged directly to equity. Subsequent to remitting the withholding tax, API determined the distribution was not subject to withholding tax and filed for a refund. API received the refund but,
expecting the issue to be contested by the IRS, recorded the receipt of the refund as an accrued liability. During the third quarter of 2001 the issue was settled by the IRS in APIs favor and the $5.2 million accrued liability was reversed
directly to retained earnings.



|8. |  | INVENTORIES
|-- |  | -----------



Inventories consist of the following (dollars in thousands):



|                                            |  | 2002 |         |   | 2001 |  
|------------------------------------------- |  | ---- | ------- | - | ---- | -
|Finished goods                              |  | $    | 61,685  |   |      | $
|Raw materials, work in process and supplies |  |      | 56,898  |   |      |  
|                                            |  |      |         |   |      |  
|Total cost                                  |  |      | 118,583 |   |      |  
|Excess cost over LIFO cost                  |  |      | (485    | ) |      |  
|                                            |  |      |         |   |      |  
|                                            |  | $    | 118,098 |   |      | $
|                                            |  |      |         |   |      |  



Stores
and spare parts inventory balances of $21.3 million in 2002 and $21.8 million in 2001 are valued at average cost.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





|9. |  | PROPERTY, PLANT AND EQUIPMENT
|-- |  | -----------------------------



Assets were recorded at fair market value at the beginning of the Successor Period. Balances consist of the following (dollars in
thousands):



|                                      |  | 2002 |         |   | 2001 |  
|------------------------------------- |  | ---- | ------- | - | ---- | -
|Land and improvements                 |  | $    | 4,725   |   |      | $
|Buildings and improvements            |  |      | 77,259  |   |      |  
|Machinery and equipment               |  |      | 447,745 |   |      |  
|Software                              |  |      | 9,971   |   |      |  
|Capital leases                        |  |      | 4,764   |   |      |  
|Construction in progress              |  |      | 22,633  |   |      |  
|                                      |  |      |         |   |      |  
|                                      |  |      | 567,097 |   |      |  
|Accumulated depreciation/amortization |  |      | (63,009 | ) |      |  
|                                      |  |      |         |   |      |  
|                                      |  | $    | 504,088 |   |      | $
|                                      |  |      |         |   |      |  



|10. |  | OTHER ASSETS
|--- |  | ------------



Other assets consist of the following (dollars in thousands):



|                      |  | 2002 |        | 2001
|--------------------- |  | ---- | ------ | ----
|Deferred debt expense |  | $    | 9,483  |     
|Other                 |  |      | 3,421  |     
|                      |  |      |        |     
|                      |  | $    | 12,904 |     
|                      |  |      |        |     



|11. |  | OTHER ACCRUED LIABILITIES
|--- |  | -------------------------



Other accrued liabilities consist of the following (dollars in thousands):



|                          |  | 2002 |        | 2001
|------------------------- |  | ---- | ------ | ----
|Payroll                   |  | $    | 10,912 |     
|Trade discounts           |  |      | 26,437 |     
|Workers compensation     |  |      | 5,129  |     
|Lower Fox River liability |  |      | 6,144  |     
|Other                     |  |      | 16,121 |     
|                          |  |      |        |     
|                          |  | $    | 64,743 |     
|                          |  |      |        |     



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|12. |  | LONG-TERM OBLIGATIONS
|--- |  | ---------------------



Long-term obligations, excluding the capital lease obligation, consist of the following (dollars in thousands):



|                                                                                                                                                 |  | 2002 |         |   | 2001 |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------- | - | ---- | -
|Senior secured variable rate note payable, LIBOR plus 2.5%, $4,144 due quarterly ending
November 8, 2005                                         |  | $    | 57,550  |   |      | $
|Senior secured variable rate note payable, LIBOR plus 4.25%, $375 due quarterly with
$143,250 due November 8, 2006                               |  |      |        |   |      |  
|Senior secured variable rate note payable, LIBOR plus 3.25%, $227 due quarterly with
$77,412 due November 8, 2006                                |  |      | 93,792  |   |      |  
|                                                                                                                                                 |  |      |         |   |      |  
|                                                                                                                                                 |  |      | 151,342 |   |      |  
|Less obligations due within one year (1)                                                                                                         |  |      | (42,419 | ) |      |  
|                                                                                                                                                 |  |      |         |   |      |  
|                                                                                                                                                 |  |      | 108,923 |   |      |  
|Unsecured variable rate industrial development bonds, 1.7% average interest rate at
December 28, 2002, $2,650 due in 2013 and $6,000 due in 2027 |  |      | 8,650   |   |      |  
|Senior subordinated notes payable, 12.5%, due December 15, 2008                                                                                  |  |      | 199,958 |   |      |  
|Deferred payment obligation, due May 8, 2010, 10% per annum compounded semi-annually to
the date of repayment                                    |  |      | 156,409 |   |      |  



|(1) |  | In accordance with the terms of the senior secured variable rate notes payable, it is anticipated that an additional debt repayment of $19.9 million, based upon an
excess cash calculation, will be made during the first quarter of 2003. As such, this amount has been included in the balance representing obligations due within one year.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On November 9, 2001, API entered into a $340 million Senior Credit Facility. The Senior Credit Facility was
comprised of the following: a four-year credit facility of up to $75 million for revolving loans, including letters of credit; a four-year senior secured note of $115 million; and a five-year senior secured note of $150 million. The Senior Credit
Facility is unconditionally, jointly and severally guaranteed by PDC and WTA Inc., a wholly owned subsidiary of API (see Note 25 Guarantor Financial Information).



The interest rate payable under the revolving credit facility and $115 million senior secured note were
subject to adjustments after six months based on the achievement of certain financial tests. Borrowings under the revolving credit facility and the $115 million senior secured note bore interest at LIBOR plus 3.5% per annum through May 8, 2002. On
May 9, 2002, the Companys defined leverage ratio was calculated at less than 2.5 to 1.00 but greater than or equal to 2.00 to 1.00, and as a result, the interest rate was reduced to LIBOR plus 3.0%. On November 18, 2002, the Companys
defined leverage ratio was calculated at less than 2.00 to 1.00 but greater than or equal to 1.50 to 1.00 and as a result the interest rate was reduced to LIBOR plus 2.5%.



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Through
June 5, 2002, borrowings under the $150 million senior secured note bore interest at LIBOR plus 4.25% per annum, subject to a minimum LIBOR rate of 2.5%. On June 6, 2002, the Company refinanced the $112.4 million remaining principal amount and
replaced it with similar debt carrying a reduced interest rate of LIBOR plus 3.25%, not subject to a minimum LIBOR rate. The terms of this refinanced debt also allowed the Company to repurchase up to $50.0 million in aggregate principal amount of
its 12.5% Senior Subordinated Notes due 2008. As a result of this refinancing, $11.8 million of deferred debt issuance costs were written off during June as debt extinguishment expenses.



The LIBOR rate at December 28, 2002 was 1.4%.



During 2002, the Company made mandatory debt repayments of $18.0 million, plus interest, and voluntary debt
prepayments totaling $95.7 million, plus interest, on its outstanding senior secured notes.



On December 14, 2001, API issued $250 million aggregate principal amount of its 12.5% Series A Senior Subordinated Notes due 2008, which were used to redeem in full, at par, the senior subordinated
note due 2008 held by AWA (see Note 2 Acquisition of Appleton Papers Inc.). On June 12, 2002, the Companys Registration Statement on Form S-4, relating to the offer to exchange up to $250 million of its registered 12.5% Series B
Senior Subordinated Notes due 2008 for any and all of its outstanding 12.5% Series A Senior Subordinated Notes due 2008, was declared effective by the Securities and Exchange Commission. The exchange offer closed on July 12, 2002. The entire
outstanding principal balance of Series A notes was exchanged for Series B notes. During 2002, the Company purchased and retired $50.0 million of its Series B notes. The Company paid a premium of $1.8 million on the purchase and retirement of the
$50.0 million of its Series B notes. Actual principal of $50,042,000 was purchased and retired. This was $42,000 higher than permitted under the Senior Credit Facility terms agreed to as part of the June 6, 2002 refinancing. As such, the Company was
in technical default and, in accordance with the terms of the Senior Credit Facility, obtained a waiver from the senior lenders related to this technical default.



The Series B notes and the Series A notes have substantially the same terms, conditions and covenants. The
Series B notes are unsecured obligations of API, ranking subordinate in right of payment to all senior debt of API and are unconditionally, jointly and severally guaranteed by PDC and WTA Inc. (see Note 25 Guarantor Financial
Information). Interest on the Senior Subordinated Notes is payable semi-annually in June and December of each year. Prior to December 15, 2004, and after 100% application toward the repayment of the Senior Credit Facility, API may use the
proceeds of certain sales of its equity to redeem up to 35% of the original principal amount of the Senior Subordinated Notes at a redemption price of 112.5% of their principal amount, plus accrued and unpaid interest and liquidated damages, if any,
to the redemption date.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Except
pursuant to the preceding paragraph, the Senior Subordinated Notes will not be redeemable at APIs option prior to December 15, 2005. On or after December 15, 2005, API may redeem during the 12-month period beginning on December 15 of the
applicable year all or a part of the Senior Subordinated Notes at the redemption prices of 106.25% in 2005, 103.125% in 2006 and 100% in 2007 and thereafter, plus accrued and unpaid interest and liquidated damages, if any. Liquidated damages are
those, by agreement, owing to each entitled note holder if API fails to maintain the effectiveness of the agreed upon registration statement filed with the Securities and Exchange Commission. The liquidated damages are equal to $.05 per week per
$1,000 in principal amount of securities held by each entitled note holder for each week or portion thereof that the registration defaults continue for the first 90-day period immediately following the occurrence of such registration default, an
additional $.05 per week per $1,000 in principal amount with respect to each subsequent 90-day period, up to a maximum amount of liquidated damages of $.50 per week per $1,000 in principal amount. The liquidated damages, if any, will be paid to each
entitled note holder on each interest payment date.



Both the Senior Credit Facility and the Senior Subordinated Notes contain customary affirmative and negative covenants. In general, the covenants contained in the Senior Credit Facility are more restrictive than those of the Senior
Subordinated Notes. Among other restrictions, the covenants contained within the Senior Credit Facility require the Company to meet specified financial tests, including various debt and cash flow ratios which become more restrictive over the term of
the debt. These financial tests include the following: a maximum defined leverage ratio of 2.4 to 1.00 at December 28, 2002 decreasing to 1.60 to 1.00 by December 31, 2004 and thereafter; a maximum defined senior leverage ratio of 1.00 to 1.00 at
December 28, 2002 and thereafter; a minimum defined interest coverage ratio of 3.85 to 1.00 for four consecutive fiscal quarters beginning March 31, 2002 increasing to 4.00 to 1.00 by March 31, 2003 and thereafter; a minimum consolidated fixed
charge coverage ratio of 1.30 to 1.00 for four consecutive quarters beginning March 31, 2002 increasing to 1.65 to 1.00 by March 31, 2004 and thereafter; and a minimum consolidated net worth of $107.0 million, plus fifty percent of cumulative
consolidated net income for each fiscal quarter beginning with the quarter ending on March 31, 2002 for which consolidated net income is positive plus the excess of the aggregate amount of all ESOP stock issuances after November 9, 2001 over the
aggregate amount of any ESOP related distributions after November 9, 2001.



The Senior Credit Facility and Senior Subordinated Notes also contain covenants, which, among other things, restrict APIs ability and the ability of other guarantors of the Senior Credit Facility
and Senior Subordinated Notes to incur liens, engage in transactions with affiliates, incur additional indebtedness, declare dividends or redeem or repurchase capital stock, make loans and investments, engage in mergers, acquisitions, consolidations
and asset sales, acquire assets, stock or debt securities of any person, make capital expenditures, terminate the S corporation status of PDC or the qualified subchapter S subsidiary status of its subsidiaries eligible to elect such status, amend
APIs other debt instruments and amend other agreements related to the Acquisition.



In conjunction with the Acquisition, the Company incurred approximately $2.1 million of costs relating to the issuance of redeemable common stock to the ESOP (see Note 22 Employee Stock Ownership
Plan). The appropriate netting of these costs with the $106.8 million of proceeds received from the ESOP resulted in a technical default under the minimum net worth covenant, discussed above, at the date of the Acquisition and during a limited
portion of the Successor Period. The Company obtained a waiver from the senior lenders related to this technical default. The Company was in compliance with this covenant as of December 29, 2001.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Both the
Senior Credit Facility and Senior Subordinated Notes contain customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, certain events of bankruptcy and insolvency,
ERISA violations, judgment defaults, cross-defaults to certain other indebtedness, agreements related to the Lower Fox River indemnification arrangements and purchase agreement and a change in control. If an event of default occurs, is continuing
and arises from certain events of bankruptcy or insolvency, all amounts owing under both the Senior Credit Facility and Senior Subordinated Notes become due and payable immediately. If any other event of default occurs under the Senior Credit
Facility and is continuing, the Administrative Agent may, or if requested by the Required Lenders (as defined in the Senior Credit Facility) shall, (i) terminate the revolving commitments and/or (ii) declare the loans and all other amounts owing
under the agreement to be due and payable immediately. If any other event of default occurs under the Senior Subordinated Note Indenture and is continuing, the trustee or Holders of at least 25% in principal amount of the then outstanding notes may
declare all the notes to be due and payable immediately.



In connection with the Acquisition (see Note 2 Acquisition of Appleton Papers Inc.), PDC agreed to pay AWA approximately $321 million on May 8, 2010 (the Deferred Payment Obligation). The Deferred Payment
Obligation is or will be contractually subordinated in right of payment to the prior repayment in full of the Senior Credit Facility and the Senior Subordinated Notes and the fulfillment of all of PDCs obligations under its guarantees of the
Senior Credit Facility and the Senior Subordinated Notes. PDC has the right to set-off the amount of any losses suffered by the Company for which AWA is obligated to provide indemnification under the purchase agreement against any payments due under
the Deferred Payment Obligation.



In connection
with the Deferred Payment Obligation, PDC agreed to the following: (1) limit the distributions PDC is allowed to make to the ESOP other than (i) those distributions required to repurchase stock from employees whose employment is terminated or who
exercise their diversification rights under the ESOP and (ii) loans to the ESOP to permit the ESOP to make loans or to fund hardship distributions to participants in the ESOP; (2) not to incur debt other than certain permitted guarantees; the
intercompany acquisition loan; loans payable to AWA pursuant to the Fox River Indemnification Agreement; or other indebtedness not to exceed $5,000 at any time outstanding; nor to allow API or its subsidiaries to incur indebtedness except (i) to
refinance the Senior Credit Facility; (ii) certain permitted guarantees; (iii) loans payable to AWA pursuant to the Fox River Indemnification Agreement; (iv) an incurrence of indebtedness following which (a) the resulting indebtedness and
Attributable Debt (excluding working capital facilities) of PDC and its subsidiaries is $635 million or less and (b) the accumulated outstanding amount of any such indebtedness incurred under this provision and not used to reduce existing
indebtedness and any indebtedness incurred to avoid a default (see (v) following) does not exceed $100 million; or (v) if reasonably necessary to avoid a default under the terms of the Purchase Indebtedness or any refinancing thereof; (3) not to own
assets other than APIs capital stock; (4) to allow the holder of the Deferred Payment Obligation the right to transfer the obligation to a qualified institutional buyer and to other parties, except APIs competitors, with PDCs
consent, which may not be unreasonably withheld; and (5) to provide AWA with all information provided to the holders of the Senior Subordinated Notes.



If, at any time prior to the date that the Deferred Payment Obligation is paid in full, API defaults on the payment of any principal or
interest owing under the Senior Credit Facility or the Senior Subordinated Notes and the default continues for thirty days, the holder of the Deferred Payment Obligation will have the right to designate one member to the Companys board of
directors. Notwithstanding the foregoing, if AWA transfers more than 50% of the Deferred Payment Obligation to a third party, then such third party holder would be entitled to designate two directors to the Companys board of directors upon any
payment default. PDC will be permitted to prepay the Deferred Payment Obligation, in whole at any time, or in part from time to time, for an amount equal to $140 million increased by 10% per annum compounded semi-annually from the closing date of
the Acquisition through the date of repayment, less the amount of any prior prepayments. However, the agreements governing the Senior Credit Facility and the Senior Subordinated Notes prohibit or restrict prepayments, or repayment on the due date,
of the Deferred Payment Obligation as long as the Senior Credit Facility and the Senior Subordinated Notes remain outstanding.



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At
December 28, 2002 there was approximately $57.5 million of unused borrowing capacity under the $75 million revolving credit facility for working capital and other corporate purposes. Approximately $17.5 million of the revolving credit facility was
used to support outstanding letters of credit. A commitment fee of 0.5% per annum is assessed on its unused borrowing capacity.



API recorded debt extinguishment expenses of $10.4 million during the 2001 Predecessor Period as a result of the early redemption of the
6.26% and 6.61% senior unsecured notes payable. On October 19, 2001, API paid $150.0 million in principal due on the notes and $3.3 million in related interest. The debt extinguishment expenses consisted primarily of a prepayment penalty and the
write-off of unamortized debt issuance costs. The redemption of the debt was financed with funds received from an affiliated company.



API also recorded debt extinguishment expenses of $7.5 million during 2000 as a result of the early redemption of 9.85% senior unsecured
notes payable. On November 21, 2000, API paid $86.0 million in principal due on the notes and $2.6 million in related interest. The debt extinguishment expenses consisted primarily of a prepayment penalty and the write-off of unamortized debt
issuance costs. The redemption of the debt was financed with funds received from an affiliated company.



Scheduled repayment of principal on long-term obligations outstanding at December 28, 2002 is as follows (dollars in thousands):



|2003       |  | $ | 42,419 
|---------- |  | - | -------
|2004       |  |   | 17,487 
|2005       |  |   | 13,342 
|2006       |  |   | 78,094 
|2007       |  |   |       
|Thereafter |  |   | 365,017
|           |  |   |        
|           |  | $ | 516,359
|           |  |   |        



|13. |  | INCOME TAXES
|--- |  | ------------



In conjunction with the acquisition of API, the Company elected to be treated as a subchapter S corporation and to treat its eligible
subsidiaries as qualified subchapter S subsidiaries for federal and state income tax purposes. The components of the provision for income taxes from continuing operations for the Predecessor Period are as follows (dollars in thousands):



|                  |  | (Predecessor Basis)                                  |        
|----------------- |  | ---------------------------------------------------- | -------
|                  |  | For the Period December 31, 2000 to November 9, 2001 |        
|Current           |  | $                                                    | 32,465 
|Deferred          |  |                                                      | (11,840
|                  |  |                                                      |        
|Total tax expense |  | $                                                    | 20,625 
|                  |  |                                                      |        



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An
analysis of effective income tax rates for continuing operations for the Predecessor Period is shown below (dollars in thousands):



|                                                                         |  | (Predecessor Basis)                                  |       
|------------------------------------------------------------------------ |  | ---------------------------------------------------- | ------
|                                                                         |  | For the Period December 31, 2000 to November 9, 2001 |       
|Expected tax at statutory federal tax rates                              |  | $                                                    | 20,233
|State and local income taxes net of federal tax benefit                  |  |                                                      | 2,046 
|Benefit from Extraterritorial Income Exclusion/Foreign Sales Corporation |  |                                                      | (1,085
|Prior year taxes                                                         |  |                                                      | (1,453
|Other, net                                                               |  |                                                      | 884   
|                                                                         |  |                                                      |       
|Total tax expense                                                        |  | $                                                    | 20,625
|                                                                         |  |                                                      |       
|Effective income tax rate                                                |  |                                                      | 35.7  
|                                                                         |  |                                                      |       



No
analysis of effective income tax rates for the Successor Period is shown because PDC has elected subchapter S corporation status and thus its tax provision includes only minimal foreign and state income taxes.



The effective income tax rate for discontinued operations was
37.2% for the fiscal 2001 Predecessor Period and 22.4% for 2000.



|14. |  | LEASES
|--- |  | ------



The Company leases buildings, machinery and equipment and other facilities. Many of these leases obligate the Company to pay real estate
taxes, insurance and maintenance costs and contain multiple renewal options, which cover periods ranging from one to ten years. Total rent expense was $8.8 million for 2002, $1.2 million for the 2001 Successor Period, $7.5 million for the fiscal
2001 Predecessor Period and $12.9 million in 2000.



Prior to 2001, API also leased buildings and machinery and equipment under several capital lease agreements, the payments of which were guaranteed by AWA. Appleton Leasing LLC held a majority of APIs capital leases through
November 26, 2000, when the former subsidiary, and $144.7 million of the capital lease obligations, were transferred to ACPHI (see Note 5 Discontinued Operations).



In October 2000, API terminated one of its capital leases and purchased the assets covered by the lease. As a
result of this termination, API made a net termination payment of $31.6 million, which included a lease termination penalty of $1.3 million.



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In 1999
APIs coated free sheet and fine paper products division also terminated one of its capital leases and it purchased the assets covered by the lease. As a result of this termination, API made a net termination payment of $38.2 million, which
included a lease termination penalty of $0.6 million. Based upon APIs best estimate of the future use of these assets, management determined certain assets covered by this lease agreement became impaired and recorded a $13.7 million impairment
charge in 1999. In 2000, an additional write-down of approximately $6.0 million was recorded for these assets as managements projections related to the use of these assets changed from earlier estimates. This $6.0 million write-down is
included in loss from discontinued operations in the 2000 Consolidated Statements of Operations.



Assets recorded under capital leases consist of the following (dollars in thousands):



|                              |  | 2002 |       |   | 2001 |  
|----------------------------- |  | ---- | ----- | - | ---- | -
|Building                      |  | $    | 4,764 |   |      | $
|Less accumulated depreciation |  |      | (568  | ) |      |  
|                              |  |      |       |   |      |  
|                              |  | $    | 4,196 |   |      | $
|                              |  |      |       |   |      |  



Future
minimum lease payments as of December 28, 2002 under leases that have initial or remaining non-cancelable terms in excess of one year are as follows (dollars in thousands):



|                                                             |  | Capital Lease |        |   | Operating Leases
|------------------------------------------------------------ |  | ------------- | ------ | - | ----------------
|2003                                                         |  | $             | 670    |   |                 
|2004                                                         |  |               | 670    |   |                 
|2005                                                         |  |               | 676    |   |                 
|2006                                                         |  |               | 731    |   |                 
|2007                                                         |  |               | 731    |   |                 
|Thereafter                                                   |  |               | 2,133  |   |                 
|                                                             |  |               |        |   |                 
|Total minimum lease payments                                 |  |               | 5,611  |   |                 
|                                                             |  |               |        |   |                 
|Less amounts representing interest                           |  |               | (1,297 | ) |                 
|                                                             |  |               |        |   |                 
|Present value of minimum lease payments under capital leases |  |               | 4,314  |   |                 
|Less current principal portion                               |  |               | (391   | ) |                 
|                                                             |  |               |        |   |                 
|                                                             |  | $             | 3,923  |   |                 
|                                                             |  |               |        |   |                 



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|15. |  | INTEREST EXPENSE (INCOME)
|--- |  | -------------------------



Interest expense (income) consists of the following (dollars in thousands):



|                             |  | (Successor Basis)                    |        |   | (Predecessor Basis)                                   |  
|---------------------------- |  | ------------------------------------ | ------ | - | ----------------------------------------------------- | -
|                             |  | For the Year Ended December 28, 2002 |        |   | For the Period November 10, 2001 to December 29, 2001 |  
|                             |  | Continuing Operations                |        |   | Continuing Operations                                 |  
|Interest expense-affiliates  |  | $                                    |       |   |                                                       | $
|Interest expense-external    |  |                                      | 68,366 |   |                                                       |  
|Capitalized interest         |  |                                      | (12    | ) |                                                       |  
|                             |  |                                      |        |   |                                                       |  
|Total interest expense       |  | $                                    | 68,354 |   |                                                       | $
|                             |  |                                      |        |   |                                                       |  
|Interest (income)-affiliates |  | $                                    |       |   |                                                       | $
|Interest (income)-external   |  |                                      | (990   | ) |                                                       |  
|                             |  |                                      |        |   |                                                       |  
|Total interest (income)      |  | $                                    | (990   | ) |                                                       | $
|                             |  |                                      |        |   |                                                       |  



|16. |  | FAIR VALUE OF FINANCIAL INSTRUMENTS
|--- |  | -----------------------------------



The carrying amount (including current portions) and estimated fair value of certain of the Companys recorded financial instruments
are as follows (dollars in thousands):



|                            |  | December 28, 2002 |         | December 29, 2001
|--------------------------- |  | ----------------- | ------- | -----------------
|Financial Instruments       |  | Carrying Amount   |         | Fair Value       
|Debt                        |  | $                 | 359,950 |                  
|Deferred payment obligation |  |                   | 156,409 |                  
|                            |  |                   |         |                  
|                            |  | $                 | 516,359 |                  
|Lease obligation            |  | $                 | 4,314   |                  



The fair
values of debt and lease obligations were determined based on quoted market prices for similar issues or on current rates available to the Company for financial instruments of the same remaining maturities and similar terms.



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|17. |  | PENSION BENEFITS
|--- |  | ----------------



The Company has various defined benefit pension plans and a defined contribution pension plan. Assets of the Companys defined
benefit plans primarily consist of marketable equity and fixed income securities and real estate. The Companys measurement date for fiscal 2002 was November 30, 2002. The measurement date for the 2001 Successor Period and APIs fiscal
2001 Predecessor Period was November 10, 2001. The status of these plans, including a reconciliation of benefit obligations, a reconciliation of plan assets, the funded status of the plans as well as the weighted-average assumptions used in
accounting for the plans include the following (dollars in thousands):



|                                          |  | (Successor Basis)                    |         |   | (Predecessor Basis)                                   |  
|----------------------------------------- |  | ------------------------------------ | ------- | - | ----------------------------------------------------- | -
|Pension Benefits                          |  | For the Year Ended December 28, 2002 |         |   | For the Period November 10, 2001 to December
29, 2001 |  
|Change in benefit obligation              |  |                                      |         |   |                                                       |  
|Benefit obligation at beginning of period |  | $                                    | 189,278 |   |                                                       | $
|Service cost                              |  |                                      | 5,835   |   |                                                       |  
|Interest cost                             |  |                                      | 13,076  |   |                                                       |  
|Plan amendments                           |  |                                      | 119     |   |                                                       |  
|Special benefits charge                   |  |                                      | 1,346   |   |                                                       |  
|Actuarial loss (gain)                     |  |                                      | 3,012   |   |                                                       |  
|Transfer of discontinued operations       |  |                                      |        |   |                                                       |  
|Benefits and expenses paid                |  |                                      | (9,190  | ) |                                                       |  
|                                          |  |                                      |         |   |                                                       |  
|Benefit obligation at end of period       |  | $                                    | 203,476 |   |                                                       | $
|                                          |  |                                      |         |   |                                                       |  
|Change in plan assets                     |  |                                      |         |   |                                                       |  
|Fair value at beginning of period         |  | $                                    | 173,544 |   |                                                       | $
|Actual return on plan assets              |  |                                      | (3,384  | ) |                                                       |  
|Employer contributions                    |  |                                      | 10,000  |   |                                                       |  
|Transfer of discontinued operations       |  |                                      |        |   |                                                       |  
|Benefits and expenses paid                |  |                                      | (9,190  | ) |                                                       |  
|                                          |  |                                      |         |   |                                                       |  
|Fair value at end of period               |  | $                                    | 170,970 |   |                                                       | $
|                                          |  |                                      |         |   |                                                       |  
|Funded status of plans                    |  |                                      |         |   |                                                       |  
|Funded status at end of period            |  | $                                    | (32,506 | ) |                                                       | $
|Unrecognized                              |  |                                      |         |   |                                                       |  
|Net actuarial loss (gain)                 |  |                                      | 23,529  |   |                                                       |  
|Prior service cost                        |  |                                      | 119     |   |                                                       |  
|Net transition obligation                 |  |                                      |        |   |                                                       |  
|                                          |  |                                      |         |   |                                                       |  
|Net (liability) asset                     |  | $                                    | (8,858  | ) |                                                       | $
|                                          |  |                                      |         |   |                                                       |  



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|                                                                 |  | (Successor Basis)                    |         |   | (Predecessor Basis)                                  
|---------------------------------------------------------------- |  | ------------------------------------ | ------- | - | -----------------------------------------------------
|                                                                 |  | For the Year Ended December 28, 2002 |         |   | For the Period November 10, 2001 to December 29, 2001
|Pension Benefits                                                 |  |                                      |        
|Amounts recognized in the consolidated balance sheet consist of: |  |                                      |         |   |                                                      
|Accrued benefit (liability) asset                                |  | $                                    | (10,959 | ) |                                                      
|Intangible asset                                                 |  |                                      | 578     |   |                                                      
|Accumulated other comprehensive loss                             |  |                                      | 1,523   |   |                                                      
|                                                                 |  |                                      |         |   |                                                      
|Net amount recognized                                            |  | $                                    | (8,858  | ) |                                                      
|                                                                 |  |                                      |         |   |                                                      
|Weighted-average assumptions at end of period (%)                |  |                                      |         |   |                                                      
|Discount rate                                                    |  |                                      | 7.00    |   |                                                      
|Expected return on plan assets                                   |  |                                      | 9.00    |   |                                                      
|Rate of compensation increase                                    |  |                                      | 4.25    |   |                                                      



The
components of net periodic pension costs include the following (dollars in thousands):



|                                                   |  | (Successor Basis)                    |         |   | (Predecessor Basis)                                   |  
|-------------------------------------------------- |  | ------------------------------------ | ------- | - | ----------------------------------------------------- | -
|Pension Benefits                                   |  | For the Year Ended December 28, 2002 |         |   | For the Period November 10, 2001 to December 29, 2001 |  
|Net periodic benefit cost                          |  |                                      |         |   |                                                       |  
|Service cost                                       |  | $                                    | 5,835   |   |                                                       | $
|Interest cost                                      |  |                                      | 13,076  |   |                                                       |  
|Expected return on plan assets                     |  |                                      | (17,114 | ) |                                                       |  
|Amortization of                                    |  |                                      |         |   |                                                       |  
|Transition obligation                              |  |                                      |        |   |                                                       |  
|Prior service cost                                 |  |                                      |        |   |                                                       |  
|Actuarial gain                                     |  |                                      |        |   |                                                       |  
|Special benefits charge                            |  |                                      | 1,346   |   |                                                       |  
|                                                   |  |                                      |         |   |                                                       |  
|Net periodic benefit cost                          |  |                                      | 3,143   |   |                                                       |  
|Charges related to discontinued operations         |  |                                      |        |   |                                                       |  
|                                                   |  |                                      |         |   |                                                       |  
|Net periodic benefit cost of continuing operations |  | $                                    | 3,143   |   |                                                       | $
|                                                   |  |                                      |         |   |                                                       |  



The
defined benefit plan provides that hourly employees receive payments of stated amounts for each year of service. Payments under the defined benefit plan provisions covering salaried employees are based on years of service and the employees
compensation during employment. At December 28, 2002, the accumulated benefit obligation and the fair value of plan assets for the defined benefit plan were noted to approximate $178.4 million and $171.0 million, respectively.





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In 2002,
the Company offered an early retirement option to Appleton Plant hourly employees resulting in a special benefits charge of $1.3 million. In 2000, API offered an early retirement option for salaried employees in conjunction with the 1999
restructuring plans resulting in a special benefits charge of $1.3 million.



In addition, API has unfunded, non-qualified retirement plans for certain management employees. Benefits are based on final average compensation and vest upon retirement from API.



Certain of APIs hourly employees participate in a
multi-employer defined benefit plan. APIs cost for this plan amounted to $0.8 million in 2002, $0.1 million in the 2001 Successor Period, $0.5 million in the 2001 Predecessor Period and $0.7 million in 2000. The Company has not recorded a
liability for the unfunded amount related to this plan as the liability cannot be reasonably estimated.



In December 2001, the Company adopted the Appleton Papers Inc. Long-Term Incentive Plan (the Plan), which provides officers
and key employees the opportunity to earn phantom stock units, the value of which is related to the appreciation of the value of the Companys common stock. Officers and key employees were awarded 200,900 stock units in December 2001 at $10 per
share. Due to forfeitures, 183,770 phantom shares were outstanding at the end of fiscal 2002. The stock units vest ratably over three years. Compensation expense of $1.8 million was recognized during 2002.



As part of AWAs efforts to sell AWDGP, which began in
mid-2000, AWA agreed to compensate certain executive officers for their efforts in selling AWDGP to a third party through two AWA incentive programs. The first incentive program provided for a loyalty payment to named executive officers as of
October 1, 2000 who remained officers through the closing of any sale of AWDGP and who agreed to be available to be engaged at the request of any buyer of AWDGP. As part of the Acquisition, each of the recipients in this program agreed to defer a
substantial portion of the payment into a deferred compensation plan and therefore the funds are available to the Company until the officers employment is terminated. Expenses under this program totaled $1.7 million in fiscal 2002 and $4.1
million in the fiscal 2001 Predecessor Period. The second incentive program involved sales incentive payments made to the Companys chief executive officer and other employees who assisted with the successful completion of the Acquisition.
Total payments made under this program were $2.8 million in the fiscal 2001 Predecessor Period.



API also maintained a phantom share option plan for eligible employees in which annual compensation expense amounted to $4.3 million in 2000. In conjunction with the purchase of AWA by Worms et Cie. in
July 2000, the plan was terminated and all outstanding phantom shares became fully vested with API making cash payments totaling $4.7 million to the participants.



|18. |  | POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS
|--- |  | ------------------------------------------------



The Company has defined postretirement benefit plans that provide medical and life insurance for certain retirees and eligible dependents.
The Companys measurement date for fiscal 2002 was November 30, 2002. The measurement date for the 2001 Successor Period and APIs fiscal 2001 Predecessor Period was November 10, 2001. The status of these plans, including a reconciliation
of benefit obligations and the funded status of the plans as well as the weighted-average assumptions used in accounting for the plans include the following (dollars in thousands):



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|                                                  |  | (Successor Basis)                    |         |   | (Predecessor Basis)                                   |  
|------------------------------------------------- |  | ------------------------------------ | ------- | - | ----------------------------------------------------- | -
|Other Postretirement Benefits                     |  | For the Year Ended December 28, 2002 |         |   | For the Period November 10, 2001 to December 29, 2001 |  
|Change in benefit obligation                      |  |                                      |         |   |                                                       |  
|Benefit obligation at beginning of period         |  | $                                    | 60,612  |   |                                                       | $
|Service cost                                      |  |                                      | 963     |   |                                                       |  
|Interest cost                                     |  |                                      | 4,149   |   |                                                       |  
|Plan amendments                                   |  |                                      |        |   |                                                       |  
|Actuarial loss (gain)                             |  |                                      | 3,000   |   |                                                       |  
|Transfer of discontinued operations               |  |                                      |        |   |                                                       |  
|Benefits and expenses paid                        |  |                                      | (3,392  | ) |                                                       |  
|                                                  |  |                                      |         |   |                                                       |  
|Benefit obligation at end of period               |  | $                                    | 65,332  |   |                                                       | $
|                                                  |  |                                      |         |   |                                                       |  
|Funded status of plans                            |  |                                      |         |   |                                                       |  
|Funded status at end of period                    |  | $                                    | (65,332 | ) |                                                       | $
|Unrecognized                                      |  |                                      |         |   |                                                       |  
|Net actuarial loss (gain)                         |  |                                      | 2,831   |   |                                                       |  
|Prior service cost                                |  |                                      |        |   |                                                       |  
|                                                  |  |                                      |         |   |                                                       |  
|Accrued benefit cost                              |  | $                                    | (62,501 | ) |                                                       | $
|                                                  |  |                                      |         |   |                                                       |  
|Weighted-average assumptions at end of period (%) |  |                                      |         |   |                                                       |  
|Discount rate                                     |  |                                      | 7.00    |   |                                                       |  
|Pre-Medicare medical inflation                    |  |                                      | 10.00   |   |                                                       |  
|Post-Medicare medical inflation                   |  |                                      | 10.00   |   |                                                       |  
|Ultimate medical inflation                        |  |                                      | 5.50    |   |                                                       |  
|Year ultimate inflation reached                   |  |                                      | 2005    |   |                                                       |  



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The
components of other postretirement benefit costs include the following (dollars in thousands):



|                                                   |  | (Successor Basis)                    |       | (Predecessor Basis)                                   |  
|-------------------------------------------------- |  | ------------------------------------ | ----- | ----------------------------------------------------- | -
|Other Postretirement Benefits                      |  | For the Year Ended December 28, 2002 |       | For the Period November 10, 2001 to December 29, 2001 |  
|Net periodic benefit cost                          |  |                                      |       |                                                       |  
|Service cost                                       |  | $                                    | 963   |                                                       | $
|Interest cost                                      |  |                                      | 4,149 |                                                       |  
|Amortization of                                    |  |                                      |      |                                                       |  
|Prior service cost                                 |  |                                      |       |                                                       |  
|Actuarial loss                                     |  |                                      |      |                                                       |  
|Special benefits charge                            |  |                                      |      |                                                       |  
|                                                   |  |                                      |       |                                                       |  
|Net periodic benefit cost                          |  |                                      | 5,112 |                                                       |  
|Charges related to discontinued operations         |  |                                      |      |                                                       |  
|                                                   |  |                                      |       |                                                       |  
|Net periodic benefit cost of continuing operations |  | $                                    | 5,112 |                                                       | $
|                                                   |  |                                      |       |                                                       |  



Impact
of a one percent change in medical trend rate (dollars in thousands):



|                                              |  | 1% Increase |       | 1% Decrease |  
|--------------------------------------------- |  | ----------- | ----- | ----------- | -
|Aggregate impact on service and interest cost |  | $           | 385   |             | $
|Effect on accumulated plan benefit obligation |  |             | 4,866 |             |  



|19. |  | COMMITMENTS AND CONTINGENCIES
|--- |  | -----------------------------



COMMITMENTS



The Company has entered into certain contractual arrangements for the purchase of raw materials with various suppliers. Obligations as of
December 28, 2002, under these contractual agreements, are as follows (dollars in thousands):



|2003       |  | $ | 19,500
|---------- |  | - | ------
|2004       |  |   | 12,700
|2005       |  |   | 9,600 
|2006       |  |   | 8,800 
|2007       |  |   |      
|Thereafter |  |   |      
|           |  |   |       
|           |  | $ | 50,600
|           |  |   |       



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Actual
purchases under these obligations approximated $28.4 million in 2002, $6.0 million in the 2001 Successor Period, $47.6 million in the fiscal 2001 Predecessor Period and $57.5 million in 2000.



Basestock is a key raw material in the Companys
business. For fiscal 2002, the Company purchased approximately $149 million of basestock from external suppliers. Approximately $79 million of this basestock was purchased for the production of carbonless products with nearly 90% purchased from
three external suppliers. The Company purchased approximately $64 million of basestock for the production of thermal products with over 70% purchased from a single external supplier.



CONTINGENCIES



Lower Fox River



Various state and federal government agencies and Native American tribes have asserted claims against API and other parties with respect
to historic discharges of PCBs into the Lower Fox River in Wisconsin.



Carbonless paper containing PCBs was manufactured at what is currently the Appleton plant from 1954 until 1971. Wastewater from the Appleton plant, the Combined Locks paper mill now owned by Appleton Coated LLC (which is
owned by AWAs ultimate parent) and from other local industrial facilities carried PCBs into the Lower Fox River during this time period. As a result, there are allegedly eleven million cubic yards of PCB-contaminated sediment spread over 39
miles of the Lower Fox River. Low levels of PCBs have also been washed by the Lower Fox River into Green Bay, which is part of Lake Michigan.



In June 1997, the United States Environmental Protection Agency published notice that it intended to list the Lower Fox River on the
National Priorities List of Contaminated Sites pursuant to the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund). The EPA identified seven potentially responsible parties
(PRPs) for PCB contamination in the Lower Fox River, including NCR Corporation (NCR) and API as the former and current owners and operators of the Appleton plant, and the owners of five paper reprocessing mills located on the
Fox River, including Georgia-Pacific, P.H. Glatfelter Company, WTM I Co., owned by Chesapeake Corporation, Riverside Paper Corporation and U.S. Paper Mills Corp., which is now owned by Sonoco Products Company.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





In October
2001, the DNR released a remedial investigation/feasibility study for the Lower Fox River, studying various remedial alternatives. Also in October 2001, the DNR and EPA jointly issued, for public comment, a Proposed Remedial Action Plan
(PRAP) for the Lower Fox River proposing a remedial plan based on one of the remedial alternatives evaluated in the feasibility study. The PRAP involved a combination of monitored natural recovery and dredging and off-site disposal of
sediment contaminated with PCBs. On January 7, 2003, the DNR issued a Record of Decision (ROD), in which the EPA concurred, on the first two segments of the river which are largely upstream of the Appleton plant. The ROD provides for
dredging in the first segment and monitored natural recovery in the second segment, as proposed in the PRAP; however, the ROD also provides that up to 25% of the remedy in the first segment may consist of capping if dredging proves not to be
cost-effective and certain conditions are met. It is APIs position that neither API nor NCR has any responsibility or liability for PCB contamination in the first segment of the Lower Fox River. API believes that a ROD covering the third,
fourth and fifth segments of the Lower Fox River (which includes Green Bay) will be issued prior to the third quarter of 2003 and will propose remedial actions substantially similar to those proposed in the PRAP.



In a December 2002 update to its cost estimates, which appears
to incorporate the remediation proposed in the ROD, the DNR estimates total costs for the Lower Fox River remedial action plan of approximately $333 million over a 7 to 18 year time period. Most of the estimated costs relate to the removal of large
quantities of sediment from the Lower Fox River by dredging, dewatering of the dredged materials, treatment of the dredge water and off-site disposal of the remaining solids. Based on cost estimates of large-scale dredging response actions at other
sites and many subjective assumptions regarding the work to be done, engineers engaged by several of the PRPs have estimated that the cost of the remediation work in the PRAP could be between $740 million and $1.6 billion. The DNR strongly disputes
this analysis and continues to believe that its cost estimates are accurate.



The Company does not believe that the remedial action proposed by the DNR in the ROD is appropriate or cost-effective. API, along with the other PRPs, has developed a substantial body of evidence that
API believes demonstrates that selection of alternatives involving active, river-wide remediation, particularly massive dredging, would be inappropriate and unnecessary. There is ongoing vigorous debate within the scientific, regulatory, legal,
public policy and legislative communities over how to properly manage contaminated sediments. Although API believes that the remedy proposed by the PRAP and adopted in the ROD (for the upper portion of the River) is inappropriate and may be
substantially modified and improved over time through further design and experience, the issuance of the ROD greatly reduces the uncertainty about the remedy which will be selected by the EPA and DNR for the remaining three segments of the Lower Fox
River.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





In October
2000, the FWS released a proposed restoration and compensation determination plan presenting the federal and tribal natural resource trustees planned approach for restoring natural resources injured by PCBs and calculating the potential
natural resource damages (NRDs) under different remedial action scenarios. The final NRD valuation will depend on the extent of PCB cleanup; however, the proposed plan estimates that NRDs will fall in the range of $176 to $333 million
for all PRPs in the aggregate. The total costs estimated by the DNR, EPA and FWS for the proposed remediation and NRD discussed above range from $509 million to $666 million. Over the past several years and at various natural resource damage sites,
the FWS and other government agencies have settled NRD claims for amounts substantially less than original estimates or claims. In June 2002, the state and federal trustees announced a proposed settlement of their NRD claims against Fort James
Operating Company, a subsidiary of Georgia-Pacific Corporation (Fort James), the owner of one of the reprocessing mills. Under the settlement, Fort James would pay for or conduct restoration projects with a total cost of approximately
$14 million. The proposed settlement has been challenged by an environmental group in a case pending before the U.S. District Court in Milwaukee. The trustees, API and NCR have expressed an interest in negotiating a similar NRD settlement for API
and NCR, and preliminary discussions have begun. API anticipates the actual costs for the PRPs to settle NRD claims related to the Lower Fox River to be significantly less than the initial range of $176 to $333 million.



The Company purchased the Appleton plant from NCR in 1978,
after the use of PCBs in the manufacturing process was discontinued. Nevertheless, pursuant to CERCLA, both API and NCR are viewed by the EPA as PRPs. Accordingly, API and NCR asserted indemnity claims against each other pursuant to the terms of the
agreement for the purchase of the assets of the business in 1978. In order to resolve indemnification obligations to each other, API entered into an interim settlement agreement with NCR in 1998 under which the parties agreed to share both defense
and liability costs arising from the Lower Fox River.



In addition to the interim settlement agreement with NCR, five of the seven PRPs, excluding U.S. Paper Mills and Riverside Paper, have entered into a non-binding agreement to share both defense costs and costs for scientific studies
relating to PCBs discharged into the Lower Fox River.



A study performed by the FWS in 2000 provided a preliminary estimate of the amount of PCBs discharged into the Lower Fox River by each PRP and concluded that the discharges from the Appleton plant and the Combined Locks paper mill
(which API formerly owned and which is now owned by an affiliate of AWA) represented a percentage in the range of 36% to 52% of the total PCBs discharged. These preliminary estimates are presently under review by the FWS and may be revised. The FWS
analysis will not be binding on the PRPs. The final allocation of liability among the PRPs will be determined by negotiation, litigation or other dispute resolution process. Based on historical and technical analyses performed by environmental
engineers API has engaged, the Company believes that the percentage of PCBs discharged from the Appleton and Combined Locks facilities is less than 20% of the total discharged by all the PRPs. A portion of APIs potential liability for the
Lower Fox River may be joint and several. If, in the future, one or more of the other PRPs were to become insolvent or unable to pay their respective share(s) of the potential liability, API could be responsible for a portion of their share(s).
Based on a review of publicly available financial information about the other PRPs, API believes that the other PRPs will be required, and have adequate financial resources, to pay their share of the remediation and natural resource damage claims
for the Lower Fox River.



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API has
entered into a consent decree with NCR, the DNR, the Wisconsin Department of Justice, the EPA, the FWS, the U.S. Department of Justice, the National Oceanic and Atmospheric Administration, and the Oneida and Menomonee Indian Tribes which are
collectively referred to as the intergovernmental partners, or IGP. Pursuant to the consent decree, API and NCR will provide up to $41.5 million over a period of four years, to a maximum of $10.4 million per year, for interim restoration and
remediation efforts directed by the IGP. API and NCR will each pay about half of this amount. Under the consent decree, the IGP agree not to sue or take administrative action against API and NCR during the four-year period. The consent decree does
not constitute a final settlement with the IGP or provide protection against future claims against API and NCR; however, under the decree, API and NCR will receive full credit against remediation costs and NRD claims for all monies expended for
restoration and remediation of the Lower Fox River during the interim period including pursuant to any claims that could be made as a result of the issuance of the ROD. API recorded a charge for its discounted share of the potential arrangement of
$19.2 million during the first quarter of 2001. Under the consent decree among API, NCR and the IGP, payments totaling $8.0 million were made during 2002. At December 28, 2002 this liability approximated $13.5 million.



A precise estimate of APIs ultimate share of remediation
and natural resource damage liability cannot be made at this time due to uncertainties with respect to: the scope and cost of implementing the final remediation plan; the scope of restoration and final valuation of federal and state NRD assessments;
the evolving nature of remediation and restoration technologies and governmental policies; and APIs share of remediation and NRD costs relative to the other PRPs. However, the issuance of the ROD greatly reduces the uncertainty about the
remedy that will be selected for the remaining three segments of the Lower Fox River and provides API the ability to reasonably estimate its potential liability. Accordingly, API recorded an additional $80.8 million charge to its existing $13.7
million reserve in 2002. The total reserve recorded as of December 28, 2002, including the IGP consent decree discussed above, is $94.5 million, of which, $6.1 million is recorded in other accrued liabilities and $88.4 million is recorded as an
environmental liability. The Company also recorded an additional $59.8 million indemnification receivable from AWA. At December 28, 2002, the total indemnification receivable from AWA is $73.5 million, of which, $6.1 million is recorded in other
current assets and $67.4 million is recorded as an environmental indemnification receivable. The $21.0 million difference between the additional reserve and the indemnification receivable represents the discounted share of Lower Fox River costs for
which the Company is responsible. These costs were charged against earnings in 2002. This discounted share was calculated using a discount rate of 6.0%, which represents the Companys estimate of fair market interest rate at which this
liability could be settled in an arms length transaction. This $21.0 million amount will accrete to $25.0 million by the end of 2005.



API used the estimates described below, including the most recent government agency estimates, in estimating its total Lower Fox River
environmental liability: (1) total costs for remediation of $400 million, based on the DNRs estimate of $333 million in total costs for remediation, plus a 20% contingency; (2) the FWS preliminary estimate that discharges from the Appleton
plant and the Combined Locks mill represent 36% to 52% of the total PCBs discharged by the PRPs, which is substantially greater than the Companys estimate (The Company assumes that API and NCR are primarily responsible for only the discharges
from the Appleton and Combined Locks facilities and not for other discharges.); (3) costs to settle NRD claims against API and NCR, estimated at $20 million or less, based on the IGPs $14 million settlement of NRD claims against Fort James;
(4) APIs responsibility for about half of the claims asserted against API and NCR, based on the interim settlement agreement with NCR, the terms of which are confidential; and (5) $20 million in fees and expenses. Because of the numerous
uncertainties underlying these estimates, it is possible that APIs share of costs will be higher.



As part of the Acquisition, AWA agreed to indemnify the Company for the first $75 million and for all amounts over $100 million in
liabilities relating to the Lower Fox River (see Note 2 Acquisition of Appleton Papers Inc.).



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





West Carrollton Mill



The West Carrollton mill operates pursuant
to various state and federal permits for discharges and emissions to air and water. As a result of the de-inking of carbonless paper containing PCBs through the early 1970s, there have been releases of PCBs and volatile organic compounds into the
soil in the area of the wastewater impoundments at the West Carrollton facility, and low levels of PCBs have been detected in groundwater immediately under this area. In addition, PCB contamination is present in sediment in the adjacent Great Miami
River, but it is believed that this contamination is from a source other than the West Carrollton mill.



Based on investigation and delineation of PCB contamination in soil and groundwater in the area of the wastewater impoundments, API
believes that it could be necessary to undertake remedial action in the future, although API is currently under no obligation to do so. API has not had any discussions or communications with any federal, state or local agencies or authorities
regarding remedial action to address PCB contamination at the West Carrollton mill. Remedial action to address PCB contamination in the area of the wastewater impoundments is expected to involve construction of a cap to prevent exposure to PCBs. In
addition, remedial action could involve long-term monitoring of groundwater or the construction and operation of a groundwater pump-and-treat system to prevent migration of PCB contamination in groundwater, and the removal and disposal of
PCB-contaminated sediment in the Great Miami River. The cost for remedial action  including installation of a cap, long-term pumping, treating and/or monitoring of groundwater and removal of sediment in the Great Miami River  is
estimated to range up to approximately $10.5 million, with approximately $3 million in short-term capital costs and the remainder to be incurred over a period of 30 years. However, costs could exceed this amount if additional contamination is
discovered, if additional remedial action is necessary or if the remedial action costs are more than expected.



Because of the uncertainty surrounding the ultimate course of action for the West Carrollton mill, the Great Miami River remediation and
the Companys share of these remediation costs, if any, no provision has been recorded in the accompanying financial statements for estimated remediation costs. In conjunction with the Acquisition of the Company by the ESOP in 2001, AWA agreed
to indemnify the Company for 50% of all environmental liabilities up to $5.0 million and 100% of all such environmental costs exceeding $5.0 million. In addition, the former owner and operator of the West Carrollton mill may be liable for all or
part of the cost of remediation of historic PCB contamination. Other than the PCB contamination in the area of the wastewater impoundments, there are no other known material liabilities with respect to environmental issues at the West Carrollton
mill.



Other



From time to time, the Company is involved in product
liability and various other suits incident to the operation of its business. Insurance coverage is maintained and estimated costs are recorded for claims and suits of this nature. It is managements opinion that none of these claims or suits
will have a materially adverse effect on the Companys financial position, results of operations or cash flows.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





|20. |  | CONSOLIDATED STATEMENTS OF CASH FLOWS
|--- |  | -------------------------------------



Supplemental cash flow disclosures (dollars in thousands):



|                                                                 |  | (Successor Basis)                    |        | (Predecessor Basis)                                   |  
|---------------------------------------------------------------- |  | ------------------------------------ | ------ | ----------------------------------------------------- | -
|                                                                 |  | For the Year Ended December 28, 2002 |        | For the Period November 10, 2001 to December 29, 2001 |  
|Cash paid during the period for:                                 |  |                                      |        |                                                       |  
|Interest (net of amount capitalized)                             |  | $                                    | 44,506 |                                                       | $
|Income taxes                                                     |  |                                      | 403    |                                                       |  
|                                                                
|Non-cash transactions during the period:                         |  |                                      |        |                                                       |  
|Capital contribution from former parent and affiliated companies |  |                                      |       |                                                       |  
|Conversion of shareholder note                                   |  |                                      |       |                                                       |  
|Transfer of liability (asset) to affiliated company              |  |                                      |       |                                                       |  
|Recovery of withholding tax                                      |  |                                      |       |                                                       |  
|Deferred payment obligation                                      |  |                                      |       |                                                       |  
|Senior subordinated seller note                                  |  |                                      |       |                                                       |  



|21. |  | CONCENTRATIONS OF CREDIT RISK
|--- |  | -----------------------------



Financial instruments that potentially subject the Company to concentration of credit risk consist principally of temporary cash
investments that exceed the maximum federally insured limits and trade receivables. The Company places its temporary cash investments with high quality financial funds that by policy limit their exposure to any one financial security.



Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising the Companys customer base. The Company does not believe it is dependent upon any single customer. Sales to the Companys two largest customers each represented 14%
and 11% of net sales in 2002, 15% and 12% of net sales in 2001 and 15% and 13% of net sales in 2000.



|22. |  | EMPLOYEE STOCK OWNERSHIP PLAN
|--- |  | -----------------------------



The Appleton Papers Retirement Savings Plan, was amended and restated effective as of January 1, 2001, in the form of the Appleton Papers
Retirement Savings and Employee Stock Ownership Plan. The KSOP includes a separate employee stock ownership plan component. The KSOP is a tax-qualified retirement plan that also contains a 401(k) feature, which provides participants with the ability
to make pre-tax contributions to the KSOP by electing to defer a percentage of their compensation. The ESOP component of the KSOP is a tax-qualified employee stock ownership plan that is designed to invest primarily in the common stock of PDC.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Eligible
participants, as named fiduciaries under ERISA, were offered a one-time irrevocable election to acquire a beneficial interest in the common stock of PDC by electing to direct the transfer of all or a portion of their existing account
balances in the KSOP and the 401(a) plan (Appleton Papers Inc. Retirement Medical Savings Plan) to the Company Stock Fund. During the transfer election period, eligible participants were able to elect to transfer all or any portion of the following
accounts to the Company Stock Fund: (1) account balances held in the Vanguard Fund, regardless of whether they were vested, less any outstanding loan balances and (2) any account balances, regardless of whether they were vested, in the 401(a) plan.
The total proceeds transferred by eligible participants to the Company Stock Fund were approximately $106.8 million. All proceeds of the offering were used by the ESOP trustee to purchase 10,684,373 shares of PDC common stock. As a result of this
purchase, the ESOP owns 100% of the common stock of PDC. The ESOP trustee is expected to purchase common stock from PDC with future pre-tax deferrals made by employees. The Company also intends to fund a significant part of its matching contribution
commitment with common stock of PDC. The Companys matching contributions charged to expense amounted to $8.1 million in 2002 and $1.3 million for the 2001 Successor Period. Compensation expense associated with the KSOP approximated $3.4
million for the fiscal 2001 Predecessor Period and $4.5 million in 2000.



The value of each participants account balance will be paid to that participant, or that participants beneficiary, in the case of the participants death, upon the participants retirement, death,
disability, resignation, dismissal or permanent layoff. Requests for lump sum distributions from the Company Stock Fund will be granted in accordance with a uniform, nondiscriminatory policy established by the ESOP committee. In general, all
requests for lump sum distributions in any plan year will be granted to the extent that the aggregate amount requested does not exceed the amount of new deferrals to the Company Stock Fund, less any distributions that must be made in accordance with
statutory requirements and installment distributions the KSOP is obligated to make under prior year distribution elections. Covenants in the agreements providing for the senior credit facility and the senior subordinated notes restrict APIs
ability to pay dividends to PDC which could limit PDCs ability to repurchase shares distributed to ESOP participants who have terminated employment or who are entitled to diversification rights. PDC has obligations to make distributions to
former participants in the ESOP under ERISA and these obligations may supersede the terms of the respective agreements. If lump sum distributions cannot be made, distributions to former participants will be made in up to five equal annual
installments.



In fiscal 2002, the ESOP trustee
purchased 498,769 shares of PDC redeemable common stock from pre-tax deferrals made by employees, rollovers from new employees and interest earned on these funds. The Companys matching deferrals over this same period resulted in an additional
420,770 shares of redeemable common stock being issued. During 2002, employees redeemed approximately $0.3 million of PDC redeemable company stock related to account diversification and hardship withdrawals.



Based upon managements assumptions related to
participant death, retirement, diversification requests, employment termination and changes in share value, the Company estimates that the potential repurchase obligations over the next five years may approximate $68 million. The assumptions used by
management to estimate the potential repurchase obligation change from year to year and actual amounts may differ from these estimates. The Company anticipates that a portion of these estimated disbursements will be funded from payroll deferrals
from employees who elect to purchase stock through the Company Stock Fund, which are estimated to approximate $40 million over the next five years. The estimated net repurchase obligations of approximately $28 million is anticipated to be disbursed
in annual payments increasing from $1 million to $17 million over the five-year period.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





In
accordance with EITF Topic D-98, redeemable equity securities are required to be accreted (i.e., increased) so the amount in the balance sheet reflects the estimated amount redeemable at the earliest redemption date based upon the redemption value
at each period end. Redeemable common stock is being accreted up to the earliest redemption date based upon the estimated fair market value of the redeemable common stock as of December 28, 2002. The earliest redemption date occurs when the holder
reaches 55 years of age and has 10 years of participation in the KSOP. At that point, the holder has the right to make diversification elections for a period of six years. The Company accreted the redeemable common stock by $18.2 million for the
year ended December 28, 2002. Based upon the estimated fair value of the redeemable common stock, an ultimate redemption amount of approximately $254 million was determined. The redeemable common stock value as of December 28, 2002 was $134 million,
which leaves a remaining unrecognized accretion amount of approximately $120 million. The accretion is being charged to retained earnings as redeemable common stock is the only class of shares outstanding.



|23. |  | UNAUDITED QUARTERLY FINANCIAL DATA
|--- |  | ----------------------------------



Unaudited quarterly financial data for the fiscal year 2002 includes the following (dollars in thousands):



|                 |  | For the Three Months Ended March 31, 2002 |         | For the Three Months Ended June 30, 2002 |   |         | For the Three Months Ended September 29, 2002 |  | For the Three Months Ended December 28,
2002 |         |  | For the Year Ended December 28, 2002
|---------------- |  | ----------------------------------------- | ------- | ---------------------------------------- | - | ------- | --------------------------------------------- |  | -------------------------------------------- | ------- |  | ------------------------------------
|Net sales        |  | $                                         | 224,576 |                                          | $ | 228,698 |                                               |  | $                                            | 229,030 |  | $                                   
|Gross profit     |  |                                           | 69,339  |                                          |   | 64,543  |                                               |  |                                              | 70,716  |  |                                     
|Operating income |  |                                           | 29,486  |                                          |   | 24,213  |                                               |  |                                              | 33,017  |  |                                     
|Net income       |  |                                           | 10,486  |                                          |   | (5,358  | )                                             |  |                                              | 16,978  |  |                                     



Unaudited quarterly financial data for the fiscal year 2001 includes the following (dollars in thousands):



|                 |  | For the Three Months Ended April 1,
2001 |         | For the Three Months Ended July 1,
2001 |   | For the Three Months Ended September 30,
2001 |  | For the Three Months Ended December 29,
2001(1) |         | For the Year Ended December 29, 2001(1)
|---------------- |  | ---------------------------------------- | ------- | --------------------------------------- | - | --------------------------------------------- |  | ----------------------------------------------- | ------- | ---------------------------------------
|Net sales        |  | $                                        | 240,310 |                                         | $ | 239,188                                       |  | $                                               | 249,112 |                                        
|Gross profit     |  |                                          | 65,420  |                                         |   | 67,621                                        |  |                                                 | 80,020  |                                        
|Operating income |  |                                          | 8,935   |                                         |   | 27,237                                        |  |                                                 | 37,567  |                                        
|Net income       |  |                                          | 1,168   |                                         |   | 13,581                                        |  |                                                 | 17,582  |                                        

|(1) |  | The financial information for the 2001 Predecessor Period has been combined with the 2001 Successor Period.
|--- |  | -----------------------------------------------------------------------------------------------------------



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





During the
three months ended December 28, 2002, environmental expenses of $21.0 million were recorded related to the Lower Fox River (see Note 19 Commitments and Contingencies). In June 2002, the Company refinanced a $112.4 million senior secured
note (see Note 12 Long-Term Obligations). As a result of this refinancing, $11.8 million of deferred debt issuance costs were written off during the quarter as debt extinguishment expenses.



During the three months ended April 1, 2001, environmental
expenses of $20.1 million were recorded related to the Lower Fox River (see Note 19 Commitments and Contingencies). During the three months ended December 29, 2001, debt extinguishment expenses of $10.4 million were recorded related to
the repayment of bank debt (see Note 12 Long-Term Obligations).



|24. |  | SEGMENT INFORMATION
|--- |  | -------------------



In the fourth quarter of 2002, the Company redefined the structure of its internal organization, which has resulted in a change in the
composition of its reportable segments. All prior year information has been restated to conform to the current year presentation.



The Company has three operating segments: coated solutions, technical products and security papers. Based upon quantitative thresholds,
coated solutions and technical products constitute the Companys reportable segments. The accounting policies applicable to all segments are the same as those described in the summary of significant accounting policies. Management evaluates the
performance of the segments based primarily on operating income. Items excluded from the determination of segment operating income are unallocated corporate charges, business development costs, interest income and expense, debt extinguishment
expenses, minority interest expense and foreign currency gains and losses.



The coated solutions segment contains the Companys carbonless, specialty papers and digital printing paper products and toll coating services. Carbonless paper, the most significant product
within the coated solutions segment, is used in multi-part forms such as invoices, insurance claim forms, medical claim forms and credit card receipts. Carbonless paper is used in a diverse group of end markets, including government, retail,
financial, insurance and manufacturing. The Company supplies coated solutions products to merchants, printers and paper converters primarily in North America.



The technical products segment includes the Companys direct thermal products as well as additional applications in the label and
tag/ticket product categories. Thermal paper, the most significant product within the technical products segment, is used in a wide variety of applications including point-of-sale receipts, shipping and weigh scale labels, baggage tags and tickets
for passenger travel, lotteries and entertainment events. The Company supplies technical products primarily to paper converters in North America.



The Company does not allocate total assets internally in assessing operating performance. Net sales, operating income and depreciation and
amortization as determined by the Company for its reportable segments are as follows (dollars in thousands):



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





|                                                             |  | (Successor Basis)                    |         |   | (Predecessor Basis)                                  |  
|------------------------------------------------------------ |  | ------------------------------------ | ------- | - | ---------------------------------------------------- | -
|                                                             |  | For the Year Ended December 28, 2002 |         |   | For the Period November 10 2001 to
December 29, 2001 |  
|Net sales                                                    |  |                                      |         |   |                                                      |  
|Coated solutions                                             |  | $                                    | 691,948 |   |                                                      | $
|Technical products                                           |  |                                      | 176,823 |   |                                                      |  
|Other (1)                                                    |  |                                      | 29,202  |   |                                                      |  
|                                                             |  |                                      |         |   |                                                      |  
|Total                                                        |  | $                                    | 897,973 |   |                                                      | $
|                                                             |  |                                      |         |   |                                                      |  
|Operating income                                             |  |                                      |         |   |                                                      |  
|Coated solutions                                             |  | $                                    | 83,369  |   |                                                      | $
|Technical products                                           |  |                                      | 9,394   |   |                                                      |  
|Other (1)                                                    |  |                                      | 4,465   |   |                                                      |  
|Unallocated corporate charges and business development costs |  |                                      | (7,561  | ) |                                                      |  
|                                                             |  |                                      |         |   |                                                      |  
|Total                                                        |  | $                                    | 89,667  |   |                                                      | $
|                                                             |  |                                      |         |   |                                                      |  
|Depreciation and amortization                                |  |                                      |         |   |                                                      |  
|Coated solutions                                             |  | $                                    | 55,535  |   |                                                      | $
|Technical products                                           |  |                                      | 10,389  |   |                                                      |  
|Other (1)                                                    |  |                                      | 1,972   |   |                                                      |  
|Business development costs                                   |  |                                      | 81      |   |                                                      |  
|                                                             |  |                                      |         |   |                                                      |  
|Total                                                        |  | $                                    | 67,977  |   |                                                      | $
|                                                             |  |                                      |         |   |                                                      |  

|(1) |  | Other consists primarily of security papers.
|--- |  | --------------------------------------------



|25. |  | GUARANTOR FINANCIAL INFORMATION
|--- |  | -------------------------------



API (the Issuer) has issued senior subordinated notes (the Notes) which have been guaranteed by PDC (the
Parent Guarantor) and WTA Inc., a wholly owned subsidiary of API, (the Subsidiary Guarantor). These guarantees are full, unconditional and joint and several.



Presented below is condensed consolidating financial information for the Parent Guarantor, the Issuer, the
Subsidiary Guarantor and its wholly owned foreign subsidiary (the Non-Guarantor Subsidiary) as of December 28, 2002 and December 29, 2001 and for the year ended December 28, 2002, the 2001 Successor Period and the 2001 Predecessor Period
and the year ended December 30, 2000. This financial information should be read in conjunction with the consolidated financial statements and other notes related thereto.



The condensed consolidating financial information has been presented to show the nature of the assets held,
results of operations and cash flows of the Parent Guarantor, Issuer, Subsidiary Guarantor and Non-Guarantor Subsidiary assuming the guarantee structure of the Notes was in effect at the beginning of the periods presented. Separate financial
statements for the Parent and Subsidiary Guarantor are not presented based on managements determination that they would not provide additional information that is material to readers of these financial statements.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





The Senior
Credit Facility, the Senior Subordinated Notes and the Deferred Payment Obligation place restrictions on the subsidiaries of the Issuer that would limit dividend distributions by these subsidiaries.



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PAPERWEIGHT
DEVELOPMENT CORP. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 28, 2002

(dollars in thousands)



|                                                                                                                             |  | (Successor Basis)
|---------------------------------------------------------------------------------------------------------------------------- |  | -----------------
|                                                                                                                             |  | Parent Guarantor 
|ASSETS                                                                                                                       |  |                  
|Current assets                                                                                                               |  |                  
|Cash and cash equivalents                                                                                                    |  | $                
|Accounts receivable, net                                                                                                     |  |                  
|Inventories                                                                                                                  |  |                  
|Other current assets                                                                                                         |  |                  
|                                                                                                                             |  |                  
|Total current assets                                                                                                         |  |                  
|Property, plant and equipment, net                                                                                           |  |                  
|Investment in subsidiary                                                                                                     |  |                  
|Other assets                                                                                                                 |  |                  
|                                                                                                                             |  |                  
|Total assets                                                                                                                 |  | $                
|                                                                                                                             |  |                  
|                                                                                                                             |  |                  
|LIABILITIES, REDEEMABLE COMMON STOCK,
(ACCUMULATED DEFICIT) RETAINED EARNINGS AND ACCUMULATED OTHER COMPREHENSIVE LOSS       |  |                  
|Current liabilities                                                                                                          |  |                  
|Current portion of long-term debt                                                                                            |  | $                
|Accounts payable                                                                                                             |  |                  
|Due to (from) parent and affiliated companies                                                                                |  |                  
|Other accrued liabilities                                                                                                    |  |                  
|                                                                                                                             |  |                  
|Total current liabilities                                                                                                    |  |                  
|Long-term debt                                                                                                               |  |                  
|Capital lease obligation                                                                                                     |  |                  
|Other long-term liabilities                                                                                                  |  |                  
|Deferred payment obligation                                                                                                  |  |                  
|Redeemable common stock, (accumulated deficit) retained earnings and accumulated other
comprehensive loss                    |  |                  
|                                                                                                                             |  |                  
|Total liabilities, redeemable common stock, (accumulated deficit) retained earnings and
accumulated other comprehensive loss |  | $                
|                                                                                                                             |  |                  



88



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PAPERWEIGHT
DEVELOPMENT CORP. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 29, 2001

(dollars in thousands)



|                                                                 |  | (Successor Basis)
|---------------------------------------------------------------- |  | -----------------
|                                                                 |  |                  
|ASSETS                                                           |  |                  
|Current assets                                                   |  |                  
|Cash and cash equivalents                                        |  | $                
|Accounts receivable, net                                         |  |                  
|Inventories                                                      |  |                  
|Other current assets                                             |  |                  
|                                                                 |  |                  
|Total current assets                                             |  |                  
|                                                                
|Property, plant and equipment, net                               |  |                  
|Investment in subsidiary                                         |  |                  
|Other assets                                                     |  |                  
|                                                                 |  |                  
|Total assets                                                     |  | $                
|                                                                 |  |                  
|LIABILITIES, REDEEMABLE COMMON STOCK AND
RETAINED EARNINGS       |  |                  
|Current liabilities                                              |  |                  
|Current portion of long-term debt                                |  | $                
|Accounts payable                                                 |  |                  
|Due to (from) parent and affiliated companies                    |  |                  
|Other accrued liabilities                                        |  |                  
|                                                                 |  |                  
|Total current liabilities                                        |  |                  
|                                                                
|Long-term debt                                                   |  |                  
|Capital lease obligation                                         |  |                  
|Other long-term liabilities                                      |  |                  
|Deferred payment obligation                                      |  |                  
|Redeemable common stock and retained earnings                    |  |                  
|                                                                 |  |                  
|Total liabilities, redeemable common stock and retained earnings |  | $                
|                                                                 |  |                  



89



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PAPERWEIGHT
DEVELOPMENT CORP. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE PERIOD ENDED DECEMBER 28, 2002

(dollars in thousands)



|                                      |  | (Successor Basis) |                 
|------------------------------------- |  | ----------------- | ----------------
|                                      |  |                   | Parent Guarantor
|Net sales                             |  | $                 |                
|Cost of sales                         |  |                   |                
|                                      |  |                   |                 
|                                     
|Gross profit                          |  |                   |                
|Selling, general and administrative   |  |                   | 13              
|Environmental expense                 |  |                   |                
|                                      |  |                   |                 
|                                     
|Operating (loss) income               |  |                   | (13             
|                                     
|Interest expense                      |  |                   | 45,724          
|Debt extinguishment expenses          |  |                   |                
|Interest income                       |  |                   |                
|Intercompany royalty expense (income) |  |                   |                
|Intercompany dividend income          |  |                   | (596,867        
|Income in equity investment           |  |                   | (55,829         
|Other expense (income)                |  |                   |                
|                                      |  |                   |                 
|                                     
|Income before income taxes            |  |                   | 606,959         
|Provision for income taxes            |  |                   |                
|                                      |  |                   |                 
|Net income                            |  | $                 | 606,959         
|                                      |  |                   |                 



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PAPERWEIGHT
DEVELOPMENT CORP. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE PERIOD NOVEMBER 10, 2001 TO DECEMBER 29,
2001

(dollars in thousands)



|                                      |  | (Successor Basis) |                 
|------------------------------------- |  | ----------------- | ----------------
|                                      |  |                   | Parent Guarantor
|Net sales                             |  | $                 |                
|Cost of sales                         |  |                   |                
|                                      |  |                   |                 
|                                     
|Gross profit                          |  |                   |                
|Selling, general and administrative   |  |                   |                
|                                      |  |                   |                 
|                                     
|Operating income (loss)               |  |                   |                
|                                     
|Interest expense                      |  |                   | 8,036           
|Interest income                       |  |                   |                
|Intercompany royalty expense (income) |  |                   |                
|Income in equity investment           |  |                   | (15,652         
|Other income                          |  |                   |                
|                                      |  |                   |                 
|                                     
|Income (loss) before income taxes     |  |                   | 7,616           
|Provision (benefit) for income taxes  |  |                   |                
|                                      |  |                   |                 
|Net income (loss)                     |  | $                 | 7,616           
|                                      |  |                   |                 



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE PERIOD DECEMBER 31, 2000 TO NOVEMBER 9,
2001

(dollars in thousands)



|                                         |  | (Predecessor Basis) |        
|---------------------------------------- |  | ------------------- | -------
|                                         |  |                     | Issuer 
|Net sales                                |  | $                   | 842,546
|Cost of sales                            |  |                     | 594,354
|                                         |  |                     |        
|                                        
|Gross profit                             |  |                     | 248,192
|Selling, general and administrative      |  |                     | 130,829
|Restructuring and other charges          |  |                     | 30,686 
|                                         |  |                     |        
|                                        
|Operating income (loss)                  |  |                     | 86,677 
|                                        
|Interest expense                         |  |                     | 32,905 
|Debt extinguishment expenses             |  |                     | 10,392 
|Interest income                          |  |                     | (8,720 
|Intercompany royalty expense (income)    |  |                     | 12,392 
|Intercompany dividend income             |  |                     | (5,830 
|Income in equity investment              |  |                     | (10,072
|Other expense                            |  |                     | 4      
|                                         |  |                     |        
|                                        
|Income (loss) before income taxes        |  |                     | 55,606 
|Provision (benefit) for income taxes     |  |                     | 18,423 
|                                         |  |                     |        
|                                        
|Income (loss) from continuing operations |  |                     | 37,183 
|Loss from discontinued operations        |  |                     | (4,462 
|                                         |  |                     |        
|Net income (loss)                        |  | $                   | 32,721 
|                                         |  |                     |        



91



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PAPERWEIGHT
DEVELOPMENT CORP. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 30, 2000

(dollars in thousands)



|                                      |  | (Predecessor Basis) |          
|------------------------------------- |  | ------------------- | ---------
|                                      |  | Issuer              |          
|Net sales                             |  | $                   | 1,073,422
|Cost of sales                         |  |                     | 753,908  
|                                      |  |                     |          
|                                     
|Gross profit                          |  |                     | 319,514  
|Selling, general and administrative   |  |                     | 160,128  
|Restructuring and other charges       |  |                     | 26,304   
|                                      |  |                     |          
|                                     
|Operating income (loss)               |  |                     | 133,082  
|                                     
|Interest expense                      |  |                     | 56,626   
|Debt extinguishment expenses          |  |                     | 7,502    
|Interest income                       |  |                     | (13,504  
|Intercompany royalty expense (income) |  |                     | 15,849   
|Intercompany dividend income          |  |                     | (53,414  
|Loss in equity investment             |  |                     | 31,210   
|Other (income) expense                |  |                     | (1,519   
|                                      |  |                     |          
|                                     
|Income before income taxes            |  |                     | 90,332   
|Provision for income taxes            |  |                     | 24,171   
|                                      |  |                     |          
|                                     
|Income from continuing operations     |  |                     | 66,161   
|Loss from discontinued operations     |  |                     | (13,063  
|                                      |  |                     |          
|Net income                            |  | $                   | 53,098   
|                                      |  |                     |          



92



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PAPERWEIGHT
DEVELOPMENT CORP. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 28, 2002

(dollars in thousands)



|                                                                                            |  | (Successor Basis) |         
|------------------------------------------------------------------------------------------- |  | ----------------- | --------
|                                                                                            |  | Parent Guarantor  |         
|Cash flows from operating activities:                                                       |  |                   |         
|Net income                                                                                  |  | $                 | 606,959 
|Adjustments to reconcile net income to net cash provided by (used by) operating
activities: |  |                   |         
|Depreciation and amortization                                                               |  |                   |        
|Other                                                                                       |  |                   | 14,513  
|Change in assets and liabilities, net                                                       |  |                   | (43,648 
|                                                                                            |  |                   |         
|Net cash provided by operating activities                                                   |  |                   | 577,824 
|Cash flows from investing activities:                                                       |  |                   |         
|Proceeds from sale of equipment                                                             |  |                   |        
|Additions to property, plant and equipment                                                  |  |                   |        
|                                                                                            |  |                   |         
|                                                                                            |  |                   |         
|Net cash (used by) investing activities                                                     |  |                   |        
|Cash flows from financing activities:                                                       |  |                   |         
|Payments of long-term debt                                                                  |  |                   |        
|Payments relating to capital lease obligation                                               |  |                   |        
|Due to parent and affiliated companies, net                                                 |  |                   | (583,429
|Proceeds from issuance of redeemable common stock                                           |  |                   | 5,909   
|Payments to redeem common stock                                                             |  |                   | (304    
|Cash overdraft                                                                              |  |                   |        
|Intercompany dividend                                                                       |  |                   |        
|                                                                                            |  |                   |         
|Net cash (used by) financing activities                                                     |  |                   | (577,824
|Change in cash and cash equivalents                                                         |  |                   |        
|Cash and cash equivalents at beginning of period                                            |  |                   |        
|                                                                                            |  |                   |         
|Cash and cash equivalents at end of period                                                  |  | $                 |        
|                                                                                            |  |                   |         



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PAPERWEIGHT DEVELOPMENT CORP. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

FOR THE PERIOD NOVEMBER 10, 2001 TO DECEMBER 29, 2001

(dollars in thousands)



|                                                                                                   |  | (Successor Basis) |         
|-------------------------------------------------------------------------------------------------- |  | ----------------- | --------
|                                                                                                   |  | Parent Guarantor  |         
|Cash flows from operating activities:                                                              |  |                   |         
|Net income (loss)                                                                                  |  | $                 | 7,616   
|Adjustments to reconcile net income (loss) to net cash provided by (used by) operating
activities: |  |                   |         
|Depreciation and amortization                                                                      |  |                   |        
|Other                                                                                              |  |                   |        
|Change in assets and liabilities, net                                                              |  |                   | (29,532 
|                                                                                                   |  |                   |         
|Net cash (used by) provided by operating activities                                                |  |                   | (21,916 
|Cash flows from investing activities:                                                              |  |                   |         
|Proceeds from sale of equipment                                                                    |  |                   |        
|Additions to property, plant and equipment                                                         |  |                   |        
|Acquisition of business, net of cash acquired                                                      |  |                   | (314,826
|                                                                                                   |  |                   |         
|Net cash (used by) investing activities                                                            |  |                   | (314,826
|Cash flows from financing activities:                                                              |  |                   |         
|Payments relating to capital lease obligation                                                      |  |                   |        
|Cash overdraft                                                                                     |  |                   |        
|Due to parent and affiliated companies, net                                                        |  |                   | 239,467 
|Due to former parent and affiliated companies, net                                                 |  |                   | (7,388  
|Payment of senior subordinated seller note                                                         |  |                   |        
|Proceeds from issuance of long-term debt, net of issuance costs                                    |  |                   |        
|Proceeds from issuance of redeemable common stock, net of issuance costs                           |  |                   | 104,663 
|                                                                                                   |  |                   |         
|Net cash provided by (used by) financing activities                                                |  |                   | 336,742 
|Change in cash and cash equivalents                                                                |  |                   |        
|Cash and cash equivalents at beginning of period                                                   |  |                   |        
|                                                                                                   |  |                   |         
|Cash and cash equivalents at end of period                                                         |  | $                 |        
|                                                                                                   |  |                   |         



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PAPERWEIGHT DEVELOPMENT CORP. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

FOR THE PERIOD DECEMBER 31, 2000 TO NOVEMBER 9, 2001

(dollars in thousands)



|                                                                                                                                                   |  | (Predecessor Basis) |         
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | --------
|                                                                                                                                                   |  | Issuer              |         
|Cash flows from operating activities:                                                                                                              |  |                     |         
|Income (loss) from continuing operations                                                                                                           |  | $                   | 37,183  
|Adjustments to reconcile income (loss) from continuing operations to net cash provided
by (used by) operating activities of continuing operations: |  |                     |         
|Depreciation and amortization                                                                                                                      |  |                     | 36,637  
|Deferred income taxes                                                                                                                              |  |                     | (11,840 
|Asset impairment charges                                                                                                                           |  |                     | 3,827   
|Other                                                                                                                                              |  |                     | 2,336   
|Change in assets and liabilities, net                                                                                                              |  |                     | 20,196  
|                                                                                                                                                   |  |                     |         
|Net cash provided by operating activities of continuing operations                                                                                 |  |                     | 88,339  
|Net cash provided by operating activities of discontinued operations                                                                               |  |                     | 11,897  
|                                                                                                                                                   |  |                     |         
|Net cash provided by operating activities                                                                                                          |  |                     | 100,236 
|Cash flows from investing activities:                                                                                                              |  |                     |         
|Proceeds from sale of equipment                                                                                                                    |  |                     | 9,016   
|Additions to property, plant and equipment                                                                                                         |  |                     | (49,804 
|                                                                                                                                                   |  |                     |         
|Net cash (used by) investing activities of continuing operations                                                                                   |  |                     | (40,788 
|Net cash (used by) investing activities of discontinued operations                                                                                 |  |                     |        
|                                                                                                                                                   |  |                     |         
|Net cash (used by) investing activities                                                                                                            |  |                     | (40,788 
|Cash flows from financing activities:                                                                                                              |  |                     |         
|Payment for debt extinguishment                                                                                                                    |  |                     | (150,000
|Payments relating to capital lease obligation                                                                                                      |  |                     | (268    
|Cash overdraft                                                                                                                                     |  |                     | 8,920   
|Payments of loans from former parent and affiliated companies                                                                                      |  |                     | (45,745 
|Payments of cash dividends                                                                                                                         |  |                     | (5,830  
|Loans from former parent and affiliated companies                                                                                                  |  |                     | 159,140 
|Due to former parent and affiliated companies, net                                                                                                 |  |                     | 19,834  
|                                                                                                                                                   |  |                     |         
|Net cash (used by) provided by financing activities of continuing
operations                                                                       |  |                     | (13,949 
|Net cash (used by) financing activities of discontinued operations                                                                                 |  |                     | (11,528 
|                                                                                                                                                   |  |                     |         
|Net cash (used by) provided by financing activities                                                                                                |  |                     | (25,477 
|Change in cash and cash equivalents                                                                                                                |  |                     | 33,971  
|Cash and cash equivalents at beginning of period                                                                                                   |  |                     | 39,410  
|                                                                                                                                                   |  |                     |         
|Cash and cash equivalents at end of period                                                                                                         |  | $                   | 73,381  
|                                                                                                                                                   |  |                     |         



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PAPERWEIGHT
DEVELOPMENT CORP. AND SUBSIDIARIES



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 30, 2000

(dollars in thousands)



|                                                                                                                                            |  | (Predecessor Basis) |         
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | --------
|                                                                                                                                            |  |                     | Issuer  
|Cash flows from operating activities:                                                                                                       |  |                     |         
|Income from continuing operations                                                                                                           |  | $                   | 66,161  
|Adjustments to reconcile income from continuing operations to net cash provided by (used
by) operating activities of continuing operations: |  |                     |         
|Depreciation and amortization                                                                                                               |  |                     | 42,857  
|Deferred income taxes                                                                                                                       |  |                     | (26,469 
|Other                                                                                                                                       |  |                     | 429     
|Change in assets and liabilities, net                                                                                                       |  |                     | 59,704  
|                                                                                                                                            |  |                     |         
|Net cash provided by (used by) operating activities of continuing
operations                                                                |  |                     | 142,682 
|Net cash (used by) operating activities of discontinued operations                                                                          |  |                     | (13,370 
|                                                                                                                                            |  |                     |         
|Net cash provided by (used by) operating activities                                                                                         |  |                     | 129,312 
|Cash flows from investing activities:                                                                                                       |  |                     |         
|Proceeds from sale of equipment                                                                                                             |  |                     | 53      
|Additions to property, plant and equipment                                                                                                  |  |                     | (81,060 
|Purchase of minority interest in affiliates                                                                                                 |  |                     | (45,960 
|Payments to acquire equipment from capital lease                                                                                            |  |                     | (30,141 
|                                                                                                                                            |  |                     |         
|Net cash (used by) investing activities of continuing operations                                                                            |  |                     | (157,108
|Net cash (used by) investing activities of discontinued operations                                                                          |  |                     | (25,259 
|                                                                                                                                            |  |                     |         
|Net cash (used by) investing activities                                                                                                     |  |                     | (182,367
|Cash flows from financing activities:                                                                                                       |  |                     |         
|Payments of long-term debt                                                                                                                  |  |                     | (17,000 
|Payments for debt extinguishment                                                                                                            |  |                     | (86,000 
|Payments relating to capital lease obligation                                                                                               |  |                     | (246    
|Cash overdraft                                                                                                                              |  |                     | (2,902  
|Payments of loans from former parent and affiliated companies                                                                               |  |                     | (30,394 
|Payments of cash dividends                                                                                                                  |  |                     |        
|Loans from former parent and affiliated companies                                                                                           |  |                     | 189,575 
|Due to former parent and affiliated companies, net                                                                                          |  |                     | (15,514 
|                                                                                                                                            |  |                     |         
|Net cash provided by (used by) financing activities of continuing
operations                                                                |  |                     | 37,519  
|Net cash provided by financing activities of discontinued operations                                                                        |  |                     | 12,256  
|                                                                                                                                            |  |                     |         
|Net cash provided by (used by) financing activities                                                                                         |  |                     | 49,775  
|Change in cash and cash equivalents                                                                                                         |  |                     | (3,280  
|Cash and cash equivalents at beginning of year                                                                                              |  |                     | 42,690  
|                                                                                                                                            |  |                     |         
|Cash and cash equivalents at end of year                                                                                                    |  | $                   | 39,410  
|                                                                                                                                            |  |                     |         



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Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



Not applicable.



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PART III



Item 10.
Directors and Executive Officers of the Registrant



The following table presents information as of February 28, 2003 regarding our executive officers, whom we refer to as the CEO team, and our directors and the executive officers and directors of
Paperweight Development.



|Name            |  | Age |  | Position                                                                                                                                                 
|--------------- |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|               
|Douglas Buth    |  | 48  |  | Chairman, President, Chief Executive Officer and a Director, and Chairman, President, Chief Executive Officer and a
Director of Paperweight Development  
|               
|Paul Karch      |  | 46  |  | Vice President, Human Resources & Law, Secretary, General Counsel and a Director, and Vice President, Secretary
and a Director of Paperweight Development
|               
|Dale Parker     |  | 51  |  | Vice President, Finance, Chief Financial Officer and a Director, and Chief Financial Officer and a Director of
Paperweight Development                   
|               
|Nicholas Davis  |  | 64  |  | Director and a Director of Paperweight Development                                                                                                       
|               
|Ronald A. Pace  |  | 55  |  | Director and a Director of Paperweight Development                                                                                                       
|               
|Susan Scherbel  |  | 44  |  | Director and a Director of Paperweight Development                                                                                                       
|               
|W. A. Sikora    |  | 65  |  | Director and a Director of Paperweight Development                                                                                                       
|               
|John Depies     |  | 46  |  | Vice President and General Manager, Technical Products                                                                                                   
|               
|Rick Fantini    |  | 48  |  | Vice President, Operations                                                                                                                               
|               
|James McDermott |  | 46  |  | Vice President, Coated Solutions Sales and Marketing                                                                                                     
|               
|Stephen Sakai   |  | 49  |  | Vice President, New Business Development                                                                                                                 
|               
|Ann Whalen      |  | 44  |  | Vice President, Project Venture and Information Services                                                                                                 
|               
|Ted Goodwin     |  | 46  |  | Vice President, Technology                                                                                                                               
|               
|Thomas Cashman  |  | 59  |  | Plant Manager, Appleton Plant                                                                                                                            
|               
|Todd Downey     |  | 44  |  | Mill Manager, West Carrollton Mill                                                                                                                       
|               
|John Showalter  |  | 55  |  | Mill Manager, Roaring Spring Mill                                                                                                                        



Douglas Buth. Mr. Buth has been Chairman, Chief Executive Officer, President and a Director of Appleton since December 1998, Chairman, Chief Executive Officer and President of Paperweight Development since July 2001 and a
Director of Paperweight Development since December 2000. He previously served as Executive Vice President and General Manager of Carbonless from 1997 to 1998, Vice President of Sales from 1993 to 1997 and Vice President of Marketing from 1991 to
1993. Mr. Buth joined Appleton in 1988 as Director of Strategic Planning. Mr. Buth qualified as a CPA with PriceWaterhouse in 1979 and thereafter held a number of financial positions with Saks Fifth Avenue and BATUS. Mr. Buth received his BBA
(Accounting) from the University of Notre Dame in 1977.



Paul Karch. Mr. Karch has been Vice President, Human Resources & Law, Secretary and General Counsel of Appleton since January 2002, a Director of Appleton since December 1998, Vice President and Secretary of Paperweight
Development since July 2001 and a Director of Paperweight Development since August 2001. Previously he served as Vice President, Law & Public Affairs, Secretary and General Counsel from September 2000 to January 2002, as Vice President,
Secretary and General Counsel from 1997 to 2000, as Secretary and General Counsel from 1996 to 1997, and as Senior Legal Counsel from 1994 to 1996.



98



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Prior to
joining Appleton, Mr. Karch was in private practice at Luce, Forward, Hamilton & Scripps, San Diego, California from 1983 to 1993. Mr. Karch graduated cum laude with an AB (Economics) from Harvard College in 1978 and a JD from Harvard Law School
in 1982.



Dale Parker. Mr. Parker has been
Vice President, Finance and Chief Financial Officer and a Director of Appleton since February 2000, and Chief Financial Officer of Paperweight Development since July 2001 and a Director of Paperweight Development since August 2001. Prior to joining
Appleton, he held various financial positions at Black Clawson Co., Inc., a global manufacturer of capital goods for the paper and plastics industries, including Vice President Finance from 1988 to 2000. Mr. Parker qualified as a CPA in 1977. Mr.
Parker received his BS (Business) from Miami University in 1973 and an MBA from Xavier University in 1977.



Nicholas Davis. Mr. Davis has been a Director of Appleton and a Director of Paperweight Development since November 2001. Mr. Davis
has been the President and Chief Investment Officer of Montana Investment Advisors Inc., an SEC-regulated asset management firm based in Bozeman, Montana, since 1992. Prior to joining Montana Investment Advisors Inc., he held various management
positions at PaineWebber, Colorado Growth Capital and White Weld. Mr. Davis qualified as a CFA in 1969. Mr. Davis graduated with honors with a BA (Geology) from Princeton University in 1961 and an MBA from Stanford University in 1963.



Ronald Pace. Mr. Pace has been a Director of Appleton
and a Director of Paperweight Development since January 2003. Mr. Pace has been Sector President Plumbing  Americas for Kohler Company since June 1999. From February 1995 to June 1999 Mr. Pace served in other management positions at Kohler
Company. Prior to joining Kohler Company, Mr. Pace held various management positions in several companies, including AMP Incorporated (1991-1995), Johnson Matthey, PLC (1988-1991), Dainippon Ink & Chemicals (1986-1988) and British Petroleum
(1977-1986). Mr. Pace received his BA (Economics/Chemistry) in 1969 and an MBA (Finance/Marketing) in 1972 from the University of Connecticut.



Susan Scherbel.Ms. Scherbel has been a Director of Appleton and a Director of Paperweight Development since January 2002. Ms.
Scherbel is employed by Bellview Associates, an investment firm she co-founded in March 2001. From January 1989 to March 2001, Ms. Scherbel served as a Managing Director of Merrill Lynch Investment Banking, where she specialized in employee benefit
transactions. Prior to this, Ms. Scherbel served as tax counsel for Hughes, Hubbard & Reed and as an advisor to the Assistant Secretary of the Treasury for Tax Policy at the United State Department of Treasury. Ms. Scherbel graduated with an AB
(Government and Economics) from Harvard University in 1979, a JD from Georgetown University in 1982 and an LLM from Georgetown University in 1986.



W. A. Sikora. Mr. Sikora has been a Director of Appleton and a Director of Paperweight Development since November 2001. Mr. Sikora
has been a self-employed business and financial advisor to public and private companies since 1982, except for the period 1996 to 1999 when he was Executive Vice President of TransMontaigne Inc. (AMEX: TMG). He was also a partner in the accounting
firms of Hein + Sikora, Touche Ross & Co. and Peat Marwick Mitchell & Co. Mr. Sikora received a BS (Accounting), with honors, from the University of Colorado in 1959 and his certificate as a Certified Public Accountant in 1960.



John Depies. Mr. Depies has been Vice President and
General Manager, Technical Products since May 2001. Mr. Depies previously served as Vice President Sales and Marketing, Roll Printers from 1999 to 2001 and as Executive Director for Carbonless Sales from 1997 to 1999. Mr. Depies joined Appleton in
1983 and served in a number of managerial roles from 1983 to 1997. Mr. Depies received his BA (Marketing) in 1979 and an MBA (Finance) in 1983 from the University of Wisconsin-Oshkosh.



Rick Fantini. Mr. Fantini has been Vice President, Operations since January 2002. Previously he served
as Vice President, Human Resources and Procurement from 1998 to 2002, as Director of Procurement from 1997 to 1998, as manager of Business Development from 1996 to 1997, and served in a number of labor relations and benefits jobs since joining
Appleton in 1980. Mr. Fantini received a BA (Social Science) from Michigan State University in 1977, a Masters (Labor and Industrial Relations) from Michigan State University in 1980 and an MBA from Northwestern University (Kellogg) in 1996.



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James
McDermott. Mr. McDermott has been Vice President, Coated Solutions Sales and Marketing since January 2002. Prior to this, Mr. McDermott rejoined Appleton as Vice President, Carbonless Sales from May 2001 to January 2002 after a brief departure
in 1999. Mr. McDermott was Vice President of Sales & Marketing for Dunsirn Industries from 1999 to 2001. Mr. McDermott originally was hired by Appleton in 1986 and has held various sales positions. Mr. McDermott received a BS (Agricultural
Economics) from the University of Wisconsin-Madison in 1979.



Stephen Sakai. Mr. Sakai has been Vice President, New Business Development since March 2001. He previously served as Vice President and General Manager, Thermal from 1999 to March 2001, as Executive Director of Sales and
Marketing for the Coated Free Sheet Business from 1997 to 1999 and held other management positions within the Coated Free Sheet Business from February 1996 to October 1997. Prior to joining Appleton, he held a variety of positions in finance, sales
and marketing with Scott Paper from 1976 to 1996. Mr. Sakai received a BA from the University of Washington in 1975 and he received an MBA from the University of Puget Sound Business School in 1982.



Ann Whalen. Ms. Whalen has been Vice President, Project
Venture and Information Services since January 2003. Project Venture is our name for the installation of a new enterprise resource planning system, which is a computer software system used for invoicing, financial reporting, shipment planning and
manufacturing operations. She previously served as Vice President, Project Venture from January 2002 to December 2002, as Vice President, Logistics from 1999 to January 2002, as Vice President of Finance from 1997 to 1999 and as Controller from 1991
to 1997. Ms. Whalen joined Appleton in 1981 and served in several accounting positions prior to 1991. Ms. Whalen received a BBA (Accounting) from the University of Wisconsin-Madison in 1981 and she received an MBA from the University of
Wisconsin-Oshkosh in 1990.



Ted Goodwin.Mr. Goodwin has been Vice President, Technology since September 2001. Mr. Goodwin previously served as Executive Director of New Business Development from 1999 to 2001 and, prior to this, he was the Executive Director of Carbonless Research and
Development from 1997 to 1999, Director of Applied Research from 1994 to 1997, and Director of Thermal Research from 1991 to 1994. Mr. Goodwin joined Appleton in 1979 and advanced through several positions within Research and Development from 1979
to 1994. Mr. Goodwin received his BS (Chemistry) from the University of Detroit in 1979 and he received an MBA from the University of Wisconsin-Oshkosh in 1988.



Thomas Cashman. Mr. Cashman has been the Plant Manager at our Appleton plant since 1985. Mr. Cashman
progressed through a series of labor, industrial relations and production positions since joining Appleton in 1971. Mr. Cashman received a BA (Psychology) from St. Cloud State College in 1968 and a Masters (Sociology) from Northern Illinois
University in 1970.



Todd Downey. Mr.
Downey has been the Mill Manager at our West Carrollton Mill since 2000. He previously served as Production Manager from 1996 to 2000 and Paper Machine Business Unit Manager at our West Carrollton mill from 1994 to 1996. Prior to joining Appleton in
1994, Mr. Downey worked at Champion Internationals Hamilton, Ohio mill from 1982 to 1994. Mr. Downey received a BA (Paper Science and Engineering) from Miami University in 1982.



John Showalter. Mr. Showalter has been the Mill Manager at our Roaring Spring Mill since 1989. Mr.
Showalter joined Appleton in 1977 and served in several positions prior to becoming Mill Manager. Mr. Showalter received a BS (Education) from Penn State University in 1974 and he received a Masters (Personnel Administration) from Ohio University in
1975.



The board of directors of Paperweight
Development consists of seven members. Paperweight Development has entered into a security holders agreement with the ESOP Trust which sets forth the manner in which the ESOP Trust will vote its shares of Paperweight Development common stock in
connection with the election of directors. Under the agreement, the ESOP Trust has agreed to vote all of its shares of Paperweight Development common stock to give effect to the following composition of Paperweight Developments board of
directors:



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| |  |  | between January 1, 2003 and December 31, 2003, two individuals nominated by the ESOP Trust, three individuals nominated by Paperweight Developments chief
executive officer and two individuals jointly nominated by the ESOP Trust and the chief executive officer;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | between January 1, 2004 and December 31, 2004, one individual nominated by the ESOP Trust, three individuals nominated by Paperweight Developments chief
executive officer and three individuals jointly nominated by the ESOP Trust and the chief executive officer; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | on and after January 1, 2005, four individuals nominated by Paperweight Developments chief executive officer and three individuals jointly nominated by the
ESOP Trust and the chief executive officer.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The ESOP Trust has agreed that any vote taken to remove a director or to fill vacancies on the board of directors are subject to the provisions described above. The agreement also provides that directors nominated by joint nomination
may only be removed by mutual agreement of the ESOP Trust and Paperweight Developments chief executive officer. In addition to the election of directors, the agreement prohibits Paperweight Development from issuing capital stock to any person
other than the ESOP Trust or making, or permitting any of its subsidiaries to make, any acquisition in a single transaction or series of related transactions with a fair market value in excess of $100 million, in each case without the prior written
consent of the ESOP Trust.



Paperweight
Development has entered into a security holders agreement with us on terms substantially similar to those described above to provide for the manner in which Paperweight Development will vote its shares of our common stock in connection with the
election of directors. In addition to the election of directors, the agreement prohibits us from issuing capital stock to any person other than Paperweight Development or making, or permitting any of our subsidiaries to make, any acquisition in a
single transaction or series of related transactions with a fair market value in excess of $100 million, in each case without the prior written consent of Paperweight Development.



Pursuant to the agreements above, Messrs. Buth, Karch and Parker were nominated by Mr. Buth, our chief
executive officer, and elected to the boards of directors of Paperweight Development and Appleton Papers, Messrs. Davis and Sikora were nominated by the ESOP Trust and elected to the boards of directors of Paperweight Development and Appleton Papers
and Mr. Pace and Ms. Scherbel were jointly nominated by Mr. Buth and the ESOP Trust and elected to the boards of directors of Paperweight Development and Appleton Papers.



Pursuant to the terms of the senior credit facility, the indenture and the deferred payment obligation, the
security holders agreements described above may not be amended except under limited circumstances. In addition, the senior credit facility, the indenture and the deferred payment obligation require our board of directors and the board of directors
of Paperweight Development to include at least two independent directors.



The Board of Directors has an Audit Committee and Compensation Committee. The members of both the Audit Committee and the Compensation Committee are Ms. Scherbel and Messrs. Davis, Pace and Sikora. The charter of the Audit
Committee provides, among other things, that the Audit Committee will provide assistance to the Board of Directors in fulfilling its responsibility to the ESOP participants relating to financial accounting and reporting practices and the quality and
integrity of Paperweight Development financial reports. The charter of the Compensation Committee provides that the Committee is responsible for establishing the compensation of our Chief Executive Officer, approving the compensation of the named
executive officers and reviewing the compensation of other members of the CEO team. The Compensation Committee also has authority for administration of our Long-Term Incentive Plan. See Item 11. Executive CompensationManagement
Compensation and Long-Term Incentive Plan below.



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Item 11. Executive Compensation



The following table sets forth the compensation for the last three years paid to our chief executive officer and our four other most highly compensated executive officers, who we refer to as our named executive officers:



Summary Compensation Table



|                                                                       |  |                |  | Annual Compensation     |  | Long Term Compensation Awards |  |                             
|---------------------------------------------------------------------- |  | -------------- |  | ----------------------- |  | ----------------------------- |  | ----------------------------
|Name and Principal Position                                            |  | Year           |  | Salary($)               |  | Bonus($)                      |  | Other Annual Compensation($)
|                                                                       |  |                |  |                         |  |                               |  | (1)                         
|Douglas P. Buth Chairman, President and Chief Executive Officer        |  | 2002 2001 2000 |  | 644,692 419,422 389,423 |  | 502,724 210,000 156,000       |  | 18,762 27,189 25,494        
|Dale E. Parker (3) Vice President, Finance and Chief Financial Officer |  | 2002 2001 2000 |  | 227,058 216,796 173,654 |  | 112,156 102,852 77,000        |  | 13,156 13,156 4,385         
|Rick J. Fantini Vice President, Operations                             |  | 2002 2001 2000 |  | 201,319 179,244 165,145 |  | 108,642 101,365 80,847        |  | 11,638 13,434 11,132        
|Stephen P. Sakai Vice President, New Business Development              |  | 2002 2001 2000 |  | 207,077 195,675 180,627 |  | 98,831 108,367 88,427         |  | 17,004 19,709 16,057        
|Paul Karch Vice President, HR & Law and General Counsel                |  | 2002 2001 2000 |  | 202,717 187,788 170,962 |  | 102,793 91,177 77,000         |  | 11,132 11,132 11,132        

---

|(1) |  | Other annual compensation consists of perquisites and tax reimbursements related to the perquisites.
|--- |  | ----------------------------------------------------------------------------------------------------

|(2) |  | All other compensation for 2002 consists of the following for each named executive officer: Mr. Buth, company contributions to defined contribution plans ($12,146)
and life insurance premiums ($1,641); Mr. Parker, company contributions to defined contribution plans ($13,907) and life insurance premiums ($2,670); Mr. Fantini, company contributions to defined contribution plans ($10,408) and life insurance
premiums ($558); Mr. Sakai, company contributions to defined contribution plans ($12,428), company contribution to non-qualified deferred compensation plan ($3,004), and life insurance premiums ($1,171); and Mr. Karch, company contributions to
defined contribution plans ($12,184), company contribution to non-qualified deferred compensation plan ($2,435), and life insurance premiums ($701). The defined contribution plans include the KSOP and the 401(a) plan.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Mr. Parker was first employed by Appleton on February 28, 2000.
|--- |  | ---------------------------------------------------------------



Stock Appreciation Rights Plans



There were no SAR grants made under the Appleton Papers Inc. Long-Term Incentive Plan to the named executive
officers during fiscal 2002.



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The following table summarizes for each of the named executive officers the number of
shares of Paperweight Development common stock with respect to which SARs were exercised during 2002, the dollar value realized upon exercise of SARs, the total number of shares of Paperweight Development common stock underlying unexercised SARs
held at December 31, 2002 (exercisable and unexercisable) and the aggregate dollar value of in-the-money, unexercised SARs held at December 31, 2002 (exercisable and unexercisable). Value realized upon exercise is the difference between the fair
market value of the underlying shares of Paperweight Development common stock on the exercise date and the base price of the SARs. Value of unexercised, in-the-money SARs at fiscal year-end is the difference between its base price and the fair
market value of the underlying Paperweight Development common stock as of December 31, 2002 which was $21.92 per share. These values, unlike any amounts that may be set forth in the column entitled Value Realized have not been, and may
never be, realized. The SARs have not been, and may never, be exercised. The actual gains, if any, on exercise will depend on the value of the Paperweight Development common stock on the exercise date. Although Appletons fiscal year ended on
December 28, 2002, the values in the table below are shown as of December 31, 2002, the date of the most recent valuation of Paperweight Development common stock.



Aggregated Option/SAR Exercises in Fiscal 2002

and FY-End Option/SAR Values



|                 |  | Shares Acquired on Exercise(#) |  | Value Realized ($) |  | Number of Securities Underlying Unexercised Options/SARs at FY-End(#) |  | Value of Unexercised In-the-Money Options/SARs at FY-End($)
|---------------- |  | ------------------------------ |  | ------------------ |  | --------------------------------------------------------------------- |  | -----------------------------------------------------------
|Name             |  |                                |  | Exercisable        |  | Unexercisable                                                         |  | Exercisable                                                
|Douglas P. Buth  |  | 0                              |  |                   |  | 0                                                                     |  | 27,600                                                     
|Dale E. Parker   |  | 0                              |  |                   |  | 0                                                                     |  | 5,770                                                      
|Rick J. Fantini  |  | 0                              |  |                   |  | 0                                                                     |  | 5,770                                                      
|Stephen P. Sakai |  | 0                              |  |                   |  | 0                                                                     |  | 5,770                                                      
|Paul J. Karch    |  | 0                              |  |                   |  | 0                                                                     |  | 5,770                                                      



Pension and Related
Plans



In addition to the KSOP, we maintain a
broad-based qualified, noncontributory defined benefit pension plan for eligible salaried employees, which we refer to as the pension plan. We have also established a Supplemental Executive Retirement Plan, the SERP, to provide retirement benefits
for management and other highly compensated employees whose benefits are reduced by qualified plan limitations in the pension plan. The table below shows the estimated monthly single life annuity benefit under the pension plans (without qualified
plan limitations) at various salary levels and years of credited service payable upon retirement at age 65 in the year 2002 (2002 Social Security Covered Compensation is used in the formula). The benefit shown is not subject to any deduction for any
Social Security benefit:



|             |  | Years of Service
|------------ |  | ----------------
|Remuneration |  | 15              
|$125,000     |  | $1,993          
|150,000      |  | 2,430           
|175,000      |  | 2,868           
|200,000      |  | 3,305           
|225,000      |  | 3,743           
|250,000      |  | 4,180           
|300,000      |  | 5,055           
|400,000      |  | 6,805           
|450,000      |  | 7,680           
|500,000      |  | 8,555           



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The SERP
benefit when added to the pension plan benefit provides a combined benefit equal to the benefit under the pension plan as if certain qualified plan limitations did not apply. Under the pension plan and the SERP, a pension is payable upon retirement
at age 65, or upon earlier termination if certain conditions are satisfied. The pension benefits are based on years of credited service and the average annual compensation received during the highest five full consecutive calendar years of the last
ten years prior to retirement. Compensation covered by the plans includes base salary, bonus, deferred compensation, and overtime pay as defined in the pension plan.



As of December 31, 2002, the estimated years of credited service for each of our executive officers is as
follows: Douglas Buth, 15 years; Paul Karch, 9 years; Dale Parker, 3 years; John Depies, 20 years; Rick Fantini, 22 years; James McDermott, 14 years; Stephen Sakai, 7 years; Ann Whalen, 22 years; Ted Goodwin, 24 years; Thomas Cashman, 32 years; Todd
Downey, 9 years; and John Showalter, 26 years.



We have two non-qualified deferred compensation plans for senior executives. The first has been in place for some time and allowed participants to defer receipt of any percentage of his or her compensation by filing an appropriate
election with us. Under the arrangements related to this plan, we funded a rabbi trust on October 11, 2001 to provide funds for our current obligations, valued at approximately $2.4 million under this plan as of December 31, 2002. The funds in the
rabbi trust remain subject to claims of our creditors in the event of insolvency. There will be no further deferrals to this plan. We have also established the New Deferred Compensation Plan for senior executives, which will allow for future
deferrals but for which no funds will be transferred to the rabbi trust. In addition to deferrals similar to those allowed under the old plan, this new plan provided for the deferral of the loyalty payment related to the acquisition of Appleton from
AWA. Except for the amounts deferred from the loyalty payments, which will increase or decrease based on changes in the value of Paperweight Development common stock, amounts deferred in both plans are increased at the then prevailing ten-year
Treasury note rate. The current obligations under the New Deferred Compensation Plan are valued at approximately $2.6 million as of December 31, 2002.



Termination Protection Agreements



We have entered into termination protection agreements with all members of our CEO team, including the named executive officers. The
agreements provide that if, at any time other than within two years after a change of control, as defined below, we terminate the executive officers employment other than for misconduct, or permanent disability, as
defined below, or the executive officer terminates the executive officers employment for good reason, as defined below, then the executive officer will continue to receive payments in accordance with our normal payroll practices
for eighteen months following termination of employment at a rate equal to the executive officers base salary in effect on the date on which his or her employment terminates. The payments to the executive officer would be reduced by amounts he
or she earns through employment during the eighteen-month salary continuation period after twelve months from the date of termination. The payments would cease completely if the executive officer, at any time, engaged in a competing business.



Conversely, if, within two years of a change of
control, we terminate the executive officers employment other than for misconduct, or permanent disability, or he or she terminates his or her employment for good reason, then he or she is entitled to a lump-sum cash payment. This payment will
be equal to two times his or her annual base salary, plus a multiple of two times his or her targeted bonus for the fiscal year in which his or her employment terminates, or if no such bonus has been established for the fiscal year of termination,
then the bonus for the fiscal year prior to termination is used. The executive officer will also be entitled to a lump-sum cash payment representing a partial bonus for the year of termination, based on the number of days the executive officer
worked in the year of termination.



Whether or
not an executive officers employment terminates within two years of a change of control, the executive officer would also receive his or her salary through the date of termination and all other amounts owed to the executive officer at the date
of termination under our benefit plans. In addition, he or she would be entitled to reimbursement for outplacement services and continued health and dental coverage for the executive officer and the executive officers family for 18 months
after the date of termination not in connection with a change of control or 24 months after the date of termination in connection with a change of control.



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Our new severance agreements provide that if certain amounts to be paid in connection with
a change of control constitute parachute payments, as defined in Section 280(G) of the Internal Revenue Code, the severance benefits owed to the executive officer may be increased such that the net amount retained by the executive
officer after deduction of any excise taxes and income taxes on the excise tax and additional payments, shall be equal to the original severance benefits.



A change of control is defined in these agreements as:



| |  |  | the transfer of substantially all of our assets to an unrelated party;
| | - |  | ----------------------------------------------------------------------



| |  |  | our liquidation;
| | - |  | ----------------



| |  |  | our merger or consolidation into another company; or
| | - |  | ----------------------------------------------------



| |  |  | any other event whereby ownership and control is effectively transferred.
| | - |  | -------------------------------------------------------------------------



Permanent Disability is defined in these agreements as any time an executive officer is entitled
to receive benefits under Title II of the Social Security Act.



Good Reason is defined in these agreements as, prior to a change in control, without the executive officers consent, a reduction of 25% or more of the executive officers base salary and after a change in
control:



| |  |  | a decrease in the executive officers position or responsibilities without his or her consent;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | failure to pay the executive officers salary or bonus in effect immediately prior to a change in control; or
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | the relocation of the executive officers principal place of employment without his or her consent.
| | - |  | ---------------------------------------------------------------------------------------------------



Management Compensation and Long-Term Incentive Plan



Management compensation is determined by the Compensation
Committee of our Board of Directors, which is comprised of the four independent directors. Our management compensation policy provides that management salaries, cash bonuses and other compensation will be consistent with our strategic goals and the
best interests of the participants in the ESOP and generally be within the middle of the range for management compensation for similar companies.



In addition to receiving salaries, annual performance bonuses and fringe benefits, such as health and life insurance, approximately 100
management employees are participants in the Appleton Papers Inc. Long-Term Incentive Plan. The plan provides for future cash bonuses based on the long-term performance of Appleton and increases in the value of Paperweight Development common stock,
as determined by the semi-annual appraisals of the Paperweight Development common stock performed by the independent, third party appraiser selected by the ESOP trustee. Specific phantom stock units are awarded periodically to employees
in aggregate quantities of up to 2% of outstanding Paperweight Development stock, with up to an additional 1% to select, newly-hired management employees. The units are awarded at the most recent Paperweight Development stock price as determined by
the semi-annual ESOP appraisal. Employees holding phantom stock units are entitled to trigger the cash bonus for any phantom stock unit only after holding the unit for at least three years, except in the event of the sale or recapitalization of
Paperweight Development or us. The cash bonus for any unit is equal to the increase in the value of Paperweight Development common stock from the date of issue until the trigger date. The initial grant of phantom stock units occurred on
November 11, 2001 with annual awards planned for January 1, 2003 and each January 1 thereafter. We believe the plan is within standard industry terms for management long-term incentive compensation and will benefit us by retaining management talent
and providing management with appropriate incentives to increase Paperweight Developments share price.



Director Compensation



Directors of Appleton and Paperweight Development who are not employees of Appleton, Paperweight Development or any of their subsidiaries are currently entitled to an annual fee for service on both
boards of



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$25,000. Directors are also entitled to an annual fee of $5,000 for serving as the chairman of the audit
committee or $3,000 for serving as the chairman of the compensation committee. In addition, each director receives a fee of $1,500 per day for in-person meetings, $500 per day for other meetings and reimbursement for travel expenses incurred in
connection with attending board meetings.



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters



The Appleton Papers Inc. Employee Stock Ownership Trust, whose address is c/o State Street Global Advisors, Two International Place, Floor
34, Boston, Massachusetts 02110, owns beneficially and of record 100% of the issued and outstanding shares of Paperweight Development Corp. Paperweight Development owns beneficially and of record 100% of the issued and outstanding shares of Appleton
Papers Inc., which in turn owns beneficially and of record 100% of the issued and outstanding shares of WTA Inc.



The following table sets forth as of December 31, 2002 the number of shares allocated to the accounts of our directors, our named
executive officers and our directors and executive officers as a group in the Company Stock Fund of the KSOP.



|Name of Beneficial Owner                                     |  | Amount and Nature of Beneficial Ownership(1) |  | Percent
|------------------------------------------------------------ |  | -------------------------------------------- |  | -------
|Douglas Buth                                                 |  | 60,376                                       |  | *      
|Paul Karch                                                   |  | 36,689                                       |  | *      
|Dale Parker                                                  |  | 14,521                                       |  | *      
|Nicholas Davis                                               |  | (2)                                         |  | *      
|Ronald Pace                                                  |  | (2)                                         |  | *      
|Susan Scherbel                                               |  | (2)                                         |  | *      
|William Sikora                                               |  | (2)                                         |  | *      
|Rick Fantini                                                 |  | 41,266                                       |  | *      
|Stephen Sakai                                                |  | 19,314                                       |  | *      
|All directors and executive officers as a group (17 persons) |  | 501,805                                      |  | 4.2%   

---

|* |  | Less than 1%.
|- |  | -------------

|(1) |  | Participants in the KSOP have the right to direct the ESOP trustee to vote shares of common stock which have been allocated to that participants ESOP account
either for or against specified corporate events relating to Paperweight Development. For all other shareholder votes, the ESOP trustee will vote all shares of common stock held by the ESOP as directed by the ESOP committee, subject to the security
holders agreements described above under Item 10. Directors and Executive Officers of the Registrant. Participants have statutory diversification rights beginning at age 55, conditional diversification rights beginning on January 1, 2006
and the right to receive distributions from the participants KSOP account upon retirement, death, disability, resignation, dismissal or permanent layoff. Participants may not sell, pledge or otherwise transfer the shares of common stock
allocated to their KSOP accounts.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Non-employee directors are not eligible to participate in the KSOP.
|--- |  | -------------------------------------------------------------------



Item 13. Certain Relationships and Related Transactions



None.



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PART IV



Item 14. Controls and Procedures



Appleton, Paperweight Development and WTA maintain a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed by the registrants in the reports filed by the registrants under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Within the 90 days prior to the date of this report, the registrants carried out an
evaluation, under the supervision and with the participation of their management, including the principal executive officer and principal financial officer of each of the registrants, of the effectiveness of the design and operation of their
disclosure controls and procedures pursuant to Rule 15d-14 of the Exchange Act. Based on that evaluation, the principal executive officer and principal financial officer of each of the registrants concluded that their disclosure controls and
procedures are effective.



There have been no
significant changes in the registrants internal controls or other factors that could significantly affect those controls subsequent to the conclusion of their evaluation, including any corrective actions with regard to significant deficiencies
and material weaknesses.



Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K



(a)(1) Financial Statements.



Report of Independent Accountants



Consolidated Balance Sheets as of December 28, 2002 and December 29, 2001



Consolidated Statements of Operations for the year ended
December 28, 2002, for the periods November 10, 2001 to December 29, 2001 and December 31, 2000 to November 9, 2001 and for the year ended December 30, 2000



Consolidated Statements of Cash Flows for the year ended December 28, 2002, for the periods November 10, 2001 to December 29, 2001 and
December 31, 2000 to November 9, 2001 and for the year ended December 30, 2000



Consolidated Statements of Shareholders Equity for the period December 31, 2000 to November 9, 2001 and for the year ended December 30, 2000



Consolidated Statements of Redeemable Common Stock,
(Accumulated Deficit) Retained Earnings, Accumulated Other Comprehensive Loss and Comprehensive Income for the year ended December 28, 2002 and for the period November 10, 2001 to December 29, 2001



Notes to Consolidated Financial Statements



(a)(2) Financial Statement Schedule.



Report of Independent
Accountants on Financial Statement Schedule

SCHEDULE IIValuation and Qualifying Accounts



(a)(3) Exhibits.



See (c) below.



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(b) Reports on Form 8-K.



Not applicable.



(c) Exhibits.



|      
|------
|3.1   
|      
|3.2   
|      
|3.2.1 
|      
|3.2.2 
|      
|3.3   
|      
|3.4   
|      
|3.5   
|      
|3.6   
|      
|3.7   
|      
|4.1   
|      
|4.2   
|      
|4.3   
|      
|10.1  
|      
|10.2  
|      
|10.3  
|      
|10.3.1
|      
|10.4  
|      
|10.5  
|      
|10.6  



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|         
|---------
|         
|         
|10.7**   
|         
|10.8**   
|         
|10.9**   
|         
|10.10**  
|         
|10.11**  
|         
|10.12*   
|         
|10.13*   
|         
|10.14*   
|         
|10.15*   
|         
|10.16*   
|         
|10.17*   
|         
|10.18*   
|         
|10.19*   
|         
|10.20*   
|         
|10.21*   
|         
|10.22****
|         
|10.22.1  
|         
|10.23**  
|         
|10.24**  



109



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##### Table of Contents

|     
|-----
|10.25
|     
|10.26
|     
|12.1 
|     
|21.1 
|     
|23.1 
|     
|99.1 
|     
|99.2 
|     
|99.3 
|     
|99.4 
|     
|99.5 



|* |  | Incorporated by reference to the Registrants Registration Statement on Form S-4 (Registration No. 333-82084) filed on February 4, 2002.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|** |  | Incorporated by reference to Amendment No. 1 to the Registrants Registration Statement on Form S-4 (Registration No. 333-82084) filed on April 17, 2002.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|*** |  | Incorporated by reference to Amendment No. 2 to the Registrants Registration Statement on Form S-4 (Registration No. 333-82084) filed on May 15, 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

|**** |  | Incorporated by reference to Amendment No. 3 to the Registrants Registration Statement on Form S-4 (Registration No. 333-82084) filed on June 12, 2002.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

|(1) |  | Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
|--- |  | --------------------------------------------------------------------------------------------

|(2) |  | Management contract or compensatory plan or arrangement.
|--- |  | --------------------------------------------------------



Certain exhibits and schedules to the agreements filed herewith have been omitted. Such exhibits and schedules are described in the
agreements and are not material. The Registrants hereby agree to furnish to the Securities and Exchange Commission, upon its request, any or all of such omitted exhibits or schedules.



110



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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.



APPLETON PAPERS INC.By:

/S/     DOUGLAS P.
BUTHDouglas P. Buth President and Chief Executive OfficerDate:

March 18, 2003




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:



|Name                                          |  | Title                                                                                     |  | Date          
|--------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | --------------
|                                             
|/S/    DOUGLAS P. BUTHDouglas P. Buth         |  | Chairman, President, Chief Executive Officer and a Director (Principal Executive Officer) |  | March 18, 2003
|                                             
|/S/    DALE E. PARKERDale E. Parker           |  | Vice President, Chief Financial Officer and a Director (Principal Financial Officer)      |  | March 18, 2003
|                                             
|/S/    STEPHEN G. KULAStephen G. Kula         |  | Controller (Principal Accounting Officer)                                                 |  | March 18, 2003
|                                             
|/S/    NICHOLAS H.C. DAVISNicholas H.C. Davis |  | Director                                                                                  |  | March 18, 2003
|                                             
|/S/    RONALD PACERonald Pace                 |  | Director                                                                                  |  | March 18, 2003
|                                             
|/S/    W. A. SIKORAW. A. Sikora               |  | Director                                                                                  |  | March 18, 2003
|                                             
|/S/    SUSAN SCHERBELSusan Scherbel           |  | Director                                                                                  |  | March 18, 2003
|                                             
|/S/    PAUL J. KARCHPaul J. Karch             |  | Director                                                                                  |  | March 18, 2003





111



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CERTIFICATIONS



I, Douglas
P. Buth, Chairman, President and Chief Executive Officer of Appleton Papers Inc., certify that:



1. I have reviewed this annual report on Form 10-K of Appleton Papers Inc.;



2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3. Based on my knowledge, the financial statements, and other financial information included in this annual
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4. The registrants other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a) designed such disclosure controls and procedures to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



b) evaluated the effectiveness of the registrants disclosure controls and procedures as
of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and



c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;



5.
The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent
functions):



a) all significant
deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material
weaknesses in internal controls; and



b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and



6. The registrants other certifying officers and I have indicated in this annual report whether there
were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.



Date: March 18, 2003



Signature:
/S/    DOUGLAS P. BUTH



Douglas P. Buth

Chairman, President and Chief

Executive Officer



112



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CERTIFICATIONS



I, Dale E.
Parker, Vice President and Chief Financial Officer of Appleton Papers Inc., certify that:



1. I have reviewed this annual report on Form 10-K of Appleton Papers Inc.;



2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3. Based on my knowledge, the financial statements, and other financial information included in this annual
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4. The registrants other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a) designed such disclosure controls and procedures to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



b) evaluated the effectiveness of the registrants disclosure controls and procedures as
of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and



c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;



5.
The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent
functions):



a) all significant
deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material
weaknesses in internal controls; and



b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and



6. The registrants other certifying officers and I have indicated in this annual report whether there
were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.



Date: March 18, 2003



Signature:
/S/    DALE E. PARKER



Dale E. Parker

Vice President and Chief Financial Officer



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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.



PAPERWEIGHT DEVELOPMENT CORP.By:

/s/    Douglas P. ButhDouglas P. Buth President and Chief Executive OfficerDate:

March 18, 2003




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:



|Name                                          |  | Title                                                                                     |  | Date          
|--------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | --------------
|                                             
|/S/    DOUGLAS P. BUTHDouglas P. Buth         |  | Chairman, President, Chief Executive Officer and a Director (Principal Executive Officer) |  | March 18, 2003
|                                             
|/S/    DALE E. PARKERDale E. Parker           |  | Chief Financial Officer and a Director (Principal Financial Officer)                      |  | March 18, 2003
|                                             
|/S/    STEPHEN G. KULAStephen G. Kula         |  | Controller (Principal Accounting Officer)                                                 |  | March 18, 2003
|                                             
|/S/    NICHOLAS H.C. DAVISNicholas H.C. Davis |  | Director                                                                                  |  | March 18, 2003
|                                             
|/S/    RONALD PACERonald Pace                 |  | Director                                                                                  |  | March 18, 2003
|                                             
|/S/    W. A. SIKORAW. A. Sikora               |  | Director                                                                                  |  | March 18, 2003
|                                             
|/S/    SUSAN SCHERBELSusan Scherbel           |  | Director                                                                                  |  | March 18, 2003
|                                             
|/S/    PAUL J. KARCHPaul J. Karch             |  | Director                                                                                  |  | March 18, 2003



114



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CERTIFICATIONS



I, Douglas
P. Buth, Chairman, President and Chief Executive Officer of Paperweight Development Corp., certify that:



1. I have reviewed this annual report on Form 10-K of Paperweight Development Corp.;



2. Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual
report;



3. Based on my knowledge, the financial
statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual
report;



4. The registrants other
certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a) designed such disclosure controls and
procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



b) evaluated the effectiveness
of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and



c) presented in this annual report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;



5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of
directors (or persons performing the equivalent functions):



a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses in internal controls; and



b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrants internal controls; and



6. The
registrants other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



Date: March 18, 2003



Signature: /S/    DOUGLAS P.
BUTH



Douglas P. Buth

Chairman, President and Chief

Executive Officer



115



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CERTIFICATIONS



I, Dale E.
Parker, Chief Financial Officer of Paperweight Development Corp., certify that:



1. I have reviewed this annual report on Form 10-K of Paperweight Development Corp.;



2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3. Based on my knowledge, the financial statements, and other financial information included in this annual
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4. The registrants other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a) designed such disclosure controls and procedures to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



b) evaluated the effectiveness of the registrants disclosure controls and procedures as
of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and



c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;



5.
The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent
functions):



a) all significant
deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material
weaknesses in internal controls; and



b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and



6. The registrants other certifying officers and I have indicated in this annual report whether there
were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.



Date: March 18, 2003



Signature:
/S/    DALE E. PARKER

Dale E. Parker

Chief Financial Officer





116



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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.



WTA INC.By:

/S/    DALE E.
PARKERDale E. ParkerPresidentDate:

March 18, 2003




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:



|Name                                        |  | Title                                                                                                 |  | Date          
|------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- |  | --------------
|                                           
|/S/    DALE E.
PARKERDale E. Parker         |  | President (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) |  | March 18, 2003
|                                           
|/S/    JULIE A. KUEHLJulie A. Kuehl         |  | Director                                                                                              |  | March 18, 2003
|                                           
|/S/    MICHAEL I. POLLOCKMichael I. Pollock |  | Director                                                                                              |  | March 18, 2003
|                                           
|/S/    TOM
STRAUSSTom Strauss               |  | Director                                                                                              |  | March 18, 2003



117



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CERTIFICATIONS



I, Dale E. Parker, President of WTA Inc., certify that:



1. I have reviewed this annual report on Form 10-K of WTA
Inc.;



2. Based on my knowledge, this annual
report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this annual report;



3. Based on my
knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this annual report;



4. The
registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a) designed such disclosure controls and
procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



b) evaluated the effectiveness
of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and



c) presented in this annual report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;



5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of
directors (or persons performing the equivalent functions):



a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses in internal controls; and



b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrants internal controls; and



6. The
registrants other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



Date: March 18, 2003



Signature: /S/    DALE E.
PARKER

Dale E. Parker

President







118



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REPORT OF
INDEPENDENT ACCOUNTANTS

ON FINANCIAL STATEMENT SCHEDULE



To the Shareholder and Board of Directors

of Paperweight Development Corp. and Appleton Papers Inc. and Subsidiaries:



Our audits of the consolidated financial statements referred to in our report
dated February 27, 2003 appearing in the 2002 Annual Report on Form 10-K of Paperweight Development Corp. and Appleton Papers Inc. and subsidiaries also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K.
In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.



/s/ PricewaterhouseCoopers LLP



PricewaterhouseCoopers LLP

Milwaukee, Wisconsin

February 27, 2003



119



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##### Table of Contents



SCHEDULE
IIValuation and Qualifying Accounts

(dollars in thousands)



|Allowance for Losses on Accounts Receivable |  | Balance at Beginning of Period |       | Charged to Costs and Expenses |       | Amounts Written Off Less Recoveries |        |   | Balance at End of Period
|------------------------------------------- |  | ------------------------------ | ----- | ----------------------------- | ----- | ----------------------------------- | ------ | - | ------------------------
|December 30, 2000 (Predecessor Basis)       |  | $                              | 3,677 |                               | 2,875 |                                     | (4,789 | ) |                         
|                                            |  |                                |       |                               |       |                                     |        |   |                         
|November 9, 2001 (Predecessor Basis)        |  | $                              | 1,763 |                               | 175   |                                     | (353   | ) |                         
|                                            |  |                                |       |                               |       |                                     |        |   |                         
|December 29, 2001 (Successor Basis)         |  | $                              | 1,585 |                               | 12    |                                     | (12    | ) |                         
|                                            |  |                                |       |                               |       |                                     |        |   |                         
|December 28, 2002 (Successor Basis)         |  | $                              | 1,585 |                               | 964   |                                     | (1,121 | ) |                         
|                                            |  |                                |       |                               |       |                                     |        |   |                         



All
other schedules are omitted because the required information is not present or is not present in amounts sufficient to require submission of a schedule or because the information required is included in the consolidated financial statements of
Appleton Papers Inc. or the notes thereto or the schedules are not required or are inapplicable under the related instructions.



120